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Foschini Limited - Announcement to shareholders
Foschini Limited
(Registration number 1937/009504/06)
Sharecode: FOS
ISIN: ZAE000031019
(`Foschini`)
Announcement to shareholders
1. Introduction
Foschini has entered into an agreement in terms of which The Standard Bank
of South Africa Limited (`SBSA`) will, subject to the fulfillment of the
conditions precedent as detailed in paragraph 5 below, acquire an initial
25% of its subsidiary RCS Investment Holdings (Proprietary) Limited (`RCS
Investments`) with options to acquire an additional 20% in the future (`the
RCS transaction`).
2. History and nature of business of RCS Investments
The business of RCS Investments was established 5 years ago when the
Foschini group of companies (`the Foschini Group`) began an initiative to
expand its range of financial service offerings. RCS Investments conducts
the following two autonomous business units:
- RCS Cards (Proprietary) Limited (`RCS Cards`) which offers credit to
customers of merchants outside the Foschini Group, currently servicing
in excess of 5 000 merchants nationally offering revolving credit to
over 400 000 customers. These merchants are predominantly in the
automotive industry where the RCS Auto Card is strongly positioned in
the private label card market.
- RCS Personal Finance (Proprietary) Limited (`RCS Personal Finance`)
which provides loans of up to R10 000 to the best performing customers
in the Foschini Group as well as to other external customers. To date
this business has extended R2.2 billion in loans with a receivables
book of R659 million and a customer base of approximately 159 000
customers.
RCS Cards and RCS Personal Finance are hereinafter referred to as `the RCS
business`.
RCS Investments achieved a pretax profit of R194 million for the year ended
31 March 2005.
3. Rationale
Following the success of RCS Investments to date, it is now poised to
further expand its consumer lending operations into new products and
markets.
It has always been the intention of the Foschini Group that as the business
of RCS Investments expanded and its product offerings moved outside the
ambit of a typical retailer consumer lending business, a banking partner
would be found which could assist to expand the operation, building on the
core lending competencies already developed by RCS Investments.
RCS Investments believes that, as a partner, SBSA will be able to assist it
to grow its business to new levels by introducing new products which it
would not enter into without a banking partner. SBSA will also play a role
in treasury management and opening up the RCS business to new markets.
The RCS business will now combine best practice in the Foschini Group
gained through many years of lending into the broader South African middle
market with the banking know how of SBSA. RCS Investments believes this
combined strength in the two complementary disciplines will enable it to
explore exciting new consumer lending possibilities.
4. Salient terms
The RCS transaction provides that SBSA will acquire an initial 25% of RCS
Investments (`the initial RCS shares`) for a total consideration of R358.1
million (`the initial RCS shares consideration`). In addition, SBSA has
been granted the following call options by Retail Credit Solutions
(Proprietary) Limited (`RCS`), the holding company of RCS Investments, to
enable SBSA to increase its shareholding in RCS Investments to a maximum of
45%:
- an option to acquire an additional 10% of RCS Investments for a
consideration of R137.5 million which option is exercisable by SBSA
during a period of 20 business days commencing 1 April 2006 (`the 2006
call option`); and
- subject to the exercise of the 2006 call option, an option to acquire
a further additional 10% of RCS Investments for a consideration of
R137.5 million which option is exercisable by SBSA during a period of
20 business days commencing 1 April 2007 (`the 2007 call option`).
The effective date of the purchase by SBSA of the initial RCS shares will
be the fifth business day following the fulfilment of the conditions
precedent in paragraph 5 below (`the effective date`).
SBSA has in turn granted RCS a call option (`the RCS call option`) in
respect of the initial RCS shares, which option may be exercisable should
SBSA not exercise the 2006 call option. The purchase price payable by RCS
on exercise of the RCS call option will be equal to the initial RCS share
consideration.
In addition, in the agreement relating to the RCS transaction there are
certain circumstances pursuant to the promulgation of the National Credit
Bill (`the Regulations`) in which SBSA will be entitled to put the shares
which it holds in RCS Investments to RCS at the acquisition cost of such
shares (`the SBSA put option`). The SBSA put option will be exercisable by
SBSA during the period commencing on the date the Regulations are
promulgated and expiring 35 business days after such date, provided that
the SBSA put option will in any event expire on 31 March 2007.
5. Conditions precedent
The RCS transaction is subject to the following conditions precedent:
- the unconditional approval of the RCS transaction by the South African
Competition Authorities or approval on such conditions as are
reasonably acceptable to both the Foschini Group and SBSA; and
- no material adverse change occurring in the business of RCS
Investments prior to the effective date of the purchase by SBSA of the
initial RCS shares.
6. Financial effects
The table below sets out the pro forma financial effects of the RCS
transaction for the year ended 31 March 2005. This is provided for
illustrative purposes only.
After the initial RCS After the SBSA call
transaction options
Per Foschini share Published Pro forma Increase / Pro Total
before after (1) (decrease) forma increase /
% after (decrease)
(2) %
Earnings (`EPS`) 359.8 354.8 (1.4) 333.4 (7.3)
(cents)
Headline earnings 359.8 354.8 (1.4) 349.4 (2.9)
(`HEPS`) (cents)
Net asset value 1 248.9 1 338.3 7.2 1 443.7 15.6
(`NAV`) (cents)
Tangible net asset 1 235.4 1 325.8 7.3 1 432.4 16.0
value (`TNAV`)
(cents)
Number of shares 213.3 213.3 - 213.3 -
for EPS and HEPS
(million)
Number of shares 211.9 211.9 - 211.9 -
for NAV and TNAV
(million)
The `Published before` column is based on the published audited results of
Foschini for the year ended 31 March 2005.
The `Pro forma after (1)` and `Pro forma after (2)` columns assumes that:
in respect of EPS and HEPS:
- the initial RCS shares were acquired with effect from 1 April 2004;
and
- the initial RCS share consideration was used to settle liabilities
bearing interest at an after tax interest rate of 5.57% for the year
ended 31 March 2005;
- in respect of EPS, transaction costs and, in respect of the Pro forma
after (2) column, capital gains tax have been taken into account; and
- in respect of NAV and TNAV, the initial RCS transaction was
implemented on 31 March 2005.
Whilst it is anticipated that in the current 2006 financial year the RCS
transaction will have no material effect on the earnings of Foschini, it is
expected that with the introduction of new products and with the assistance
of SBSA as a partner it will be earnings enhancing in the future.
7. Categorisation of the RCS transaction
The RCS transaction has been categorised as a category 3 transaction in
terms of section 9.5(a) of the JSE Limited.
Cape Town
29 August 2005
Investment bank to Foschini
Investec Corporate Finance
Transaction sponsor
Investec Bank Limited
Legal advisors to Foschini
SHG
Investment bank and sponsor to SBSA
Standard Bank
Legal advisors to SBSA
Bowman Gilfillan
Sponsor to Foschini
UBS
Date: 29/08/2005 02:30:13 PM
Produced by the JSE SENS Department
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