| Thu 22 Mar 2007, 17:00 | | MCU - m Cubed - Reinsurance Transaction between M |
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MCU
MCU
MCU - m Cubed - Reinsurance Transaction between M Cubed Life Limited and
Alternative Channel Limited and Renewal of Cautionary
m Cubed Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/014568/06)
Share code: MCU ISIN: ZAE000033353
("m Cubed" or "the company")
REINSURANCE TRANSACTION BETWEEN m CUBED LIFE LIMITED AND ALTERNATIVE CHANNEL
LIMITED AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are referred to the company`s announcement on 21 December 2006
regarding the disposal by m Cubed Life Limited ("mCL") of its
policyholders` book to Alternative Channel ("Alternative Channel"). The
terms and conditions of the initial offer have been amended and the effect
of this amendment will result in Alternative Channel no longer acquiring
the policyholders` book, but Alternative Channel entering into a Treaty
Quota Share Reinsurance Agreement ("reinsurance agreement"), in terms of
which Alternative Channel will reinsure the policyholders` book of mCL. A
cash premium rebate shall accrue to mCL by virtue of this transaction.
2. DETAILS OF BUSINESS
mCL is a registered life assurance company that provides linked investment
products and portfolios.
3. RATIONALE FOR THE REINSURANCE TRANSACTION
The reinsurance transaction will ensure that policyholders` interests are
best maintained and regulatory requirements are met.
4. RELATED PARTY TRANSACTION
PSG Group Limited ("PSG"), through a wholly-owned subsidiary, owns
approximately 30% of the issued share capital of m Cubed. Alternative
Channel is an associate of PSG by virtue of the fact that a subsidiary of
PSG has an option to convert a loan advanced to Alternative Channel into
ordinary shares, which, upon conversion will result in a controlling
shareholding in Alternative Channel. PSG at present has an existing
indirect holding of 35.3% in Alternative Channel through its 36% holding in
Channel Life Limited. Alternative Channel is therefore a related party to m
Cubed in terms of the JSE Limited ("JSE") Listings Requirements. In terms
of the Listings Requirements of the JSE, the reinsurance transaction
requires written confirmation from an independent professional expert
confirming the fairness and reasonableness of the terms of the reinsurance
transaction to m Cubed shareholders ("fair and reasonable opinion") and
approval of the majority of votes of m Cubed shareholders (excluding
related parties and associates) being given by way of an ordinary
resolution. An independent professional expert has been appointed.
5. SALIENT TERMS OF THE REINSURANCE TRANSACTION
5.1 The effective date of the transaction is 1 March 2007.
5.2 mCL shall retain ultimate and primary liability towards the
policyholders in terms of the reinsured policies.
5.3 mCL shall be entitled to a premium rebate of R30,15 million ("premium
rebate") subject to a reduction, if the value of the reinsured
policies as at 28 February 2007, as determined by a statutory actuary,
is less than R40 million. The premium rebate will be held in trust
until clarification is obtained on the events as set out in 7 below.
5.4 mCL shall pay to Alternative Channel the reinsurance premiums
consisting of the adjusted value of the actuarial liabilities as
determined by the statutory actuary in respect of the reinsured
policies ("reinsurance premium") at the effective date.
5.5. mCL has made and granted normal warranties to Alternative Channel for
a transaction of this nature.
5.6 mCL has indemnified Alternative Channel against certain losses,
liabilities, damages or expenses that may have arisen prior to the
effective date and that may arise from a breach of warranties as set
out in the reinsurance agreement.
6. RESOLUTIVE CONDITION
The reinsurance transaction continuance is subject to the approval by the
majority of the votes of m Cubed shareholders (excluding related parties
and associates) being given by way of an ordinary resolution.
7. MATERIAL CANCELLATION EVENTS
The continuance of the reinsurance transaction is subject to the following:
7.1 submission by m Cubed to Alternative Channel of a written auditors`
certificate, by 30 November 2007, expressing an opinion on the
certified fair value of the portfolio of assets relating to the in
force reinsured policies as at 28 February 2007;
7.2 the submission by m Cubed to Alternative Channel of a written
certificate from the statutory actuary of mCL, by 30 November 2007,
certifying that the value of the in force reinsured policies as at 28
February 2007 exceeded R10 million;
7.3 non-occurrence of any event that will result in the insolvency or
winding up of either mCL or Alternative Channel("parties"), a
compromise of either parties` creditors and either of the parties
being placed under liquidation or judicial management; and
7.4 confirmation, within three days of receipt of the certificate as
stipulated in 7.2 above, by Alternative Channel`s statutory actuary
that Alternative Channel`s free assets will be sufficient to cover its
capital adequacy requirements upon successful release of the premium
rebate.
8. FINANCIAL EFFECTS OF THE REINSURANCE TRANSACTION
The pro forma financial effects of the transaction are presented for
illustrative purposes only and because of their nature may not give a fair
reflection of m Cubed`s financial position nor of the effect on future
earnings after the transaction. Set out below are the unaudited pro forma
financial effects of the transaction, based on the reviewed consolidated
financial results of m Cubed for the six months ended 31 August 2006. The
directors of m Cubed are responsible for the preparation of the unaudited
pro forma financial information.
Reviewed Pro forma Change(%)
Before after
reinsurance reinsurance
Transaction(1) transaction
Earnings per 1,1 0,8 -27,3
share(2)
Headline earnings 1,0 0,7 -30,0
per share(3)
Net asset value per 41,3 41,3 0,0
share
Net tangible asset 40,4 40,4 0,0
value per share
Notes and assumptions:
1. Extracted from the reviewed consolidated interim financial results of
m Cubed for the six months ended 31 August 2006.
2. Based on a weighted average number of 737,925 million m Cubed shares
in issue during the six months ended 31 August 2006 and on a net
profit of R7,83 million for the six months then ended.
3. Based on a weighted average number of 737,925 million m Cubed shares
in issue during the six months ended 31 August 2006 and on a headline
earnings of R7,32 million for the six months then ended.
4. The earnings and headline earnings per share figures in the "Pro Forma
after reinsurance transaction" have been calculated on the basis that
the reinsurance transaction was effected on 1 March 2006.
5. The net asset value and the net tangible asset value per share figures
in the "Pro forma after reinsurance transaction" have been calculated
on the basis that the reinsurance transaction was effected on 31
August 2006.
6. The estimated weighted average life of the mCL policyholders` book is
assumed to be 4.5 years.
7. The reinsurance premium (the reinsurance premiums payable by mCL to
Alternative Channel in respect of the reinsured policies in force at
the effective date) and premium rebate are not taxable.
8. The premium rebate payable by Alternative Channel has been accounted
for as deferred income that will be released over the remaining life
of the mCL policyholders` book. Similarly, the reinsurance premium
payable by mCL to Alternative Channel has been treated as a deferred
cost that will be released over the remaining life of the mCL
policyholders` book.
9. It has been assumed that the costs incurred in the period 1 March 2006
to 31 August 2006 by mCL and m Cubed Management Services (Pty) Limited
were directly related to the mCL policyholders` book and would have
been reimbursed by Alternative Channel in terms of the reinsurance
agreement
10. An amount of R17,1 million is assumed as the cash reinsurance premium
to be paid by mCL to Alternative Channel. The actual amount of the
reinsurance premium as at 1 March 2007 is in the process of being
determined by the statutory actuary. The actuarial valuation amount
as at 1 March 2007 may materially differ from the R17,1 million used
in determining the pro forma financial effects above and may result in
a material change to the pro forma financial effects.
Shareholders are referred to note 10 of the notes to the pro forma
financial effects. On completion and finalisation of the actuarial
valuation as at 1 March 2007, the pro forma financial effects of the
reinsurance transaction will be recalculated based on the results of the
actuarial valuation. If the recalculated pro forma financial effects are
materially different to that published above a further announcement will be
made, on SENS and in the press, setting out the adjusted pro forma
financial effects.
9. SPECIFIC PAYMENT TO SHAREHOLDERS
Shareholders are referred to the announcement on 9 February 2007, in which
m Cubed`s board proposed a capital distribution of 17 cents per share.
This capital distribution has, subsequent to the announcement made on 9
February 2007, been postponed subject to the finalisation of the value of
the capital distribution to be declared.
10. CHANGE TO BOARD OF DIRECTORS
The Board of Directors hereby advises in compliance with Rule 3.59(a) and
3.59(b) of the JSE Listings Requirements the following changes to the Board
of Directors of m Cubed:
10.1 the appointment of Dr. J van Zyl Smit to the m Cubed Board of
Directors as a Non-Executive Director effective from 14 March 2007;
10.2 the resignation of Mr. Mike Smith as Non-Executive Director from m
Cubed and its subsidiary companies effective from 14 March 2007;
10.3 the appointment of Mr. L de Wit as the Managing Director of m Cubed
Life Limited effective from 1 March 2007.
11. CIRCULAR TO m CUBED SHAREHOLDERS
A circular to m Cubed shareholders containing details of the reinsurance
transaction and a notice of a general meeting, at which meeting the m Cubed
shareholders shall be asked to consider and approve the reinsurance
transaction, will be mailed to shareholders in due course.
12. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are further referred to the cautionary announcement of
14 December 2006, in which shareholders were advised that the South African
Revenue Services had issued additional tax assessments against certain
group companies of m Cubed, emanating from a transaction entered into
during 1999, which the company intends to object against given tax and
legal opinions they have obtained to date. If successful, the assessments
will have a negative impact on the value of m Cubed`s shares. The company`s
shareholders are accordingly advised to continue to exercise caution when
dealing in their securities until a further announcement is made.
Stellenbosch
22 March 2007
PSG Capital - Sponsor and corporate adviser
Date: 22/03/2007 17:00:01 Produced by the JSE SENS Department.
