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Wescoal Holdings Limited - Wescoal/keaton Energy - Pro Forma Effects, Extensions To Posting Periods For Circulars & Withdrawal Of Cautionaries

Release Date: 23/02/2017 10:00:00      Code(s): WSL KEH     
WESCOAL HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 2005/006913/06)
Share code: WSL
ISIN: ZAE000069639
(?Wescoal?)

KEATON ENERGY HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 2006/011090/06)
Share code: KEH
ISIN: ZAE000117420
(?Keaton Energy?)

JOINT ANNOUNCEMENT ? PRO FORMA FINANCIAL EFFECTS RELATING TO THE FIRM
INTENTION OFFER BY WESCOAL TO ACQUIRE ALL OF THE ISSUED ORDINARY SHARE
CAPITAL OF KEATON ENERGY
EXTENSION OF THE POSTING PERIODS FOR THE CIRCULARS
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENTS

1. Introduction

Wescoal and Keaton Energy shareholders are referred to the joint firm intention offer announcement
(?Firm Intention Announcement?) published by Wescoal and Keaton Energy on 2 February 2017.
Unless defined in this announcement or if the context dictates otherwise, capitalised terms used in
this announcement have the same meanings as given in the Firm Intention Announcement.

As stated in the Firm Intention Announcement, the pro forma financial effects of (i) the Proposed
Transaction on Wescoal, and (ii) the Scheme on Keaton Energy Shareholders (collectively, the ?Pro
Forma Financial Effects?), were not available at the time of publication of such announcement. Set
out below are the Pro Forma Financial Effects.

2. Pro forma financial effects

2.1 Wescoal pro forma financial effects

The table below sets out the pro forma financial effects of the Proposed Transaction on the published
unaudited condensed consolidated interim results of Wescoal for the six months ended 30 September
2016 (?Wescoal?s Interim Results?), after accounting for the recently concluded BEE transaction
(comprising of a specific issue of Wescoal Shares for cash and the subscription by Wescoal for Class
B Preference Shares in the BEE vehicle, ?BEE SPV?) (?BEE Transaction?) for an effective holding of
59% in the total issued share capital of Wescoal. The pro forma financial effects have been prepared
for illustrative purposes only and because of their pro forma nature, may not fairly present Wescoal's
financial position, changes in equity, results of operations or cash flows, nor the effect and impact of
the BEE Transaction and the Proposed Transaction going forward.

The pro forma financial effects have been prepared using accounting policies that comply with
International Financial Reporting Standards (?IFRS?) and that are consistent with those applied in the
published audited consolidated financial results of Wescoal for the year ended 31 March 2016. The
pro forma financial effects are presented in accordance with the JSE Listings Requirements and the
Guide on Pro Forma Financial Information issued by the South African Institute of Chartered
Accountants and ISAE 3420: Assurance Engagements to Report on the Compilation of Pro Forma
Financial Information Included in a Prospectus.

The Wescoal Directors are responsible for the compilation, contents and preparation of the Wescoal
pro forma financial effects. Their responsibility includes determining that the Wescoal pro forma
financial effects have been properly compiled on the basis stated, which is consistent with the
accounting policies of Wescoal and that the pro forma adjustments are appropriate for purposes of
the pro forma financial information disclosed pursuant to the JSE Listings Requirements.


                                                            Pro forma
                                                          after the BEE       Percentage                           Percentage
                                                           Transaction           change                               change
                                                           (before the         from(1) to (2)   Pro forma after     from(2) to (3)
                                        Before the BEE      Proposed                             the Proposed
Per Wescoal Share (cents)                Transaction(1)   Transaction)(2)          (%)           Transaction(3)         (%)

Basic earnings per Wescoal Share                 27.56               (3.74)      (113.6%)                 (9.23)        (146.8%)

Diluted earnings per Wescoal Share               27.54               (3.74)      (113.6%)                 (9.23)        (146.8%)

Headline earnings per Wescoal Share              27.83               (3.57)      (112.8%)                 (9.10)        (154.9%)

Diluted headline earnings per Wescoal
Share                                            27.81               (3.57)      (112.8%)                 (9.10)        (154.9%)

Net asset value per Wescoal Share               190.40              180.55         (5.2%)                183.26            1.5%

Net tangible asset value per Wescoal
Share                                           147.49              152.96          3.7%                 152.32           (0.4%)

Weighted average number of Wescoal
Shares in issue ('000)                         224,913             349,908                              437,506

Weighted diluted number of Wescoal
Shares in issue ('000)                         225,084             350,079                              437,677

Number of Wescoal Shares in issue
('000)                                         225,030             350,025                              437,623

Notes and assumptions:

1. The Wescoal information reflected in the "Before the BEE Transaction" column has been
   extracted from Wescoal?s Interim Results.

BEE Transaction

2. The Wescoal information reflected in the "Pro forma after the BEE Transaction (before the
   Proposed Transaction)" column has been calculated on the basis that the BEE Transaction
   has been implemented. The effects on basic earnings, diluted earnings, headline earnings
   and diluted headline earnings per Wescoal Share are calculated on the basis that the BEE
   Transaction was effective 1 April 2016, while the effects on the net asset value and net
   tangible asset value per Wescoal Share are calculated on the basis that the BEE
   Transaction was effective 30 September 2016.

          a. The price at which the Wescoal Shares subscribed for by the BEE SPV was at a
             discount to the Wescoal Share price on 19 December 2016 (the effective date of
             the BEE Transaction). The ?BEE discount? amounts to R82.3 million (with no tax
             effect) and is expensed in terms of IFRS 2: Share Based Payments. This
             charge represents the main reason for the reduction in pro forma earnings
             (equating to a reduction in earnings per Wescoal Share of 23.5 cents).
          b. The subscription by Wescoal for Class B Preference Shares in the BEE SPV is
             accounted for as a non-current receivable.
          c. The net proceeds from the BEE Transaction have initially been placed within
             existing short-term debt facilities until drawn down over a period of time for
             purposes of the intended use, including the funding of the Proposed Transaction as
             described in note 3.c below. The assumed interest saving has been limited to, and
             is based on, the actual interest incurred on short-term debt facilities during the six
             months ended 30 September 2016.
          d. Transaction costs (non-recurring) of R7.9 million relating to the BEE Transaction
             were capitalised to equity.

Proposed Transaction

3. The Wescoal information reflected in the "Pro forma after the Proposed Transaction"
   column has been calculated on the basis that the Proposed Transaction has been
   implemented and that the Scheme and the Comparable Offer become operative and
   unconditional. The effects on basic earnings, diluted earnings, headline earnings and
   diluted headline earnings per Wescoal Share are calculated on the basis that the Proposed
   Transaction was effective 1 April 2016, while the effects on the net asset value an d net
   tangible asset value per Wescoal Share are calculated on the basis that the Proposed
   Transaction was effective 30 September 2016.
          a. The acquisition of Keaton Energy arising pursuant to the Proposed Transaction,
             including the Scheme and the Comparable Offer, is accounted for in terms of
             IFRS 3 (revised): Business Combinations, and consequently the results of
             Keaton Energy will be consolidated by Wescoal from the effective date of the
             Proposed Transaction when the Scheme and the Comparable Offer become
             operative and unconditional.
          b. The financial information for Keaton Energy is based on the reviewed
             condensed interim consolidated results for the six months ended 30 September
             2016 (?Keaton Energy?s Interim Results?), adjusted for discontinued
             operations, assets held for sale, once-off management severance payments as
             well as expensing exploration and evaluation expenditure in order to align with
             Wescoal?s accounting policies.
          c. The assumed purchase consideration (which includes the impact of the
             Comparable Offer for accounting purposes) is settled as follows:
   
             - Share Component: the issue of 87 598 277 Consideration Shares at an
               assumed price of R2.51 per Consideration Share, being the share price of
               Wescoal on 1 February 2017, being the last practicable date prior to the Firm
               Intention Announcement (the assumed price of the Consideration Shares will
               be determined on the effective date of the Proposed Transaction and may
               differ from the assumptions underlying these pro forma effects).
             - Cash Component and the Comparable Offer: the Cash Component and the
               Comparable Offer will be funded through a combination of internal cash
               resources, debt facilities and the net proceeds from the BEE Transaction.
           d. The assumed purchase consideration for the Proposed Transaction has been
              assumed to be allocated between identifiable tangible and intangible assets and
              goodwill based on a provisional fair value allocation exercise in terms of IFRS3:
              Business Combinations. The identifiable tangible and intangible assets are
              assumed to be amortised over their respective useful lives as determ ined within
              the provisional fair value allocation exercise. The fair value exercise will need to
              be performed on the effective date of the Proposed Transaction and may differ
              from the assumptions underlying these pro forma effects.
           e. The assumed impact on net finance costs (totalling R20.1 million) has been
              calculated based on:
              - actual interest rates on short-term debt facilities (prime plus 0.5%, being
                11.0%); and
              - cash placed on call (average rate of 7.53%) over six months,
                assuming the Cash Component and the Comparable Offer will be funded
                through a combination of internal cash resources, debt facilities and the net
                proceeds from the BEE Transaction.
           f. Transaction costs (non-recurring) of R38.7 million relating to the Proposed
              Transaction have been allocated as follows:
              - R34.4 million has been expensed (equating to a reduction in earnings per
                Wescoal Share of 7.9 cents); and
              - R4.3 million has been capitalised to equity.
           g. The assumed impact on net finance cost (as described in note 3.e above)
              together with the impact of transaction costs (as described in note 3.f above)
              represent the main reasons for the reduction in pro forma earnings.

2.2 Keaton Energy pro forma financial effects

The summary pro forma financial effects of the Proposed Transaction on Keaton Energy
Shareholders, for which the Keaton Energy Independent Board is responsible, are provided for
illustrative purposes only to provide information about how the Proposed Transaction will affect the
financial position of Keaton Energy Shareholders.

Keaton Energy?s Interim Results have been consolidated into Wescoal?s Interim Results (refer to the
table in 2.1 above) in order to produce pro forma financial information of the consolidated group
(?Consolidated Group?) after implementation of the Proposed Transaction.

The pro forma financial effects on Keaton Energy Shareholders have been derived by multiplying the
pro forma financial information of the Consolidated Group by the Switch Ratio applicable to the Share
Component of the Offer Consideration, being 0.3 of a Wescoal Share for every one Keaton Energy
Share held by Keaton Energy Shareholders. In order for a Keaton Energy Shareholder to assess the
financial impact of the Proposed Transaction compared to their current Keaton Energy shareholding,
the effect on (i) basic and diluted earnings per Keaton Energy Share and headline and diluted
headline earnings per Keaton Energy Share of the Keaton Energy Shares exchanged for the Offer
Consideration, and (ii) net asset value per Keaton Energy Share and net tangible asset value per
Keaton Energy Share have been illustrated below.

The pro forma financial information of the Consolidated Group has been prepared in accordance with
IFRS and Wescoal?s accounting policies. The pro forma financial information of the Consolidated
Group has been prepared on the assumption that the Proposed Transaction became effective on 1
April 2016 for the statement of comprehensive income and 30 September 2016 in respect of the
statement of financial position.

Because of their nature, the pro forma financial effects may not give a fair presentation of Keaton
Energy Shareholders? financial position and performance after the Proposed Transaction has been
implemented.
                                             Before the Proposed   After the Proposed    Percentage change
                                                 Transaction           Transaction              (%)
                                                   (note 1)         (notes 3, 4 and 5)
Earnings per Keaton Energy Share (cents)              7.1                  (2.77)              (139.0%)
Diluted earnings per Keaton Energy Share              7.1                  (2.77)              (139.0%)
(cents)
Headline earnings per Keaton Energy                   7.1                  (2.73)              (138.5%)
Share (cents)
Diluted headline earnings per Keaton                  7.1                  (2.73)              (138.5%)
Energy Share (cents)
Net asset value per Keaton Energy Share               158                  56.18                (64.4%)
(cents) (note 2)
Net tangible asset value per Keaton Energy            158                  46.89                (70.3%)
Share (cents) (note 2)
Weighted average number of shares in              291,994                437,506
issue (?000)
Weighted diluted number of shares in issue        292,423                437,677
('000)
Number of shares in issue (?000)                  291,994                437,623


Notes:
   1. The financial information in the "Before the Proposed Transaction" column has been extracted
      without adjustment from Keaton Energy?s Interim Results, except as discussed in note 2
      below.

    2. Keaton Energy?s Interim Results have been adjusted as follows:

           a. Net asset value per Keaton Energy Share and net tangible asset value per Keaton
              Energy Share have been calculated using net asset value and net tangible asset value
              attributable to the owners of the company whereas Keaton Energy?s Interim Results used
              the total net asset value i.e. including minority interests. The amount published was
              adjusted in order to be consistent with Wescoal's accounting policy of only using the
              value attributable to the owners of the company and in order to show the effect of the
              Proposed Transaction on a Keaton Energy Shareholder.

           b. Intangible assets as disclosed in Keaton Energy?s Interim Results have been reclassified
              to tangible assets (Property, plant and equipment) in order to align with Wescoal's
              accounting policy.

   3. For the purposes of calculating the "After the Proposed Transaction" pro forma earnings,
      diluted earnings, headline earnings and diluted headline earnings per Keaton Energy Share,
      net asset value and net tangible asset value per Keaton Energy Share and the effect thereof
      on a Keaton Energy Shareholder, it was assumed that:

         a. The Proposed Transaction became effective on 1 April 2016 for purposes of the
            statement of comprehensive income and on 30 September 2016 for purposes of the
            statement of financial position, which collectively comprises the pro forma financial
            information of the Consolidated Group set out in the table in 2.1 above.

         b. The pro forma financial effects on the Keaton Energy Shareholders, have been derived
            by multiplying the pro forma financial information of the Consolidated Group (set out in
            the table in 2.1 above) by the Switch Ratio applicable to the Share Component of the
            Offer Consideration, being 0.3 of a Wescoal Share for every one Keaton Energy Share
            held by Keaton Energy Shareholders.

         c. The pro forma financial effects on the Keaton Energy Shareholders have been derived by
            taking into consideration the Cash Component of the Offer Consideration, being R1.20
            per Keaton Energy Share.

   4. The weighted average number of shares in issue and the number of shares in issue is
      representative of the issued share capital of Wescoal after the implementation of the
      Proposed Transaction.

   5. All adjustments, with the exception of transaction costs and the severance arrangements
      relating to Keaton Energy executives, are expected to have a continuing impact on the
      statement of comprehensive income.

3. Extension of the posting periods for the Wescoal Circular and the Scheme Circular

3.1 Wescoal Circular

In terms of paragraph 9.20(b) of the JSE Listings Requirements, the Wescoal Circular must be posted
to Wescoal Shareholders within 60 days from the date of publication of the Firm Intention
Announcement. The aforementioned 60 day period will expire on Monday, 3 April 2017, for purposes
of the Proposed Transaction. In terms of paragraph 9.20(b) of the JSE Listings Requirements, the
?JSE may, in its sole discretion, extend this period provided there is sufficient justification to do so?.
Upon application to the JSE, the JSE has granted an extension to the aforementioned posting period,
allowing the Wescoal Circular to be posted on or before 28 April 2017.

3.2 Scheme Circular

In terms of regulation 102(2)(a) of the Companies Regulations, the Scheme Circular must be posted
within (i) 20 business days after the date of publication of the Firm Intention Announcement, or (ii)
such longer period allowed by the Executive Director, on good cause shown. Upon application to the
TRP (?TRP Application Letter?), the Executive Director has granted an extension to the
aforementioned posting period (?TRP Extension?), allowing the Scheme Circular to be posted on or
before 28 April 2017.

The TRP is of the view that, taking into consideration the reasons provided in the TRP Application
Letter and section 119(6)(c) of the Companies Act, granting the TRP Extension is reasonable and
justifiable in the circumstances having regard to the principles and purposes of Parts B and C of the
Companies Act and Takeover Regulations.

The TRP Extension has been provided by the TRP without considering the views of any other person
who may have an interest in the Proposed Transaction taking into consideration regulation 118(4) of
the Companies Regulations. Accordingly, it does not affect the rights and interests of such persons,
and such persons may approach the TRP or the Takeover Special Committee and request a hearing
in terms of the procedures laid out in the Companies Act relating to affected transactions, and the
Companies Regulations.

4. Withdrawal of cautionary announcements

Following the publication of the Pro Forma Financial Effects, the cautionary announcements
published by (i) Keaton Energy on 24 November 2016, 11 January 2017 and 2 February 2017, and (ii)
Wescoal on 2 February 2017, are hereby withdrawn and caution is no longer required to be exercised
by Keaton Energy Shareholders and Wescoal Shareholders when dealing in their respective shares.

5. Keaton Energy responsibility statement

The Keaton Energy Independent Board accepts responsibility for the information contained in this
announcement to the extent that it relates to Keaton Energy. To the best of their knowledge and
belief, the information contained in this announcement is true and nothing has been omitted which is
likely to affect the importance of the information.

6. Wescoal responsibility statement

The Wescoal Board accepts responsibility for the information contained in this announcement to the
extent that it relates to Wescoal. To the best of their knowledge and belief, the information contained
in this announcement is true and nothing has been omitted which is likely to affect the importance of
the information.

Johannesburg
23 February 2017

Corporate Advisor and Sponsor to Wescoal
Nedbank Corporate and Investment Banking, a division of Nedbank Limited

Legal Advisor to Wescoal
Edward Nathan Sonnenbergs Inc.

Independent Reporting Accountant to Wescoal
PricewaterhouseCoopers Inc.

Corporate Advisor to Keaton Energy
Taurum Proprietary Limited

Legal Advisor to Keaton Energy
Werksmans Inc.

Independent Reporting Accountant to Keaton Energy
KPMG Inc.

Sponsor to Keaton Energy
Investec Bank Limited

Date: 23/02/2017 10:00:00 Supplied by www.sharenet.co.za                     
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