| Thu 18 Aug 2005, 16:35 | | Metropolitan/KTI - Terms Of The Second Phase Of Me |
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Metropolitan/KTI - Terms Of The Second Phase Of Metropolitan`s Black Economic
Empowerment (`BEE`) Transaction (`Phase II`)
Kagiso Trust Investments (Pty) Ltd
Registration number: 1993/007845/07
(`KTI`)
Metropolitan Holdings Limited
Registration number: 2000/031756/06
JSE code: MET * NSX code: MTD * ISIN code: ZAE000050456
(`Metropolitan`)
TERMS OF THE SECOND PHASE OF METROPOLITAN`S BLACK ECONOMIC EMPOWERMENT (`BEE`)
TRANSACTION (`Phase II`)
1. INTRODUCTION
Shareholders are referred to the announcement released on SENS on 17 June 2004
and the circular to shareholders issued on 17 August 2004 regarding the first
phase of Metropolitan`s broad-based BEE transaction (`Phase I`). Phase I was
implemented on 1 October 2004.
In Phase I, KTI acquired a 10.3% interest in Metropolitan. At that stage both
Metropolitan and KTI announced that it was their intention to increase this
shareholding within a reasonable period and to include members of Metropolitan
management. In accordance with this intention, Metropolitan has concluded
further agreements for the establishment of the Metropolitan Empowerment Trust,
the beneficiaries of which will be members of Metropolitan management, and for
the acquisition by KTI and the Metropolitan Empowerment Trust collectively of a
6.1% interest in Metropolitan. On the successful implementation of Phase II, KTI
and the Metropolitan Empowerment Trust will jointly hold a 17.3% interest in
Metropolitan.
The effective date of Phase II is expected to be 14 October 2005.
2. KAGISO TRUST AND KTI
KTI is Metropolitan`s existing BEE partner. It is owned by the Kagiso Trust,
which is a leading non-governmental organisation devoted to the development of a
large number of disadvantaged communities in South Africa and which is generally
recognised as one of South Africa`s leading broad-based BEE groups.
3. RATIONALE FOR PHASE II
Metropolitan wishes to further demonstrate its commitment to the implementation
of broad-based black economic empowerment by, inter alia, affording KTI the
opportunity of acquiring a more meaningful equity stake in Metropolitan, and by
the acquisition of ownership in Metropolitan by members of its management.
KTI has proven to be a very good and effective partner to Metropolitan over the
past year and Metropolitan has already benefited from this association.
Metropolitan and KTI recognise that management participation in BEE ownership
initiatives is an effective way of achieving broad-based BEE. Approximately 70%
of the beneficial interest of the Metropolitan Empowerment Trust will accrue to
black employees. Following the successful implementation of Phase II, the
Metropolitan Empowerment Trust will hold an effective indirect interest of 4.3%
in Metropolitan.
4. SALIENT TERMS OF PHASE I
KTI, through a wholly-owned subsidiary (`Newco`), procured the incorporation of
a private company (`the SPV`) as the vehicle for the financing of Phase I. Newco
subscribed for 100% of the issued ordinary share capital of the SPV.
Metropolitan created 75 842 650 convertible redeemable preference shares (the
`A1` Met prefs) that were issued to the SPV (equivalent to 10.25% of
Metropolitan`s enlarged issued share capital). The SPV funded the aggregate
subscription consideration by the payment of R30 million in cash and the balance
by the issue of redeemable preference shares to a consortium of banks comprising
RMB, Absa and Nedbank (`the Bank Consortium`).
5. PROGRESS SINCE PHASE I
On 1 July 2005, the SPV sourced and acquired 12 700 000 Met ords independently
in the market. This acquisition was funded by third parties.
6. SALIENT TERMS OF PHASE II
6.1 Transaction structure
The SPV will create and issue the following two further classes of preference
shares:
* variable rate cumulative redeemable preference shares (the `A2` SPV
prefs) that will be issued to the Bank Consortium for a maximum
aggregate issue consideration of R159 million; and
* variable rate cumulative convertible redeemable preference shares (the
`A3` SPV prefs) that will be issued to a finance consortium comprising
RMB and Sanlam Capital Markets Limited (`SCM`) (`the Finance
Consortium`) for an aggregate issue consideration of R350 million.
The SPV will therefore receive funds up to R509 million.
Metropolitan in turn will create and issue to the SPV the following two further
classes of preference shares:
* 12 700 000 variable rate cumulative convertible redeemable preference
shares having a par value of 0.0001 cents each (the `A2` Met prefs)
that will be issued at the volume weighted average trading price per
Met ord on the JSE over the five days ending on 27 September 2005,
limited to a maximum aggregate issue consideration of R159 million;
and
* 35 000 000 variable rate cumulative convertible redeemable preference
shares having a par value of 0.0001 cents each (the `A3` Met prefs)
that will be issued at a price of R10.00 each for an aggregate issue
consideration of R350 million.
The SPV will utilise the proceeds from the issue of the `A2` SPV prefs and the
`A3` SPV prefs to subscribe for the `A2` Met prefs and the `A3` Met prefs.
6.2 The salient terms of the `A2` Met prefs
6.2.1 Issue price
The issue price per `A2` Met pref will be equal to the volume weighted average
price of a Met ord traded on the JSE over the five days ending on 27 September
2005, limited to a maximum aggregate issue consideration of R159 million.
6.2.2 Duration
The `A2` Met prefs are, subject to the consent of the Bank Consortium,
convertible into Met ords on a one for one basis from three years and one day
after the issue date and then, if not converted, compulsorily redeemable on 30
September 2009. The `A2` Met prefs will become redeemable on the occurrence of
certain default events. The `A2` Met prefs, once issued, will constitute 1.6% of
Metropolitan`s enlarged issued share capital.
6.2.3 Voting
Although the `A2` Met prefs will not be listed, they will carry voting rights
pari passu with the Met ords. A dispensation in this regard has been granted by
the JSE subject to certain conditions.
6.2.4 Dividends
The dividend rate per annum payable by Metropolitan on the `A2` Met prefs will
be the greater of the following:
* the dividend per Met ord declared and paid in the corresponding
period; or
* an annual rate of 2.5% calculated on the `A2` Met pref issue price.
The dividends will be paid semi-annually in arrears on 30 September and 31 March
each year.
6.2.5 Additional distributions
Any reduction of capital authorised by Metropolitan on the Met ords will result
in a corresponding reduction of `A2` Met pref capital.
6.3 The salient terms of the `A3` Met prefs
6.3.1 Issue price
The issue price of the `A3` Met prefs of R10.00 each was based on the volume
weighted average trading price of Met ords on the date of the Phase II
agreement, being 22 June 2005.
6.3.2 Duration
The `A3` Met prefs are, subject to the consent of the Finance Consortium,
convertible into Met ords on a one for one basis from three years and one day
after the issue date and then, if not converted, compulsorily redeemable on the
day after the fifth anniversary of the issue date. The `A3` Met prefs will
become redeemable on the occurrence of certain default events. The `A3` Met
prefs once issued will constitute 4.4% of Metropolitan`s enlarged issued share
capital.
6.3.3 Voting
Although the `A3` Met prefs will not be listed, they will carry voting rights
pari passu with the Met ords. A dispensation in this regard has been granted by
the JSE subject to certain conditions.
6.3.4 Dividends
The dividend rate per annum payable by Metropolitan on the `A3` Met prefs will
be the sum of the following:
72% of the prime rate as charged by First National Bank, a division of FirstRand
Bank Limited;
an initial margin of 0.5%;
an out-performance quantitative margin calculated semi-annually, based on the
average of the growth in certain financial ratios achieved by Metropolitan in
excess of 9%. The out-performance margins range between 0.5% and 1.655% and will
be paid on the dividend date following the period in which the growth in the
financial ratios is achieved, and thereafter semi-annually until redemption of
the `A3` Met prefs.
The dividends will be paid semi-annually in arrears on 30 September and 31 March
each year.
6.3.5 Additional distributions
Any reduction of capital authorised by Metropolitan on the Met ords will result
in a corresponding reduction of `A3` Met pref capital.
6.4 Amendment of the articles of association
The articles of association of Metropolitan will be amended to incorporate the
terms governing the `A2` Met prefs and the `A3` Met prefs.
THE ACQUISITION BY THE METROPOLITAN EMPOWERMENT TRUST OF 25% OF NEWCO
As mentioned in paragraph 3 above, the Metropolitan Empowerment Trust will be
established, 70% of the beneficial interest of which will accrue to black
management. The Trust will subscribe for ordinary shares in Newco at a cost of
R10 million, which will result in the Trust holding 25% of the issued share
capital of Newco. The consideration will be raised independently by the
participants.
Once this has been implemented, the Metropolitan Empowerment Trust will hold an
indirect shareholding in Metropolitan of 4.3%. It is expected that the
proportion of Met prefs that are indirectly held by the Metropolitan Empowerment
Trust will qualify for ownership points in terms of the Financial Sector
Charter.
8. CONDITIONS PRECEDENT FOR PHASE II
Phase II is subject to the fulfilment of the following conditions precedent by
14 October 2005:
8.1 all regulatory approvals, insofar as may be necessary, being granted;
8.2 the passing of all necessary resolutions by the requisite majority of
shareholders at the general meeting referred to in paragraph 12 below and the
registration of all special resolutions by the Registrar of Companies.
9. UNAUDITED PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects are presented for illustrative
purposes only and because of their nature may not be a fair reflection of
Metropolitan`s financial position after Phase II, nor of Metropolitan`s future
earnings. They are based on South African Standards of Generally Accepted
Accounting Practice, effective 31 December 2004, and do not take into account
any potential effects as a result of the implementation of International
Financial Reporting Standards effective 1 January 2005. There will, however, be
no IFRS2 impact as the shares have been issued at fair value. The directors of
Metropolitan are responsible for the preparation of the unaudited pro forma
financial information.
Before Pro forma %
Phase II after change
(1) Phase II
(cents) (cents)
Earnings per ordinary share(2) 269.6 267.3 (0.8)
Headline earnings per ordinary share(2) 283.3 281.0 (0.8)
Core headline earnings per ordinary share(2) 89.1 86.8 (2.6)
Embedded value per ordinary share(3) 1 378.5 1 378.5 0.0
Adjusted net asset value per ordinary share(3) 900.7 900.7 0.0
Fully diluted earnings per share(2) 241.5 229.1 (5.2)
Fully diluted headline earnings per ordinary 253.7 240.5 (5.2)
share(2)
Fully diluted core headline earnings per 80.2 78.1 (2.5)
ordinary share(2)
Fully diluted embedded value per ordinary 1 225.0 1 212.3 (1.0)
share(3 & 4)
Fully diluted adjusted net asset value per 830.6 841.9 1.4
ordinary share(3 & 4)
Number of ordinary shares in issue (million) 610 610 0.0
Weighted average number of ordinary shares in 622 622 0.0
issue (million)
Fully diluted number of ordinary shares in 739 787 6.5
issue (million)(5)
Fully diluted weighted average number of 696 744 6.9
ordinary shares in issue (million)(5)
Notes:
1) Extracted from the published audited financial results of Metropolitan for
the year ended 31 December 2004.
2) Adjustments to earnings, headline earnings and core headline earnings per
share have been made on the assumption that Phase II was effected on 1 January
2004.
3) Adjustments to embedded value, adjusted net asset value, net asset value
and tangible net asset value per share have been made on the assumption that
Phase II was effected on 31 December 2004.
4) For purposes of calculating fully diluted embedded value and adjusted net
asset value per share, the net consideration of R487 780 000 has been included
in the value attributable to shareholders.
5) It was assumed that all the preference shares would convert into ordinary
shares on a one-for-one basis. This represents the fully diluted effect of these
preference shares.
10. OPINIONS AND RECOMMENDATIONS
Merrill Lynch South Africa (Proprietary) Limited (`MLSA`) has been appointed by
the board of Metropolitan as the independent professional expert in respect of
Phase II to advise the board on whether the terms and conditions of Phase II are
fair and reasonable to the ordinary shareholders of Metropolitan.
The board of Metropolitan has formed a separate independent committee made up of
independent directors (the `independent committee`) to ensure appropriate
governance throughout this process.
The opinion of MLSA and the board`s recommendation to Metropolitan shareholders
regarding Phase II will be contained in the circular to Metropolitan
shareholders referred to in paragraph 12 below.
11. GENERAL MEETING
A general meeting of Metropolitan shareholders will be held to consider and vote
on the resolutions required to increase the authorised share capital of
Metropolitan by the creation of the `A2` Met prefs and the `A3` Met prefs, amend
Metropolitan`s articles of association and to grant the board of Metropolitan
the specific authority to allot and issue the `A2` Met prefs and the `A3` Met
prefs.
12. DOCUMENTATION
A circular containing full details of Phase II as well as the notice of general
meeting will be posted to Metropolitan shareholders in due course.
Cape Town
18 August 2005
Attorney to Metropolitan and transaction attorney
Deneys Reitz Attorneys
Financial advisor to Metropolitan and arranger
Khumo Bathong Capital
Sponsor to Metropolitan in South Africa
Merrill Lynch Global Markets & Investment Banking Group
Attorneys to KTI
Webber Wetzel Bowens
Financial adviser to Metropolitan management
Ernst & Young
Independent expert to Metropolitan
Merrill Lynch Global Markets & Investment Banking Group
Reporting accountant to Metropolitan
PricewaterhouseCoopers
Sponsor to Metropolitan in Namibia
Simonis Storm Securities
Lead banker and underwriter
Rand Merchant Bank
Attorneys to Metropolitan management
Qunta Incorporated
Date: 18/08/2005 04:00:35 PM
Produced by the JSE SENS Department
