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Sanlam - Capital Management Announcement
Sanlam Limited
(Incorporated in the Republic of South Africa)
(Registration number 1959/001562/06)
JSE share code: SLM
ISIN: ZAE000028262
NSX share code: SLA
("Sanlam" or "the Company")
CAPITAL MANAGEMENT ANNOUNCEMENT
1. INTRODUCTION
The sale of at least 60% of Sanlam"s current shareholding in Absa Bank Limited
("Absa") became unconditional on Thursday, 7 July 2005. Barclays Bank PLC
("Barclays") declared the offer to Absa shareholders unconditional and the court
has approved the scheme of arrangement. The final number of Absa shares acquired
by Barclays will only be known once the partial offer by Barclays to all Absa
ordinary and preference shareholders has formally closed and the number of Absa
shares sold by Sanlam will then be reported.
Sanlam capital position
The Sanlam Board is committed to optimising the Sanlam capital base to ensure
the Group"s financial strength and the most efficient use of capital. Sanlam
therefore conducted a thorough analysis of the appropriate capital level for the
Sanlam group and the requirements of the individual Group operations. Detailed
modelling techniques have been used to simulate the optimal level of capital
required in support of Sanlam"s insurance activities. This made due allowance
for all expected policyholder commitments.
Based on this analysis and taking account of current dividend and investment
policies, the Sanlam Board has concluded that the Group currently holds capital
of some R7 billion in excess of requirements, irrespective of whether Sanlam
sells 60% or more than 60% of its shareholding in Absa. This surplus can be
redeployed without impacting on the required level of solvency and liquidity of
the Group. Fitch, the international rating agency, has affirmed that Sanlam
Life"s "AA" financial strength and Sanlam Limited"s "A+" long-term debt ratings
will remain unchanged after the proposed return of capital.
Confirmation of the sale of at least 60% of Sanlam"s shareholding in Absa
provided certainty on the liquidity required to proceed with the utilisation of
surplus capital in the Group. The Board has therefore decided on the following
approach to the application of the excess capital, which it believes will be in
the best interest of shareholders:
* Approximately R4 billion will be utilised for a repurchase of Sanlam shares.
The Board believes that this is the most effective way of returning capital to
shareholders, and will enhance Sanlam"s embedded value per share and its return
on embedded value. The share repurchase will be implemented through a
simultaneous specific pro rata repurchase of shares through a scheme of
arrangement in terms of section 311 of the Companies Act, No. 61 of 1973, as
amended ("Companies Act"), from all shareholders (other than those referred to
in 3.2 below), a voluntary offer to shareholders holding a relatively small
number of shares (being less than 300) and a share repurchase in the open market
pursuant to the general authority granted by shareholders to the Board at the
annual general meeting held on Wednesday, 1 June 2005.
* The balance of the excess, being R3 billion, is earmarked for profitable
structural growth opportunities in support of the Group"s strategy, which will
enhance the Group"s return on embedded value. If suitable opportunities are not
available to be concluded within a reasonable time frame and on terms that will
clearly meet the shareholder return requirements set by the Board and add value
to Sanlam, the remaining excess will also be returned to shareholders. A number
of initiatives that will support and complement the Group strategy are currently
being investigated. Shareholders will be kept informed of progress in this
regard.
2. PROPOSED SHARE REPURCHASES
2.1 Specific pro rata share repurchase ("the scheme")
It is proposed that Sanlam effects a return of its surplus capital through a
scheme of arrangement pursuant to section 311 of the Companies Act, which, on
becoming operative, will result in Sanlam repurchasing 10% of all the Sanlam
ordinary shares held by scheme participants for a cash consideration of R12.00
per Sanlam ordinary share, being equivalent to the volume weighted average
market value of Sanlam ordinary shares traded on the JSE Limited ("the JSE") for
the five business days immediately preceding Thursday, 7 July 2005, plus a 20
cents per share premium. The scheme, if implemented, will result in the Sanlam
ordinary shares having been repurchased in terms thereof, being forthwith
cancelled, delisted and restored to the status of authorised, but unissued
ordinary shares in the share capital of Sanlam.
2.2 Offer to shareholders holding less than 300 shares ("the offer")
Sanlam currently has approximately 650 000 shareholders on its register of
members of which approximately 40% will hold less than 300 Sanlam ordinary
shares after the implementation of the scheme, aggregating to approximately 75
million Sanlam ordinary shares. A significant number of these Sanlam
shareholders have not increased or sold the shares that were allocated to them
upon the demutualisation and listing of Sanlam in 1998. The Board is of the
opinion that some of these shareholders may welcome the opportunity to sell
their shares at a premium without having to pay any brokerage or other
associated costs, which could be significant relative to the return on less than
300 shares.
Subject to, and after the scheme being implemented, Sanlam offers all Sanlam
ordinary shareholders holding less than 300 Sanlam ordinary shares ("offer
shareholders"), the opportunity to dispose of their entire shareholding at a
price equal to the volume weighted average market value of the Sanlam ordinary
shares traded on the JSE for the five business days immediately preceding the
business day before the last date on which proxies must be lodged for the
general meeting, plus a 20 cents per share premium. Shares so repurchased will
also be forthwith cancelled, delisted and restored to the status of authorised,
but unissued ordinary shares in the share capital of Sanlam.
The offer will:
* enable Sanlam ordinary shareholders with a relatively small shareholding in
Sanlam to participate in the offer as an affordable exit strategy; and
* enable Sanlam to decrease the recurring administration costs relating to the
Sanlam register of members.
Although there is a cost benefit to Sanlam in servicing a smaller share
register, Sanlam acknowledges the rights of all its shareholders. If there are
offer shareholders who decide not to accept this offer and elect to remain
Sanlam shareholders, they are welcome to do so.
2.3 General repurchase
It is proposed that a total of R4 billion be utilised to repurchase Sanlam
ordinary shares as contemplated in this announcement. Any surplus after the
implementation of the scheme and the offer, will be applied to repurchase shares
in the open market in terms of the general authority granted by Sanlam
shareholders at the annual general meeting held on Wednesday, 1 June 2005.
3. TERMS
3.1 General terms
The recommended share repurchases in terms of the scheme, the offer and the
general repurchase ("the share repurchases") will be made in accordance with all
applicable requirements of the Companies Act, the JSE and Sanlam"s Articles of
Association ("the Articles"). The share capital and share premium accounts of
Sanlam will be reduced by the amount paid in terms of the scheme and the offer.
3.2 The scheme
The repurchase of 10% of the Sanlam ordinary shares held by scheme
participants, is to be effected through a scheme of arrangement in terms of
section 311 of the Companies Act, proposed by Sanlam between Sanlam and the
scheme participants consisting of its ordinary shareholders, other than Ubuntu-
Botho Investments (Proprietary) Limited, the Sanlam Share Incentive Trust, the
Sanlam Demutualisation Trust and Genbel Securities Limited. In terms of the
scheme all scheme participants will dispose of 10% of their Sanlam ordinary
shares ("scheme shares") to Sanlam for R12.00 in cash for each scheme share.
Effectively the repurchase will result in an ordinary share repurchase of
approximately 9.1% of all Sanlam ordinary shares in issue after taking excluded
parties into account.
3.3 The offer
The offer is subject to the implementation of the scheme. Sanlam ordinary
shareholders who hold less than 333 Sanlam ordinary shares before the
implementation of the scheme, will hold less than 300 after its implementation.
The offer will be extended to shareholders holding less than 300 shares after
the implementation of the scheme ("offer shareholders").
The acceptance of the offer can only be in respect of the entire shareholding
and offer shareholders will not be entitled to accept the offer in respect of
only some of the shares held by them.
3.4 The scheme and general meetings
The Sanlam interim results will be released on Thursday, 8 September 2005 and
this will mark the end of the Sanlam share closed period. The offer price will
be announced on Friday, 16 September 2005 with the scheme and general meetings
to follow on Wednesday, 21 September 2005.
4. CONDITIONS PRECEDENT
4.1 The scheme
The scheme is subject to the fulfilment, or where possible waiver, as the case
may be, of the following suspensive conditions on or before Tuesday, 4 October
2005:
* the passing by Sanlam ordinary shareholders at the general meeting convened
for such purpose of the requisite special resolution in terms of which Sanlam
will be authorised to repurchase Sanlam ordinary shares in terms of section 85
of the Companies Act and article 37 of its Articles to give effect to the
scheme;
* the registration of the special resolution referred to above, by the
Registrar of Companies;
* the scheme being approved, with or without modification, by a majority
representing not less than three-fourths (75%) of the votes exercisable by
scheme members present and voting, either in person or by proxy, at the scheme
meeting, expected to be held on Wednesday, 21 September 2005; and
* the granting by the High Court of South Africa (Cape of Good Hope Provincial
Division) of an Order that the scheme be sanctioned in terms of section 311 of
the Companies Act and the registration by the Registrar of Companies of such
Order.
4.2 The offer
The offer is subject to the following conditions:
* the scheme having become operative; and
* the passing by Sanlam ordinary shareholders at the general meeting convened
for such purpose of the requisite special resolution in terms of which Sanlam
will be authorised to repurchase Sanlam ordinary shares in terms of section 85
of the Companies Act and article 37 of its Articles to give effect to the offer.
5. FINANCIAL INFORMATION
Unaudited pro forma financial information
The Sanlam Board believes that the proposed share repurchases will be beneficial
to Sanlam and its shareholders.
The pro forma financial effects are illustrated based on South African Standards
of Generally Accepted Accounting Practice, effective 31 December 2004, and do
not take account of any potential effects as a result of the implementation of
International Financial Reporting Standards effective 1 January 2005.
The table below sets out the unaudited pro forma financial effects of the
proposed share repurchases solely in terms of the scheme and offer on Sanlam,
based on the assumptions set out below. The unaudited pro forma financial
effects are provided for illustrative purposes only and, because of its nature,
may not be a fair reflection of Sanlam"s financial position after the proposed
share repurchases, or of its future earnings. The pro forma financial effects
are the responsibility of the Board.
Unaudited pro forma financial effects of the proposed scheme and offer:
Audited Unaudited Unaudited
before pro forma pro forma
the Absa Unaudited adjustments after the
disposal and pro forma relating to: proposed
proposed after the scheme
share Absa The The and
repurchases(1) disposal(2) scheme offer offer
Diluted earnings
per share (cents)(3) (4)
Core earnings 122.3 100.1 5.8 0.5 106.4
Headline earnings 116.6 94.4 5.2 0.5 100.1
Attributable earnings 120.2 215.8 17.5 1.5 234.8
Adjusted headline
earnings based
on the LTRR 151.6 149.6 4.2 0.4 154.2
Basic earnings
per share (cents)(4)
Core earnings 123.8 101.3 6.0 0.6 107.9
Headline earnings 118.0 95.5 5.5 0.5 101.5
Attributable earnings 121.7 218.5 17.9 1.6 238.0
Adjusted headline
earnings based
on the LTRR 153.5 151.5 4.4 0.4 156.3
Shareholders" funds
after adjusting for
subsidiaries at fair
value (R million)(5) 29 982 30 548 (3 006) (243) 27 299
Net asset value per
share after adjusting
for subsidiaries at
fair value (cents)(5) 1 100 1 121 (9) (1) 1 111
Net asset value per
share (cents)(5) 1 014 1 035 (17) (2) 1 016
Tangible net asset value
per share (cents)(5) 946 967 (25) (2) 940
Embedded value of
shareholders" funds
(R million)(5) 36 682 37 248 (3 006) (243) 33 999
Embedded value per
share (cents)(5) 1 346 1 367 15 2 1 384
Return on embedded
value per share (%)(6) 22.5 24.4 1.7 0.2 26.3
Weighted average
number of ordinary
shares (million) 2 698.3 2 698.3 (249.1) (20.3) 2 428.9
Diluted weighted
average number of
ordinary shares
(million) 2 731.3 2 731.3 (249.1) (20.3) 2 461.9
Adjusted shares issued
(million) 2 725.9 2 725.9 (249.1) (20.3) 2 456.5
Notes:
1. Extracted from the audited published results of Sanlam for the year ended 31
December 2004.
2. Extracted from the circular to Sanlam shareholders, dated 19 May 2005,
relating to the sale of Sanlam"s shareholding in Absa to Barclays. The effect of
a disposal of 60% of Sanlam"s shareholding in Absa has been included in this pro
forma financial information. Refer to the aforementioned circular for the effect
of a 100% disposal of Sanlam"s shareholding in Absa.
3. Based on basic earnings adjusted for shares still to be issued under the
Sanlam Share Incentive Trust and the conversion of deferred shares to the extent
that conversion rights have vested.
4. For the purposes of calculating the pro forma basic and diluted core
earnings, headline earnings, attributable earnings and adjusted headline
earnings based on the LTRR per Sanlam ordinary share, it was assumed that:
i. the proposed scheme and offer were effected on 1 January 2004;
ii. 10% of the Sanlam ordinary shares held by scheme participants is repurchased
and 30% of the offer shareholders accepted the offer;
iii. the scheme consideration is equal to R12.00 per share. The final offer
consideration will only be known on the day before the proxies for the general
meeting need to be lodged. For purposes of the pro forma financial information
the offer consideration is set equal to the scheme consideration;
iv. pursuant to the scheme and the offer, 249.1 million and 20.3 million Sanlam
ordinary shares, respectively, were repurchased for a total consideration of R3
233 million. In addition, repurchase costs of R16.7 million were incurred;
v. core, headline and attributable earnings reduced with the actual investment
income return of 4.1% pre-tax (3.5% after tax) earned during the year ended 31
December 2004 on the balanced portfolio from which the repurchase consideration
of R3 233 million and costs of R16.7 million were withdrawn;
vi. LTRR headline earnings reduced with the expected long-term rate of return
earnings of 11% pre-tax (9% after tax) on the funds withdrawn; and
vii. the weighted average number of shares in issue during the year ended 31
December 2004 is reduced by 269.4 million.
5. For the purposes of calculating the pro forma net asset value, net tangible
asset value and embedded value per Sanlam ordinary share, it was assumed that:
i. the proposed scheme and offer were effected on 31 December 2004;
ii. 10% of the Sanlam ordinary shares held by scheme participants is repurchased
and 30% of the offer shareholders accepted the offer;
iii. the scheme consideration is equal to R12.00 per share. The final offer
consideration will only be known on the day before the proxies for the general
meeting need to be lodged. For purposes of the pro forma financial information
the offer consideration is set equal to the scheme consideration;
iv. pursuant to the scheme and the offer, 249.1 million and 20.3 million Sanlam
ordinary shares, respectively, were repurchased for a total consideration of
R3 233 million. In addition, repurchase costs of R16.7 million were incurred;
and
v. the proposed share repurchases reduced Sanlam"s shareholders" funds with an
amount of R3 249.7 million and the adjusted number of shares in issue as at 31
December 2004 by 269.4 million.
6. Despite the reduction in embedded value of R3 249.7 million as a result of
the scheme and the offer, the related reduction in the adjusted number of shares
in issue increases the return on embedded value per share by 1.9% to 26.3%.
6. SALIENT DATES AND TIMES 2005
Last day to trade in Sanlam ordinary shares in order
to be recorded in the Register to vote at the scheme
meeting Friday, 9 September
Announce offer price on SENS Friday, 16 September
Voting record date to vote at the scheme meeting
at 17:00 Friday, 16 September
Announce offer price in press Monday, 19 September
Last day to lodge forms of proxy for the general
meeting by 10:00 Monday, 19 September
Last day to lodge forms of proxy for the scheme meeting
by 10:30 Monday, 19 September
General meeting to be held at 10:00 Wednesday, 21 September
Scheme meeting to be held at 10:30 (or after conclusion
of the general meeting, if later) Wednesday, 21 September
Results of the scheme meeting and general meeting
released on SENS Wednesday, 21 September
Offer opens Thursday, 22 September
Results of the scheme meeting and general meeting
published in the press Thursday, 22 September
Registration of special resolutions Monday, 26 September
Court hearing to sanction the scheme Tuesday, 4 October
Announcement regarding the sanctioning of the scheme
and that the offer is unconditional released on SENS Tuesday, 4 October
Announcement regarding the sanctioning of the scheme
and that the offer is unconditional published in the
press Wednesday, 5 October
Relevant dates if the scheme is sanctioned:
Last day to trade to participate in the scheme Friday, 14 October
Sanlam ordinary shares trade "ex" the scheme Monday, 17 October
Scheme consideration record date being the date on which
scheme participants must be recorded in the register to
receive the scheme consideration Friday, 21 October
Operative date of the scheme Monday, 24 October
Termination of listing of scheme shares Monday, 24 October
Dematerialised scheme participants will have their relevant
account with their CSDP or broker debited with the
Sanlam ordinary shares disposed of pursuant to the scheme Monday, 24 October
Scheme consideration settlement date(5) Monday, 31 October
Dematerialised scheme participants, other than scheme
participants holding their shares through the Sanlam Share
Accounts, will have their relevant account with their CSDP
or broker credited with the scheme consideration
The scheme consideration will be paid into the bank
accounts of certificated scheme participants and scheme
participants holding their shares through the Sanlam Share
Accounts, where such bank account details are recorded in
a sub-register. Where such details are not recorded, the
scheme consideration will be paid by cheque, posted to the
scheme participant
Relevant dates for offer participants:
Last day to trade to participate in the offer Friday, 14 October
Sanlam ordinary shares trade "ex" the offer Monday, 17 October
Offer record date (for purposes of participating in the
offer) Friday, 21 October
Closing date of the offer at 12:00 Friday, 21 October
Termination of listing of offer shares Monday, 24 October
Dematerialised offer participants will have their relevant
account with their CSDP or broker debited with the Sanlam
ordinary shares disposed of pursuant to the offer Monday, 24 October
Results of the offer released on SENS Monday, 24 October
Offer consideration settlement date(5) Monday, 31 October
Dematerialised offer participants, other than offer participants
holding their shares through the Sanlam Share Accounts,
will have their relevant account with their CSDP or broker
credited with the offer consideration
The offer consideration will be paid into the bank accounts
of certificated offer participants and offer participants holding
their shares through the Sanlam Share Accounts, where such
bank account details are recorded in a sub-register.
Where such details are not recorded, the offer consideration
will be paid by cheque, posted to the offer participant
Certificates posted to certificated shareholders not accepting
the offer and not electing to dematerialise their
remaining shares Monday, 31 October
Notes:
1. These dates and times are subject to change. Any such change will be released
on SENS and published in the press.
2. Ordinary shares in the existing form may not be dematerialised or
rematerialised after Monday, 10 October 2005.
3. Shareholders are reminded that, because the offer is conditional, should they
accept the offer by the closing date, they will not be able to trade their
Sanlam shares tendered from the date they accept the offer, until and unless the
offer lapses.
4. All dates and times referred to in this announcement are South African dates
and times.
5. Sanlam will endeavour to effect payment as soon as possible after the
respective record dates, but by no later than Monday, 31 October 2005.
7. CIRCULAR TO SANLAM SHAREHOLDERS
A circular to Sanlam shareholders, containing further details of the proposed
share repurchases, in terms of the scheme and offer, proxy forms and
incorporating a notice of a general meeting and a notice of a scheme meeting is
expected to be mailed to all shareholders by 22 August 2005.
BELLVILLE
11 July 2005
Transactional sponsor
ABSA
Corporate & Merchant Bank
Reporting accountants and auditors
Ernst & Young
Chartered Accountants (SA)
(Registered Accountants and Auditors)
Reporting accountants and auditors
PricewaterhouseCoopers Inc.
Chartered Accountants (SA)
Registered Accountants & Auditors
(Registration no. 1998/012055/21)
Attorneys
JOWELL GLYN & MARAIS
Date: 11/07/2005 01:16:09 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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