| Thu 11 Aug 2005, 15:58 | | PSG Group /PSL /Arch Equity / Channel Life - Joint |
|
PSG Group /PSL /Arch Equity / Channel Life - Joint announcement relating to the
disposal;
Withdrawal of joint cautionary and
New Arch Equity cautionary
PSG GROUP LIMITED
Incorporated in the Republic of South Africa)
Registration number 1970/008484/06)
JSE share code: PSG & ISIN: ZAE000013017
(`PSG Group`)
PSG Financial Services Limited
Registration number 1919/000478/06
JSE share code: PGFP & ISIN code: ZAE000060166
(`PSL`)
ARCH EQUITY LIMITED
Incorporated in the Republic of South Africa
Registration number 2004/004019/06
JSE share code: ACH & ISIN: ZAE000061073
(`Arch Equity`)
CHANNEL LIFE LIMITED
Incorporated in the Republic of South Africa
Registration number: 1969/012487/06
(`Channel Life`)
JOINT ANNOUNCEMENT RELATING TO THE DISPOSAL OF A 50% INTEREST IN CHANNEL LIFE;
WITHDRAWAL OF JOINT CAUTIONARY ANNOUNCEMENT BY PSG GROUP, ARCH EQUITY AND
CHANNEL LIFE; and
NEW ARCH EQUITY CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
1.1 Further to the joint cautionary announcement published on the Securities
Exchange News Service (`SENS`) of the JSE Limited (`JSE`) on 13 July 2005 a
the press on 14 July 2005, shareholders of PSG Group, Arch Equity and Chann
Life are advised that agreement has been reached on 10 August 2005 with San
Life Insurance Limited (`Sanlam Life`) who will acquire a 50% interest in
Channel Life from PSG Financial Services Limited (`PSL`) and Channel Life
Holdings (Proprietary) Limited (`Channel Holdings`) (collectively referred
`the sellers`).
1.2 The disposal to Sanlam Life referred to in 1.1 above (`the transaction`),
constitutes an affected transaction in terms of the Securities Regulation Panel
(`SRP`) Code on Take-overs and Mergers (`the Code`) and a category 3 transaction
in terms of the JSE Listings Requirements. On the basis that all the remaining
shareholders of Channel Life have in writing waived the protection to which they
may have been entitled to in terms of the Code, the SRP has granted a
dispensation to waive the requirement that a mandatory offer be made by Sanlam
Life to acquire the Channel Life shares held by the minority shareholders of
Channel Life. No action is required by PSG Group or Arch Equity shareholders
with regards to the transaction.
2. DETAILS OF CHANNEL LIFE
Channel Life is a niche life insurance company that provides life assurance
products as well as investment products to both retail and institutional
clients. At 28 February 2005 it had an asset base of R2 096 million and
generated headline earnings of R39,0 million for the financial year then
ended.
3. RATIONALE FOR THE TRANSACTION
3.1 Channel Life has grown its business significantly over the past three
years. It has now reached a stage where it requires a shareholder of refere
that would not only be able to continue funding this growth but will be abl
unlock further synergies.
3.2 Channel Life became part of the PSG Group during 1997. In line with its
philosophy of making, nurturing and ultimately unlocking value of investments,
PSG Group believes it is now the opportune time to realise some of the value
created in Channel Life over the past eight years. It will however retain a 35%
shareholding in Channel Life.
3.3 Arch Equity obtained its indirect interest in Channel during May 2004. Arch
Equity has in the last year substantially increased its shareholding in PSG
Group, thereby further increasing its indirect exposure to Channel Life. With
Sanlam Life`s involvement, Arch Equity`s influence in Channel Life would have
been drastically diminished. Arch Equity accordingly resolved to sell its
interest to PSG Group, so as to allow PSG Group to continue, following this
transaction, to exert meaningful influence in Channel Life.
4. PARTICULARS OF THE DISPOSAL
- Subject matter of the disposal
PSL and Channel Holdings will dispose of 74 410 419 and 18 766 000 Channel
Life shares, respectively, to Sanlam Life.
- Disposal consideration
The sellers shall, subject to the fulfilment of the suspensive conditions
set out in 4.4 below, dispose of their interests in Channel Life to Sanlam
Life for a total consideration of R116 470 524. This represents a price of
125 cents per share and implies a value of approximately R230 million for
Channel Life.
R106 221 118 (equal to 114 cents per share) of the purchase consideration
will be paid in cash by Sanlam Life on the first business day following the
date of fulfilment of the last suspensive condition (`the closing date`).
The balance of the purchase consideration of R10 249 406 (equal to 11 cents
per share) is payable as soon as reasonably possible after 31 July 2006,
subject to the value of new business generated by Channel Life for the
period 1 August 2005 to 31 July 2006 being above certain agreed thresholds.
This amount may be reduced to R5 124 703 or R nil should the value of new
business generated be below the agreed thresholds.
- Effective date
The effective date of the transaction is 1 August 2005.
- Suspensive Conditions
The transaction is subject to and conditional upon the following
unfulfilled conditions:
- Obtaining of such regulatory approval as may be required by regulatory
authorities, including the Competition Commission, Financial Services
the SRP by 31 October 2005.
- Obtaining of certain letters of comfort and finalisation of certain
internal documentation and related matters by 31 August 2005.
- Other significant terms of the agreement
- Normal warranties for a transaction of this nature have been provided.
- Trading of Channel Life shares on the `over the counter` platform will
continue.
- The agreement provides for minority protection whereby certain matters
require approval by the holders of at least 75% of the issued shares.
- Channel Life will acquire the 55% interest held in Safrican Insurance
Company Limited (`Safrican`) by Sanlam Life for a total consideration of R10
million (`the Safrican transaction`). The purchase consideration will be settled
by the issue of 8 million Channel Life shares to Sanlam Life at 125 cents each.
- Application of transaction proceeds
PSG Group will apply the proceeds to finance further investment activities.
5. RELATED PARTY TRANSACTION
- PSL is a wholly-owned subsidiary of PSG Group and holds 74% of the issued
shares in Channel Holdings. Arch Equity holds the remaining 26% of Channel
Holdings` issued shares. Prior to the disposal of the Channel Life shares h
by Channel Holdings to Sanlam Life, PSL will acquire the 26% shareholding i
Channel Holdings held by Arch Equity (`the Channel Holdings transaction`).
- The purchase consideration payable in terms of the Channel Holdings
transaction is R29 147 110, which is equal to the underlying value of the
Channel Life shares held indirectly by Arch Equity, based on 125 cents per
Channel Life share. R26 582 164 of this amount will be paid on the closing date,
and the balance of R2 564 946 is dependent on the second payment by Sanlam Life
in terms of paragraph 4.3 above. Arch Equity will therefore receive the exact
same proceeds from its sale of the 26% shareholding in Channel Holdings as it
would have received had Channel Holdings sold its entire shareholding in Channel
Life to Sanlam Life.
- PSG Group, through its wholly-owned subsidiary PSL, holds approximately 20%
of Arch Equity`s ordinary issued share capital. Arch Equity, in turn, holds
approximately 23% of PSG Group`s issued share capital. In terms of the JSE
Listings Requirements, the Channel Holdings transaction is regarded as a small
related party transaction for PSG Group and requires written confirmation from
an independent professional expert confirming the fairness and reasonableness of
the terms of the Channel Holdings transaction to PSG Group shareholders (`the
fair and reasonable opinion`).
- Suspensive condition
The Channel Holdings transaction is subject to the finalisation of an
agreement between PSG Group and Arch Equity and PSG Group obtaining the
fair and reasonable opinion referred to in 5.3 above. A further
announcement in this regard will be made in due course.
- Application of transaction proceeds
Arch Equity will apply the proceeds to repay the financing specifically
associated with the purchase of its stake in Channel Holdings. Surplus
proceeds will be used to make new investments.
6. FINANCIAL EFFECTS
The pro forma financial effects of the transaction are presented for
illustrative purposes only and because of their nature may not give a fair
reflection of PSG Group`s or Arch Equity`s financial positions nor of the
effect on future earnings after the transaction.
- Financial effects on PSG Group.
Set out below are the unaudited pro forma financial effects of the
transaction and Channel Holdings transaction, based on the audited
consolidated financial results of PSG Group for the year ended 28 February
2005. The directors are responsible for these pro forma financial effects.
Audited Pro forma Change
Before the After the (%)
transactions Transactions
(cents) (cents)
Earnings per share 90,7 121,8 34,3
Headline earnings per 103,0 97,4 (5,4)
share
Net asset value per 375 409 9,1
share
Net tangible asset 365 406 11,1
value per share
1. The earnings and headline earnings per share figures in the `Pro form
After the transactions` column have been calculated:
- on the basis that the transactions were effected on 1 March 2004;
- the net proceeds would have earned interest at an after tax interest rate
of 6%.
2. The net asset value and net tangible asset value per share figures in
`Pro forma After the transactions` column have been calculated on the ba
the transactions were effected on 28 February 2005.
3. The effects of the Safrican transaction have not been taken into account in
any of the above calculations.
- Financial effects on Arch Equity.
Set out below are the unaudited pro forma financial effects of the Channel
Holdings transaction, based on the audited consolidated financial results
of Arch Equity for the year ended 28 February 2005. The directors are
responsible for these pro forma financial effects.
Audited Pro forma Change
Before the After the (%)
transaction Transaction
(cents) (cents)
Earnings per share 99,9 108,8 8,9
Headline earnings per 106,0 101,8 (4,0)
share
Net asset value per 173,5 176,8 1,9
share
Net tangible asset 173,5 176,8 1,9
value per share
1. The earnings and headline earnings per share figures in the `Pro form
After the transaction` column have been calculated:
- on the basis that the transaction was effected on 1 March 2004; a
- the proceeds would have earned interest at an after tax interest rate of
6%.
2. The net asset value and net tangible asset value per share figures in
`Pro forma After the transaction` column have been calculated on the bas
the transaction was effected on 28 February 2005.
3. The effects of the Safrican transaction have not been taken into account in
any of the above calculations.
7. WITHDRAWAL OF JOINT CAUTIONARY ANNOUNCEMENT
As a result of the conclusion of the transaction, shareholders of PSG
Group, Arch Equity and Channel Life are hereby advised that the joint
cautionary announcement of 13 July 2005 is hereby withdrawn and caution is
no longer required to be exercised when dealing in the respective
companies` shares.
8. NEW ARCH EQUITY CAUTIONARY ANNOUNCEMENT
Shareholders of Arch Equity are however advised that Arch Equity has
entered into other discussions which, if successfully concluded, may have
an effect on its share price. Shareholders of Arch Equity are accordingly
advised to continue to exercise caution when dealing in Arch Equity shares
until a further announcement is made in this regard.
Stellenbosch
11 August 2005
PSG Capital
Sponsor to PSG Group
Designated Advisor to Arch Equity
Date: 11/08/2005 03:40:13 PM
