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Sanlam Limited - Announcement Of A Firm Intention By Sanlam To Acquire 100% Of

Release Date: 10/08/2005 08:11
Code(s): SLM
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Sanlam Limited - Announcement Of A Firm Intention By Sanlam To Acquire 100% Of The Issued Ordinary Shares Of African Life Assurance Company Limited ("African Life"), Other Than Those Held By The Excluded Parties 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") ANNOUNCEMENT OF A FIRM INTENTION BY SANLAM TO ACQUIRE 100% OF THE ISSUED ORDINARY SHARES OF AFRICAN LIFE ASSURANCE COMPANY LIMITED ("AFRICAN LIFE"), OTHER THAN THOSE HELD BY THE EXCLUDED PARTIES 1. INTRODUCTION Sanlam shareholders are referred to the separate African Life announcement released on SENS today ("African Life announcement"). Sanlam has submitted to the board of directors of African Life (the "African Life board") a firm intention to acquire the entire issued ordinary share capital of African Life other than those ordinary shares held by the excluded parties as defined in paragraph 4.3.1 ("the transaction"). Subject to the implementation of the transaction, Sanlam has also reached agreement with the shareholders of Umholi Investments (Proprietary) Limited ("Umholi"), the investment vehicle that holds approximately 13 million preference shares in African Life, which have attached to them options to subscribe for the equivalent of 10% of the enlarged ordinary share capital of African Life on behalf of various black economic empowerment groupings, whereby Sanlam will acquire all the ordinary shares of Umholi ("Umholi agreement"). 2. INFORMATION ON AFRICAN LIFE African Life is a pan-African financial services group, listed on the JSE Limited ("the JSE") and which focuses on niche markets and expansion in Africa. Besides South Africa, it currently has operations in Botswana, Ghana, Kenya, Lesotho, Namibia, Tanzania and Zambia. The principal activity of the African Life Group is the provision of life assurance, asset management and healthcare services. Its operations are conducted in three divisions: ' Life, which consists of the marketing of life and investment policies to the emerging market in South Africa and other African countries; ' Health, which offers health risk management and administration services to the African healthcare market; and ' Fund Management, which offers investment products and investment management services in Africa"s developing economies. 3. RATIONALE FOR THE TRANSACTION In the announcement of 11 July 2005 on the utilisation of excess capital in the Sanlam Group, it was indicated that Sanlam will pursue opportunities to deploy a portion of Sanlam"s excess capital in areas that will complement the Sanlam strategy and enhance Sanlam"s earnings and return on embedded value. Sanlam has identified the entry-level life insurance market as an important component of its growth strategy. Sanlam resources have therefore been earmarked to facilitate both organic and structural growth in this market segment. Satisfactory progress has been made to date in the development of Sanlam Group Solutions as well as through the acquisition of a controlling interest in Safrican. The acquisition of African Life is a further step and a key element in this growth strategy and will provide Sanlam with, inter alia: ' access to new markets via African Life"s client base and sales force, providing Sanlam with a meaningful presence and a base from which to consolidate and accelerate its existing offering in this segment of the market; ' a management team with experience and expertise in the target market; ' an initial footprint in several African countries, providing Sanlam with a diversification opportunity; and ' an investment that is expected to exceed Sanlam"s required return hurdles. 4. TERMS OF THE TRANSACTION 4.1 As set out in greater detail in the African Life announcement, African Life has received an offer from Momentum Group Limited to acquire African Life Health Limited ("ALH") for R175.8 million, plus the reimbursement of transaction costs of R11.1 million ("the Momentum ALH transaction"). 4.2 The Sanlam Group shareholders" funds currently hold 20.5% ("Sanlam shareholding") of the issued ordinary share capital of African Life. The consideration offered by Sanlam, or a wholly-owned subsidiary of Sanlam, to the scheme participants, as defined in paragraph 4.3.1, is: 4.2.1 R22.50 per ordinary share, consisting of R22.05 per ordinary share (the "Base Offer Consideration") plus, in the event that the Momentum ALH transaction becomes unconditional by no later than 15 February 2006, an additional R0.45 per ordinary share (combined the "Total Offer Consideration"). The aggregate purchase consideration, based on the Total Offer Consideration, is approximately R1 867 million; or 4.2.2 In the event of the Momentum ALH transaction failing to become unconditional by 15 February 2006, a committee comprising of four directors of the current African Life board (the "committee") shall endeavour to dispose of ALH to a third party for a disposal consideration in excess of R130 million. In such circumstances, the offer consideration shall be the Base Offer Consideration plus, on a per ordinary share basis, 85.5% of any proceeds (net of transaction costs) above R130 million; or 4.2.3 In the event that the committee is unable to finalise the disposal of ALH by 31 March 2006, ALH shall remain a part of African Life within the Sanlam Group and African Life ordinary shareholders shall receive a total consideration equal to the Base Offer Consideration. The aggregate purchase consideration, based on the Base Offer Consideration, is approximately R1 826 million. 4.2.4 The Total Offer Consideration or the Base Offer Consideration, as may be adjusted in terms of paragraph 4.2.2, is referred to as the "Final Consideration". 4.3 The transaction will be implemented either by way of: 4.3.1 a scheme of arrangement in terms of section 311 of the Companies Act, No. 61 of 1973, as amended ("the Act") to be proposed by Sanlam between African Life and the African Life ordinary shareholders ("scheme members") in terms of which Sanlam or a wholly-owned subsidiary of Sanlam will acquire 100% of the African Life ordinary shares (the "acquisition shares") held by African Life ordinary shareholders other than the Sanlam shareholding, the African Life Employee Shareholders Scheme Trust and subsidiaries of African Life, holding the shares as treasury shares (the "excluded parties") ("scheme participants") in exchange for the Final Consideration (the "scheme"); or 4.3.2 should the scheme not become operative, Sanlam, or a wholly-owned subsidiary of Sanlam, in its sole discretion, may make an offer to acquire all of the acquisition shares (the "substitute offer"). 4.4 The transaction is subject to the suspensive conditions set out in paragraph 5. 4.5 Should the transaction be implemented, African Life will become a subsidiary of Sanlam and the listing of it"s ordinary shares on the JSE will be terminated. 4.6 It is expected that the scheme will be implemented on Monday, 5 December 2005. The scheme meeting to approve the transaction is expected to be held on Monday, 26 September 2005. 4.7 In terms of the Umholi agreement, Sanlam will, on implementation of the transaction, acquire all the ordinary shares of Umholi at its net asset value. The Umholi ordinary shares have been valued at R84 million based on the Total Offer Consideration and R79 million based on the Base Offer Consideration. An independent financial adviser was retained to express an opinion on the valuation of the options held by Umholi. 5. SUSPENSIVE CONDITIONS The transaction is subject to the fulfilment or, where possible, waiver, as the case may be, of the following suspensive conditions by no later than 31 March 2006: 5.1 African Life and Sanlam informing the Registrar of Long-term Insurance, in such manner as prescribed in terms of section 26 and section 37 of the Long- term Insurance Act, No. 52 of 1998, as amended and all regulations thereto, of the transaction and to the extent that the Registrar of Long-term Insurance"s approval and/or consent is required, such approval and/or consent is obtained; 5.2 the approval of the High Court of South Africa (Transvaal Provincial Division) pursuant to Section 37 of the Long-term Insurance Act; 5.3 the approval, either unconditionally or subject to such conditions as are acceptable to Sanlam, of the Competition Authorities as contemplated in the Competition Act, No. 89 of 1998, as amended, is obtained; 5.4 approvals being obtained, to the extent required, from the Securities Regulation Panel ("the SRP"), the JSE and the Exchange Control Department of the South African Reserve Bank; 5.5 to the extent required, the approval, either unconditionally or subject to such conditions as are acceptable to Sanlam, of the transaction by the stock exchange authorities in Kenya and Botswana and the waiver of any requirement to make an offer to minority shareholders of members of the African Life Group in Kenya and Botswana; 5.6 to the extent required, the approval of the acquisition of Pan Africa Insurance Holdings Limited under the Kenyan Restrictive Trade Practices, Monopolies and Price Control Act (Cap 504); 5.7 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; 5.8 the High Court of South Africa (Transvaal Provincial Division) granting an order sanctioning the scheme in terms of section 311 of the Act and the Registrar of Companies registering such order; and 5.9 all other regulatory approvals or consents necessary for the implementation of the scheme being obtained, either unconditionally or subject to such conditions as are acceptable to African Life and Sanlam. 6. FINANCIAL EFFECTS The table below sets out the unaudited pro forma financial effects of the transaction on Sanlam ordinary shareholders based on a Final Consideration of R22.50 and the assumptions set out below. The unaudited pro forma financial effects have been prepared for illustrative purposes only, in order to provide information about how the transaction may have affected Sanlam ordinary shareholders, had the transaction been implemented on the dates indicated in the notes below. Due to their nature, the unaudited pro forma financial effects may not be a fair reflection of Sanlam"s financial position after the transaction or its future earnings. The pro forma financial effects are the responsibility of the Sanlam Board. The pro forma financial effects are illustrated based on South African Standards of Generally Accepted Accounting Practice, effective as at 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. Unaudited pro forma financial information Audited Unaudited Unaudited before pro forma pro forma Unaudited the Absa after the adjustments pro forma
disposal and Absa iro the after the the transaction(1) disposal(2) transaction transaction Diluted earnings per share (cents)(3),(4) Core earnings 122.3 101.3 6.4 107.7 Headline earnings 116.6 95.6 4.8 100.4 Attributable earnings 120.2 295.8 6.2 302.0 Adjusted headline earnings based on the LTRR 151.6 149.9 3.8 153.7 Basic earnings per share (cents)(4) Core earnings 123.8 102.5 6.5 109.0 Headline earnings 118.0 96.7 5.0 101.7 Attributable earnings 121.7 299.4 6.3 305.7 Adjusted headline earnings based on the LTRR 153.5 151.7 3.9 155.6 Shareholders" funds after adjusting for subsidiaries at fair value (R million)(5) 29 982 30 932 (22) 30 910 Net asset value per share after adjusting for subsidiaries at fair value (cents)(5) 1 100 1 135 - 1 135 Net asset value per share (cents)(5) 1 014 1 049 - 1 049 Tangible net asset value per share (cents)(5) 946 981 (44) 937 Embedded value of shareholders" funds (R million)(5) 36 682 37 632 (22) 37 610 Embedded value per share (cents)(5) 1 346 1 381 - 1 381 Return on embedded value per share (%) 22.5 25.7 - 25.7 Weighted average number of ordinary shares (million) 2 698.3 2 698.3 (1.9) 2 696.4 Diluted weighted average number of ordinary shares (million) 2 731.3 2 731.3 (1.9) 2 729.4 Adjusted shares issued (million) 2 725.9 2 725.9 (1.9) 2 724.0 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 100% of the Sanlam shareholders" funds" investment in Absa has been included in this pro forma financial information. 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 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: (A) the transaction was effected on 1 January 2004; (B) African Life"s earnings for the year ended 31 December 2004 are equal to its earnings for the year ended 31 March 2005; (C) the acquisition consideration of R2 566 million, being the acquisition consideration in respect of 100% of the African Life ordinary shares, was withdrawn from a balanced portfolio; (D) Negative Rand Reserves (NRR"s) are eliminated from the net asset value acquired, with a corresponding increase in the value of in force business (VIF) acquired; (E) the excess of the acquisition consideration paid over the fair value of the net shareholders" fund assets acquired is regarded as a Value of Business Acquired (VOBA) intangible asset, which is amortised over a period of 25 years; (F) core earnings increased by R173 million, comprising: (i) the after-tax operating surplus and investment income earned by African Life during the year ended 31 March 2005, after adjustment for the transfer of NRR"s to VIF, amounting to R262 million; and (ii) a reduction of R89 million in the actual investment income return of 3,5% after tax (4,1% pre tax) earned during the year ended 31 December 2004 on the balanced portfolio from which the acquisition consideration was withdrawn; (G) headline earnings increased by R130 million, comprising: (i) the increase in core earnings of R173 million (refer note f); and (ii) an expense of R43 million in respect of the amortisation of the VOBA intangible asset (refer note e); (H) attributable earnings increased by R164 million, comprising: (i) the increase in headline earnings of R130 million (refer note g); and (ii) net realised investment surpluses of R34 million earned by African Life during the year ended 31 March 2005; (I) LTRR earnings increased by R101 million, after taking the following into account: (i) LTRR earnings increased with African Life"s net operating profit of R215 million for the year ended 31 March 2005, after adjustment for the transfer of NRR"s to VIF; (ii) Secondary Tax on Companies and the reversal of prior year tax overprovisions amounting to R33 million in aggregate are included in the calculation of LTRR headline earnings; (iii) LTRR headline earnings reduced with the expected long-term rate of return earnings of 9% after tax (11% pre tax) on the acquisition consideration withdrawn from the balanced portfolio; and (iv) LTRR headline earnings increased with the expected long-term rate of return earnings of 9% after tax (11% pre tax) on the investment assets of the African Life shareholders" fund of R1 294 million; and (J) Sanlam Limited shares held by the African Life shareholders" funds are accounted for as the acquisition of treasury shares by Sanlam. The adjusted number of shares in issue as at 31 December 2004 is accordingly reduced by 1.9 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: (A) the transaction was effected on 31 December 2004; (B) African Life"s shareholders" funds, VIF and embedded value as at 31 December 2004 is equal to its shareholders" funds, VIF and embedded value, respectively, as at 31 March 2005; (C) the excess of the acquisition consideration paid over the fair value of the net shareholders" fund assets acquired is regarded as a VOBA intangible asset; and (D) Sanlam Limited shares held by the African Life shareholders" funds are accounted for as the acquisition of treasury shares by Sanlam. Sanlam"s shareholders" funds are accordingly reduced by R22 million and the adjusted number of shares in issue as at 31 December 2004 by 1.9 million. 7. SUPPORT FOR THE TRANSACTION 7.1 KPMG Services (Pty) Ltd ("KPMG") has been appointed by the African Life board as the independent professional expert for the purposes of the scheme and the Momentum ALH transaction to advise the African Life board on whether the terms and conditions of the scheme and the Momentum ALH transaction are fair and reasonable to the ordinary shareholders of African Life. 7.2 At the request of an independent committee of the African Life Board ("the independent committee"), KPMG has provided a preliminary, verbal opinion, which opinion will be formalised at the last practicable date prior to the publication of a circular to African Life shareholders. This favourable preliminary opinion, which may be subject to change, is based on information available to KPMG until 5 August 2005 and is subject to a review of, inter alia, the final agreements and circular as well as the limitations and conditions to be set out in its formal opinion. 7.3 The African Life board, having taken into account KPMG"s favourable preliminary opinion and the advice from the independent committee, is of the opinion that the terms and conditions of the scheme and the Momentum ALH transaction are fair and reasonable to African Life shareholders. Subject to the receipt of the final fair and reasonable opinion from KPMG, the African Life board recommends that African Life shareholders vote in favour of the resolutions required to give effect to the scheme and the Momentum ALH transaction. 7.4 Those African Life directors who hold African Life ordinary shares intend voting in favour of the scheme and the Momentum ALH transaction in respect of their African Life ordinary shares. 7.5 African Life shareholders who have given written irrevocable undertakings to vote in favour of the scheme in respect of the African Life shares beneficially owned by them, are set out in the table below: Number of Percentage African Life of exercisable ordinary shares votes in terms Name of ordinary shareholder beneficially owned of the scheme Momentum 39 206 833 43.8 African Life Employee Shareholders Scheme Trust 6 464 524 7.2 Total 45 671 357 51.0 7.6 In addition to the shareholders referred to in the table above, shareholders holding in aggregate 19.7% of the exercisable votes in terms of the scheme have provided expressions of support for the transaction. Bellville 10 August 2005 Corporate adviser and transactional sponsor to Sanlam ABSA Corporate & Merchant Bank Reporting accountants ERNST & YOUNG Chartered Accountants (SA) (Registered Accountants and Auditors) Attorneys to Sanlam JOWELL GLYN & MARAIS Date: 10/08/2005 08:11:59 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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