| Thu 8 Feb 2007, 9:15 | | ECO - Edcon/ Newco - Joint Announcement of a Firm |
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ECO
ECO
ECO - Edcon/ Newco - Joint Announcement of a Firm Intention and withdrawal of
cautionary announcement
Edgars Consolidated Stores Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/022751/06)
Share codes:
JSE: ECO
NSX: ECN
ISIN: ZAE000068649
("Edcon" or the "Company")
Main Street 522 (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration number 2007/000518/07)
("Newco")
Joint Announcement of a firm intention by Newco to make an offer to acquire all
the issued shares in the capital of Edgars Consolidated Stores Limited (other
than treasury shares and "A" ordinary shares) and withdrawal of cautionary
announcement
1. INTRODUCTION
Further to the cautionary announcements published by Edcon on 17 October 2006
and 10 January 2007, shareholders are advised that after conducting a
comprehensive auction process, the board of directors of Edcon ("the Board") has
decided to recommend an offer ("the offer") submitted by Bain Capital LLC
("Bain"), acting through Newco, to acquire the entire issued ordinary share
capital of Edcon (excluding any treasury shares and, to the extent necessary,
the "A" ordinary shares) and the entire issued preference share capital of
Edcon. The offer is for a 100% cash consideration of R46,00 per Edcon ordinary
share ("the ordinary purchase consideration") and R2,00 per Edcon preference
share ("the preference purchase consideration") representing a combined offer
consideration of approximately R25 billion. The offer is backed by a fully
committed financing package provided by a consortium of banks.
The offer is to be implemented, subject to the conditions set out in paragraph 5
below, by way of two schemes of arrangement in terms of section 311 of the
Companies Act 61 of 1973, as amended ("the Act"), to be proposed by Newco
between Edcon and all of its shareholders of the relevant class, excluding, in
the case of the Edcon ordinary shares, any treasury shares and the "A" ordinary
shares ("the ordinary scheme" and "the preference scheme", respectively, and
collectively, "the schemes").
Newco reserves the right to implement the offer by way of an alternative
mechanism to either or both of the schemes, namely a general offer to acquire
Edcon`s ordinary shares and/or Edcon`s preference shares. The aforesaid general
offer/s shall, in so far as applicable, be on the same terms and conditions as
the schemes, it being specifically noted that the acceptance condition in
respect of the general offer/s shall not be more than 75% of Edcon ordinary
shareholders and/or 75% of Edcon preference shareholders (as the case may be).
The ordinary purchase consideration and the preference purchase consideration
will not be increased by Newco, although it reserves its right to do so in the
event of a competing offer.
2. TERMS OF THE OFFER RECOMMENDED BY THE BOARD
If the ordinary scheme becomes operative, Edcon shareholders who are entitled to
participate in the ordinary scheme will be entitled to receive the ordinary
purchase consideration, which represents a:
- 61,6% premium to the 30 day volume weighted average price ("VWAP") per
Edcon ordinary share on JSE Limited ("the JSE") for the 30 trading days up
to and including 16 October 2006 of R28,47, being the day before the first
cautionary announcement in respect of the offer was published;
- 51,3% premium to the closing price per Edcon ordinary share on the JSE on
16 October 2006 of R30,40, being the day before the first cautionary
announcement was published in respect of the offer.
If the preference scheme becomes operative, Edcon preference shareholders
participating in the preference scheme will be entitled to receive the
preference purchase consideration, which represents a 58,7% premium to the
closing price per Edcon preference share on the JSE on 16 October 2006 of R1,26,
being the day before the first cautionary announcement was published in respect
of the offer. There were no trades of Edcon preference shares in the 30 trading
days prior to the release of the first cautionary announcement.
Following the implementation of the two schemes, and save for the "A" ordinary
shares held by The Edcon Staff Empowerment Trust, all of the shares in Edcon
will be held by Newco and the listing of the entire issued ordinary and
preference share capital of Edcon on the JSE and the listing of the ordinary
share capital of Edcon on the Namibian Stock Exchange ("NSX") will be
terminated.
3. FUNDING AND CASH CONFIRMATION
The aggregate ordinary purchase consideration and preference purchase
consideration will be funded by a combination of equity funding provided by
funds managed by Bain and debt funding provided by a consortium of banks.
In terms of Rule 2.3.2(b) and Rule 21.7 of the Securities Regulation Code on
Takeovers and Mergers ("Code"), Citigroup Global Markets (Pty) Limited has
provided the Securities Regulation Panel ("SRP") with the necessary cash
confirmation letter.
4. RATIONALE
The retail sector continues to benefit from strong consumer spending, albeit at
a rate slower than that seen in recent reporting periods. Edcon recognises that
although its prospects remain positive, its future performance and corresponding
growth profile are not without risk.
The rationale for the offer is to provide shareholders of Edcon with the
opportunity to realise significant value for their investment. The ordinary
purchase consideration incorporates a significant premium to the market price of
Edcon ordinary shares prior to the first cautionary announcement and reflects
full value for the strong competitive position and future growth prospects of
Edcon.
5. CONDITIONS PRECEDENT
The implementation of the schemes is only subject, inter alia, to the
fulfillment of the following conditions precedent:
5.1 all necessary regulatory and third party approvals and consents in respect
of the offer being obtained, including but not limited to approvals from
the Competition Authorities, the JSE, the NSX and SRP and the South African
Reserve Bank ("SARB");
5.2 the approval of the schemes by 75% or more of the votes exercisable by the
ordinary scheme members and preference scheme members present and voting,
in person or by proxy, at the scheme meetings; and
5.3 the sanctioning of the schemes by the Court and a certified copy of the
orders of Court sanctioning the schemes being registered by the Registrar
of Companies in terms of the Act.
The implementation of the ordinary scheme is not conditional on the
implementation of the preference scheme, and vice versa.
6. TRANSACTION IMPLEMENTATION AGREEMENT, NON-SOLICITATION, AND BREAK FEE
Edcon and Newco have entered into a transaction implementation agreement ("TIA")
which provides, amongst other things, for the payment of the break fee described
below, implementation of the schemes, and which contains certain assurances and
confirmations between the parties, including in relation to the implementation
of the schemes in a timely manner.
Edcon has agreed that, until the earlier of the schemes becoming operative or
the TIA being terminated, it will not, nor will it permit any member of its
group (nor any of their respective directors, officers, senior employees or
professional advisers) to solicit a proposal to acquire all or a major portion
of its shares, undertaking, assets or business from a third party ("competing
offer") or, save where required by the Code or fiduciary duties of the Edcon
directors, to enter into any discussions or communications with any third party
in response to an unsolicited competing offer. Edcon will immediately inform
Newco of the details of any unsolicited competing offer and of its progress and,
unless the competing offer is a superior offer (as defined in the TIA) the Edcon
Board will not withdraw or modify its recommendation of the Newco offer. Where
Edcon receives a superior offer, Newco will be given two business days to submit
another offer should it choose to do so before the Edcon Board withdraws or
modifies its recommendation.
The Board has agreed that if (a) the directors of Edcon withdraw or adversely
modify their recommendation of the offer as the result of receiving a competing
offer; (b) a competing offer is announced while the offer is still open and such
competing offer is thereafter successfully implemented; or (c) Edcon breaches
any of its obligations under the TIA (and fails to remedy such breach within 5
business days of receipt of notice thereof), then Edcon will pay Newco a break
fee of 1% of the ordinary purchase consideration payable in respect of all the
ordinary shares to be acquired pursuant to the ordinary scheme. On a similar
basis, Newco will pay to Edcon an equivalent break fee if it breaches any of its
obligations under the TIA (and fails to remedy such breach within 5 business
days of receipt of notice thereof).
7. STAFF EMPOWERMENT
Newco has reaffirmed its support of Edcon`s Staff Empowerment structure and has
undertaken to replicate the financial effects thereof in the context of a
private company. The Trustees of The Edcon Staff Empowerment Trust have
accepted the terms of the revised Staff Empowerment structure and have, to the
extent necessary, consented to their exclusion from the offer and undertaken to
vote in favour of Newco`s implementation of the revised Staff Empowerment
structure.
8. EXISTING HOLDING OF SECURITIES IN EDCON
Newco and parties acting in concert with Newco do not own or control, or have
the option to purchase, any securities in Edcon.
9. SPECIAL ARRANGEMENTS
Newco is fully supportive of the existing management team and has invited
management to participate in a future equity scheme in Newco. Four executive
directors of Edcon, namely SR Binnie, MR Bower, U Ferndale and SM Ross have
reached an arrangement with Newco, in terms of which they have undertaken to
subscribe for shares in the issued share capital of Newco on terms to be agreed
at a later juncture.
10 OPINIONS, RECOMMENDATIONS AND UNDERTAKINGS
The Board of Edcon ran a comprehensive sale process with independent advice, and
established an independent committee of the Board, comprising the non-executive
directors of the Board, to consider the offer. The independent committee has
appointed PricewaterhouseCoopers ("PwC") to advise it whether the offer is fair
and reasonable. PwC has completed a preliminary valuation of Edcon as at 7
February 2007 and has advised the independent committee that the offer is fair
and reasonable to Edcon ordinary and preference shareholders as at that date.
PwC`s opinion will be formalised and finalised at the last practicable date
prior to the publication of the relevant circulars to Edcon shareholders and
will be based on financial, regulatory, securities market and other conditions
prevailing at that time.
Based on PwC`s preliminary advice, but subject to receipt of a final fair and
reasonable opinion from PwC, the independent committee of the Board unanimously
recommends that Edcon ordinary and preference shareholders vote in favour of the
schemes and the directors of Edcon, where applicable, undertake to vote their
own shares in favour of the schemes on the terms of Newco`s offer.
PwC`s written opinion will be contained in the circulars referred to in
paragraph 12 below.
11. MARKET AND FINANCIAL INFORMATION
The table below sets out information regarding the price at which Edcon ordinary
shares and Edcon preference shares traded immediately prior to the release of
Edcon`s first cautionary announcement and this announcement of Newco`s firm
intention to make an offer, as well as a comparison of the ordinary purchase
consideration to the net asset value and tangible net asset value per Edcon
ordinary share at 30 September 2006, Edcon`s interim year end.
Before the The purchase Premium
scheme consideration (%)
(Rand) (Rand)
Ordinary Shares
Market price on 16 October 30,40 (1) 46,00 51,3%
2006
30-day VWAP to 16 October 28,47 (2) 46,00 61,6%
2006
Market price on 7 February 39,90 (3) 46,00 15,3%
2007
30-day VWAP to 7 February 38,93 (4) 46,00 18,2%
2007
Net asset value per Edcon 8,60 (5) 46,00
ordinary share
Tangible net asset value 8,45 (5) 46,00
per Edcon ordinary share
Preference Shares
Market price on 16 October 1.26 (6) 2,00 58,7%
2006
Market price on 7 February 1,26 (7) 2,00 58,7%
2007
Notes:
1. Closing price of Edcon ordinary shares on the JSE on 16 October 2006,
being the last trading day prior to release of the first cautionary
announcement in respect of the offer.
2. VWAP at which Edcon ordinary shares traded on the JSE for the 30
trading days up to and including 16 October 2006, being the last
trading day prior to release of the first cautionary announcement in
respect of the offer.
3. Closing price of Edcon ordinary shares on the JSE on 7 February 2007,
being the last trading day prior to this announcement of Newco`s firm
intention to make an offer.
4. VWAP at which Edcon ordinary shares traded on the JSE for the 30
trading days up to and including 7 February 2007, being the last
trading day prior to this announcement of Newco`s firm intention to
make an offer.
5. Audited net asset value and tangible net asset value per Edcon
ordinary share attributable to Edcon ordinary shareholders at 30
September 2006.
6. Closing price of Edcon preference shares on the JSE on 16 October
2006, being the last trading day prior to release of the first
cautionary announcement in respect of the offer.
7. Closing price of Edcon preference shares on the JSE on 7 February
2007, being the last trading day prior to this announcement of Newco`s
firm intention to make an offer. There were no trades of Edcon
preference shares in the 30 trading days prior to the release of the
first cautionary announcement in respect of the offer and this firm
intention announcement.
12. DOCUMENTATION
Circulars providing further information on the offer and each containing, inter
alia, a notice of scheme meeting, an order of Court, a form of proxy and a form
of surrender will be posted to Edcon shareholders in due course.
13. IMPORTANT DATES AND TIMES
Edcon shareholders will be advised of important dates and times of the schemes
in due course.
14. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENTS
Edcon shareholders are advised that the cautionary announcements concerning the
offer, referred to in paragraph 1 above are hereby withdrawn.
Johannesburg
8 February 2007
Enquiries
Edcon:
Investor Relations:
Tessa Christelis
Tel: +27 11 495 6545
Cell: +27 82 601 3061
Financial advisor to Edcon
Caliburn Partnership Pty Limited
Legal advisor to Edcon
Werksmans Inc.
Transactional sponsor and equity markets adviser to Edcon
Merrill Lynch South Africa (Proprietary) Limited
Namibian Sponsor
Irwin Jacobs Greene (Proprietary) Limited
Independent advisor to the Edcon Board
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Private equity sponsor and transaction arranger for Newco
Bain Capital LLC
Financial advisor to Newco
Citigroup Global Markets (Pty) Limited
South African legal advisor to Newco
Webber Wentzel Bowens
International legal advisors to Newco
Kirkland & Ellis International LLP
Date: 08/02/2007 09:15:01 Produced by the JSE SENS Department.
