| Wed 10 Aug 2005, 10:11 | | African Life/Momentum - Announcement |
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African Life/Momentum - Announcement
African Life Assurance Company Limited
(Incorporated in the Republic of South Africa)
Registration number: 1911/003818/06
JSE code: AFI
ISIN code: ZAE000000246
(`African Life`)
Momentum Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1904/002186/06)
(`Momentum`)
Announcement regarding:
* A firm intention by Sanlam Limited (`Sanlam`) to acquire the entire issued
ordinary share capital of African Life;
* the proposed disposal by African Life of African Life Health (Proprietary)
Limited to Momentum Group Limited (`Momentum`); and
* withdrawal of cautionary announcement.
1 Introduction
Shareholders are referred to the cautionary announcements published on SENS by
African Life on 14 February 2005, 29 March 2005, 10 May 2005 and 28 June 2005.
Shareholders are advised that:
* Sanlam has submitted to the board of directors of African Life (the `board`)
a firm intention to acquire the entire issued ordinary share capital of African
Life (the `offer`) other than those African life ordinary shares already held by
Sanlam in its shareholders` funds (the `Sanlam shareholding`), the African Life
ordinary shares held by the African Life Employee Shareholders Scheme Trust and
the African Life ordinary shares held as treasury shares by African Life
Investments (Proprietary) Limited, a subsidiary of African Life (collectively
the `excluded parties`) for a cash consideration to be determined in accordance
with paragraph 2.2 below (the `offer consideration`); and
* African Life intends to dispose of the entire issued share capital of and
shareholder`s loans in African Life Health (Proprietary) Limited (`ALH`) to
Momentum (the `disposal`) for a cash consideration of R175.8 million plus the
reimbursement of transaction costs of R11.1 million (plus VAT) (the `disposal
consideration`).
2 The offer
2.1 Terms
It is proposed that the offer will be implemented by way of a scheme of
arrangement (the `scheme`) in terms of section 311 of the Companies Act, 1973
(Act 61 of 1973), as amended (the `Act`) to be proposed by Sanlam between
African Life and the African Life ordinary shareholders other than the Sanlam
shareholding (`scheme members`) in terms of which Sanlam or a wholly owned
subsidiary of Sanlam will acquire all of the African Life ordinary shares held
by African Life ordinary shareholders other than those held by the
excluded parties (`scheme participants`) recorded in the register on
the offer consideration record date referred to in paragraph 6 below (`the
scheme shares`) in exchange for the Final Consideration as defined in
paragraph 2.2.4 below.
Should the scheme not become operative, Sanlam or a wholly owned subsidiary of
Sanlam, in its sole discretion, may make an offer to acquire all of the
ordinary shares in African Life other than those held by the excluded parties
(the `offer shares`) (the `substitute offer`). Should Sanlam proceed in making
the substitute offer, further details of such substitute offer will be released
on SENS and published in the press as soon as practicably possible.
The offer is subject to the suspensive conditions set out in paragraph 2.4
below.
Should the scheme be implemented, African Life will become a subsidiary of
Sanlam and the listing of its shares on the JSE Limited (the `JSE`) will be
terminated.
2.2 The offer consideration
The offer consideration will be determined as follows:
2.2.1 R22.50 per ordinary share, consisting of R22.05 per ordinary share
(the `Base Offer Consideration`) plus, in the event that the disposal
becomes unconditional by no later than 15 February 2006, an additional
R0.45 per African Life ordinary share (combined the `Total Offer
Consideration`).
2.2.2 In the event of the disposal failing to become unconditional by 15
February 2006, a committee comprising of four directors of the current
African Life board (the `committee`) shall endeavour to dispose of
ALH to a third party for a consideration in excess of R130 million. In
such circumstances, the offer consideration shall be the Base Offer
Consideration plus, on a per ordinary share basis, 85.5% of any
proceeds (net of transaction costs) above R130 million; or
2.2.3 in the event that the committee is unable to finalise the disposal by
31 March 2006 (conditional only upon receiving Competition Commission
approval at that time), ALH shall remain a part of African Life within
the Sanlam Group and African Life ordinary shareholders shall receive
a total consideration equal to the Base Offer Consideration.
2.2.4 The Total Offer Consideration or the Base Offer Consideration, as may
be adjusted in terms of 2.2.2 above, is referred to as the `Final
Consideration`.
2.3 Rationale for the offer
Sanlam currently holds 20.5% of the issued ordinary share capital of African
Life in its shareholders` funds.
The offer is a means for scheme participants to realise value for their African
Life shares at a premium to the market price.
The Total Offer Consideration represents a premium of 15.4% (13.1% in the case
of the Base Offer Consideration) to the closing price of an African Life
ordinary share traded on the JSE on 11 February 2005, the last trading day prior
to the first cautionary announcement published by African Life relating to the
offer and a premium of 1.8% (and a discount of 0.2% in the case of the Base
Offer Consideration) to the closing price of R22.10 on 8 August 2005 being the
last trading day prior to publication of this firm intention announcement.
On implementation of the scheme, African Life will become a subsidiary
of Sanlam and will be able to benefit from Sanlam`s substantial
resources.
2.4 Suspensive conditions to the offer
2.4.1 The offer is subject to the fulfilment, or (where possible) waiver,
as the case may be, of the following suspensive conditions by no later
than 31 March 2006:
2.4.1.1 African Life and Sanlam informing the Registrar of Long-term
Insurance, in such manner as prescribed in terms of section 26 and
section 37 of the Long-term Insurance Act, No. 52 of 1998, as amended
and all regulations thereto, of the offer and to the extent that the
Registrar of Long-term Insurance`s approval and/or consent is
required, such approval and/or consent is obtained;
2.4.1.2 the approval of the High Court of South Africa (Transvaal Provincial
Division) pursuant to Section 37 of the Long-term Insurance Act;
2.4.1.3 the approval, either unconditionally or subject to such conditions
as are acceptable to Sanlam, of the Competition Authorities as
contemplated in the Competition Act, No. 89 of 1998, as amended (the
`Competition Act`), is obtained;
2.4.1.4 approvals being obtained, to the extent required, from the
Securities Regulation Panel (the `SRP`), the JSE and the Exchange
Control Department of South African Reserve Bank;
2.4.1.5 to the extent required, the approval, either unconditionally or
subject to such conditions as are acceptable to Sanlam, of the offer
to the extent required by the stock exchange authorities in Kenya and
Botswana and the waiver of any requirement to make an offer to
minority shareholders of members of the African Life Group in Kenya
and Botswana;
2.4.1.6 to the extent required, the approval of the acquisition of Pan Africa
Insurance Holdings Limited under the Kenyan Restrictive Trade
Practices, Monopolies and Price Control Act (Cap 504);
2.4.1.7 the scheme being approved, with or without modification, by a
majority representing not less than three-fourths (75%) of the votes
exercisable by scheme members present and voting, either in person or
by proxy, at the scheme meeting;
2.4.1.8 the High Court of South Africa (Transvaal Provincial Division) (the
`Court`) granting an order sanctioning the scheme in terms of section
311 of the Act and the Registrar of Companies registering such order;
and
2.4.1.9 all other regulatory approvals or consents necessary for the
implementation of the scheme being obtained, either unconditionally or
subject to such conditions as are acceptable to African Life and
Sanlam.
2.5 Financial effects of the offer
The table below sets out the unaudited pro forma financial effects of the offer
on African Life ordinary shareholders based on the assumptions set out below.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only in order to provide information about how the offer may have
affected African Life ordinary shareholders in respect of each scheme/offer
share disposed of pursuant to the offer had the offer been implemented on
31 March 2005 for the purpose of calculating the effect on the net asset value,
net tangible asset value and the embedded value per share, and on 1 April 2004
for the purpose of calculating the effect on the basic earnings and the headline
earnings per share. Due to their nature, the unaudited pro forma financial
effects may not give a fair reflection of the financial effects of the offer.
Before After After
the the the % %
offer(1) offer(2) offer(3) change(2) change(3)
Market value 19.50(5) 22.50 22.05 15.4 13.1
per ordinary
share (Rand)
Basic earnings 281.9 148.1(4) 145.0(4) (47.5) (48.6)
per share
(cents)
Headline 244.2 148.1(4) 145.0(4) (39.4) (40.6)
earnings per
share
(cents)
Net asset 18.59 22.50 22.05 21.0 18.6
value per
share (Rand)
Net tangible 17.67 22.50 22.05 27.3 24.8
asset value
per share
(Rand)
Embedded 22.76 22.50 22.05 (1.1) (3.1)
value per
share (Rand)
Notes on assumptions:
1 This column reflecting the position `Before the offer` has been extracted
from African Life`s audited published results for the year ended 31 March
2005 and does not reflect the final dividend of 63.5 cents per ordinary
share declared by African Life on 7 June 2005 and paid to African Life
ordinary shareholders on 4 July 2005.
2 These columns reflecting the position `After the offer` and `% change` are
based on the Total Offer Consideration.
3 These columns reflecting the position `After the offer` and `% change` are
based on the Base Offer Consideration.
4 The `Basic earnings per share` and `Headline earnings per share` in
respect of both the columns reflecting the Total Offer Consideration and
the Basic Offer Consideration were calculated using an annual after-tax
cash return of 6.58%. The 6.58% has been calculated on the average 10-year
government bond yield of 9.4% from 1 April 2004 to 31 March 2005 less an
effective tax rate of 30%.
5 The closing price of African Life ordinary shares traded on the JSE on 11
February 2005, the last trading day prior to the first cautionary
announcement published by African Life on 14 February 2005.
2.6 Effect of the offer on the Black Economic Empowerment(`BEE`) arrangements
of African Life
Umholi Investments (Proprietary) Limited (`Umholi`) is the investment vehicle
that holds an interest in African Life on behalf of various BEE groupings. This
interest consists of 13 050 781 redeemable cumulative option-conferring
preference shares in African Life (the `preference shares`) which have attached
to them options to subscribe for the equivalent of 10% of the enlarged ordinary
share capital of African Life.
Sanlam has entered into an agreement with Umholi in terms of which Sanlam will,
on implementation of the offer, acquire all the ordinary shares of Umholi for a
consideration equivalent to its net asset value. The Umholi ordinary shares
have been valued at R84.4 million based on the Total Offer Consideration and
R79.2 million based on the Base Offer Consideration. An independent financial
advisor was retained to express an opinion on the valuation of the options held
by Umholi.
2.7 Confirmation of financial resources
Sanlam has furnished confirmation to the SRP that it has sufficient resources
to satisfy its obligations in terms of the offer.
3 The disposal
3.1 Rationale for the disposal
African Life has entered into an agreement with Momentum in terms of which it
will dispose of the entire issued share capital of and loans in ALH to
Momentum. The disposal is complementary to Momentum`s strategy and positioning
in the health industry and would provide Momentum with a footprint in new
market segments such as local government, the emerging market and Africa. The
disposal consideration is greater than the value ascribed by Sanlam to ALH in
its valuation of African Life and accordingly the African Life ordinary
shareholders will benefit from the higher price represented by the disposal
consideration.
Should the disposal be effected, African Life shareholders will receive a
higher offer consideration in respect of their African Life shares.
3.2 Terms of the disposal
3.2.1 The disposal consideration payable by Momentum to African Life is
R175.8 million plus the reimbursement of transaction costs of R11.1
million (plus VAT), payable in cash.
3.2.2 The disposal is subject to the fulfilment of, or (where possible)
waiver, as the case may be, of inter alia, the following suspensive
conditions by no later than 15 February 2006:
3.2.2.1 the approval of the disposal by the competition authorities as
required in terms of the Competition Act;
3.2.2.2 the approval of the disposal by a simple majority of African Life
shareholders in general meeting, other than Momentum; and
3.2.2.3 the offer having become unconditional.
3.3 Related party information
The disposal constitutes a `related party transaction` in terms of the Listings
Requirements of the JSE by virtue of the fact that Momentum is a material
shareholder of African Life. Momentum holds 39 206 833 African Life ordinary
shares which is equivalent to 33.4% of the total issued ordinary shares in
African Life and which constitutes 30.4% of the total voting shares in African
Life.
Momentum will be taken into account in determining a quorum at the general
meeting that will be held to consider the disposal. However for the purposes of
the JSE Listings Requirements the validity of any resolution to be passed at the
general meeting regarding the disposal will be subject to a simple majority of
the votes of African Life shareholders, other than Momentum, being cast in
favour of that resolution.
3.4 Financial effects of the disposal
The table below sets out the unaudited pro forma financial effects of the
disposal on African Life ordinary shareholders based on the assumptions set out
below. The unaudited pro forma financial effects have been prepared for
illustrative purposes only, in order to provide information about how the
disposal may have affected African Life ordinary shareholders pursuant to the
disposal had the disposal been implemented on 31 March 2005 for the purpose of
adjusting the net asset values and the embedded value, and on 1 April 2004, for
the purpose of adjusting the earnings. Due to their nature, the unaudited pro
forma financial effects may not give a fair reflection of the financial effects
of the disposal.
Before After
the Adjustments the % change
disposal(1) arising from disposal before vs.
the disposal(2) after the
disposal
Basic earnings 281.9 98.8 380.7 35.0
per share
(cents) (3, 4,
5)
Headline 244.2 (4.8) 239.4 (2.0)
earnings per
shares (cents)
(5)
Net asset 18.59 1.03 19.62 5.5
value per
share
(Rand) (3, 4)
Net tangible 17.67 1.51 19.18 8.5
asset value
per share
(Rand)(3, 4)
Embedded 22.76 1.03 23.79 4.5
value per
share
(Rand) (3, 4)
Notes on assumptions:
1 The column `Before the disposal` has been extracted from African
Life`s audited published results for the year ended 31 March 2005 and
does not take into account the final dividend of 63.5 cents per ordinary
share declared by African Life on 7 June 2005 and paid to African Life
ordinary shareholders on 4 July 2005.
2 The earnings and asset value of ALH have been deconsolidated from the
consolidated African Life earnings, net asset values and embedded value.
3 The cash consideration of R175.8 million for ALH is allocated to the
shareholders loans and to the consolidated net asset value of ALH,
resulting in a profit of R110.6 million after Capital Gains Tax of
R5.8 million. The net cash proceeds and the profit on the disposal
take into consideration adjustments for the acquisition cost of
Multimed of R25 million and the reimbursement of transaction
costs of R11.1 million. The profit on disposal is of a non-recurring
nature. The profit on disposal for the purpose of adjusting earnings
has been assumed to be the same as the profit for purposes of
adjusting the net asset values and the embedded value.
4 Costs relating to the disposal are R0.8 million. The costs are of a
non-recurring nature and are expensed.
5 The earnings have been increased by interest received on net cash
proceeds at a rate of 7.5% before tax.
4 Shareholder support
4.1 African Life shareholders who have given written irrevocable undertakings
to vote in favour of the scheme in respect of the African Life ordinary
shares beneficially owned by them, are set out in the table below:
Percentage of all
Number of African eligible votes in
Life ordinary shares terms of the
Name of ordinary shareholder beneficially owned scheme
Momentum 39,206,833 43.8%
African Life Employees
Shareholder Scheme Trust 6,464,524 7.2%
Total 45,671,357 51.0%
In addition to the shareholders referred to in the table above,
shareholders holding in aggregate 19.7% of the exercisable votes in
terms of the scheme have provided expressions of support for the
offer.
4.2 The African Life ordinary shareholders who have given written
irrevocable undertakings to vote in favour of the disposal in respect of
the African Life ordinary shares beneficially owned by them are set out
in the table below:
Percentage of all
Number of African eligible votes in
Life ordinary shares terms of the
Name of ordinary shareholder beneficially owned disposal
Sanlam 24,086,014 29.7%
Umholi 13,050,781 16.1%
Total 37,136,795 45.8%
In addition to the shareholders referred to in the table above,
shareholders holding in aggregate 10.9% of the exercisable votes in
terms of the disposal have provided expressions of support for the
disposal.
5. Opinions and recommendation
5.1 KPMG Services (Pty) Ltd (`KPMG`) has been appointed by the board as the
independent professional expert for the purposes of the offer and the
disposal, to advise the board on whether the terms and conditions of the
offer and the disposal are fair and reasonable to the ordinary
shareholders of African Life.
5.2 The board has formed a separate independent committee made up of
independent directors (the `independent committee`) to ensure appropriate
governance throughout this process. At the independent committee`s
request, KPMG has provided a preliminary, verbal opinion, which opinion
will be formalised at the last practicable date prior to the publication
of the circular. This favourable preliminary opinion, which may be
subject to change, is based on information available to KPMG until 5
August 2005 and is subject to a review of, inter alia, the final
agreements and circular as well as the limitations and conditions to be
set out in its formal opinion.
Subject to receipt of the final fair and reasonable opinion from KPMG,
the independent committee has considered the terms and conditions of the
offer and the disposal and, based on KPMG`s favourable preliminary
opinion, has advised the board that it is of the opinion that the terms
and conditions of the offer and the disposal are fair and reasonable to
African Life shareholders.
5.3 The board, having taken into account KPMG`s favourable preliminary
opinion and the advice from the independent committee, is of the opinion
that the terms and conditions of the offer and the disposal are fair and
reasonable to African Life shareholders. Subject to the receipt of the
final fair and reasonable opinion from KPMG, the board recommends that
African Life shareholders vote in favour of the resolutions required to
give effect to the scheme and the disposal. The Momentum appointees on the
board recused themselves from the board in connection with the disposal.
5.4 Those African Life directors who hold African Life ordinary shares intend
voting in favour of the scheme and the disposal in respect of their
African Life ordinary shares.
6 Important dates and times
Shareholders should note the following important dates and times:
2005
Last day to trade in African Life ordinary shares in
order to
be recorded in the register to vote at the scheme
meetings (note 2) Thursday, 15 September
Voting record date to vote at the scheme meetings at
17:00 on Thursday, 22 September
Last day to lodge forms of proxy for the scheme
meeting
by 08:30 and for the general meeting by 09:00 on
(note 3) Friday, 23 September
Scheme meeting to be held at 08:30 and the general
meeting to be held at 09:00 (or immediately after the
conclusion of the scheme meeting, whichever is the
later time) on Monday, 26 September
Results of the scheme and general meetings released
on SENS on Monday, 26 September
Results of the scheme and general meetings published
in the press on Tuesday, 27 September
Court hearing to sanction the scheme on Tuesday, 22 November
If the scheme is sanctioned:
Announcement regarding the sanctioning of the scheme
released on SENS on Tuesday, 22 November
Announcement regarding the sanctioning of the scheme Wednesday, 23
published in the press on November
Last day to trade to participate in the scheme on
(note 4) Friday, 25 November
Suspension of listing of African Life ordinary
shares on the JSE from commencement of trade on Monday, 28 November
Offer consideration record date being the date on
which scheme participants must be recorded in
the register to receive the scheme consideration on Friday, 2 December
Operative date of the scheme on Monday, 5 December
Offer consideration transferred or posted, as the
case may be, to certificated scheme participants (if
documents of title are surrendered on or prior to the
offer consideration record date) (note 5) Monday, 5 December
Dematerialised scheme participants have their safe
custody accounts held at their CSDP or broker updated
with the scheme consideration on Monday, 5 December
Termination of the listing of African Life ordinary
shares on the JSE at commencement of trade on Tuesday, 6 December
Notes:
1. These dates and times are subject to change. Any such change will be
released on SENS and published in the press.
2. Shareholders should note that as transactions in ordinary shares are settled
in the electronic settlement system used by STRATE, settlement of trades
takes place five business days after such trade. Therefore shareholders who
acquire ordinary shares after Thursday, 15 September 2005 will not be
eligible to vote at the scheme meeting.
3. If a form of proxy for the scheme meeting is not received by the time and
date shown above, it may be handed to the chairman of the scheme meeting by
no later than 10 minutes before the scheme meeting is due to commence.
4. Ordinary shares may not be dematerialised or rematerialised after Friday, 25
November 2005.
5. Failing receipt of documents of title by the transfer secretaries on or
before the consideration record date, the scheme consideration will be
posted by the transfer secretaries to certificated scheme participants
within five business days of receipt of the documents of title.
6. All dates and times referred to in this document are South African dates and
times.
7 Documentation
A circular containing full details of the offer and the disposal (including all
the terms and conditions of the scheme and the substitute offer) will be posted
to shareholders on or about 1 September 2005, following the convening of the
scheme meeting by the Court.
8 Withdrawal of cautionary announcement
African Life shareholders are advised that the cautionary announcements
referred to in paragraph 1 above are withdrawn.
Houghton
10 August 2005
Corporate advisor to African Life
Metier Investment and Advisory Services (Pty) Ltd
Sponsor to African Life
Merrill Lynch South Africa (Pty) Limited
Independent advisor to African Life
KPMG Services (Pty) Limited
Legal advisor to African Life
Edward Nathan (Pty) Limited
Reporting accountants to African Life
PricewaterhouseCoopers Inc.
Corporate advisor to Momentum
Rand Merchant Bank
Attorneys to Momentum
Hofmeyr, Herbstein & Gihwala Inc.
Date: 10/08/2005 08:11:20 AM
Produced by the JSE SENS Department
