| Mon 4 Sep 2006, 13:00 | | Cadiz - Acquisition of African Harvest Fund Manage |
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CDZ
CDZ
Cadiz - Acquisition of African Harvest Fund Managers (Pty) Limited and
further
cautionary announcement
CADIZ HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/007258/06)
Share code: CDZ & ISIN: ZAE000017661
("Cadiz" or "the Company")
ACQUISITION BY CADIZ HOLDINGS LIMITED OR ITS NOMINEE OF 100% OF AFRICAN
HARVEST FUND MANAGERS (PROPRIETARY) LIMITED AND AFRICAN HARVEST COLLECTIVE
INVESTMENTS LIMITED AND FURTHER CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement dated Wednesday, 23 August 2006,
Investec Bank Limited is authorised to announce that Cadiz, or its
nominee, has made an offer ("the Offer") to acquire the entire issued
share capital of and claims against African Harvest Fund Managers
(Proprietary) Limited ("AHFM") from African Harvest Fund Managers
Holdings (Pty) Ltd ("Holdings") and the entire issued share capital of
and claims against African Harvest Collective Investments Limited
("AHCI") from African Harvest (Proprietary) Limited ("African Harvest"),
for a total purchase consideration of R295 million ("the acquisition" or
"the transaction"). In addition Cadiz will pay R3 million as
consideration for certain restraint, non-solicitation and goodwill
undertakings provided by Metallon Capital (Proprietary) Limited
("Metallon"), Magda Wierzycka ("Wierzycka") and the Zatoka Trust
(collectively "the Sellers"). The Offer has been duly accepted by
African Harvest, Holdings, and the Sellers.
2. NATURE OF BUSINESS OF AHFM AND AHCI
AHFM is a registered financial services provider and asset manager with
approximately R31.5 billion in funds under management. AHCI is a
registered collective investment scheme management company. Both AHFM
and AHCI are subsidiaries in the African Harvest group of companies.
African Harvest is in turn owned by the Sellers. The current
organisational structure of African Harvest will be available in the
press version of this announcement.
3. RATIONALE FOR THE ACQUISITION
Cadiz"s strategy is based on organic growth while using its capital base
for acquisitions which provide a strategic short cut. The acquisition
of AHFM has presented an attractive opportunity for Cadiz to further its
growth plans and to entrench Cadiz Specialised Asset Management ("CSAM")
as a significant member in the asset management arena in South Africa.
CSAM, a wholly-owned subsidiary of Cadiz, was founded in 1997 focusing
on achieving risk-adjusted returns using derivatives and highly
sophisticated quantitative methods. CSAM assets under management were
bulked up in 2003 by the acquisition of Prodigy-Coris Asset Management.
CSAM"s current assets under management are approximately R16 billion.
AHFM is an institutional asset management company which was established
in late 1999. It is one of South Africa"s top 10 asset managers, with
approximately R31.5 billion in assets under management and a proven
track record. AHFM"s specialist equity fund management skills and
investment process complements that of CSAM"s and creates a unique multi-
strategy specialised asset management company with just under R48
billion of assets under management. Cadiz has committed itself to
retaining AHFM"s entire investment team, and has obtained a signed
commitment and lock-in of all key members of the team for a minimum
period of three years. The lock-in has been priced into the purchase
price. A further lock-in will be achieved through Cadiz"s existing
employee share scheme. A total of 34 people will be retained as part of
the acquisition. Cadiz has further committed itself to preserving the
team"s investment process, its autonomy and style. This complements
CSAM"s existing business model which is based on multi-strategy,
autonomous teams, all leveraging on a common infrastructure and a large
skills pool. CSAM"s existing infrastructure offers significant
economies of scale to this transaction.
Frank Cadiz, the current MD of CSAM, will head up the combined asset
management business. Magda Wierzycka, the current CEO of AHFM, will
resign and will pursue her own interests with African Harvest
Alternative Investments (Proprietary) Limited (to be renamed after the
transaction is concluded). Appropriate restraint of trade, client non-
solicitation and goodwill provisions have been agreed with the Sellers.
The acquisition of the collective investment scheme manager, AHCI, will
have significant benefits for Cadiz"s Investment Products team, which
focuses specifically on developing innovative absolute return solutions
for the retail and small pension funds market. All systems and services
required for the newly acquired assets and investment team are secured
under comprehensive service level agreements with the relevant parties.
4. EMPOWERMENT
Both Cadiz and AHFM are "A" rated by Empowerdex in terms of the draft
Department of Trade and Industry"s ("DTI") Codes of Good Practice.
Cadiz is highly committed to Black Economic Empowerment ("BEE") and
shall endeavour to enhance AHFM"s empowerment credentials in the future.
From an ownership perspective, AHFM will now fall under Cadiz. In this
regard, Cadiz subscribes to the DTI principles of broad based
empowerment and consequently achieves a score of 98.05% from Empowerdex
under the ownership element of the DTI codes. This is significantly
higher than the score achieved by AHFM due to high levels of ownership
in the hands of "broad based ownership schemes", "black women" and
"black designated groups", mainly as a result of the Makana Trust"s
investment into Cadiz. The Makana Trust has over 6,450 registered
beneficiaries, and has appointed directors to the Cadiz board.
Empowerment, transformation and skills transfer are an integral part of
Cadiz"s strategy.
5. SALIENT TERMS OF THE ACQUISITION
5.1 The purchase consideration
The purchase consideration of R295 million is to be allocated as
follows:
* for AHFM, the amount of R234,525,000;
* for AHCI, the amount of R1;
* in respect of the notional debt owing by the "A" shareholders
to Holdings, and by the holders of the rights under the "B"
Phantom shares ("Phantom scheme rights holders") to Metallon, the
amount of R20,342,897; and
* to the "A" shareholders and the Phantom scheme rights
holders, the balance as agreed between Cadiz and the "A"
shareholders and the Phantom scheme rights holders.
Holdings has two employee share schemes in place - an "A" scheme
consisting of ordinary "A" shares in Holdings, and a "B" phantom share
scheme in AHFM based on the valuation of Holdings. African Harvest owns
100% of the ordinary shares in Holdings, although its economic interest
is reduced after taking the "A" and "B" share schemes into
consideration. Cadiz is using a portion of the purchase consideration
to settle Holdings and AHFM"s obligations in respect of the "A" shares
and the "B" phantom share scheme.
80% of the purchase price payable to Holdings is payable on the
effective date and the balance, less an amount of R20 million, is
payable within 10 business days of the effective date. Interest is
payable at the overnight call rate on all amounts not paid on the
effective date. The Sellers warrant that the audited tangible net asset
value on the effective date will be at least R17 million, and the R20
million will be held in reserve to cover any purchase price adjustments
in respect hereof.
Cadiz will fund the acquisition from its own resources. A short-term
facility has been negotiated to ensure that other investments in the
shareholder portfolio can be liquidated in an orderly manner, if and
when required.
5.2 The effective date
The acquisition is effective from the last business day of the month in
which all the conditions precedent have been met ("the effective date").
5.3 Conditions precedent
The acquisition is subject to the following conditions precedent:
5.3.1 All regulatory and legislative approvals (including Competition
Commission, JSE Limited ("JSE") and the Financial Services Board ("FSB"));
5.3.2 Cadiz shareholder approval, as may be required by the JSE Listing
Requirements;
5.3.3 The conclusion of a comprehensive Sale of Shares agreement on the
terms and conditions of the Offer, including such other terms, conditions
and warranties that are normal in transactions of this nature;
5.3.4 The conclusion of employment agreements with key employees of
AHFM;
5.3.5 The conclusion of certain agreements with the Sellers and/or other
companies in the African Harvest group, which agreements are necessary for
the successful continuation of the businesses conducted by AHFM and AHCI;
and
5.3.6 The Sellers concluding appropriate restraints of trade.
The terms and conditions of the agreements referred to in 5.3.3 to 5.3.6
above have been agreed in the Offer or elsewhere, and the conditions
precedent relate only to the conclusion of formal agreements in respect
hereof by 30 September 2006.
5.4 Other significant terms
5.4.1 Cadiz is purchasing the name "African Harvest" and all related
trademarks. The Sellers are required to change the names of all other
companies in the African Harvest group.
5.4.2 The Sellers shall not solicit employees of AHFM for a period of 12
months.
6. BOARD RECOMMENDATION
The proposed acquisition has been considered by the Cadiz board of
directors, who recommend that Cadiz shareholders vote in favour of the
acquisition at the Cadiz general meeting to be convened for the purposes
of considering, and if deemed fit, approving the acquisition. The
directors intend voting their shares in favour of the acquisition.
7. UNDERTAKINGS
As at the date of this announcement, shareholders representing 60.26% of
Cadiz"s shareholding have indicated their irrevocable support for the
proposed acquisition.
8. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE ACQUISITION
A table of pro forma financial effects has not been provided as Cadiz
has instructed an external party to identify, value and establish the
useful lives of the intangible assets acquired in terms of International
Financial Reporting Standards 3 - "Business Combinations" and is
currently unable to make a reasonable estimate of the pro forma
financial effects of the acquisition. Cadiz will release this
information as soon as it becomes available, which is expected to be on
or about Monday, 11 September 2006.
9. CATEGORISATION OF THE ACQUISITION AND CIRCULAR TO SHAREHOLDERS
The acquisition has been categorised as a category 1 transaction in
terms of section 9.5(c) of the JSE Limited Listings Requirements and a
circular containing the details of the acquisition and the details of
the Cadiz general meeting of shareholders will be posted to Cadiz
shareholders in due course.
10. FURTHER CAUTIONARY ANNOUNCEMENT
Given that the pro forma financial effects of the acquisition will be
communicated to shareholders at a later stage, shareholders are advised
to continue exercising caution in trading their shares until such time
as the Company releases such information.
Cape Town
Monday, 4 September 2006
Sponsor: (INVESTEC BANK)
Attorneys: (CLIFFE DEKKER) - legal advisor to Cadiz
Advisor: (CADIZ CORPORATE) - corporate advisor to Cadiz
Advisor: (NEDBANK CAPITAL) - corporate advisor to Metallon
Date: 04/09/2006 01:00:09 PM Produced by the JSE SENS Department
