| Tue 8 Nov 2005, 16:04 | | Johnnic Holdings Limited - Acquisition Of The Enti |
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Johnnic Holdings Limited - Acquisition Of The Entire Issued Share Capital Of
Nafcoc Investment Holding Company Limited ("Proposed Transaction")
JOHNNIC HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1889/000429/06)
("Johnnic" or "the Company")
ISIN:ZAE000024352
Code:JNC
ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF NAFCOC INVESTMENT HOLDING
COMPANY LIMITED ("PROPOSED TRANSACTION")
1. INTRODUCTION
Shareholders of Johnnic ("Johnnic shareholders") are referred to the cautionary
announcements published on SENS on 30 March 2005, 11 May 2005, 30 June 2005, 22
August 2005 and 5 October 2005 in which they were advised that Johnnic had
entered into negotiations with Nafcoc Investment Holding Company Limited
("Nafhold") regarding Nafhold"s shareholding in Tsogo Investment Holding Company
(Proprietary) Limited ("TIH"). Johnnic and the shareholders of Nafhold ("Nafcoc
Vendors") have reached agreement ("the Agreement") in terms of which Johnnic
will acquire the entire issued share capital of Nafhold for a consideration of
R675 million (as detailed in paragraph 3.1 below), to be settled in cash and by
the issue of shares in Johnnic to the Nafcoc Vendors. Nafhold will restructure
all of its assets, other than its shareholding in TIH, by transferring the non-
TIH assets to a separate Nafcoc entity/ies. Accordingly, the Proposed
Transaction will result in Johnnic acquiring 100% of Nafhold, with Nafhold"s
primary asset being a 25% shareholding in TIH, which in turn owns a 51% interest
in Tsogo Sun Holdings (Proprietary) Limited ("Tsogo Sun"). Tsogo Sun is a
holding company that has gaming and hotel interests, including Montecasino,
Suncoast Casino and Entertainment World ("Suncoast Casino"), Hemingway"s Casino,
Emnotweni Casino, the Ridge and approximately 82 hotels in the Southern Sun
Hotels group.
The Proposed Transaction is subject to the suspensive conditions detailed in
paragraph 6 below.
2. BACKGROUND AND RATIONALE
Following the unbundling of Johnnic"s shareholding in Johnnic Communications
Limited ("Johncom") the Johnnic Board of Directors ("the Johnnic Board")
embarked on a strategy to reposition Johnnic as a company focussed on making
value adding investments in the gaming sector.
In pursuance of this strategy, Johnnic acquired a 50% interest in the issued
share capital of Fabvest Investment Holding Company Limited ("FIH") (an
effective 9.5% interest in Tsogo Sun) from Fabvest Investment Holdings Limited
("Fabvest"). The transaction was to be implemented in two equal tranches of
shares in FIH. The conditions precedent relating to the first tranche were met
and that tranche was acquired by Johnnic on 13 October 2004. The conditions
precedent relating to the second tranche which included, inter alia, receiving
the necessary approvals from the competition authorities and the gaming
authorities have been fulfilled. However, Fabvest has disputed that the
conditions precedent relating to the second tranche have been fulfilled. Johnnic
is of the view that those conditions precedent have been fulfilled and is
enforcing its rights by referring the matter to arbitration. Johnnic has
received advice from Senior Counsel that, whilst litigation is always of
uncertain result, it has reasonable prospects of success in this arbitration.
The rationale for the Proposed Transaction is to increase Johnnic"s exposure to
good quality gaming assets, while at the same time significantly enhancing its
empowerment credentials at shareholder level. The Proposed Transaction will
increase Johnnic"s effective shareholding in TIH to 34.5%. This shareholding in
TIH will further increase to 44% should the outcome of the arbitration process
be favourable to Johnnic. The fact that Johnnic holds an effective interest of
28.7% of Suncoast Casino through Durban Add-Ventures, in addition to the 34.5%
effective shareholding in TIH, means that when the Proposed Transaction is
implemented, gaming assets will represent in excess of 50% of Johnnic"s net
asset value.
In addition to increasing Johnnic"s exposure to value adding gaming assets, the
Proposed Transaction is also being concluded in the spirit of black economic
empowerment. By introducing Nafcoc Vendors as shareholders in Johnnic, the
empowerment credentials of Johnnic will be significantly enhanced. The
shareholding in Johnnic of Nafcoc Vendors (which represent a membership base in
excess of 200 000 individual Nafcoc members) as well as approximately 22 000
former Ikgageng members, will position Johnnic as a company with one of the
largest bodies of shareholders that are historically disadvantaged individuals
which is listed on the on the JSE Limited ("the JSE"). The Johnnic Board
therefore believes that the Proposed Transaction will further entrench Johnnic"s
credentials as the champion of broad based black economic empowerment on the
JSE.
3. TERMS OF THE PROPOSED TRANSACTION
Johnnic will purchase 29 428 721 ordinary shares with a par value of R0.01 each
in the issued share capital of Nafhold, constituting 100% of the issued shares
of Nafhold. The effective date of the transaction will be 13 December 2005 ("the
Effective date") and the Proposed Transaction will be implemented five business
days after all the suspensive conditions in paragraph 6 are fulfilled ("the
Implementation Date").
3.1 Purchase price
The Purchase price is outlined below:
- R675 000 000, together with interest on R292 710 000, calculated from the
Effective Date to the Implementation Date;
- a deposit of R15 million will be paid by Johnnic in cash in respect of the
purchase price on the Effective Date ("Deposit");
- in the event that the fulfilment date of the transaction does not occur and
provided that each of Nafcoc Vendors and Johnnic have at all times on and prior
to such date complied with their obligations, the Nafcoc Vendors shall be
entitled to retain R7 500 000 of the Deposit and shall repay the remaining R7
500 000 of the Deposit together with interest thereon; and
- in the event that, after the Effective Date and prior to the Implementation
Date, Johnnic declares and pays any dividends or other payments in terms of
section 90 of the Companies Act 61 of 1973, as amended ("the Act") to its
shareholders, then the purchase price shall be increased by an amount equal to
the dividend rate per share multiplied by 33 000 000 ("the Dividend") plus an
amount equal to any secondary tax on companies that would have been payable by
Johnnic on the Dividend amount if such Dividend had in fact been paid to the
Nafcoc Vendors as a dividend or other payment in terms of section 90 of the Act.
3.2 Payment of the purchase price
The Purchase Price shall be paid as follows:
- Johnnic shall make payments in cash to the Nafcoc Vendors equal to:
- the Deposit Amount after receipt by Johnnic of the effective date accounts;
and
- an amount of R292 710 000 plus interest on this amount, calculated from the
Effective Date to the Implementation Date;
- to the extent applicable, the Dividend plus any amount equal to any
secondary tax on companies that would have been payable by Johnnic on the
Dividend amount if such Dividend had in fact been paid to the Nafcoc Vendors
as a dividend or other payment in terms of section 90 of the Act.
- the issue of 33 000 000 new ordinary shares in the authorised but unissued
share capital of Johnnic at par of R0.10 plus a premium of R11.03 per share (in
aggregate R367 290 000), based on a volume weighted average price of Johnnic of
R11.13 per share on the JSE for the 30 business days up to and including Friday,
21 October 2005.
4. GROUP STRUCTURE
Johnnic group structure before and after the implementation of the proposed
transaction will be published as part of this announcement in the press on
Wednesday, 9 November 2005.
5. REQUISITION BY HCI
Johnnic continues to be the subject of a hostile take-over bid by Hosken
Consolidated Investments Limited ("HCI"), through its wholly owned subsidiary
Mercanto Investments (Proprietary) Limited ("Mercanto"). HCI has, by acquiring
more than 35% of the issued share capital of Johnnic, triggered the requirements
in terms of the SRP Code to extend a mandatory offer to Johnnic shareholders to
acquire the remainder of the Johnnic shares. The closing date for such hostile
take-over bid has still not been made public by HCI. The offer is subject to
approval by regulatory authorities, including the Competition Authorities and
the Gaming Authorities, to the extent required. The HCI group"s continued
holding of its 40% shareholding in Johnnic and any other shares acquired
pursuant to the offer is subject to the approval of the competition authorities
and the relevant gaming authorities.
The closing date for the mandatory offer is to be announced on SENS and/or
published in the press, which announcement shall be made at least 14 days prior
to the closing date, provided that the offer will remain open for atleast 21
days after the opening date.
On 25 October 2005 a requisition for a general meeting by Standard Bank Nominees
(Transvaal) (Proprietary) Limited as nominee for Mercanto (a wholly owned
subsidiary of HCI and a beneficial holder of not less than one-twentieth of the
ordinary issued shares in the capital of the Company) was received by Johnnic.
At such general meeting of Johnnic shareholders HCI is seeking to have
resolutions passed to appoint four of HCI nominees onto the Johnnic Board. In
terms of section 181 of the Companies Act, 61 of 1973, the Company has given
notice to Johnnic shareholders that a general meeting will be held at 11:00 on
Monday, 12 December 2005 (or such later time as the prior general meeting of the
Company referred to in paragraph 10 below may be concluded) at Gallagher Estate,
19 Richards Drive, Midrand, Gauteng, to consider and if thought fit to pass with
or without modification the resolutions proposed by HCI.
This is the second time that HCI has issued a requisition of general meeting
seeking to have its nominees appointed onto the Johnnic Board, having previously
been unsuccessful in doing so in a general meeting held on 30 June 2005, in
having three of its nominees appointed to the Johnnic Board.
The attention of Johnnic shareholders is drawn to the fact that, for as long as
HCI is in competition with Johnnic for the control of TIH (which controls Tsogo
Sun), having representatives of HCI on the Johnnic Board would represent a
conflict of interest and would therefore be prejudicial to Johnnic shareholders.
The full details of the Johnnic Board"s view as far as the hostile take-over bid
of Johnnic by HCI is concerned were contained in the Offer Response Document
posted to Johnnic shareholders on 15 August 2005. Those views of the Johnnic
Board have not changed and the Johnnic Board continues to believe that Johnnic
is better positioned to realise value on its gaming strategy on a stand alone
basis.
6. SUSPENSIVE CONDITIONS
The Proposed Transaction is subject to the following suspensive conditions:
6.1 transfer of all assets held in Nafhold other than its TIH shareholding into
a separate Nafcoc entity/ies;
6.2 to the extent necessary, obtaining the unconditional written approval from
the Competition Authorities or, in the event of a conditional approval, on such
condition(s) acceptable to both Johnnic and, if such conditions relate to them,
the Nafcoc Vendors;
6.3 to the extent necessary, obtaining the unconditional written approval from
relevant Gaming Authorities or, in the event of a conditional approval, on such
condition(s) acceptable to both Johnnic and, if such conditions relate to them,
the Nafcoc Vendors;
6.4 to the extent necessary, obtaining the unconditional written approval from
the Securities Regulations Panel;
6.5 completion of the due diligence investigation on Nafhold to Johnnic"s
satisfaction;
6.6 Nafcoc Vendors approving and ratifying the conclusion of the Agreement;
6.7 obtaining approval of Johnnic shareholders; and
6.8 obtaining approval of the JSE.
7. PRO FORMA FINANCIAL EFFECTS
The pro forma financial effects are the responsibility of the Johnnic Board.
They are presented for illustrative purposes only and because of their nature
may not give a fair reflection of Johnnic"s financial position after the
transactions.
7.1 Pro forma financial effects of the Proposed Transaction
The pro forma financial effects of the Proposed Transaction of Nafhold shares on
a Johnnic share at the record date, are set out below.
Assumptions
- For the purposes of calculating the earnings per Johnnic share in the "Before"
column, the financial information for the year ended 31 March 2005 was used
excluding the media and entertainment businesses. The earnings per Johnnic
share, as set out in the "After" column, are based on the assumption that:
- the Proposed Transaction occurred on 1 April 2004 and a consideration of
R675 million was paid in accordance with 3.2 above;
- the exceptional profit on the sale of MTN shares has been excluded.
- the unaudited financial statements of TIH for the financial year ended 31
March 2005 were used to calculate the equity accounted earnings of Johnnic;
- interest of R16 million (after tax) was foregone on the cash balance (using
an average rate of 7.5%); and
- the weighted average number of Johnnic shares in issue during the year ended
31 March 2005 of 199 470 398 was used in the calculation of headline
earnings and attributable earnings per share.
- For the purposes of calculating the pro forma NAV per Johnnic share, as set
out in the "Before" column of the table, the financial information of Johnnic
at 31 March 2005 was used. The NAV per Johnnic share, as set out in the "After"
column of the table below, is based on the assumption that:
- the Proposed Transaction occurred on 31 March 2005 and a consideration of
R675 million was paid in accordance with 3.2 above;
- Transfer duty of R2 million was paid on the transfer of shares (capitalised
to the investment); and
- the weighted average number of Johnnic shares in issue on 31 March 2005 of
199 470 398 was used in the calculation of NAV per share.
Elimin-
ation of
excep-
tional Net
profit before
on MTN proposed
31-Mar-05 shares trans- Trans- 31-Mar-05 %
Before sold actions action After increase
Attributable earnings
(Rm) 1,132 (952) 180 48 228 27%
Headline earnings (Rm) 126 - 126 31 157 25%
Attributable earnings
per share (cents) 680 (572) 108 6 114 (6%
Headline earnings per
share (cents) 76 - 76 3 79 4%
Net Asset Value per
share (book value)(R) 9.64 - 9.64 0.26 9.90
3%
Intangible Net Asset Value per
share (R) - - - - - -
8. FUTURE OF JOHNNIC
Immediately after the implementation of the Proposed Transaction, Johnnic will
comprise the following investments:
- 100% of Gallagher Estate and Johnnic Properties;
- 28.7% effective interest in Suncoast Casino held through Durban Add-Ventures;
and
- 34.5% effective interest in TIH, with the acquisition of an additional 9.5%
effective interest in TIH subject to the outcome of the arbitration process.
Further opportunities relating to the consolidation of gaming interests through
Johnnic are being considered. Johnnic"s existing interests in the hotels and
gaming sector, namely Suncoast Casino and Tsogo Sun, are poised for continued
solid growth in tandem with the ongoing expansion of the leisure industry in
South Africa.
9. OPINIONS AND RECOMMENDATIONS
The Johnnic Board is of the opinion that the Proposed Transaction is in line
with the Company"s stated gaming strategy. Johnnic"s corporate advisors have
considered the terms of the Proposed Transaction and have given advice that such
terms are value enhancing to Johnnic shareholders. The Johnnic Board therefore
recommends that Johnnic shareholders vote in favour of the resolutions necessary
to approve and implement the acquisition.
The directors intend to vote in favour of all the resolutions necessary to
implement the acquisition in respect of all the Johnnic shares held by them.
10. NOTICE OF GENERAL MEETING
The general meeting of shareholders will be held at Gallagher Estate, 19
Richards Drive, Midrand, at 10:00, on Monday, 12 December 2005, to consider and,
if deemed fit, pass with or without modification the ordinary resolutions
necessary to implement the Proposed Transaction.
A notice convening the general meeting and a form of proxy for use by
certificated Johnnic shareholders and own name registered dematerialised Johnnic
shareholders will be attached to the circular to be posted to Johnnic
shareholders on or about Friday, 25 November 2005.
11. SALIENT DATES AND TIMES
2005
Posting of circular to Johnnic shareholders Friday, 25 November
Last date for lodging forms of proxy in respect of
the resolutions to be proposed at the general meeting
by not later than 10:00 and at the requisitioned
meeting by not later than 11.00 on Thursday, 8 December
General meeting of Johnnic shareholders to be held
at 10.00 on Monday, 12 December
Requisitioned meeting of Johnnic shareholders to be
held at 11.00 (or such later time as the prior
general meeting may be concluded) on Monday, 12 December
Results of the general meeting and the requisitioned
meeting published on SENS and released to the
relevant stock exchanges Monday, 12 December
Results of the general meeting and the requisitioned
meeting published in the South African press on Tuesday, 13 December
Note:
The dates and times in this announcement are subject to amendments, which
amendments, if any, will be published on SENS and in the press. All times
referred to throughout this announcement are South African times. Further
salient dates and times relating to the issue of new Johnnic shares and the
listing thereof on the JSE will be announced at a later stage (after fulfilment
of suspensive conditions detailed in paragraph 6 of this announcement).
12. CIRCULAR TO SHAREHOLDERS
A circular containing inter alia, further details in relation to the Proposed
Transaction and a notice of a general meeting of Johnnic shareholders to
consider approving the Proposed Transaction will be posted to Johnnic
shareholders on Friday, 25 November 2005.
13. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcements published on SENS on
30 March 2005, 11 May 2005, 30 June 2005, 22 August 2005 and 5 October 2005 and
are advised that such cautionary announcements are accordingly withdrawn.
Midrand
8 November 2005
Investment Bank and transaction sponsor to Johnnic
Standard Bank
Legal advisors to Johnnic
Webber Wentzel Bowens
Tax advisors to Johnnic
Deloitte & Touche
Reporting accountants
Deloitte & Touche
Sponsor
Merrill Lynch South Africa (Proprietary) Limited
Corporate advisors to Nafhold
Java Capital
Legal advisors to Nafhold
Werksmans
Date: 08/11/2005 04:04:33 PM Produced by the JSE SENS Department
