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Malbak
Nampak Limited Malbak Limited
(Incorporated in the Republic (Incorporated in the Republic
of South Africa) of South Africa)
(Registration number (Registration number
1968/008070/06) 1946/022234/06)
Share code NPK ISIN Share code MLB ISIN
ZAE000004933 ZAE000004487
("Nampak") ("Malbak")
Firm intention announcement
R1.9 billion recommended offer for Malbak
1. Introduction
On 13 December 2001, the Boards of Nampak and Malbak
(collectively, the "Companies") announced that agreement had
been reached on the terms of a recommended offer by Nampak for
Malbak ("the Transaction"), subject to the satisfaction of
certain pre-conditions.
The boards of the Companies are pleased to advise their
shareholders that all of the pre-conditions required for the
making of the offer to Malbak shareholders have been satisfied
and that, accordingly, Nampak intends to proceed with the offer.
Following the completion of due diligence, an updated review of
trading, the successful sale of the rigid plastics businesses of
Malbak ("the Rigids Business"), as well as stability around
current levels in the Rand exchange rate, the Companies have
agreed on revised offer terms.
Nampak revised its recommended offer to 26.92 Nampak shares and
R60.00 in cash per 100 Malbak shares. These revised terms value
each Malbak share at R3.83 based on a Nampak share price of
R12.00 and R4.06 based on the Nampak closing price of R12.85 on
25 April 2002, being the last practicable date prior to this
announcement.
The Transaction will be subject to certain conditions precedent,
as set out in paragraph 6 below.
2. Terms of the Transaction
2.1 The Transaction
Nampak will propose a scheme of arrangement ("the Scheme") under
section 311 of the Companies Act,1973 (the "Companies Act"). In
the event that the Scheme is not implemented, a substitute offer
under section 440 of the Companies Act (the "Offer") will become
effective.
2.2 The Transaction consideration
The Transaction consideration will be a combination of Nampak
shares and cash. The Transaction will result in Malbak
shareholders receiving, for every 100 Malbak shares held, 26.92
Nampak shares, credited as fully paid up and R60.00 in cash,
subject to a valid Mix and Match Election, as described in
paragraph 2.3 below (the "Transaction Consideration").
On the basis of a price per Nampak share of R12.85 at the close
of business on 25 April 2002 this represents an offer price of
R4.06 per Malbak share.
Based on a fully diluted number of Malbak shares in issue of
484.3 million (the "Transaction Shares"), a consideration of
R4.06 per Malbak share corresponds to a total equity value for
Malbak of R1,965.8 million. It represents a premium of 8.2 per
cent to the price of a Malbak share of R3.75 on 25 April 2002.
Note: The 484.3 million Transaction Shares include the 477.2
million shares used in the earnings per share calculation for
the six months ended 30 September 2001 and assume the issue of a
further 7.1 million shares for purposes of the Malbak Group
Share Incentive Scheme, but exclude Malbak's 53.0 million
treasury shares, which will not participate in the Transaction.
Based on the Nampak and Malbak share prices of R11.50 and R2.92
respectively on 1 November 2001, the last business day prior to
the first cautionary announcement, the premium is 26.6 per cent.
Based on the Nampak and Malbak share prices of R10.95 and R3.00
respectively on 12 December 2001, the last business day prior to
the detailed cautionary announcement, the premium is 18.2 per
cent.
Based on the 12 month average of Nampak and Malbak share prices
to 25 April 2002 of R11.52 and R2.82 respectively, the premium
is 31.2 per cent.
Given that the Transaction Consideration includes Nampak shares,
the implied consideration per Malbak share will fluctuate in
accordance with movements in the Nampak share price. The table
below sets out the implied consideration per Malbak share at
varying Nampak share price levels.
Nampak share price Implied consideration per Malbak
share
(Rand) (Rand)
11.50 3.70
12.00 3.83
12.50 3.96
13.00 4.10
13.50 4.23
The directors of Nampak believe that the Transaction will be
earnings neutral, before synergies and restructuring costs, on a
pro forma basis to 30 September 2002.
Full details of the terms and conditions of the Transaction will
be included in the Scheme circular to be posted to Malbak
shareholders, once Malbak's audited annual financial statements
for the year ended 31 March 2002 have been released and the
Transaction has been approved by the Competition Authorities, in
terms of the Competition Act, 1998 (the "Competition Act").
2.3 Mix and Match Elections
Malbak shareholders will be entitled to elect under the terms of
the Transaction (subject to availability) to vary the
proportions in which they receive Nampak shares and cash forming
part of the Transaction Consideration (the "Mix and Match
Elections"), subject to agreement between the Companies, the JSE
Securities Exchange South Africa ("JSE") and the Central
Securities Depository Participants ("CSDP's").
However, the total number of Nampak shares and the total amount
of cash to be received by Malbak shareholders under the
Transaction will not be varied as a result of the Mix and Match
Elections. Accordingly, the satisfaction of the Mix and Match
Elections will be dependent upon the extent, if any, to which
other Malbak shareholders make offsetting elections. Where the
Mix and Match Elections cannot be satisfied in full, they will
be settled on a pro rata basis.
The number of Nampak shares received in exchange for cash will
be determined on the basis of a price per Nampak share on the
average of the daily closing prices of Nampak shares on the JSE
on each of the trading days during the period commencing on the
day of the posting of the Scheme circular and ending on the day
prior to the date of the Scheme meeting. Full details will be
provided in the Scheme circular.
2.4 Confirmation of financial resources
The Securities Regulation Panel (the "SRP") is satisfied that,
in accordance with Rule 2.3.2 (b) of the Securities Regulation
Code on Takeovers and Mergers, sufficient funds are available to
implement the Scheme and, if applicable, the Offer.
3. Rationale for the Transaction
Key pertinent elements of Nampak's stated strategy are:
* European expansion in selected niche market segments of the
packaging industry which provide opportunities for growth from
industry fundamentals and/or consolidation opportunities;
* Reduction of costs through a focus on efficiency in
manufacturing and marketing.
Malbak's strategy has been:
* to seek growth opportunities and increase offshore earnings
in folding cartons in Europe; and
* to rationalise operations in South Africa and strengthen
market positions.
The Transaction is consistent with the Companies' respective
strategies and provides a strong platform for future growth. The
Companies believe the benefits of the Transaction will include
the following:
3.1. European expansion
The Transaction will significantly enhance the European platform
of the enlarged Nampak, providing a larger and more diverse base
from which to grow and compete effectively.
Nampak has successfully developed a European business in certain
niche areas within rigid plastics and will continue to seek
growth opportunities in this area. In addition, the Transaction
will provide growth opportunities in the European folding
cartons business, which fits well with Nampak's core
competencies and strategic objectives.
Folding cartons has been a core area of expertise throughout
Nampak's history and is a business segment that has previously
been identified as an area for expansion internationally due to
the fragmented nature of the market, particularly in Europe. The
Malbak folding cartons businesses have strong market positions
in a number of attractive niche areas, particularly healthcare
and branded foods. This is consistent with Nampak's niche
strategy as developed in its rigid plastics division.
The Companies believe that the combination of the two groups'
management experience and expertise, the stronger balance sheet
and the greater diversification of earnings of the combined
group will create a stronger platform for further expansion
within Europe.
3.2 Low cost, efficient producer
The domestic market in South Africa has limited growth
potential. The market is currently serviced by domestic
businesses and imports. In order to remain competitive,
manufacturers have had to focus on cost containment and
efficiency gains.
The Companies have recently completed major rationalisation
exercises, which have delivered significant benefits in their
manufacturing processes and helped maintain their competitive
positions. The Transaction provides further opportunities to
develop economies of scale and to increase the productivity of
manufacturing units, the benefits of which are expected to
include:
* for South Africa and for customers, a world-class packaging
company with the critical mass needed to offer globally
competitive prices, increasing direct and indirect exports and
reducing imports;
* for employees, a stronger group able to offer enhanced
career prospects; and
* for shareholders, a more efficient manufacturer with greater
capacity utilisation and a consequent improvement in margins and
the opportunity for enhanced growth.
4. Treasury shares
The 53,020,444 Malbak treasury shares held by Kohler Packaging
Limited, a wholly-owned subsidiary of Malbak, will not
participate in the Scheme.
5. Financial effects
5.1 Financial effects on Nampak shareholders
The table below sets out the pro forma financial effects of the
Transaction on a Nampak shareholder, based on the assumptions as
set out below:
Notes Before After Increase/(decrease)
(cents) (cents) (%)
Earnings per share (1), (2) 82.7 82.8 0.1
Headline earnings
per share (1), (2) 88.1 91.4 3.7
Net asset value
per share (1), (3) 550.0 682.4 24.1
Tangible net asset
value per share (1), (3) 564.5 571.5 1.2
Notes:
Based on Nampak's published audited financial statements for the
year ended 30 September 2001.
Incorporates Nampak's headline earnings to 30 September 2001 per
share, adjusted for the unaudited headline earnings per Malbak
share for the year ended 30 September 2001, as if the
Transaction had taken effect on 1 October 2000, but excludes the
headline earnings of the Rigids Business, the disposal of which
was approved by Malbak shareholders on 11 March 2002. These
calculations take account of the after-tax interest which a
Nampak shareholder would have incurred on the cash element of
the Transaction Consideration, from 1 October 2000, at the
average funding cost of 10.6 per cent for the 12 months ended 30
September 2001 and assumes a tax rate of 30 per cent.
Incorporates Nampak's net asset value at 30 September 2001 per
share, adjusted for the unaudited net asset value of Malbak at
30 September 2001 per share, but excludes the net asset value of
the Rigids Business.
5.2 Financial effects on Malbak shareholders
The table below sets out the pro forma financial effects of the
Transaction on a Malbak shareholder, assuming the Transaction is
approved and based on the assumptions set out below:
Notes Before Before After Increase/
Incl. excl. (decrease)
Rigids Rigids (%)
(cents) (cents) (cents)
Earnings per share (1),(2) 27.9 33.7 25.8 (23.5)
Headline earnings
per share (1),(2) 30.2 33.1 28.1 (15.1)
Net asset value
per share (1),(3) 331.1 260.5 243.7 (6.4)
Tangible net asset
value per share (1),(3) 295.3 224.7 213.9 (4.8)
Notes:
1. The "Before incl. Rigids" column represents the Malbak
earnings, headline earnings, net asset value and tangible net
asset value, including such financial detail for the Rigids
Business. The "Before excl. Rigids" represents the Malbak
earnings, headline earnings, net asset value and tangible net
asset value, excluding such financial detail for the Rigids
Business.
2. The amount in the "Before excl. Rigids" column is based on
the unaudited headline earnings per Malbak share for the year
ended 30 September 2001, as if the Transaction had taken effect
on 1 October 2000, but excludes the headline earnings of the
Rigids Business. The amount in the "After" column represents
0.2692 of the headline earnings per Nampak share for the 12
month period ended 30 September 2001, adjusted for the unaudited
headline earnings of Malbak, excluding headline earnings for the
Rigids Business for the 12 month period ended 30 September 2001,
and the after-tax interest which a Malbak shareholder would have
earned had the 60 cents been invested on 1 October 2000 at the
average 12-month call rate of 8.0 per cent for the 12 months
ended 30 September 2001, compounded monthly in arrears and
assuming a tax rate of 30 per cent. The calculation of the
Nampak headline earnings per share takes account of the after-
tax interest incurred on the cash element of the Transaction
Consideration, from 1 October 2000, at the average funding cost
of 10.6 per cent for the 12 months ended 30 September 2001 and
assumes a tax rate of 30 per cent.
3. The amount in the "Before excl. Rigids" column is based on
the unaudited net asset value per Malbak share as at 30
September 2001. The amount in the "After" column is based on
0.2692 of the pro forma net asset value per Nampak share as at
30 September 2001, adjusted for the unaudited net asset value
for Malbak, excluding net asset value for the Rigids Business at
30 September 2001, and 60 cents in cash for every Malbak share.
6. Conditions precedent to the Transaction
The implementation of the Transaction is subject to the
fulfilment of the following conditions precedent:
Approval of the Transaction and the increase of Nampak's
authorised share capital by the Nampak shareholders;
Either the Scheme being agreed to by not less than three-fourths
of the votes exercisable by Malbak shareholders present and
voting either in person or by proxy at the Scheme meeting, the
sanctioning of the Scheme by the High Court of South Africa and
the registration of the Order of Court sanctioning the Scheme by
the Registrar of Companies; or if the Scheme is not implemented,
the Offer being accepted by Malbak shareholders holding not less
than 90% of the Transaction Shares;
Approval of the Transaction by the South African Reserve Bank;
the approval of the Transaction by the Competition Authorities,
in terms of the Competition Act, either unconditionally, or
subject to such conditions as may be acceptable to the
Companies; and
if and to the extent necessary, JSE and SRP approval.
7. Competition Commission
A joint merger filing in respect of the Transaction has been
submitted to the Competition Commission.
8. Opinions and recommendations
SG Hambros is acting as an independent adviser to Malbak on the
Transaction.
The Malbak board is of the opinion that such terms and
conditions are fair and reasonable to shareholders and
recommends that shareholders vote in favour of the Scheme or, if
applicable, accept the Offer. The directors who hold shares in
Malbak intend to vote in favour of the Scheme or, if applicable,
accept the Offer.
UBS Warburg is acting as an independent adviser to Nampak on the
Transaction.
The Nampak board is of the opinion that the terms and conditions
of the Transaction are fair and reasonable to Nampak
shareholders and recommends that shareholders vote in favour of
the Transaction. The directors who hold shares in Nampak intend
to vote in favour of the Transaction.
9. Nampak board positions
On successful completion of the Transaction, three Malbak
directors will be invited to join the Nampak board.
10. Timetable
The posting of the circular to Nampak shareholders relating to
the approval of the Transaction will be subject to approval of
the circular by the SRP and the JSE. Posting will be delayed
until the release of the audited annual financial statements of
Malbak for the financial year ended 31 March 2002 and approval
of the Transaction by the Competition Authorities, in terms of
the Competition Act, either unconditionally or subject to such
conditions as are acceptable to the Companies. Approval by the
Competition Authorities is expected in mid-June.
The posting of the Scheme circular to Malbak shareholders will
be subject to the High Court of South Africa granting an order
convening the Scheme meeting, approval of the Scheme circular by
the SRP and the JSE and approval of the Transaction by the
Competition Authorities, in terms of the Competition Act, either
unconditionally or subject to such conditions as are acceptable
to the Companies.
11. Withdrawal of joint cautionary announcement
The joint cautionary announcement dated 7 March 2002 regarding
the Nampak merger with Malbak is hereby withdrawn.
Johannesburg
26 April 2002
Financial adviser to Nampak Financial adviser and
transactional sponsor to Malbak
UBS Warburg Corporate Finance SG Hambros South Africa
(SA) (Pty) Ltd
A financial services group of
UBS AG
(Registration number
1994/008363/07)
Legal adviser to Nampak Legal adviser to Malbak
Bowman Gilfillan Inc Cliffe Dekker Inc
(Registration number (Registration number
1998/021409/21) 1998/018173/21)
Sponsor to Nampak Sponsor to Malbak
UBS Warburg Securities (SA) Rand Merchant Bank Corporate
(Pty) Ltd Finance
A financial services group of A division of FirstRand Bank
UBS AG Limited
(Member of the JSE)
(Registration number
1995/011140/07)
Legal adviser to Malbak
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