RAINBOW CHICKEN LIMITED - Terms Announcement Relating To The Acquisition Of An Effective 64.2% Of New Foodcorp Holdings (Proprietary) Limited

Terms Announcement Relating To The Acquisition Of An Effective 64.2% Of New Foodcorp Holdings (Proprietary) Limited

Rainbow Chicken Limited
(Incorporated in the Republic of South Africa)
(Registration number 1966/004972/06)
Share code: RBW
ISIN: ZAE000019063
(“RCL” or “The Group”)

TERMS ANNOUNCEMENT RELATING TO THE ACQUISITION OF AN EFFECTIVE
64.2% OF NEW FOODCORP HOLDINGS (PROPRIETARY) LIMITED (“FOODCORP”
OR “THE COMPANY”) AND CAUTIONARY ANNOUNCEMENT

1. Introduction

RCL shareholders are advised that RCL and Capitau FC Investment
(Proprietary) Limited (“CIM SPV”), an entity under the management
of Capitau Investment Advisory (Proprietary) Limited (“Capitau”)
have entered into an arrangement in terms of which they have
agreed to acquire 76.1% of the ordinary share capital in Foodcorp
through Capitau Investment Management Limited (“CIM”) and RCL
will acquire 84.3% of the issued ordinary shares of CIM, which
will result in RCL effectively owning 64.2% of the issued
ordinary share capital of Foodcorp (the “Transaction”).

Foodcorp management will retain a 23.9% holding in the Company
and   will  continue   to  manage  the Company  following  the
implementation of the Transaction.

2. Rationale for the Transaction

RCL is a consumer focused business that adds value to consumers
through its range of market leading brands that include Rainbow
and Farmer Brown. The Group was restructured in January 2011 into
two operating units, namely Rainbow (chicken) and Vector
(logistics), each with its own board and managing director
responsible for the day-to-day operations, thus allowing the
Chief Executive Officer and Chief Financial Officer of RCL to
dedicate their focus on strategic growth opportunities for the
Group.

The Transaction as proposed allows RCL to diversify and enter new
attractive food categories with a range of respected and market
leading brands while harnessing synergies and scale benefits.

The   acquisition  of   a  diversified   food   manufacturer  and
distributor will enable RCL to:
- broaden the range of respected brands and categories in its
portfolio to counter the cyclical nature of the industry;
- combine strengths in consumer insight between the organisations
to support product innovation and development;
- become a food player with significant scale to compete more
effectively;
- open up further opportunities to expand into Sub-Saharan
Africa; and
- leverage Vector’s expertise.
The Transaction is an important first step for RCL as a
restructured business to pursue compelling acquisitions of
consumer brands in strategic growth markets in the food sector in
South Africa and the greater Sub-Saharan Africa.

3. Business of Foodcorp

Foodcorp is a leading South African manufacturer of quality
branded   and   private  label  food   products.  The  Company
manufactures, markets and distributes a diversity of food
products ranging from basic essentials to top end desserts and
convenience meals.

Foodcorp’s range of products is among the leading and best
recognised brands in South Africa. These include Yum Yum peanut
butter, Ouma Rusks, Pieman’s meat pies, Sunbake bread and bakery
products, Bobtail and Dogmor pet foods, Nola mayonnaise and the
popular maize drink, Mageu No 1. The Company also manufactures
and sells a wide range of quality convenience, ready-to-eat
products for Woolworths and other retailers.

Foodcorp positions its products to appeal to the mass consumer
market in South Africa and supplies most of it nationally to
major retail outlets, food wholesale outlets, independent
retailers, forecourts and the food services industry. It also
exports certain products, principally to the rest of Africa.

The business typically sells around 200 million loaves of bread,
280 000 tons of flour, 120 million pies and 60 million litres of
Mageu No.1 a year. Revenue and EBITDA for the year ended
31 August 2012 amounted to R6.9 billion and R773 million,
respectively.

4. Transaction structure

In terms of agreements entered into by RCL with:

- BlueBay Asset Management LLP ("BlueBay"), in its capacity as
agent of BlueBay Funds – BlueBay High Yield Bond Fund; BlueBay
Structured Funds: High Yield Enhanced Fund; BlueBay Specialised
Funds: Credit Opportunity (Master) Fund; BlueBay Funds – BlueBay
High   Yield   Corporate  Bond  Fund;   The   BlueBay  Distressed
Opportunities (Master) Fund Limited; BlueBay Funds – BlueBay
Global High Yield Bond Fund; and BlueBay Structured Funds: High
Yield Institutional Credit Select Fund, RCL has agreed to
purchase the 378 751 (three hundred and seventy eight thousand
seven hundred and fifty one) ordinary shares in Foodcorp
("Foodcorp Shares") held by the BlueBay Funds (amounting to 46.0%
of the issued ordinary share capital of Foodcorp);
- the Foodcorp Employee Share Trust, RCL has agreed to purchase
the 185 000 Foodcorp Shares held by the Foodcorp Employee Share
Trust (amounting to 22.5% of the issued ordinary share capital of
Foodcorp); and
- Foodcorp Management Holdings (Proprietary) Limited, RCL has
agreed to purchase the 23 810 Foodcorp Shares held by Foodcorp
Management Holdings (Proprietary) Limited (amounting to 2.9% of
the issued ordinary share capital of Foodcorp).

These agreements will hereinafter be collectively referred to as
the "Sale Agreements". RCL has further agreed to assign its
rights and obligations under the Sale Agreements to CIM.

In addition, CIM SPV has agreed to acquire all the Foodcorp
Shares held by the Capitau managed entities (amounting to 4.7% of
the issued ordinary share capital of Foodcorp).

Immediately prior to the implementation of the acquisition of the
Foodcorp Shares:
- RCL will subscribe for 84.3% of the ordinary share capital of
CIM for a nominal subscription consideration and for preference
shares in the share capital of CIM ("Preference Shares") for a
subscription consideration of R1 037 million which will carry a
dividend yield equal to the prime lending rate of FirstRand Bank
Limited; and
- CIM SPV will subscribe for ordinary shares in CIM for a nominal
subscription consideration and will, together with Capitau
Holdings Limited, hold the remaining 15.7% of the ordinary share
capital of CIM. CIM SPV will contribute its 4.7% interest in
Foodcorp in exchange for Preference Shares to the value of R71
million and will subscribe for additional Preference Shares at a
subscription consideration of R36 million.

CIM will utilize the cash proceeds from the Preference Shares
issued to RCL and CIM SPV to settle the purchase consideration
payable in respect of the Foodcorp Shares.

Upon successful completion of the Transaction, CIM will own 76.1%
of the issued ordinary share capital of Foodcorp and RCL will own
84.3% of the share capital of CIM and an effective 64.2% of
Foodcorp. The remaining shares in CIM will be held by the CIM SPV
together with Capitau Holdings Limited. The risks and benefits of
ownership will pass with effect from 1 September 2012.

Please   refer  to   www.jse.co.za   for   PDF   version   of   this
announcement to view the diagram.

RCL will conduct a rights offer fully underwritten by Remgro
Limited to fund the Transaction. Full details of the offer will
be communicated to shareholders in due course.

5. Conditions Precedent

The Transaction is subject to the fulfilment or waiver, as the
case may be, of inter alia the following conditions:
5.1 the approval of the Transaction by the Competition Tribunal
in terms of the Competition Act 89 of 1998, as amended, either
unconditionally or subject to conditions reasonably acceptable to
the person on whom such conditions are imposed;
5.2 the approval of the transaction by the Financial Surveillance
Department of the South African Reserve Bank; and
5.3 all other regulatory approvals required by law to give effect
to the Transaction.

6. Pro forma financial effects of the Transaction on RCL

The table below sets out the unaudited pro forma financial
effects of the Transaction on RCL shareholders for the following
key metrics: Earnings per Share (“EPS”), Headline Earnings per
Share (“HEPS”), Net Asset Value (“NAV”) and Tangible Net Asset
Value (“TNAV”). These pro forma financial effects have been
prepared for illustrative purposes only and, because of their
nature, may not fairly present RCL’s financial position, changes
in equity, and results of operations or cash flows. The pro forma
financial information is the responsibility of the directors of
RCL.
                               Audited    Unaudited
                            before the        after
                           Transaction  Transaction    Change (%)
 EPS (cents)                      90.6         51.1       (43.6%)
 Fully diluted EPS
 (cents)                          90.4         51.0       (43.6%)
 HEPS (cents)                     90.7         51.2       (43.6%)
 Fully diluted HEPS
 (cents)                          90.5         51.1       (43.6%)
 NAV per share (cents)           985.2        746.6       (24.2%)
 TNAV per share (cents)          877.7        320.9       (63.4%)
 Number of shares in
 issue (million)                 295.0        375.5         27.3%
 Weighted average number
 of shares in issue
 (million)                       294.4        374.9         27.3%
 Diluted weighted
 average number of
 shares in issue
 (million)                       295.1        375.5         27.3%

Notes and assumptions:
- The unaudited pro forma financial effects are based on the
published audited financial information of RCL for the 12-month
period ended 30 June 2012 and the financial results of Foodcorp
for the 12-month period ended 31 August 2012.
- The financial impact on the earnings of RCL is illustrated as
if the Transaction was implemented on 1 July 2011, and the impact
on the net assets of RCL is calculated as if the Transaction was
implemented on 30 June 2012.
- The number of shares in issue assumes that RCL issues
approximately 80.5 million shares as a result of an equity rights
issue of R1 037 million at a price equal to the 30-day volume
weighted average price of RCL being R12.89 as at 12 November
2012.
- Volatility in earnings is largely attributable to the highly
leveraged capital structure and significant foreign currency
exposure. Over time RCL plans to reduce the gearing to
sustainable    levels   and   manage    foreign   currency risk
appropriately.
- Foodcorp earnings have not been normalised for the R139.2
million prior year adjustment relating to the assessed loss
utilised as part of the settlement agreement with SARS.

7. Cautionary announcement

Please note that the terms of the rights offer have not yet been
determined. Accordingly, shareholders are advised to exercise
caution   when  dealing  in   RCL’s  shares  until   a  detailed
announcement is made.

For media enquiries:
CapitalVoice:
Johannes van Niekerk
Tel: +27 82 921 9110

Durban
14 November 2012

Merchant bank and Sponsor to RCL
RAND MERCHANT BANK (a division of FirstRand Bank Limited)

Attorneys to RCL
CLIFFE DEKKER HOFMEYR INC.

Communications Adviser to RCL
CAPITALVOICE

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