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FSR/MET/MTD - FirstRand/Metropolitan/Momentum - Detailed cautionary announcement
in relation to the proposed merger of Momentum and Metropolitan and the
subsequent unbundling by FirstRand of its shares in Metropolitan
FirstRand Limited
(Registration number 1966/010753/06)
Share code JSE: FSR & ISIN: ZAE000066304
Share code NSX: FSR
("FirstRand")
Metropolitan Holdings Limited
(Registration number 2000/031756/06)
Share code JSE: MET & ISIN: ZAE000050456
Share Code NSX: MTD
("Metropolitan")
Momentum Group Limited
(Registration number 1904/002186/06)
("Momentum")
DETAILED CAUTIONARY ANNOUNCEMENT IN RELATION TO THE PROPOSED MERGER OF MOMENTUM
AND METROPOLITAN AND THE SUBSEQUENT UNBUNDLING BY FIRSTRAND OF ITS SHARES IN
METROPOLITAN
1. INTRODUCTION
Shareholders of FirstRand and Metropolitan are advised that FirstRand,
Metropolitan and Momentum (the "Parties") have reached agreement for the merger
of Momentum and Metropolitan (the "Proposed Merger"). The Proposed Merger will
create a leading insurance-based financial services group and will significantly
expand the product offerings, target markets and growth prospects of Momentum
and Metropolitan in South Africa and elsewhere in Africa.
2. TRANSACTION MECHANISM
The Proposed Merger will be implemented by way of FirstRand selling the entire
issued ordinary share capital of Momentum to Metropolitan, in consideration for
which Metropolitan will issue new Metropolitan ordinary shares to FirstRand.
Following the implementation of the Proposed Merger, FirstRand will unbundle all
its shares in Metropolitan to its ordinary shareholders (the "Proposed
Unbundling"). The Proposed Merger and the Proposed Unbundling are collectively
hereinafter referred to as the "Proposed Transaction".
3. RATIONALE FOR THE PROPOSED MERGER
The Parties believe that significant value can be realised for FirstRand and
Metropolitan shareholders as a result of the Proposed Transaction, including the
following:
- Momentum and Metropolitan operate in different target markets, with
Metropolitan focusing predominantly on the low to middle income markets and
Momentum`s key area of focus being the upper-income market. This difference
is especially visible in the retail sector of each business;
- A combination of Metropolitan and Momentum will expand the merged entity`s
target markets and create a leading, competitive financial services group
with businesses in life assurance (upper, middle and lower income groups),
health, asset management and employee benefits, both locally and elsewhere
in Africa;
- The merged entity will benefit from enhanced growth opportunities, revenue
synergies and economies of scale through the combination of complementary
target markets and resources;
- Both the Momentum and Metropolitan brand names will continue to be used in
the appropriate business units, and the Centurion and Cape Town based
operational centres will be retained;
- The merged entity will be a large, liquid company on the JSE and its shares
will be listed in the Life Assurance Sector of the JSE;
- With its enlarged footprint the merged entity will be well positioned to
expand its activities outside of South Africa; and
- The merged entity will be a significantly transformed large financial
services group in South Africa with a material black empowerment
shareholding.
4. RATIONALE FOR THE PROPOSED UNBUNDLING
FirstRand`s strategic intent is to be the leading financial services group in
Africa. It has a very powerful portfolio of financial services brands in South
Africa and these, combined with the accelerating African expansion plans and
Asian corridor strategy are expected to deliver superior returns to
shareholders.
In proceeding with the Proposed Merger, FirstRand evaluated the consequences of
retaining ownership of the merged entity within the FirstRand Group. The
conclusion reached was that the interests of both FirstRand and the merged
entity`s shareholders would be best served through an unbundling, as this will:
- Unlock any potential value trapped in FirstRand;
- Ensure a substantial free float in the merged entity`s shares;
- Create an appropriate public profile for the merged entity; and
- Simplify the regulatory oversight of and regulatory environment which
FirstRand and its constituent parts operate in.
FirstRand remains committed to growing its operations across all the profit
pools associated with lending, transactional and savings products and services.
It will continue to pursue the synergistic benefits that exist between banking,
insurance and asset management activities with the merged entity, particularly
given the success of FNB Insurance and the significant growth opportunities for
the merged entity. This will be formalised as a preferred strategic relationship
on an arms-length basis.
RMB Holdings Limited ("RMBH"), as a material shareholder in FirstRand, will
retain and potentially increase its shareholding in the merged entity. Readers
are referred to the announcement to be published contemporaneously by RMBH in
this regard.
5. MERGER CONSIDERATION AND DUE DILIGENCE PROCESS
For the financial period ended 31 December 2009, Momentum and Metropolitan
published embedded values of R17 830 million and R12 007 million respectively.
The merger exchange ratio has been determined with reference to the respective
embedded values of Metropolitan and Momentum, with appropriate adjustments,
agreed to by the parties in consultation with Deloitte, to reflect consistency
and to take dividend payments subsequent to 31 December 2009 into account. Based
on the merger exchange ratio, FirstRand ordinary shareholders will hold around
59.5% and current Metropolitan shareholders around 40.5% of the issued share
capital of the merged entity following the implementation of the Proposed
Transaction. This ratio may change after completion of the reciprocal due
diligence process described below. For purposes of calculating the merger
exchange ratio, Momentum`s embedded value at 31 December 2009 was reduced by
R615 million to reflect the impact of a future arms-length profit sharing
arrangement with FirstRand in respect of the FNB Life business conducted using
Momentum`s life assurance licence and balance sheet.
The Parties have agreed that reciprocal due diligence investigations will take
place, with the primary objective of confirming the merger exchange ratio (the
"Due Diligence Process"). The Due Diligence Process and any material adverse
changes in the value of either or both of Momentum and Metropolitan may result
in an adjustment to the merger exchange ratio. Appropriate adjustment mechanisms
and materiality levels have been agreed between the Parties for purposes of the
Due Diligence Process and to cater for material adverse changes to Momentum`s
and/or Metropolitan`s businesses. In certain limited circumstances these
mechanisms may allow a party to cancel the merger agreement if an adjustment is
material and that party believes the adjustment not to be in the interests of
its shareholders.
6. UNBUNDLING RATIO
Subject to any changes to the merger exchange ratio (as set out above in
paragraph 5), FirstRand shareholders can anticipate to receive approximately
17.3 shares in the merged entity for every 100 ordinary shares held in
FirstRand.
7. BOARD OF THE MERGED ENTITY
The board of the merged entity will be reconstituted following the
implementation of the Proposed Merger to include nominees of Momentum and
Metropolitan. The boards of FirstRand, Metropolitan and Momentum have agreed
that the first chairman and deputy chairman of the merged entity will be Messrs
Laurie Dippenaar and JJ Njeke respectively, whose appointments will be for one
year, after which they will step down from these positions.
8. RENAMING OF THE MERGED ENTITY
The merged entity will be renamed with effect from the date of implementation of
the Proposed Transaction to reflect the new identity of the merged entity. The
established and well-recognised brands of Metropolitan and Momentum will
continue at the business and client level.
9. CONDITIONS TO THE PROPOSED TRANSACTION
The Proposed Merger will be subject to condition that the Proposed Unbundling
taking place. In addition, the Proposed Transaction is subject to the
fulfilment or, where appropriate, waiver of the following conditions precedent
prior to 31 October 2010:
- Approval by Metropolitan shareholders of the requisite resolutions to give
effect to the Proposed Merger;
- Approval by FirstRand shareholders of the Proposed Unbundling;
- Registration by the Registrar of Companies of the special resolutions
required to give effect to the Proposed Merger;
- Approval, to the extent required, by the Registrar of Long-term Insurance,
the Registrar of Short-term Insurance, the Registrar of Banks, the
Registrar of Pension Funds, the South African Reserve Bank and the
Competition Tribunal of the Proposed Transaction;
- The necessary regulatory approvals in Namibia, Botswana and Lesotho;
- Waiver by certain parties of their pre-emptive and/or other change of
control rights that may arise from the implementation of the Proposed
Transaction; and
- Approval by the JSE of the documentation required to give effect to the
Proposed Transaction and for the listing of the Metropolitan consideration
shares.
10. CAUTIONARY ANNOUNCEMENT
FirstRand and Metropolitan shareholders are advised that further announcements
regarding the Proposed Transaction will be released on SENS and published in the
press following the completion of the Due Diligence Process, which is expected
to be on or around 31 May 2010. FirstRand and Metropolitan shareholders should
therefore exercise caution when dealing in FirstRand and Metropolitan shares
until further announcements in this regard are made.
31 March 2010
Merchant Bank and Sponsor to FirstRand and Momentum
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal Advisors to FirstRand and Momentum
Webber Wentzel
Actuaries to the Proposed Transaction
Deloitte
Metropolitan Financial Advisor and Joint Transaction Sponsor
Fidelis Partners
Metropolitan Joint Transaction Sponsor
Merrill Lynch South Africa (Pty) Limited
Legal Advisors to Metropolitan
Edward Nathan Sonnenbergs
FirstRand and Metropolitan Sponsor in Namibia
Simonis Storm Securities
Date: 31/03/2010 08:45:02 Supplied by www.sharenet.co.za
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