| Wed 15 Nov 2006, 12:00 | | CMH - Introduction of TIC as a BEE partner |
|
CMH
CMH
CMH - Introduction of TIC as a BEE partner, proposed subdivision of ordinary
shares and the SPV Conversion Rights
Combined Motor Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1965/000270/06)
JSE share code: CMH & ISIN number: ZAE000001541
("CMH" or "the company")
ANNOUNCEMENT REGARDING THE INTRODUCTION OF THEBE INVESTMENT CORPORATION
AS A 15% BLACK ECONOMIC EMPOWERMENT PARTNER TO CMH, THE PROPOSED 5-FOR-1
SUBDIVISION OF ORDINARY SHARES AND THE SPV CONVERSION RIGHTS
1. Introduction
Shareholders are advised that CMH has entered into a shareholders" agreement
(the "Shareholders" Agreement") with a newly-incorporated subsidiary company CMH
Holdings (Proprietary) Limited ("CMH Holdco"), Thebe Investment Corporation
(Proprietary) Limited ("TIC") and Main Street 445 (Proprietary) Limited ("SPV"),
a wholly-owned subsidiary of TIC. The Shareholders" Agreement sets out the terms
and conditions of the introduction of TIC as a BEE partner to CMH (the "BEE
Transaction") and governs the future relationship between the parties.
In terms of the Shareholders" Agreement, CMH has granted SPV certain conversion
rights which are deemed to be a specific issue of shares for cash in terms of
section 5.50 of the JSE Listings Requirements ("Listings Requirements") and, as
such, require shareholder approval.
In addition, CMH directors have proposed a 5-for-1 subdivision of issued
ordinary shares to encourage more participation by private investors and to
increase the liquidity of the shares.
2. Rationale for the BEE Transaction
CMH supports the South African Government"s BEE initiatives and over the years
has been successful in introducing black shareholders into selected operating
companies. In line with its commitment to transformation, CMH now wishes to
advance its BEE strategy to a group level to complement its existing BEE
activities at an operating company level.
3. Implementation of the BEE Transaction
In terms of the Shareholders" Agreement and in order to facilitate the BEE
transaction, it is necessary to reorganise the legal and corporate structure of
the CMH Group. The proposed restructuring (the "Restructuring") requires the
sale by CMH, as a going concern, of all its assets and liabilities including its
shares and loan accounts in its subsidiary companies through which it conducts
its business of motor retail, car rental, marine and leisure and financial
services ("CMH Business") to CMH Holdco. CMH Holdco will acquire the CMH
Business for the consideration of R1 962,7 million and CMH will loan to CMH
Holdco the amount outstanding for the consideration ("the CMH Equity Loan").
CMH Holdco is a newly-incorporated company, which was incorporated for the
purpose of acquiring the CMH Business and in which CMH owns 850 A class ordinary
shares of R1,00 each, being all the issued share capital immediately prior to
the purchase of the CMH Business. CMH Holdco"s articles of association will be
amended to conform to Schedule 10 of the Listings Requirements.
CMH shareholders are required to approve the Restructuring by passing an
ordinary resolution in terms of section 228 of the Companies Act, 1973 (Act 61
of 1973) as amended ("the Act"). The Restructuring is considered an affected
transaction as defined in the Securities Regulation Code on Takeovers and
Mergers and the Rules of the Securities Regulation Panel ("SRP") and a circular
as required by the SRP has been sent to shareholders to approve the
Restructuring.
On completion of the Restructuring, TIC will be introduced as an empowerment
partner to the CMH Group through SPV, a wholly-owned subsidiary of TIC,
subscribing for 150 B class ordinary shares at par of R1,00 each in CMH Holdco
and loaning CMH Holdco R294,4 million ("SPV Equity Loan"). This will give TIC
15% of the economic and voting rights in CMH Holdco. CMH Holdco will apply the
R294,4 million received on loan account from SPV to settle a portion of the CMH
Equity Loan. The BEE Transaction is considered an issue of shares by a major
subsidiary as defined under the Listings Requirements. The issue by CMH Holdco
of 150 B class ordinary shares to SPV requires CMH shareholder approval by the
passing of an ordinary resolution, with a 75% majority of votes cast in favour.
Further information is provided in the circular to shareholders dated 15
November 2006.
The purpose of the Restructuring is to facilitate the BEE Transaction by
providing SPV with access to its proportional share of the free cash flows of
CMH Holdco in order to enhance SPV"s ability to repay its funding obligations.
In this regard CMH Holdco will make bi-annual distributions, in December and
June, to its shareholders CMH and SPV. The amount of these distributions will be
equal to the consolidated earnings of CMH Holdco for the previous six month
period ended 31 August and 28 February, for each year the Shareholders"
Agreement is effective, divided by 1.2 ("Free Cash Flow"). The distribution will
be allocated to each shareholder divided between dividends, STC on such
dividends (in the case of SPV) and proportional repayment of the CMH Equity Loan
and SPV Equity Loan.
Different class ordinary shares have been issued to the shareholders of CMH
Holdco to allow for a different allocation of the Free Cash Flows between
dividends, STC and repayment of loan accounts for each shareholder.
TIC will not be entitled to sell its ordinary shares in SPV nor will SPV be
entitled to sell its shares in CMH Holdco and the SPV Equity Loan ("SPV Equity")
before 1 January 2015.
4. Funding of the BEE Transaction
SPV will be funded through three classes of preference shares and a TIC
shareholder loan as follows:
4.1 A-Preference Shares
SPV will issue to Depfin Investments (Proprietary) Limited ("Depfin"), a wholly-
owned subsidiary of Nedbank Limited, 105 000 cumulative redeemable A-class
preference shares ("A-Prefs") for a total consideration of R105 million.
The A-Prefs will distribute a semi-annual dividend at a variable rate linked to
the prime overdraft rate. The A-Prefs" dividends and capital will be paid and
redeemed over a seven year period. The A-Prefs rank senior to all other shares
of SPV.
4.2 B-Preference Shares
SPV will issue to Depfin 45 000 cumulative redeemable B-class preference shares
("B-Prefs") for a total consideration of R45 million. The B-Prefs will
distribute a semi-annual dividend at a variable rate linked to the prime
overdraft rate. The B-Prefs" dividends and capital will be redeemed out of cash
flows available after meeting the obligations of the A-Prefs, provided that
prior to the fourth anniversary of the effective date, accumulated dividends and
outstanding capital do not exceed R55,0 million. Accumulated dividends and
outstanding capital after four years will be repaid on a fixed schedule from
years 4 - 7 of the preference share term.
Depfin will be provided with a put option by CMH that will require CMH to
purchase all the B-Prefs for an amount equal to the outstanding capital and
arrear dividends in the event of default under the terms and conditions of the B
Prefs Subscription Agreement.
4.3 C-Preference Shares
SPV will issue to CMH 124 387 cumulative redeemable C-class preference shares
("C-Prefs") for a total consideration of R124,4 million. The C-Prefs will accrue
a semi-annual dividend providing a dividend yield to the holder, on unredeemed
capital and accrued dividends, equivalent to a floating rate of 85% of the prime
overdraft rate. The C-Prefs" accrued dividends and capital will be paid and
redeemed out of available cash flows once the commitments under the A-Prefs and
B-Prefs have been met, with a maximum term of 12 years.
CMH will receive a net amount of R170 million in cash after investing in the C-
Prefs R124,4 million of the R294,4 million consideration received. The net
proceeds will be retained by the company and the directors of CMH will consider
the distribution of this amount, less STC, to shareholders as a dividend.
4.4 TIC Shareholder loan
TIC will provide a R20 million shareholder loan which will be subordinated to
the preference share funding and interest free. The shareholder loan may be
repaid utilising TIC"s entitlement to 5% of the Free Cash Flows distributed to
SPV.
5. Transaction overview
The following diagram reflects the impact of the Restructuring and BEE
Transaction on the CMH Group:
SEE PRESS ANNOUNCEMENT FOR GRAPHIC
6. SPV Conversion Rights
In terms of the Shareholders" Agreement, each of CMH and SPV will have the right
to convert the SPV Equity into ordinary CMH shares ("SPV Conversion Rights")
after 1 January 2015 or when all of the preference share funding has been
redeemed, whichever date is the later. SPV will have similar rights on the
occurrence of an event of default under the A-Pref Subscription Agreement.
Such conversion will take place on a fair market value swap basis. SPV"s shares
in CMH Holdco will be transferred to CMH and the SPV Equity Loan ceded to CMH
against the allotment and issue by CMH of the requisite number of ordinary
shares in CMH.
The SPV Conversion Rights are deemed to be a specific issue of shares for cash
in terms of Section 5.50 of the Listings Requirements and, as such, require
approval by shareholders. Further details relating to the specific issue of
shares for cash are provided in the circular to shareholders dated 15 November
2006.
7. Conditions precedent to the BEE Transaction
The BEE Transaction is subject to:
CMH shareholders passing an ordinary resolution in terms of section 228 of the
Act approving the Restructuring;
CMH shareholders passing an ordinary resolution, requiring 75% shareholder
approval, approving the issue by CMH Holdco to SPV of 150 B class ordinary
shares;
CMH shareholders passing a ordinary resolution, requiring 75% shareholder
approval, approving the SPV Conversion Rights;
the terms and conditions of the Shareholders" Agreement becoming unconditional;
and
the terms and conditions of the Preference Share Subscription Agreement
becoming unconditional.
Subject to fulfilment of the conditions precedent, the effective date of the
transaction will be 1 December 2006.
8. Background to TIC
Established in 1992 by the Batho Batho Trust, TIC is the realisation of a dream
to liberate South Africa"s people through economic empowerment, a dream that
continues to be fulfilled by providing individuals with financial security
through accessibility to affordable products that enhance their quality of life.
Aside from its success as South Africa"s oldest BEE company, TIC has emerged as
a truly African company that remains true to its vision of creating products and
services for the needs of the people. The company is firmly founded on the
belief that our wealth and our values are measured by the extent to which we
serve our communities.
The Batho Batho Trust, a community-based trust, which was set up to support the
efforts of historically disadvantaged individuals, owns 51,40% of the equity of
TIC. TIC management owns 22,56% of the equity, with 76% of management being
black persons as defined in the Broad Based Black Economic Empowerment Act, 53
of 2003, as amended. Investec Employees Benefits Limited, Sanlam Life Assurance
Limited and Old Mutual Life Assurance Company (South Africa) Limited own the
remaining 26,04%.
TIC is the Batho Batho Trust"s only investment and the income and proceeds from
the investments made by TIC are to be applied for the benefit of historically
disadvantaged communities.
9. Pro forma financial effects
9.1 Accounting treatment
The financial effects of the Restructuring and BEE Transaction are accounted for
and presented as one indivisible transaction. The financial effects are
determined by applying IFRS, which accounts for the BEE transaction in a manner
different from its legal substance and form. IFRS requires that CMH consolidate
SPV because the C-Prefs share funding provided by CMH to SPV exposes CMH to the
majority of the risks of SPV, even though CMH does not exercise control over
SPV.
In terms of this accounting treatment, CMH will reflect SPV"s obligations to the
A and B-Pref Shareholders and the TIC Shareholder Loan on its balance sheet,
after eliminating its investment in the C-Prefs against SPV"s obligations under
the C-Prefs. SPV"s share of CMH Holdco"s earnings, after payments to preference
shareholders and TIC, will be reflected under minority interests.
9.2 Unaudited pro forma financial effects
The unaudited pro forma financial effects of the Restructuring and BEE
Transaction and exercise of the SPV Conversion Rights, set out in the table
below, are based on the published reported unaudited interim results of CMH
Group for the six months ended 31 August 2006 and the assumptions set out below.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only in order to provide information on how the Restructuring and BEE
Transaction and the exercise of the SPV Conversion Rights might have affected
the results and financial position of CMH Group and, because of their nature,
may not give a true reflection of the financial position and income going
forward. The financial effects set out below are the responsibility of the
directors of CMH .
An independent reporting accountants" report relating to the unaudited pro forma
financial information is included in the circular posted to shareholders.
Pro forma After
Restructuring,
Actual Before Pro forma BEE Transaction
Restructuring, After and exercise
BEE Transaction Restructuring of SPV
and exercise of SPV and BEE Conversion
Conversion Rights Transaction Change Rights Change
(cents) (cents) % (cents) %
EPS 383,0(1) 372,3(2) (2,8) 369,9(4) (3,4)
HEPS 380,4(1) 369,7(2) (2,8) 367,7(4) (3,3)
NAV 2 446,7(1) 2 446,7(3) - 3 338,3(5) 36,4
NTAV 1 723,6(1) 1 723,6 - 2 709,0(5) 57,2
Shares in issue 21 180 800 21 180 800 - 24 342 511 14,9
Weighted average
shares in issue 21 141 900 21 141 900 - 24 303 611 14,9
Notes
1. Earnings (EPS) and headline earnings (HEPS) per share ("earnings per share"),
and net asset value per share (NAV) and net tangible asset value per share
(NTAV) in the `Before" column were extracted from CMH Group"s unaudited reported
results for the six months ended 31 August 2006.
2. The earnings per share numbers reflected in the `After the Restructuring and
BEE Transaction" column reflect the consolidation of SPV and its share of CMH
Holdco"s earnings, the deduction of the deemed interest payments to SPV"s
preference shareholders and the allocation of the remaining earnings to minority
shareholders. In addition, earnings per share were increased on the assumption
that the R170 million received in cash on the sale of a 15% interest in CMH
Holdco was used to settle trade finance liabilities bearing interest at the
prime rate.
3. The NAV and NTAV reflected in the `After the Restructuring and BEE
Transaction" column remain unchanged after the Restructuring and BEE
Transaction.
4. The earnings per share numbers reflected in the `After the Restructuring, BEE
Transaction and exercise of the SPV Conversion Rights" column reflects the
exercise of the SPV Conversion Rights, on the assumption that SPV settles all
funding of the BEE Transaction and is able to exercise SPV Conversion Rights
immediately and not after 1 January 2015. The impact of this on earnings per
share is that CMH receives interest income on the R294,4 million cash received
(calculated at the interest rate used in note 2) and issues a further 3 161 711
ordinary shares. Shareholders should note that the exercise of the SPV
Conversion Rights is only expected after 1 January 2015 or when all the A-Prefs,
B-Prefs and C-Prefs have been settled, whichever date is the later, and
consequently should read these effects with caution.
5. The NAV and NTAV reflected in the `After the Restructuring, BEE Transaction
and exercise of the SPV Conversion Rights" column reflect the increase in CMH"s
share capital for the value of the SPV Equity acquired and for the issue of 3
161 711 shares in consideration therefore.
10. Subdivision of shares
CMH directors have proposed a 5-for-1 subdivision of issued ordinary shares, as
the CMH share price has increased considerably in the last few years and the
subdivision will encourage more participation by private investors and increase
the liquidity of the shares. The proposed subdivision will not have any
financial effects although the market price will be reduced accordingly to a
greater or lesser degree by the ratio of the subdivision.
The implementation of the subdivision is subject to the shareholders of CMH
passing a special resolution at a general meeting of the company. Notification
of a general meeting to pass the special resolution and information required in
terms of the Listings Requirements relating to the subdivision has been included
in the circular to shareholders.
11. Other business
Included in the circular to shareholders is a proposed amendment to the articles
of association of CMH in order to allow CMH to repurchase its own shares subject
to the approval of its shareholders. Such amendment to the articles of
association requires the CMH shareholders to pass a special resolution at a
general meeting of the company. Notification of a general meeting to pass the
special resolution has been included in the circular to shareholders.
12. Important dates and times
Last day to lodge forms of proxy at the
registered office of CMH
for the general meeting by 10:00 on Tuesday, 5 December 2006
General meeting of CMH shareholders to
be held at 10:00 on Thursday, 7 December 2006
Results of the general meeting announced
on SENS on Thursday, 7 December 2006
Results of the general meeting announced
in the press on Friday, 8 December 2006
Special resolutions lodged with the Registrar
on or about Friday, 8 December 2006
Last day to trade in CMH shares Friday, 26 January 2007
Trading commences in the subdivided
CMH ordinary shares of no par value
under the new ISIN ZAE000088050. The JSE code
will remain the same as that currently
applicable to CMH Monday, 29 January 2007
Record date for the subdivision Friday, 2 February 2007
Replacement certificates reflecting the
subdivision will be posted to certificated
shareholders whose share certificates
have been received by Friday, 2 February 2007
on or about Monday, 5 February 2007
If share certificates have not been received by
Friday, 2 February 2007, share certificates
will be posted within five business days of
receipt of the certificates
Dematerialised shareholders will have their
accounts at their CSDP or broker updated on Monday, 5 February 2007
Notes
1. These dates and times may be changed by CMH. Any such change will be
announced on SENS, and published in the South African press.
2. Unless otherwise indicated, all times are South African times.
3. The directors of CMH request that CMH shareholders, holding share
certificates in their own names, consider dematerialising their shares.
4. Share certificates held by CMH shareholders prior to the subdivision may not
be dematerialised or rematerialised after Friday, 26 January 2007.
By order of the board
S K Jackson
Secretary
Durban
15 November 2006
Corporate advisor to CMH
Chartwell
Capital Group (Pty) Ltd
(Registration number 1999/027720/07)
Legal advisor to CMH
Shepstone & Wylie Attorneys
Sponsor to CMH
PricewaterhouseCoopers
Corporate Finance (Pty) Ltd
(Registration number 1970/003711/07)
Corporate advisor to TIC
Bridge Capital
Legal advisor to TIC
Webber Wentzel Bowens
Reporting accountants to CMH
PricewaterhouseCoopers
Advisory Services (Pty) Ltd
(Registration number 1999/024417/07)
Funder to SPV
Nedbank
Date: 15/11/2006 12:00:28 PM Produced by the JSE SENS Department
