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FSR - FirstRand Limited - Terms announcement relating to the sale of Firstrand`s

Release Date: 15/12/2010 11:25
Code(s): FSR
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FSR - FirstRand Limited - Terms announcement relating to the sale of Firstrand`s 45% interest in The Outsurance Group to RMBH FirstRand Limited (Incorporated in the Republic of South Africa) (Registration number 1966/010753/06) Share code: FSR ISIN: ZAE000066304 ("FirstRand") TERMS ANNOUNCEMENT RELATING TO THE SALE OF FIRSTRAND`S 45% INTEREST IN THE OUTSURANCE GROUP TO RMBH 1. Introduction Shareholders are advised that the directors of FirstRand and RMB Holdings Limited ("RMBH") have signed a Memorandum of Understanding ("MOU") regarding the sale to RMBH, through exercising its pre-emptive right, of FirstRand`s entire 45% interest in FirstRand STI Holdings Limited (the "Sale"). FirstRand STI Holdings Limited ("OUTsurance Group") is the holding company for OUTsurance and various other insurance company interests including Youi, Momentum Short-term Insurance ("Momentum STI"), OUTsurance Namibia and OUTsurance Life. The Sale is subject to certain conditions, which are detailed in clause 6 below. For FirstRand, the sale of the OUTsurance Group to RMBH: - represents an opportunity to realise the value of an asset that is non- strategic and illiquid; - allows for the restructure of the existing distribution agreement between OUTsurance Group and FNB such that it is in line with market practice; - will have no impact on FirstRand`s current growth strategy; and - will realise additional capital that will either support further investment in the available growth opportunities or be returned to shareholders. 2. Details of the Sale FirstRand is expecting to sell: - its 45% interest in the OUTsurance Group to RMBH for a cash consideration of R3 750 million; and - its preference shareholding in the OUTsurance Group to RMBH for cash at face value, as at the date of the Sale, of R401 million. The effective date of the Sale is expected to be on or before 31 March 2011 and will result in RMBH holding an effective 90% interest in the OUTsurance Group. The Sale consideration has been based on the assumption that no dividend, distribution or similar payment, is declared or made by the OUTsurance Group to OUTsurance Group shareholders between the date of this announcement and the date on which the Sale becomes effective. 3. Description of the business of the OUTsurance Group The OUTsurance Group`s principal business is OUTsurance, which is a direct personal lines and small business short-term insurer that has grown rapidly by applying a scientific approach to risk selection, product design and claims management. The OUTsurance Group also owns an Australian personal lines operation called Youi, which is in an early stage of development. The OUTsurance Group recently entered the life insurance market in South Africa offering underwritten life products direct to the public through OUTsurance Life. The OUTsurance Group also has a joint venture with the Momentum Group, Momentum STI which provides short-term insurance products through the intermediary market. OUTsurance Namibia is a joint venture with FNB Namibia Holdings Limited which offers direct short-term insurance to the Namibian public. 4. Fairness opinion The Sale is regarded as a small related party transaction in terms of the JSE Listings Requirements as RMBH is a material shareholder in FirstRand. Accordingly, the FirstRand board has appointed KPMG as the independent expert to provide a fairness opinion on the Sale. The fairness opinion will be available for inspection at the registered office of FirstRand from 19 January 2011 to 21 March 2011. 5. Unaudited pro forma financial information The table below sets out the unaudited pro forma financial effects of the Sale on FirstRand for the year ended 30 June 2010, applying figures adjusted for the merger of Metropolitan Holdings Limited ("Metropolitan") and Momentum Group Limited ("Momentum") and the subsequent unbundling by FirstRand of its entire shareholding in Metropolitan to its ordinary shareholders, collectively hereinafter referred to as the "Momentum Transaction". These pro forma financial effects have been prepared for illustrative purposes only and, because of their nature, may not fairly present FirstRand`s financial position, changes in equity, and results of operations or cash flows. The pro forma financial information below is the responsibility of the directors of FirstRand. FirstRand Unaudited Unaudited Change audited pro forma pro forma (%) 30 June after after
2010 Momentum Momentum Transaction Transaction and the Sale
Earnings (R million) 9 444 17 105 19 793 16 Headline earnings (R million) 9 453 8 108 8 026 (1) Earnings per share (cents) 179.9 323.7 374.6 16 Fully diluted earnings per share 178.1 370.8 16 (cents) 320.4 Headline earnings per share 180.1 151.9 (1) (cents) 153.4 Fully diluted headline earnings 178.3 150.3 (1) per share (cents) 151.9 Net asset value per share 981 885 6 (cents) 833 Tangible net asset value per 941 844 7 share (cents) 792 Number of shares in issue after 5 245 5 301 treasury shares (million) 5 301 Weighted average number of 5 248 5 284 shares in issue (million) 5 284 Diluted weighted average number 5 302 5 338 of shares in issue (million) 5 338
Assumptions 1. The unaudited pro forma financial effects are based on the published unaudited pro forma financial information of FirstRand for the year ended 30 June 2010 after the Momentum Transaction and are based on the accounting policies adopted by FirstRand, which are in accordance with IFRS. 2. The financial impact on the earnings of FirstRand is illustrated as if the Sale was implemented on 1 July 2009, and the impact on the net assets of FirstRand is illustrated as if the Sale was implemented on 30 June 2010. 3. The following common assumptions have been used in calculating the pro forma financial effects: a. an income tax rate of 28%; b. a Capital Gains Tax ("CGT") rate of 14%; and c. a 12 month NCD rate of 6% NACA. 4. Historically the OUTsurance Group`s financial information was equity accounted in FirstRand`s financial information. The impact of the Sale on the unaudited pro forma income statement represents the reversal of equity accounted earnings (R286 million) for the year ended 30 June 2010 and the recognition of a profit on the Sale. 5. The estimated profit after tax referred to above is non-recurring and is calculated at R2 770 million. This profit has been calculated with reference to the Sale consideration of R4 021 million (preference share issued at 30 June 2010 was R271 million) less a historic accounting carrying value of R1 138 million and estimated CGT of R113 million. The actual profit to be realised on the Sale will be calculated on the effective date. 6. An assumption was made that the net proceeds were invested at a 12 month NCD rate for 12 months ended 30 June 2010. The impact of this assumption on the operating results was R168 million (after tax). 7. Total estimated transaction costs to be incurred by FirstRand amount to R35 million and are non-recurring. 8. An adjustment of R61 million (after tax) was made to account for an increase in non interest income due to the change in accounting treatment of certain distribution agreements. 9. The impact of the Sale on FirstRand`s pro forma statement of financial position as at 30 June 2010 represents the elimination of the OUTsurance Group`s carrying value, an increase in cash equal to the net proceeds and an increase in reserves equal to the after tax profit realised on the Sale. 6. Conditions precedent The Sale is subject to the fulfilment or waiver (where applicable) of the following conditions precedent: - binding documentation regarding the sale being agreed and signed; - the FirstRand board of directors receiving confirmation from KPMG that the Sale is fair to the FirstRand ordinary shareholders; and - in respect of the implementation of the Sale, approval having been obtained, to the extent required, from: - the Competition Authorities; - the Financial Services Board; and - any and all other regulatory approvals which may be required. 15 December 2010 Merchant bank and sponsor to FirstRand RAND MERCHANT BANK (A division of FirstRand Bank Limited) Transaction advisor to FirstRand Greenhill Legal advisor to FirstRand Deneys Reitz Independent expert KPMG Service (Proprietary) Limited Date: 15/12/2010 11:25:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the 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, information disseminated through SENS.

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