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BAT - BRAIT S.A. - Detailed terms announcement
This announcement is made in terms of the requirements of the Luxembourg
Stock Exchange and the Securities Exchange operated by the JSE Limited and
does not constitute an offer to the public as contemplated in the South
African Companies Act (61 of 1973)
BRAIT S.A.
(Incorporated in Luxembourg)
(Registered address: 42, rue de la Vallee, L-2661 Luxembourg)
(RCS Luxembourg B-13861)
ISIN: LU0011857645
Share code: BAT
("Brait" or "the Company")
DETAILED TERMS ANNOUNCEMENT RELATING TO BRAIT`S ZAR5.9 BILLION CAPITAL
RAISING THROUGH A FULLY-UNDERWRITTEN RENOUNCEABLE RIGHTS OFFER, ACQUISITION
OF A 24.6% INTEREST IN PEPKOR HOLDINGS LIMITED ("PEPKOR"), ACQUISITION OF AN
ADDITIONAL 10.3% EFFECTIVE INTEREST IN PEPKOR THROUGH A SPECIAL PURPOSE
VEHICLE, ACQUISITION OF A 49.9% INTEREST IN, PLUS SHAREHOLDER LOANS OF
ZAR221.2 MILLION AGAINST PREMIER GROUP (PROPRIETARY) LIMITED ("PREMIER"), A
RE-ORGANISATION AND RESTRUCTURING OF THE COMPANY AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
1. Introduction
Holders of ordinary shares of no par value in Brait ("Shares") ("Brait
Shareholders") are referred to the cautionary announcement released on SENS
and on the website of the Luxembourg Stock Exchange ("LuxSE") on 13 January
2011, wherein Brait Shareholders were advised that the Company had commenced
a re-organisation and restructuring process that could impact on the
Company`s share price.
As part of the continued growth strategy of the Company and in order to
continue to benefit from the extensive investment experience of its
investment team while raising capital in a more efficient manner, the board
of directors of Brait ("Board") proposes a new business model in terms of
which Brait will raise capital, from time to time, in the public equity
capital markets and invest this capital directly into predominantly privately
owned companies located primarily in South Africa.
In this regard, Brait intends to conduct a fully underwritten, renounceable
rights offer ("Rights Offer") with a view to raising ZAR5.9 billion. The
Rights Offer will consist of the issue and listing of a maximum of 356 961
963 new Brait Shares ("New Brait Shares") as more fully described in section
3 below.
In order to provide certainty regarding the outcome of the Rights Offer,
Titan Nominees (Proprietary) Limited ("Titan"), members of the Brait South
Africa investment team ("Investment Team") and FirstRand Bank Limited, acting
through its Rand Merchant Bank division ("RMB"), hereinafter collectively
referred to as the "Underwriters", have entered into an underwriting
agreement with the Company ("Underwriting Agreement") as more fully described
in section 4 below.
To the extent the members of the Investment Team and Titan do not achieve
their post Rights Offer target shareholdings of up to 18% and up to 33.33%
respectively through the underwriting, they will each have the right to
subscribe for additional Shares through private placements as more fully
described in section 5 below (collectively referred to as the "Placements").
In addition, Brait intends to:
(i) use part of the Rights Offer proceeds to acquire, through a wholly-owned
subsidiary, 24.6% of Pepkor and obtain a further exposure of 10.3% in Pepkor
through the acquisition of preference shares in a special purpose vehicle;
(ii) use part of the Rights Offer proceeds to acquire, through a wholly-owned
subsidiary, a 49.9% interest in, plus shareholder loans of ZAR221.2 million
against, Premier (the acquisitions in (i) and (ii) collectively hereinafter
referred to as the "Acquisitions");
(iii) undertake a restructuring of the Company whereby Brait will become
a European company, resulting from a merger with a Malta subsidiary and the
subsequent transfer of the registered office of the holding company from
Luxembourg to Malta (the "Restructuring"); and
(iv) reorganise the executive management, Board and business unit structures
and implement operating cost reduction initiatives to complement the
Company`s new business structure and strategic focus (the "Reorganisation").
Hereinafter the Rights Offer, Placements, Acquisitions, Restructuring and
Reorganisation are collectively referred to as the "Transactions".
2. Rationale for the Transactions
Historically Brait has operated as a fund management business with the
majority of its activities focussed around private equity. Under this
business model, it raised funds through the traditional private equity
market, whereby each new fund is raised with a very specific mandate,
including draw-down stipulations, defined fund life and agreed mandatory
investment requirements.
Brait believes that, going forward, there is an opportunity to maintain and
build on the existing strengths of the private equity model while, for the
first time, tapping into the strategic benefits of raising funds from the
public equity markets through a listed vehicle. The Board believes that the
benefits of this initiative will be further enhanced by bringing Dr Christo
Wiese (through Titan) into the shareholder base, as an anchor shareholder and
by appointing him as a non-executive director of Brait. The directors believe
that Dr Wiese`s considerable experience as a highly successful entrepreneur
in the South African business environment will bring synergies and additional
expertise to complement the Investment Team. Dr Wiese has also committed to
underwrite a substantial portion of the Rights Offer.
This initiative is further enhanced by making significant investments in
Pepkor and Premier, two market leading businesses that will be the initial
anchor investments.
The directors believe that the Transactions are in the interest of Brait
Shareholders for the following reasons:
- Brait`s leading private equity fund return profile could be replicated
for the direct benefit of Brait Shareholders;
- Brait Shareholders will be given access to privately owned, market-
leading, growth-orientated businesses such as Pepkor and Premier;
- no management fees or capital participation will be payable on Brait
Shareholders` capital contribution;
- capital raising cycles should be significantly shortened, thereby
ensuring that the Investment Team remains focussed on the deployment and
active management of capital;
- public equity markets should provide a more permanent form of capital,
which would allow for greater flexibility in the investment holding period,
with associated strategic benefits as the shareholder of reference;
- ability and flexibility to build industry platforms around existing
investments with potentially higher resultant returns;
- greater flexibility with respect to entry and exit points on investee
companies; and
- the Investment Team`s interests will be better aligned with shareholders
through its facilitated acquisition of up to 18% of Brait`s issued share
capital and the unwinding of existing long term incentive schemes.
Brait will leverage its extensive and proven investment experience and depth
of operational expertise for the benefit of its shareholders by itself
becoming a direct shareholder in market leading businesses.
3. Terms of the Rights Offer
In terms of the Rights Offer, Brait will offer Brait Shareholders and/or
their renouncees, the right to subscribe for a total of 356 961 963 New Brait
Shares at an issue price of ZAR16.50 per New Brait Share ("Offer Price"),
based on the adjusted tangible NAV of Brait as at 30 September 2010 in the
ratio of 3 New Brait Shares for every 1 Share held.
Brait Shareholders will be issued with renounceable (nil paid) rights
("Right" or "Rights") in accordance with the 3:1 ratio set out above, which
will be listed on the LuxSE and the securities exchange operated by the JSE
Limited ("JSE") (collectively referred to as "the Exchanges"), each of which,
if exercised, will entitle the holder of such Right to subscribe for 1 New
Brait Share pursuant to the Rights Offer.
The Rights Offer will be open to Brait Shareholders in respect of Shares
listed on the LuxSE and the JSE as at 10.00 a.m. on Friday, 15 April 2011 and
will close in Luxembourg and South Africa on Friday, 27 May 2011 (both dates
inclusive) ("Rights Offer Period"). Brait Shareholders that shall have
acquired Brait Shares as at close of business on Thursday, 14 April 2011
shall be eligible to participate in the Rights Offer.
Brait Shareholders who do not wish to follow their Rights will be entitled to
renounce their Rights or sell their Rights on the relevant Exchange. Given
that there will be no waiver of Brait Shareholders` statutory pre-emptive
subscription rights for purposes of the Rights Offer, Luxembourg law requires
that all unexercised Rights remaining at the end of the Rights Offer be sold
in a public auction arranged by the LuxSE (the "Auction"). On a date to be
determined by the LuxSE, which is expected to be Monday, 6 June 2011, Rights
which remain unexercised will be sold by way of the Auction. Any proceeds
will be available to the selling Rights holders as set out in the circular to
be issued shortly. Investors who wish to participate in the Auction as
bidders should instruct a member of the LuxSE to represent them at the
Auction and familiarise themselves with any regulatory requirements, such as
exchange control restrictions. A list of members of the LuxSE is published on
the website of the LuxSE (www.bourse.lu). In terms of the Underwriting
Agreement, the Underwriters will also bid at the Auction through one or more
duly appointed members of the LuxSE in order to ensure that all the Rights
which remain unexercised at the end of the Rights Offer Period are acquired
and exercised, as more fully set out in paragraph 4 below.
Once issued, the New Brait Shares will rank pari passu with the existing
issued Shares.
4. Undertakings and underwriting
Brait Shareholders, representing 68 313 607 Shares or 57.41% of Brait`s
issued share capital, have signed commitments and/or irrevocable undertakings
of support for the Transactions.
In terms of the Underwriting Agreement, the Underwriters have agreed to
underwrite the Rights Offer at the Offer Price, as follows:
- the Underwriters will place a joint bid to acquire all the unexercised
Rights being sold at the Auction;
- Titan will underwrite the first ZAR2.6 billion worth of underwriting
required. Titan will not receive an underwriting fee for its underwriting
commitment;
- the Investment Team will underwrite the next ZAR1.2 billion worth of
underwriting required after Titan`s initial ZAR2.6 billion underwriting
commitment has been discharged in full. In order to meet its underwriting
commitments and shareholding target, the Investment Team will be entering
into a loan arrangement whereby it will be borrowing on a debt to equity
ratio of 4:1. This loan arrangement will be facilitated by Brait at market
related terms and be secured by the Brait balance sheet. The Investment Team
will not receive an underwriting fee for their underwriting commitment;
- Titan will underwrite the next ZAR1.2 billion worth of underwriting
required after the Investment Team`s underwriting commitment has been
discharged in full (bringing Titan`s total underwriting commitment to ZAR3.8
billion). Titan will not receive an underwriting fee for its underwriting
commitment; and
- RMB will underwrite the remaining ZAR900 million worth of underwriting
required after Titan and the Investment Team have discharged their respective
underwriting commitments in full. RMB will receive an underwriting fee in the
amount of 2.45% of their underwriting commitment of ZAR900 million.
5. Private placements
After the close of the Rights Offer, if the Investment Team has not acquired
its desired 18% shareholding in Brait (taking into account the number of
Shares subscribed for by the Investment Team during the Rights Offer Period
and pursuant to the discharge of their underwriting commitment), then the
Investment Team will have the right to subscribe at the Offer Price for a
sufficient number of Shares in order to bring it up to its 18% target
shareholding, subject to a maximum number of Shares to be issued in terms of
this placement of 110 000 000 Shares, less the number of Shares acquired by
the Investment Team during the Rights Offer or pursuant to the discharge of
their underwriting commitment ("Investment Team Placement").
Subsequent to the closing of the Rights Offer and Investment Team Placement,
if Titan has not acquired its desired 33.33% shareholding in the Company
(taking into account the number of Shares subscribed for by Titan during the
Rights Offer Period and pursuant to the discharge of its underwriting
commitment), then Titan will use its reasonable commercial endeavours to
purchase Shares in the open market with the intention of reaching its target
shareholding of up to 33.33%. To the extent that Titan does not attain its
target shareholding within three months after the close of the Rights Offer,
then Titan will have the right to subscribe for a sufficient number of Shares
at a subscription price of ZAR18.00 per Share in order to bring it up to its
33.33% target shareholding, subject to the condition that the maximum number
of Shares to be issued to Titan in terms of this placement is 55 000 000
Shares ("Titan Placement").
Prior to implementing the Placements a waiver of Brait Shareholders` pre-
emptive subscription rights will be sought at the Brait Extraordinary General
Meeting ("EGM") detailed in paragraph 15 below.
6. Acquisition of Pepkor
Brait, through its wholly-owned subsidiary Capital Partners Group Holding
Limited ("CPGHL"), will acquire 24.6% of the issued ordinary share capital of
Pepkor for a total acquisition price of ZAR4.178 billion. The acquisition
price, based on an equity valuation of ZAR17 billion, will be settled in cash
and excludes any distribution that Pepkor may make prior to the said
acquisition. The ZAR17 billion Pepkor equity valuation (and an enterprise
value of ZAR16.8 billion), is based on a sustainable EBITDA of ZAR2.261
billion, which equates to an EBITDA multiple of 7.4.
Furthermore, Brait will through CPGHL subscribe for preference shares in a
geared special purpose vehicle ("SPV") for an amount of ZAR671 million. The
SPV will, through the acquisition of shares in Pepkor, provide the Company
with an additional 10.3% effective interest in Pepkor through a 42% economic
participation in the SPV after debt service. The acquisition and subscription
for the preference shares will inter alia be conditional on the conclusion of
the Rights Offer. The terms of the SPV funding have been agreed with RMB.
7. Acquisition of Premier
Brait, through CPGHL, will acquire 49.9% of the issued ordinary share capital
in, together with shareholder loans of ZAR221.2 million against, Premier for
a total purchase consideration of ZAR1.070 billion. The acquisition price is
based on an equity valuation of ZAR1.7 billion and will be settled in cash.
The ZAR1.7 billion Premier equity valuation (and an enterprise value of
ZAR2.629 billion) is based on a sustainable EBITDA of ZAR410 million, which
equates to an EBITDA multiple of 6.4.
The acquisition will inter alia be conditional on the conclusion of the
Rights Offer.
8. Restructuring of the Company
With its move towards a listed investment vehicle, Brait has taken steps to
ensure that there is certainty and efficiency with respect to its corporate
structure. This has necessitated the proposed migration from Luxembourg to
Malta. Brait will become a European company (Societas Europaea in terms of EU
Regulation 2157/2001) as a result of a merger with a Malta subsidiary,
culminating in a subsequent transfer of the registered office of the holding
company from Luxembourg to Malta.
Brait will retain its primary and secondary listings on the LuxSE and JSE
respectively. The target completion date for the migration is 21 October
2011.
9. Brait internal reorganisation
An internal reorganisation of the Brait executive management, Board and
business unit structures, as well as operating cost reduction initiatives
will be implemented (subject to following the required procedures) to align
with the Company`s new business structure and strategic focus. Key among
these changes include:
- the Board will take the format of a European style investment vehicle
which is made up exclusively of non-executive directors that oversee the
Company investment management function as the de facto investment committee;
- Antony Ball will resign as the Chief Executive Officer ("CEO") of Brait
from the date of this announcement. He will remain on the Board as a non-
executive director and he will retain his Brait IV commitments and
responsibilities;
- John Gnodde will assume executive leadership of Brait from the date of
this announcement. He will also serve as the CEO of Brait South Africa
Limited, which will enter into investment advisory agreements with other
group companies. John and Sam Sithole, Brait`s Financial Director, will
resign as executive directors of Brait SA in line with the new non-executive
board of directors format;
- in addition to Dr Wiese joining the Board, additional changes to the
directorate are expected to be announced shortly arising from the transfer of
the registered office of the holding company to Malta and to further
strengthen the Board`s international investment expertise;
- all the current Brait fund management business units will now be treated
as portfolio companies and accounted for as financial assets fair valued
through the Statement of Comprehensive Income. This is in line with NAV
growth being the key valuation metric for the Company going forward;
- operating costs will be reduced across the new Company due to the merger
of various units and functions; and
- all the Company`s share incentive schemes will be early vested and
discontinued as a result of the implementation of the Transactions.
10. Dividend Policy
As a consequence of Brait`s new business model, its dividend policy will
change. Dividends will be considered annually when the results for each year
are published. The extent of any dividends will be determined relative to net
operating cash flows and to the payments received on the realization of loans
and investments from time to time and which are not earmarked for new
projects or required for liquidity.
11. Unaudited pro forma financial effects
Set out in the table below are the unaudited effects of the Transactions on
the number of shares in issue and the NAV per share at the interim reporting
date of 30 September 2010 which have been prepared for illustrative purposes
only.
Headline and basic earnings per share numbers have not been calculated on the
basis that pro forma earnings figures would be misleading and not comparable
without the inclusion of fair value adjustments for the acquisitions and
funds management units which have been carried at the acquisition prices.
The existing accounting policies of Brait have been used in calculating the
pro forma financial information. The directors of Brait are responsible for
the preparation of the pro forma financial effects.
Pro forma adjustments
Unadjusted Rights Offer Acquisit Pro forma
30 September and ions 30 September
2010 Placements 2010
Number of
ordinary 116 387 692 389 864 622 - 506 252 314
shares in
issue
(million)
NAV per share
(Cents) 1331 1745 - 1650
12. Conditions precedent
The implementation of the Rights Offer is subject to the following conditions
precedent being fulfilled or waived as the case may be by Monday, 11 April
2011, or such later date to be determined by the Board:
- approval of the circular referred to in paragraph 15 below by the LuxSE,
JSE Limited and registration of the circular with the Companies and
Intellectual Property Registration Office ("CIPRO") pursuant to the
provisions of the South African Companies Act, No 61 of 1973;
- passing of the necessary resolutions by Brait Shareholders required to
implement the Transactions;
- the Underwriting Agreement becoming unconditional in accordance with its
terms (save insofar as it is conditional on the Rights Offer opening);
- approval by the LuxSE and JSE of the listing of the Rights and the New
Brait Shares; and
- the Acquisitions and Subscription Agreements relating to Pepkor, Pepkor
SPV and Premier becoming unconditional in accordance with their terms.
13. Salient dates and times
2011
Circular posted to Brait Shareholders Friday, 25 March
trading on the Exchanges on
Completed forms of proxy to be returned by Friday, 8 April
10:00 a.m. on
Brait Extraordinary General Meeting ("EGM") Monday, 11 April
to be held at 10:00 a.m. at 42, rue de la
Vallee, L-2661 Luxembourg on
Results of the EGM released on SENS and the Monday, 11 April
LuxSE website on
Finalisation date on Monday, 11 April
Results of the EGM published in the South Tuesday, 12 April
African press on
Last day to trade in Shares on the Thursday, 14 April
Exchanges for Brait Shareholders to be
eligible to participate in the Rights Offer
on
Rights issued to Brait Shareholders (see Friday, 15 April
below when dematerialised and certificated
shareholders are credited with the Rights)
on
Opening Date of Rights Offer for Brait Friday, 15 April
Shareholders on
First listing date of the Rights on the Friday, 15 April
Exchanges on
Brait Shareholders trading on the Exchanges Friday, 15 April
commence trading their Rights and Brait
Shareholders on the Luxembourg register can
exercise their Rights on
Existing Shares trade ex rights on the Friday, 15 April
Exchanges on
Record Date for Brait Shareholders holding Thursday, 21 April
their Shares on the South African sub-
register on
Brait Shareholders holding their Shares on Tuesday, 26 April
the South African sub-register will have
their broker or CSDP accounts credited with
their Rights and can exercise their Rights
on
Form of Instruction posted to certificated Tuesday, 26 April
Brait shareholders on
Last day to trade in Rights for Brait Friday, 20 May
Shareholders trading on Exchanges on
Record date and Closing date for Friday, 27 May
acceptances under Rights Offer at 12:00
(see note 6) on
Auction of unexercised Rights on LuxSE on Monday, 6 June
New Brait Shares issued to Brait Wednesday, 8 June
Shareholders on
Listing of New Brait Shares on the Wednesday, 8 June
Exchanges on
Results of the Rights Offer released on Wednesday, 8 June
SENS and the LuxSE website on
Results of the Rights Offer published in Thursday, 9 June
the South African press on
New Brait Shares credited to Brait Friday, 10 June
Shareholders` broker or Participant
accounts and share certificates posted to
certificated Brait Shareholders (for
shareholders holding their Shares on the
Luxembourg register) by no later than (see
note 7)
New Brait Shares credited to Brait Friday, 10 June
Shareholders` broker or CSDP accounts and
share certificates posted to certificated
Brait Shareholders (for shareholders
holding their Shares on the South African
sub-register) (see note 7) by no later than
Notes:
1. No excess Shares may be applied for;
2. Shares may not be transferred between Exchanges between Thursday, 14
April 2011 and Thursday, 21 April 2011;
3. Rights and Shares are transferable between Exchanges save for point 2
above;
4. Share certificates may not be dematerialised or rematerialised between
Thursday, 14 April 2011 and Thursday, 21 April 2011, both days inclusive;
5. Rights may not transfer between Luxembourg register and South African
sub-register after Friday, 20 May 2011 save for purposes of the Auction;
6. CSDPs effect payment in respect of dematerialised Brait Shareholders on
a delivery versus payment basis;
7. New Brait Shares will only be issued pursuant to the Rights Offer on
Wednesday, 8 June 2011. Accordingly, Brait Shareholders will not be able to
trade in their New Brait Shares until Friday, 10 June 2011;
8. Friday, 22 April 2011 and Monday, 25 April 2011 are public holidays in
South Africa and Luxembourg; and
9. Thursday, 2 June 2011 is a public holiday in Luxembourg.
14. Restricted Territories
The making of the Rights Offer to persons located or resident in, or who are
citizens of, or who have a registered address in countries other than
Luxembourg and South Africa, may be affected by the law or regulatory
requirements of the relevant jurisdiction. The offer of New Brait Shares
under the Rights Offer is not being made into certain territories. Subject to
certain exceptions, Brait Shareholders with a registered address in the
United States, United Kingdom, European Economic Area or EEA, Australia,
Canada and Japan and any other jurisdiction where the extension or making of
the Rights Offer would be unlawful or in contravention of certain regulation
are not being sent this document and will not be sent a circular as
contemplated in paragraph 15 below.
15. Posting of circular
Subject to paragraph 14 above, Brait Shareholders are advised that a circular
containing the full details of the terms of the Transactions and a notice of
EGM containing the necessary resolutions to be approved by Brait Shareholders
in order to implement the Transactions, is expected to be posted to all Brait
Shareholders on or about Friday, 25 March 2011, or such later date as may be
required to allow for completion of registration of such circular with CIPRO.
16. Withdrawal of cautionary announcement
Brait Shareholders are advised that, as a result of the publication of this
announcement, the cautionary announcement is now withdrawn and caution is no
longer required to be exercised by Brait Shareholders when dealing in their
Shares. Directors and staff will be permitted to trade in Brait Shares and
Rights after the results of the EGM have been announced.
2 March 2011
Financial advisor, mandated lead debt arranger and advisor, underwriter and
transaction sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Luxembourg legal advisor
M Partners
South African attorneys
Cliffe Dekker Hofmeyr Inc.
Date: 02/03/2011 07:15:10 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
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