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MTL - Mercantile Bank Holdings Limited - Company Announcement Mercantile Bank Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1989/000164/06) Share code: MTL ISIN: ZAE000064721 ("Mercantile") ACQUISITION BY MERCANTILE OF 51% OF THE ISSUED SHARE CAPITAL OF AN INSURANCE BROKING BUSINESS, MULTI RISK INVESTMENT HOLDINGS (PROPRIETARY) LIMITED ("MULTIRISK" OR "THE ACQUISITION") AND THE WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT 1. INTRODUCTION The directors of Mercantile are pleased to announce that Mercantile have entered into an agreement with Syndicate Investments (Proprietary) Limited, Izarox Investments (Proprietary) Limited, Stephen Eugene Wiseman and Michael James Raymond (collectively, "the Sellers") to acquire 51% of the issued share capital of MultiRisk for an amount of R 51million (fifty one million rand) ("the Purchase Price"). 2. MULTIRISK - BRIEF COMPANY PROFILE Multi Risk Investment Holdings (Proprietary) Limited ("MultiRisk") holds 87.3% of the issued share capital of Commrisk Insurance Brokers (Proprietary) Limited ("Commrisk"), a national commercial insurance brokerage licensed in accordance with the Long Term- and the Short Term Insurance Acts and registered as a Financial Services Provider in terms of the requirements of the Financial Advisory and Intermediary Services Act. 3. SALIENT FEATURES OF THE TRANSACTION MultiRisk currently makes an after tax profit of approximately R 13,5million which would equate to a return on equity of approximately 13% per annum on the R 51million investment. The Sellers have warranted certain levels of profits to Mercantile over the next 4 years. If the warranted profits are not achieved the purchase price will be adjusted accordingly. The tangible Net Asset Value of the Acquisition as at the effective date is estimated to be R 5million. The effective date of the acquisition is 1 July 2011 or such later date as the parties may agree in writing. The purchase price will be settled in cash, with 90% of the purchase price payable on the effective date and the balance within 90 days thereof. 4. RATIONALE OF THE TRANSACTION The parties to the transaction recognise the scale of potential business opportunities such a relationship presents, as Mercantile and MultiRisk have different and complementary strengths. Leverage from the combined strengths will result in developing new revenue opportunities for Mercantile and MultiRisk. 5. CONDITIONS PRECEDENT The Acquisition is subject to the following conditions precedent: - Regulatory approvals by the South African Reserve Bank and the Financial Services Board; - Compliance by the Sellers with the issues identified in the due diligence investigation conducted by Mercantile; - Signature by all shareholders of a shareholders` agreement; and - Finalisation of group audited financial statements of MultiRisk. 6. FINANCIAL EFFECTS OF THE ACQUISITION The unaudited pro forma financial effects of Mercantile before and after the acquisition are based on the audited results of Mercantile for the year ended 31 December 2010. The unaudited financial effects are presented for illustrative purposes only, to provide information on how the acquisition may have impacted on the results and financial position of Mercantile. The unaudited pro forma financial effects are the responsibility of Mercantile`s directors. Due to the nature of the unaudited pro forma financial effects, they may not fairly present Mercantile`s financial position and the results of its operations after the acquisition. It has been assumed for the purpose of the financial effects that the acquisition took place with effect from 1 January 2010. The financial effects do not purport to be indicative of what the financial results would have been, had the acquisition been implemented on a different date. The unaudited pro forma financial information has been presented in a manner consistent in all respects with IFRS and Mercantile`s accounting policies applied consistently throughout the period. The financial effects of the acquisition are set out below: Before the After the % change
acquisition acquisition Amount Amount Basic earnings per share (EPS) (cents) 2.6 2.7 5.0 Diluted earnings per share (EPS) (cents) 2.6 2.7 5.0 Headline earnings per share (HEPS) 2.6 2.7 5.0 (cents) Diluted headline earnings per share 2.5 2.7 5.0 (HEPS) (cents) Net asset value per share (NAV) (cents) 39.4 39.5 0.3 Tangible net asset value (TNAV) (cents) 33.6 32.5 -3.3 Shares in issue (million) 3 912 3 912 0.0 Weighted average number of shares in 3 911 3 911 0.0 issue (million) Diluted weighted average number of 3 935 3 935 0.0 shares in issue (million) Notes: 1. The "% Change" column of the table is the result of the actual calculations whereas the "Before" and "After" columns of the table are rounded figures, as reflected in the annual financial statements of Mercantile for the financial year ended 31 December 2010. 2. The EPS and HEPS in the "Before" column of the table are based on the audited statement of comprehensive income of Mercantile for the financial year ended 31 December 2010 and 3 911 254 874 Mercantile shares in issue (being the weighted number of ordinary shares in issue for the year ended 31 December 2010, net of treasury shares). 3. The Diluted EPS and HEPS in the "Before" column of the table are based on the audited statement of comprehensive income of Mercantile for the financial year ended 31 December 2010 and 3 935 364 874 Mercantile shares in issue (being the weighted diluted number of ordinary shares in issue for the year ended 31 December 2010) 4. The EPS and HEPS in the "After" column of the table are based on 3 911 254 874 Mercantile ordinary shares in issue and the assumptions that: - the acquisition became effective on 1 January 2010 and the purchase price was settled on that date; - the purchase price was settled in cash; and - the cash was invested on the Money Market at an after tax rate of 3.6%, yielding an annual after tax interest of R1 836 000. 5. The Diluted EPS and HEPS in the "After" column of the table are based on 3 935 364 874 Mercantile ordinary shares in issue and the assumptions that: - the acquisition became effective on 1 January 2010 and the purchase price was settled on that date; - the purchase price was settled in cash; and - the cash was invested on the Money Market at an after tax rate of 3.6%, yielding an annual after tax interest of R1 836 000. 6. The NAV per share and TNAV per share in the "Before" column of the table are based on the audited balance sheet of Mercantile at 31 December 2010 and 3 911 254 874 Mercantile shares in issue. 7. The NAV per share and TNAV per share in the "After" column of the table are based on the assumptions that the acquisition was completed on 1 January 2010. 8. The pro forma financial effects have not been reviewed by Mercantile`s auditors. 7. ARTICLES OF ASSOCIATION Mercantile undertakes that the Articles of Association of the Acquisition will conform to Schedule 10 of the Listings Requirements of the JSE, as required. 8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT Following the disclosure of financial effects of the acquisition, shareholders are no longer required to exercise caution when dealing in their Mercantile shares and accordingly, the cautionary announcement renewal released by Mercantile on 18 April 2011 is hereby withdrawn. Johannesburg 19 May 2011 Sponsor Bridge Capital Advisors (Pty) Limited Date: 19/05/2011 11:50:42 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.
