| Fri 11 Aug 2006, 16:30 | | Decillion Limited - Restructuring Of Decillion |
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DEC
DEC
Decillion Limited - Restructuring Of Decillion
DECILLION LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1998/011692/06)
JSE code: DEC ISIN: ZAE000017612
("Decillion" or "the Company")
RESTRUCTURING OF DECILLION
1. Introduction
Shareholders are referred to the interim results announcement of the
Company dated 23 November 2005, the reviewed provisional results of the
Company for the year ended 28 February 2006 and the cautionary
announcements, the last of which was published on SENS on 7 June 2006,
wherein it was mentioned that the Company was in the process of finalising
the disposal of its funds management business (the "DFM disposal") and
international broking businesses comprising Cedef SA and Decillion AG, both
companies incorporated under the laws of Switzerland (the "Cedef SA and
Decillion AG business asset disposal") (the "disposals").
Decillion wishes to announce that:
- agreements have been entered into to dispose of all the business
operations of Decillion;
- the business operations of Decillion that have not been disposed of
have been wound down and closed in a controlled manner;
- a realisation trust has been set up in terms of which all the
remaining liabilities in Decillion, cash (other than the retained cash) and
other assets have been transferred for the benefit of Decillion
shareholders; and
- pursuant to the disposals and transfer of cash and liabilities to the
realisation trust, Decillion will retain approximately R25 million in cash
and will have no liabilities (the "retained cash").
2. The disposals
2.1 Rationale for the disposals
Shareholders are referred to the announcement released on SENS on 2 August
2005, wherein it was announced that Decillion had signed agreements with
PSG Treasury Outsourcing (Proprietary) Limited to dispose of the entire
issued share capital in, and all shareholder claims against, Decillion
Treasury Management Solutions (Proprietary) Limited, a wholly owned
subsidiary of Decillion for a cash consideration of R2 593 553.
Shareholders are also referred to the announcement released on SENS on 14
December 2005 wherein it was announced that Dynamic Agricultural
Derivatives (Proprietary) Limited, which is a subsidiary of Suidwes
Beleggings Limited, had entered into a sale of assets agreement with
Decillion Agri Services (Proprietary) Limited ("DAS") to acquire the assets
of DAS (the "Agricultural and Commodities broking business disposal") in
terms of which DAS will receive, after settlement of all third party
liabilities, a cash consideration of R26 269 729.
Shareholders were further advised that Decillion had embarked upon a
process to convert its existing assets into cash. The disposals set out
below are a continuation of this objective.
2.2 The DFM disposal
Following the closure of its smaller unprofitable hedge funds during the
2005 financial year, the only remaining hedge funds at the date on which
Decillion announced its intention to convert its assets into cash were the
Headland Capital Fund, the Big Rock Capital Fund and the Fairtree Capital
Fund.
2.2.1. Disposal of the Headland Capital Fund
2.2.1.1 Introduction
On 15 March 2006, JMSW Trading (Proprietary) Limited, which subsequently
changed its name to Atlantic Hedge (Proprietary) Limited, ("Atlantic
Hedge") entered into a sale agreement with Decillion, Decillion Holdings
Limited ("Decillion Holdings"), Decillion Fund Management (Proprietary)
Limited ("DFM") and Decillion Fund Partners (Proprietary) Limited ("DFP"),
(collectively, the "Headland Capital Fund sellers") to acquire the entire
business, relating to the Headland Capital Fund, that each of the Headland
Capital Fund sellers carried on at the business day immediately preceding 1
January 2006 (the "effective date"), including certain associated assets
(the "Headland Capital Fund disposal").
In addition to the Headland Capital Fund disposal, Decillion Holdings sold
100 shares of US$0.01 each in the issued share capital of North Island
Advisory Limited ("NIA") and all claims, which Decillion Holdings may have
against NIA as at the effective date (the "NIA disposal").
2.2.1.2 Consideration for the Headland Capital Fund disposal and NIA
Disposal
The consideration for the Headland Capital Fund disposal was R5 398 577 and
for the NIA disposal was US$1, both of which were settled in cash.
2.2.1.3 Related party
Atlantic Hedge"s shares are 100% held by the Graham Family Trust. Wayne
Graham was the former fund manager of the Headland Capital Fund while it
was under the control of Decillion. Wayne joined Decillion in January 1999,
when he was appointed as co-fund manager for the Big Rock Capital Fund and
has headed up the Headland Capital Fund since September 2002. Wayne was a
director of DFM and DFP prior to the Headland Capital Fund disposal and the
NIA disposal.
2.2.2 Disposal of the Big Rock Capital Fund
2.2.2.1 Introduction
On 27 February 2006, Peregrine Investment Managers (Proprietary) Limited
("PIM"), entered into a sale agreement with DFM and DFP (collectively, the
"Big Rock Capital Fund sellers") to acquire the entire business relating to
the Big Rock Capital Fund, that each of the Big Rock Capital Fund sellers
carried on at the effective date, including certain associated assets (the
"Big Rock Capital Fund disposal").
2.2.2.2 Consideration for the Big Rock Capital Fund disposal
The consideration for the Big Rock Capital Fund disposal was R2 983 166,
which was settled in cash.
2.2.3 Disposal of the Fairtree Capital Fund
2.2.3.1 Introduction
On 14 March 2006, Fairtree Capital (Proprietary) Limited ("Fairtree"),
entered into a sale agreement with DFM and DFP (collectively the "Fairtree
Capital Fund sellers") to acquire the entire business relating to the
Fairtree Capital Fund, that each of the Fairtree Capital Fund sellers
carried on at the business day, immediately preceding the effective date,
including associated assets (the "Fairtree disposal").
2.2.3.2. Consideration for the Fairtree disposal
The consideration for the Fairtree disposal is R2 273 325, which was
settled in cash.
2.2.3.3. Related party
The shares of Fairtree are held 55% by Fortified Investments (Pty) Limited,
a wholly owned subsidiary of the Andre Malan Family Trust and 45% by Nicole
Investments (Pty) Limited, in which Werner Prinsloo holds all the shares.
Andre Malan and Werner Prinsloo were the former fund managers of Fairtree
while it was under the control of Decillion. Andre Malan joined Decillion
in 1998 as a member of the Big Rock Capital Fund team and was appointed to
head-up the Fairtree Capital Fund in October 2003. Andre Malan was a
director of DFM prior to the Fairtree disposal.
2.2.4 Financial effects of the DFM disposal
The unaudited pro forma financial effects of the DFM disposal on
Decillion"s Earnings Per Share ("EPS"), Headline Earnings Per Share
("HEPS"), Net Asset Value ("NAV") per share and Net Tangible Asset Value
("NTAV") per share are set out below. The financial effects contained in
the table below are the responsibility of the directors of Decillion and
have been prepared for the purposes of illustrating how the DFM disposal
would have affected the relevant financial ratios of Decillion for the
historical financial period indicated and are pro forma only. Accordingly,
such effects do not necessarily represent a true reflection of the
financial effects of the DFM disposal on Decillion"s current and future
earnings and net asset value.
Adjusted After the DFM Movement
reviewed disposal
before
DFM
disposal
(1)
(%)
HEPS (cents) (2) (5) 10.5 4.5 -57.3%
EPS (cents) (2) (4) 0.8 0.9 12.5%
NAV per share 23.6 29.1 23.3%
(cents) (3)
NTAV per share 23.6 29.1 23.3%
(cents) (3)
Weighted average 164,913 164,913
number of shares in
issue (000"s)
Actual number of 164,913 164,913
shares in issue
(000"s)
Notes:
1. Based on the reviewed financial results of Decillion for the 12 months
ended 28 February 2006. The reviewed results have been adjusted by
excluding the recognition of the profit on the DFM disposal and related
capital gains tax.
2. The pro forma effects on the EPS and HEPS after the DFM disposal are
based on the following assumptions:
(a) the DFM disposal was effective for the 12 months ended 28 February
2006; and
(b) the proceeds of the DFM disposal were utilised to settle trading
facilities at South African Futures Exchange ("SAFEX") overnight after-tax
deposit interest rates ranging between 6,70% and 7,20%.
3. The pro forma effects on the NAV per share and TNAV per share after
the DFM disposal are based on the following assumption:
a) the DFM disposal was effected on 28 February 2006.
4. Based on a weighted average number of 164 913 000 Decillion shares in
issue during the 12 months ended 28 February 2006 and on an attributable
profit of R1 316 000 for the year then ended, after adjustments in note 1
above.
5. Based on a weighted average number of 164 913 000 Decillion shares in
issue during the 12 months ended 28 February 2006 and on headline earnings
of R17 259 000 for the year then ended, after adjustments in note 1 above.
6. The NAV of the DFM business assets disposed of at 28 February 2006 was
R655 070.
7. An amount of R61 155 803 has been used in the post disposal interest
calculation, comprising the following:
- proceeds equal to the amount calculated in 6 above, plus a premium of R10
000 000;
- less direct costs attributable to the disposal of R1 005 186;
- average cash balance of R23 759 256; and
- average investment in hedge funds of R27 746 663.
8.These financial effects take into account the estimated costs associated
with the DFM disposal and estimated Capital Gains Tax implications.
2.3. The Cedef SA and Decillion AG business asset disposal
2.3.1. Introduction
On 17 May 2006, Cedef SA and Decillion AG (collectively the "Cedef SA and
Decillion AG business asset sellers"), entered into a sale and purchase
agreement with Kepler Equities (Suisse) SA, a company incorporated under
the laws of Switzerland (the "Cedef SA and Decillion AG business asset
buyer"), to acquire certain of the business assets of each of Cedef SA and
Decillion AG.
Consideration for the Cedef SA and Decillion AG business asset disposal
The gross consideration for the Cedef SA and Decillion AG business asset
disposal is 5 079 383 Swiss Francs ("CHF") (the "gross consideration") to
be paid as follows:
- CHF 2 579 383, was settled in cash on 1 June 2006;
- CHF 1 750 000, in respect of an estimate of commissions and pension
fund liabilities due by Cedef SA in respect of former employees and to be
settled by the Cedef SA and Decillion AG business asset buyer; and
- CHF 750 000, after a retention period of three months after the
completion of the Cedef SA and Decillion AG business asset disposal,
provided that no claims have been brought during this period by the Cedef
SA and Decillion AG business asset buyer against the Cedef SA and Decillion
AG business asset sellers in respect of representations and warranties
provided to the Cedef SA and Decillion AG business asset buyers. If a
claim(s) is instituted and is successful then the difference between CHF
750 000 and the claim(s) amount(s) will be paid to the Cedef SA and
Decillion AG business asset sellers.
The gross consideration is included in the calculation of income tax
payable by Cedef SA for the financial year. In terms of Swiss tax
legislation, Value Added Tax ("VAT") is payable on the gross consideration.
2.3.3 Financial effects of the Cedef SA and Decillion AG business asset
disposal
The unaudited pro forma financial effects of the Cedef SA and Decillion AG
business asset disposal on Decillion"s EPS, HEPS, NAV per share and NTAV
per share are set out below. The financial effects contained in the table
below are the responsibility of the directors of Decillion and have been
prepared for the purposes of illustrating how the Cedef SA and Decillion AG
business asset disposal would have affected the relevant financial ratios
of Decillion for the historical financial period indicated and are pro
forma only. Accordingly, such effects do not necessarily represent a true
reflection of the financial effects of the Cedef SA and Decillion AG
business asset disposal on Decillion"s current and future earnings and net
asset value.
Reviewed After the Movement
before Cedef SA and
the Cedef Decillion AG
SA and business
Decillion asset
AG disposal
business
asset
disposal
(1)
(%)
HEPS (cents) 10.2 14.6 43.0%
(2) (5)
EPS (cents) 6.6 19.8 198.8%
(2) (4)
NAV per 29.1 36.4 25.1%
share
(cents) (3)
NTAV per 29.1 36.4 25.1%
share
(cents) (3)
Weighted 164,913 164,913
average
number of
shares in
issue
(000"s)
Actual 164,913 164,913
number of
shares in
issue
(000"s)
Notes:
1. Based on the reviewed financial results of Decillion for the 12 months
ended 28 February 2006.
2. The pro forma effects on the EPS and HEPS after the Cedef SA and
Decillion AG business asset disposal are based on the following
assumptions:
(a) the Cedef SA and Decillion AG business asset disposal was effective
for the 12 months ended 28 February 2006; and
(b) the proceeds of the Cedef SA and Decillion AG business asset disposal
were first utilised to settle interest free third party liabilities and
then trading facilities at SAFEX overnight after-tax deposit interest rates
ranging between 6,70% and 7,20%.
3. The pro forma effects on the NAV per share and TNAV per share after
the Cedef SA and Decillion AG business asset disposal are based on the
following assumption:
(a) the Cedef SA and Decillion AG business asset disposal was effected on
28 February 2006.
4. Based on a weighted average number of 164 913 000 Decillion shares in
issue during the 12 months ended 28 February 2006 and on an attributable
profit of R10 950 000 for the year then ended.
5. Based on a weighted average number of 164 913 000 Decillion shares in
issue during the 12 months ended 28 February 2006 and on headline earnings
of R16 893 000 for the year then ended.
6. The NAV of the Cedef SA and Decillion AG business assets disposed of
at 28 February 2006 was R612 185.
7. An amount of R3 375 458 has been used in the post disposal interest
calculation, comprising the following:
- proceeds equal to the amount calculated in 6 above, plus a premium of R23
252 195;
- less direct costs attributable to the disposal of R11 106 707;
- less third party liabilities of R11 524 021; and
- average cash balance of R2 141 806.
8. These financial effects take into account the estimated costs
associated with the Cedef SA and Decillion AG business asset disposal and
estimated Capital Gains Tax implications.
2.4 Conditions precedent relating to the Cedef SA and Decillion AG
business asset disposal
The Cedef SA and Decillion AG business asset disposal is conditional upon,
inter alia, the approval of shareholders in general meeting. Decillion has
dispensed with all resolutive conditions by obtaining irrevocable
undertakings from its shareholders holding more than 50% of the voting
rights exercisable in respect of its issued share capital, to approve
and/or ratify the implementation of the Cedef SA and Decillion AG business
asset disposal at the general meeting, details of which will be included in
the circular to shareholders mentioned in paragraph 9 below.
2.5 Repatriation of cash
Pursuant to the Cedef SA and Decillion AG business asset disposal, Cedef SA
will collect all outstanding accounts receivable and settle all outstanding
creditors and liabilities. In addition to the above, cash will be retained
against potential legal claims and VAT disputes against Cedef SA. It is
estimated that the cash available for repatriation to South Africa will be
approximately CHF 1 000 000.
3. The ABSA Bank Limited settlement
3.1 Introduction
During March 2003 and March 2004, valuation differences between ABSA Bank
Limited ("ABSA") and Decillion Capital (Proprietary) Limited"s ("Decillion
Capital") respective gross valuations of certain swaps and hedges were
identified (the "disputes").
Certain framework agreements were entered into as follows:
- between ABSA, Decillion Capital, Decab Derivatives Trading
(Proprietary) Limited ("Decab I") and JGM Nominees (Proprietary) Limited on
10 May 2004; and
- between ABSA, Decillion Capital, Decab Derivatives Trading II
(Proprietary) Limited ("Decab II") on 6 June 2005; (collectively "the
framework agreements");
- in order to, inter alia, ring-fence the swaps, the hedges and the
trades from the business operations of Decillion Capital by transferring
such trades to Decab I and Decab II respectively, and to defer settlement
of the disputes, with the expectation that the arrangement effected by the
framework agreements would allow an opportunity for ABSA and Decillion
Capital to reduce the disputed amounts to an acceptable level, by managing
the reconstituted arrangements in accordance with the procedures set out in
the management agreements which were entered into between:
- Decillion Capital, Decab I and ABSA on 1 May 2004; and
- Decillion Capital, Decab II and ABSA on 3 June 2005.
3.2 The ABSA settlement amount
ABSA, Decillion Capital, Decillion, Decab I, Decab II and JGM Nominees
(Proprietary) Limited (the "parties") entered into an agreement on 6 March
2006 in terms of which the parties agreed to effect the final settlement of
the disputes by means of the payment by Decillion of a settlement amount of
R60 million to Decab I and Decab II (the "ABSA settlement amount"), the
termination of the rights and obligations of Decillion Capital and
Decillion in terms of the framework agreements and the termination of the
transaction agreements and matters ancillary thereto.
4. The London operations
The London operations which comprised the bonds business and equity
derivatives operations have been closed down in an orderly manner and no
funds will be repatriated in respect of these operations. The only
contingent liability that remains is the rental commitment of Decillion
(Europe) Limited for which Decillion has provided a guarantee.
5. The Decillion Realisation Trust
5.1. Introduction
Following the disposals, the ABSA settlement, the closure of the London
operations, as well as the realisation of other assets and payment of other
liabilities, the available cash held by Decillion will be approximately R45
million.
To assist with the transformation of Decillion as set out in this
announcement, and in order to facilitate the initiatives set out in
paragraph 6 below, the Decillion Realisation Trust ("realisation trust")
was established as a special purpose trust for the purpose of holding
certain assets and to assume responsibility for the following liabilities
and contingent liabilities within Decillion:
- the remaining potential legal claims and VAT dispute against Cedef SA;
- the take-over of the guarantee provided by Decillion for the rental
commitment of Decillion (Europe) Limited in London;
- a potential claim that may be brought against Decillion by the former
CEO of the group, Mr. Alwyn Smit and a potential counter claim that may be
instituted by Decillion against same;
- to stand in for the representations and warranties provided to the
Cedef SA and Decillion AG business asset buyer on the disposal of the
assets of Cedef SA and Decillion AG; and
- any other potential claims that may be brought against the Decillion
group in future.
It is anticipated that the realisation trust will be capitalised with the
following assets:
- approximately R20 million in cash;
- shares in various subsidiary companies of Decillion, which companies
are mainly dormant following the disposals; and
- 38 286 339 Decillion shares with an approximate value of R4.7 million
which are currently held in subsidiary companies for the benefit of staff
incentive schemes and held as treasury shares by Decillion. There are no
obligations in respect of these shares.
It is anticipated that certain liabilities and/or contingent liabilities
cannot be settled immediately as a result of:
- certain liabilities under dispute;
- liabilities held within funding structures with the obligation to
manage these funding structures until maturity; and
- possible liabilities which are not quantifiable as yet.
These liabilities and/or contingent liabilities have been transferred to
the realisation trust and there will therefore be no further claim against
Decillion in respect to these liabilities and/or contingent liabilities.
It is anticipated, based on all the information available to Decillion
management at the date of making this announcement and through a strategic
analysis and review of Decillion by the Decillion management, that the
assets in the realisation trust will be sufficient to cover all
liabilities, contingent liabilities or any other possible liabilities
pursuant to the transfer of all the assets and liabilities as set out
above.
5.2 Beneficiaries of the realisation trust
All shareholders, other than the shareholders of the Decillion shares to be
transferred to the realisation trust, registered at the close of business
on a record date to be announced, will be beneficiaries of the realisation
trust ("beneficiaries of the realisation trust"). Should a beneficiary of
the realisation trust dispose of their Decillion shares prior to the close
of business on the record date to be announced, then the new holder(s) of
such Decillion shares will become beneficiaries of the realisation trust.
5.3 Rights of the beneficiaries of the realisation trust
The beneficiaries of the realisation trust will be entitled to a
distribution of the remaining assets of the realisation trust once all the
liabilities and currently non-quantifiable liabilities as set out in
paragraph 5.1 above have been settled. In this regard shareholders will be
notified as to the progress made by the realisation trust with respect to
the settlement of all the liabilities and currently non-quantifiable
liabilities that will be transferred to the realisation trust and whether
or not any further distributions will be made from the realisation trust.
5.4 The trustees of the realisation trust
JGM Nominees (Proprietary) Limited have been appointed as trustees of the
realisation trust. The realisation trust will be managed by a management
company and will be staffed by existing employees of Decillion, employed
for this purpose.
5.5 Warranties
The realisation trust has fully indemnified Decillion to ensure that
Decillion will not be liable for any liabilities, contingent liabilities or
any other possible liabilities pursuant to the transfer of all the assets
and liabilities as set out in paragraph 5.1 above.
5.6 Conditions precedent relating to the formation and implementation of
the realisation trust.
The formation and implementation of the realisation trust is conditional
upon, inter alia, the approval thereof by shareholders in general meeting.
6. Future corporate action
Following the disposals, the ABSA settlement amount, the closure of the
London operations and pursuant to the transfer of the assets and
liabilities to the realisation trust, Decillion will retain approximately
R25 million in cash and will have no liabilities.
The directors of Decillion are in the process of aggressively pursuing
various opportunities, including reverse listing opportunities, with the
intention of maximising shareholder value. Should these opportunities not
be realisable within a reasonable time period, the remaining cash held by
Decillion will be distributed to shareholders.
In the event of a cash distribution, as opposed to a reverse listing,
additional cash in place of the share incentive scheme shares and treasury
shares, will be transferred to the realisation trust but the share
incentive scheme and treasury shares will not participate in a cash
distribution. The estimated value per share will remain the same as
demonstrated below:
Alternatives (R"000)
Cash Reverse
Distribution listing
Available cash before transfer to 45, 073 45,073
the realisation trust
Transfer to the realisation trust (20,000) (20,000)_
Cash equal to the value (4,706) -
attributable to the share
incentive scheme and treasury
shares
Uncommitted surplus cash resources 20,367 25,073
Number of shares (`000) 165,463 203,699
Value per share (cents) 12.31 12.31
The company will keep shareholders abreast of any further developments in
this regard.
7. Independent advisors
Ernst & Young has been appointed by Decillion as independent advisors to
the board to advise them on the terms and conditions of the related party
transactions.
8. Recommendations and opinions
The board have recommended that shareholders vote in favour of the
resolutions to approve the transactions as set out in this announcement.
All the members of the board will be voting in favour of all such
resolutions in respect of their shareholding in Decillion, to approve such
transactions.
9. Timetable, documentation, related JSE matters and general meeting
Shareholders will be advised in due course as to the important dates and
times relevant to the transactions as set out in this announcement. In
terms of the JSE Listings Requirements, Decillion is required to prepare a
category 1 circular which is subject to approval by the JSE and will
contain full details of the transactions as set out in this announcement.
This circular will be posted to shareholders in due course.
A general meeting of Decillion shareholders will be convened for the
purposes of considering and, if deemed fit, passing the necessary ordinary
and special resolutions relating to the implementation of the transactions
as set out in this announcement.
10. Withdrawal of cautionary announcement
Shareholders are referred to the announcement released on SENS on 7 June
2006 and are hereby advised that as the terms of the transactions as set
out in this announcement have been announced, that caution is no longer
required to be exercised when dealing in their Decillion shares.
Johannesburg
11 August 2006
Investment bank Corporate law Independent Reporting
and transaction advisers advisor accountants to
sponsor Decillion
- LOGO - - LOGO - - LOGO - - LOGO -
Nedbank Capital Jowell Glyn & Ernst & Young PKF
Marais
Date: 11/08/2006 04:30:36 PM Produced by the JSE SENS Department
