| Thu 30 Mar 2006, 16:30 | | Matodzi/ JCI - Acquisition And Redemption Of Prefe |
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JCD MTZ
JCD MTZ
Matodzi/ JCI - Acquisition And Redemption Of Preference Shares By Matodzi
Matodzi Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 1933/004523/06)
Share code: MTZ & ISIN: ZAE000042412
("Matodzi")
JCI Limited
(Incorporated in the Republic of South Africa)
(Registration number 1894/000854/06)
Share code: JCD & ISIN: ZAE000039681 (Suspended)
("JCI")
ACQUISITION BY MATODZI OF 200 MILLION CUMULATIVE REDEEMABLE PREFERENCE SHARES
OWNED BY JCI IN WITNIGEL INVESTMENTS (PROPRIETARY) LIMITED; THE REDEMPTION BY
MATODZI OF 200 MILLION UNSECURED REDEEMABLE CONVERTIBLE PARTICIPATING "B"
PREFERENCE SHARES IN MATODZI, OWNED BY JCI INVESTMENT FINANCE (PROPRIETARY)
LIMITED; AND FURTHER CAUTIONARY ANNOUNCEMENTS
1. INTRODUCTION
Tlotlisa Corporate Finance ("T-Corp") is authorised to announce that
Matodzi and JCI have concluded the following transactions:
- the acquisition by Matodzi of 200 million redeemable cumulative
preference shares ("the Witnigel prefs") in Witnigel Investments
(Proprietary) Limited ("Witnigel"), representing 100% of the issued
preference share capital of Witnigel, currently owned by JCI ("the
Witnigel transaction") for a purchase consideration of R13.3 million;
and
- the redemption by Matodzi of 200 million unsecured redeemable
convertible participating "B" preference shares ("the "B" prefs")
("the redemption"), representing 100% of the issued preference share
capital of Matodzi, currently owned by JCI Investment Finance
(Proprietary) Limited ("JCIIF"), a wholly-owned subsidiary of JCI,
(collectively, "the transactions").
2. THE TRANSACTIONS
2.1 Background
As indicated in Matodzi"s annual financial statements for the year
ended 31 March 2005, the terms relating to the "B" prefs were amended
at the annual general meeting of Matodzi shareholders held on
Wednesday, 18 August 2004.
The manner in which Matodzi is obliged, in terms of AC125: Financial
Instruments, Disclosure and Presentation and AC133: Financial
Instruments, Recognition and Measurement (together, "the relevant
accounting statements"), to account for the "B" prefs and the Witnigel
prefs (as debt rather than as part of shareholders" equity and outside
shareholders" interest), has had the effect that Matodzi is
technically insolvent and is likely to remain in such position of
technical insolvency for as long as the "B" prefs remain in issue.
As a consequence of such accounting obligations, Matodzi"s financial
results for the year ended 31 March 2004 were restated.
The aggregate liability relating to the "B" prefs and the Witnigel
prefs, including capitalised interest thereon, as reflected on
Matodzi"s balance sheet as at 30 September 2005 ("the Matodzi balance
sheet"), being the most recently reported financial period, amounted
to R356.3 million, which had the effect, on the application of the
relevant accounting statements, of placing Matodzi in a technically
insolvent position. Accordingly, the report of Matodzi"s independent
auditors on Matodzi"s interim financial statements for the six month
period ended 30 September 2005 included an "emphasis of matter"
opinion due to the existence of a material uncertainty regarding
Matodzi"s ability to continue as a going concern. Implementation of
the transactions is intended to restore Matodzi to a technically
solvent position.
The proposed transactions are not conditional upon one another and are
capable of independent implementation.
2.2 The Witnigel transaction
Witnigel is a wholly-owned subsidiary of Matodzi. The only asset of
Witnigel constitutes 83.3 million shares in JCI ("the Witnigel JCI
shares").
Matodzi and JCI have entered into a sale and purchase agreement ("the
Witnigel sale and purchase agreement") in terms of which Matodzi has
acquired the Witnigel prefs from JCI for a purchase consideration of
R13.3 million ("the purchase consideration"), being an amount equal to
the market value of the Witnigel JCI shares, based on a price of 16
cents per JCI share on Monday, 1 August 2005, being the date of
suspension of JCI"s shares from JSE Limited ("JSE"). Matodzi will pay
the purchase consideration to JCI by the allotment and issue of 13 825
129 new ordinary Matodzi shares ("the Witnigel consideration shares"),
allotted and issued at a price of 96,4427 cents per Matodzi share,
being the 30-day weighted average traded price per Matodzi share on
Thursday, 23 February 2006, being the date on which the board of
directors of Matodzi approved the Witnigel transaction.
Implementation of the Witnigel transaction will therefore result in:
* the elimination of R184.5 million of debt from Matodzi"s balance
sheet, being the net liability reflected in the Matodzi balance
sheet in respect of the Witnigel prefs;
* the retention by Witnigel of its investment in 83.3 million JCI
shares; and
* JCI owning 8.45% of Matodzi"s issued ordinary share capital. JCI
currently has no direct or indirect shareholding in Matodzi,
other than its holding through JCIIF of the "B" prefs.
The effective date of the Witnigel transaction is Thursday, 30 March
2006.
2.3 The redemption
In terms of the rights attaching to the "B" prefs, the "B" prefs are
redeemable at the election of the holder from time to time, and at any
time after 31 July 2005. JCIIF, as the holder of the "B" prefs, is
entitled, by the delivery of a redemption notice ("the redemption
notice"), to demand that Matodzi either:
* redeems the "B" prefs for cash, the redemption price being the
aggregate of the par value per "B" pref and an amount of 94.69
cents per "B" pref, giving a total redemption price of 95.69
cents per "B" pref ("the cash redemption"); or
* redeems the "B" prefs for cash (equal to the redemption price
payable in terms of the cash redemption) and compulsorily applies
the proceeds of such redemption to the payment of the
subscription price of such number of new Matodzi ordinary shares
("the new Matodzi shares") as shall be equal to the number of "B"
prefs being redeemed, and which new Matodzi shares shall be
allotted and issued to JCIIF ("the share redemption").
On Monday, 27 March 2006, JCIIF delivered the redemption notice to
Matodzi in terms of which it elected the share redemption in respect
of all the "B" prefs held by it. Accordingly, 200 million new Matodzi
ordinary shares ("the redemption consideration shares") will be
allotted and issued to JCIIF in terms of the share redemption at a
price of 104 cents per Matodzi share, being the 30-day weighted
average traded price per Matodzi share on Thursday, 16 March 2005,
being the day immediately before the date on which the board of
directors of Matodzi approved the submission of the listing
application to JSE to approve the listing of the redemption
consideration shares.
Implementation of the redemption will therefore result in:
* the elimination of a further R171.8 million of debt from the
Matodzi balance sheet, being the net liability reflected in
respect of the "B" prefs;
* JCIIF owning 57.2% of the issued ordinary share capital of
Matodzi; and
* JCI directly and indirectly (through JCIIF) owning an aggregate
of 58.8% of the issued ordinary share capital of Matodzi.
After implementation of the redemption, therefore, JCI will have
acquired control of Matodzi, for the purposes of the Securities
Regulation Code on Take-overs and Mergers ("the Code").
2.4 Rationale
2.4.1 Matodzi
As at 30 September 2005, Matodzi"s liabilities, on
application of the relevant accounting statements, exceeded
its assets by R258.3 million. Elimination of the liabilities
in respect of the "B" prefs and the Witnigel prefs,
respectively, amounting to R356.3 million, in aggregate,
will restore Matodzi to a technically solvent position.
In the event that the transactions should not be
implemented, and should JCI not agree to the subordination
of the debt, as constituted by the "B" prefs and the
Witnigel prefs, there is significant doubt that Matodzi will
be able to reverse its technically insolvent position in the
normal course of business, and therefore a material
uncertainty will exist as to whether or not Matodzi will be
able to continue as a going concern without the disposal of
a major portion of its assets. Implementation of the
transactions will result in Matodzi being able to meet its
obligations as they fall due.
2.4.2 JCI
JCI, through its wholly-owned subsidiary JCIIF, will become
the majority shareholder in Matodzi and accordingly, will
increase its effective holding in Letseng Diamonds
(Proprietary) Limited from 30.4% to an effective 52.7%. If
the transactions are not implemented, there is the potential
that JCI will be obliged fully or partially to write-off its
investment in the "B" prefs and the Witnigel prefs, in the
event that Matodzi shall not be able to continue trading.
3. CONDITIONS PRECEDENT TO THE TRANSACTIONS
3.1 The Witnigel acquisition
All the conditions precedent to the Witnigel transaction have been
fulfilled.
JCI and Matodzi shareholder approvals are not required for
implementation of the Witnigel transaction.
Application for listing of the Witnigel consideration shares was
submitted to JSE on Wednesday, 22 March 2006 and approval for the
listing of such shares has been received from JSE on Wednesday, 29
March 2006. Accordingly, these shares will be listed on JSE and
allotted and issued to JCI on Thursday, 30 March 2006, being the
effective date of the Witnigel transaction.
3.2 The redemption
JCI and Matodzi shareholder approvals are not required for
implementation of the redemption.
Statutory and regulatory requirements necessary to give effect to the
redemption are set out below:
- Securities Regulation Panel ("SRP")
The redemption, on the basis of a stand-alone transaction, will
have the effect that JCIIF will own 57.2% of the issued share
capital of Matodzi (and JCI will own 58.8% of Matodzi when the
effect of the redemption is aggregated with the effect of the
Witnigel transaction). Accordingly, the redemption constitutes an
"affected transaction" in terms of the Code. JCI and JCIIF
constitute "concert parties" for the purposes of the Code.
Rule 8.1 of the Code, if it were applicable, would oblige JCI
and/or JCIIF to make an offer ("the mandatory offer") to the
shareholders of Matodzi other than JCI and JCIIF ("the remaining
shareholders").
At the general meeting of Matodzi shareholders on 30 July 1999,
the terms and the issue of the "B" Prefs were approved. At that
general meeting, the Matodzi shareholders waived any right and/or
entitlement ("the shareholder waiver") to the making of any
mandatory offer that might otherwise have been required to be
made by the holder of the "B" prefs on the redemption of the "B"
prefs in accordance with their terms.
JCI requested the SRP on Monday, 21 November 2005 to confirm
that, on implementation of the transactions, JCI and JCIIF
(acting as concert parties) will not be obliged to make a
mandatory offer to the remaining shareholders. The SRP, in a
response letter, dated Wednesday, 30 November 2005 ("the SRP
response letter") confirmed that dispensation in terms of Rule
8.7 of the Code had been granted ("the SRP dispensation") in
respect of the making of the mandatory offer on the redemption of
the "B" prefs, that such dispensation had been supported by the
shareholder waiver and that, accordingly, there was no
requirement for JCI and/or JCIIF to make an offer to the
remaining shareholders.
The SRP has, in the SRP response letter, obliged JCI to publish
the terms of the SRP dispensation and to allow the remaining
shareholders a period of three business days from the date of
such publication to appeal to the SRP in respect of all and/or
any aspect of the SRP dispensation. This announcement
constitutes, amongst other things, the publication of the SRP
dispensation.
- Competition Commission
The redemption was subject to the approval of the Competition
Commission in terms of Chapter 3 of the Competition Act, 1998.
The unconditional written approval of the Competition Commission
in respect of the redemption was granted on Tuesday, 14 March
2006.
- JSE
The application for the listing of the redemption consideration
shares was submitted to JSE on Wednesday, 22 March 2006 and
approval for the listing of such shares was received from JSE on
Wednesday, 29 March 2006. Accordingly, the redemption
consideration shares will be listed on JSE and allotted and
issued to JCIIF on Thursday, 30 March 2006, being the effective
date of the redemption.
- Other
All other statutory and company secretarial actions have been
completed in order to implement the redemption on Thursday, 30
March 2006.
4. FINANCIAL EFFECTS OF THE TRANSACTIONS
4.1 Matodzi
The table below sets out the pro forma financial effects of the
Witnigel transaction and the redemption on the earnings, headline
earnings, net asset value ("NAV") and tangible NAV per Matodzi
ordinary share:
Before the After the
Per Matodzi Witnigel Witnigel After the
ordinary share transaction transaction Change redemption Change
(cents) (cents)3&4 (%) (cents)3&4 (%)
Basic earnings (0.21)1 0.846 500 0.278 (68)
Headline earnings (0.21)1 0.846 500 0.278 (68)
NAV (1.72)2 (0.45)7 74 0.279 160
Tangible NAV (1.72)2 (0.45)7 74 0.279 160
Shares in issue at
30 September 2005
("000) 149 812 163 6385 9.23 363 6389 122.2
Weighted average
shares in issue for
the year ("000) 149 537 163 3625 9.25 363 3629 122.4
Notes:
The following assumptions have been made for purposes of calculating
the pro forma financial effects of the Witnigel transaction and the
redemption:
1. The basic earnings per share and headline earnings per share
reflected in the "Before the Witnigel transaction" column have
been extracted from the income statement of the Matodzi Reviewed
Restated Interim Report for the six months ended 30 September
2005, as published in the press on Monday, 13 March 2006;
2. The NAV per share and tangible NAV per share reflected in the
"Before the Witnigel transaction" column have been extracted from
the balance sheet of the Matodzi Reviewed Restated Interim Report
for the six months ended 30 September 2005, as published in the
press on Monday, 13 March 2006;
3. The Witnigel transaction and the redemption were implemented with
effect from 1 April 2005 for the purposes of calculating the pro
forma basic earnings per share and headline earnings per share in
the "After the Witnigel transaction" column and the "After the
redemption" column;
4. The Witnigel transaction and the redemption were implemented on
30 September 2005 for the purposes of calculating the pro forma
NAV per share and tangible NAV per share in the "After the
Witnigel transaction" column and the "After the redemption"
column;
5. For the purposes of calculating the number of shares in issue and
the weighted average number of shares in issue as at 30 September
2005 in the "After the Witnigel transaction" column, Matodzi paid
the purchase consideration of R13.3 million through the issue of
13 825 129 Matodzi ordinary shares at an issue price of 96,4427
cents per Matodzi share;
6. For the purposes of calculating the pro forma basic earnings per
share and headline earnings per share in the "After the Witnigel
transaction" column, the following assumptions have been made:
- pre-taxation interest savings of R9.5 million for the six
months ended 30 September 2005, assuming interest was
incurred at prime, and taking into account corporate tax at
a rate of 29%; and
- the write-off of R161.7 million, being the outstanding loan
balance, net the value of the Witnigel JCI shares, in terms
of the Witnigel prefs as a result of implementing the
Witnigel transaction;
7. For the purposes of calculating the pro forma NAV per share and
tangible NAV per share in the "After the Witnigel transaction"
column, the outstanding loan balance, net the value of the
Witnigel JCI shares, of R171.2 million relating to the Witnigel
prefs, has been written off as a result of implementing the
Witnigel transaction;
8. For the purposes of calculating the pro forma basic earnings per
share and headline earnings per share in the "After the
redemption" column, the following assumptions have been made:
- pre-taxation interest savings of R9.6 million for the six
month period ended 30 September 2005, assuming interest was
incurred at a rate equal to prime plus one percent, and
taking into account corporate tax at a rate of 29%; and
- the loss on redemption of R45.9 million was incurred as a
result of the aggregate differences between:
* the issue price of 104 cents per redemption
consideration share and the redemption value of 95.69
cents per share ("the redemption value"), being the par
value of 1 cent per "B" pref and the redemption premium
of 94.69 cents per "B" pref; and
* the redemption value and the outstanding loan balance
of R162.1 million;
9. For the purposes of calculating the pro forma NAV per share and
tangible NAV per share in the "After the redemption" column, the
following assumptions have been made:
- 200 million Matodzi ordinary shares were issued on 30
September 2005 in terms of the redemption; and
- the "B" prefs were redeemed at the redemption value.
The unaudited pro forma financial effects, for which the Matodzi board
is responsible, are presented for illustrative purposes only and
because of their nature may not give a fair reflection of Matodzi"s
financial position and results of its operations post implementation
of the transactions.
4.2 JCI
The most recent published financial statements for JCI relate to the
six month period ended 30 September 2004 which were published in the
press on Thursday, 23 December 2004. Subsequent to the publication of
those results, JCI issued the following statement extracted from the
announcements published in the press on Thursday, 10 November 2005,
and Wednesday, 14 December 2005, respectively:
- "There can be no assurance that the results and the forensic
audit and internal investigation will not impact on JCI"s
previously issued financial statements and earnings releases, or
what any impact will be, until the forensic audit and internal
investigation are completed. As a result, investors are cautioned
not to rely on prior year financial statements and earnings
releases, or what any impact will be, until the forensic audit
and internal investigation are completed and the Company has
published its audited financial statements for the year ended 31
March 2005."
- JCI anticipates releasing restated and unaudited financial
results for the years ended 31 March 2004 and 31 March 2005
respectively, and unaudited results for the six month period
ended 30 September 2005 ("the JCI results") on SENS shortly. JSE
has agreed that the financial impact of the transactions on JCI
can be announced to JCI shareholders once JCI has released its
results.
5. FURTHER CAUTIONARY ANNOUNCEMENTS
Matodzi and JCI shareholders are referred to the cautionary announcements
and renewal of cautionary announcements, the first of which was published
on 12 April 2005, and accordingly, are advised to continue to exercise
caution when dealing in, respectively, their Matodzi and JCI shares.
Johannesburg
30 March 2006
Transaction advisor
T-Corp
Sponsor to JCI and Matodzi
Sasfin Capital
Attorneys to JCI
Tabacks
Attorneys to Matodzi
Hofmeyr
Hofmeyr Herbstein & Gihwala Inc.
Registration number 1997/001523/21
Tax advisors to Matodzi
KPMG
Date: 30/03/2006 04:30:15 PM Produced by the JSE SENS Department
