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Update regarding warranty claims and consequent issue of warranty shares to Mayibuye
Blue Financial Services Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1996/006595/06)
JSE Share code: BFS
ISIN: ZAE000083655
(“Blue” or the “Company” or the “Group”)
UPDATE REGARDING WARRANTY CLAIMS AND CONSEQUENT ISSUE OF
WARRANTY SHARES TO MAYIBUYE
1. Background Information
1.1 Shareholders are referred to the circular dated 7 October
2010 relating to the recapitalisation of Blue via the
injection of R163 million (“Subscription Amount”) of new
equity capital in terms of a specific issue of shares for
cash (“Subscription”),whereby Mayibuye Group Proprietary
Limited (“Mayibuye”) became the controlling shareholder of
Blue.
1.2 In terms of the amended and restated subscription agreement
(as further amended) concluded on 31 August 2010
(“Subscription Agreement”),a fundamental condition for the
Subscription to proceed was that Blue was able to
demonstrate a positive net asset value (“NAV”) after taking
into account the Subscription Amount.
1.3 In order to ensure that Mayibuye was protected in such
instance where latent liabilities arose post the signature
date of the Subscription Agreement which had the effect of
reducing the NAV or possibly resulted in a negative NAV, the
Subscription Agreement includes a number of warranties that
were provided at the time by Blue in favor of Mayibuye.
1.4 Furthermore, the Subscription Agreement provides inter alia
that the aggregate amount (“Claim Amount”) recoverable
against Blue from whatever cause arising in connection with
a Warranty Claim, is limited to the Subscription Amount
(exclusive of interest and costs). This limit however does
not extend to Warranty Claims relating to regulatory causes
of action, such as taxation. The implication of this is
that all non regulatory claims are capped at R163 million,
but there is no cap for regulatory claims.
2. Notification of Warranty Claims
2.1 Following the date of Subscription, namely 10 December 2010
,facts and circumstances emerged which constitute breaches
by Blue of certain of the warranties provided by Blue and
which negatively affected the NAV of Blue.
2.2 Accordingly Mayibuye lodged claims arising out of the breach
of the relevant warranties in the sum of R187 million
(“Notified Warranty Claims”).
2.3 In accordance with the terms of the Subscription Agreement,
following the submission of the Notified Warranty Claims,
the board of directors of Blue (“Blue Board”) formed an
independent sub-committee of the Blue Board (“Warranty
Committee”) tasked with investigating the Notified Warranty
Claims. The Warranty Committee has completed its
investigation following a due process, and recommended to
the Blue Board that the Notified Warranty Claims be settled
in full and final settlement in the amount of R150 million
(“Agreed Warranty Claim Amount”). As detailed in section 3.4
below, based on the issue price of 26.46 cents for the
Warranty Shares, the deemed benefit to Blue translates to an
effective settlement amount of cR80 million.
2.4 In terms of the Subscription Agreement, only those Blue
directors who are independent of Mayibuye were involved in
the assessment process and requisite board approval of the
Agreed Warranty Claim Amount. A settlement agreement was
entered into by Blue and Mayibuye to conclude and confirm
the Agreed Warranty Claim Amount.
3. Settlement of Warranty Claims
3.1 The Agreed Warranty Claim Amount was settled by the issue of
Warranty Shares which constitutes a specific issue of shares
for cash as per the JSE Listings Requirements which requires
75% shareholder approval. The approval for the issue of the
Warranty Shares was obtained from Blue shareholders at the
general meeting held on 29 October 2010, as part of the
approval of the Subscription Agreement.
3.2 In terms of the Subscription Agreement, the Warranty Shares
have been allotted and issued to Mayibuye at an issue price
per Warranty Share equal to the 30-day VWAP per Blue
ordinary share as at 12:00 on the business day immediately
preceding the date on which Mayibuye first notified Blue of
the Notified Warranty Claims in writing.
3.3 The 30-day VWAP of Blue calculated on 8 March 2011, being
the day before the Notified Warranty Claims were received by
Blue, is calculated at 26.46 cents per ordinary share.
Accordingly, in terms of clause 17 of the Subscription
Agreement and the shareholder approval obtained on 29
October 2010, Blue will settle the Agreed Warranty Claim
Amount by the issue to Mayibuye, in terms of a specific
issue of shares for cash, of 566,893,424 Blue ordinary
shares at an issue price of 26.46 cents per share.
3.4 The financial effects of the issue of the Warranty Shares is
set out in paragraph 5 of this announcement. Shareholders
however are alerted to the fact that the Warranty Shares
were issued at 26.46 cents per shares which translates to a
89% premium to the current share price of Blue as at 26
February 2013, being 14.0 cents. The effect of issuing the
Warranty Shares at a premium to the current Blue share price
of 14.0 cents, is that there is a deemed benefit to Blue of
cR70.6 million in settling the Agreed Warranty Claim Amount
(which represents the 12.46 cents differential between the
current share price of 14 cents and the Warranty Shares
issue price of 26.46 cents, multiplied by the 566,893,424
new Blue ordinary shares to be issued to Mayibuye).
4. Proposed corporate action with Mayibuye currently being
negotiated
4.1 Shareholders are reminded that Phase 1 of the Blue strategic
turnaround plan implemented by Mayibuye over the past two
years has essentially drawn to a close, other than a few
remaining items that are in the process of being finalised.
The issue of the Warranty Shares to Mayibuye essentially
represents the conclusion of a key component of these
remaining items and effectively paves the way for Blue to
commence with phase 2 of its strategic plan, namely to
strengthen and reposition Blue to grow on a sustainable
basis.
4.2 As disclosed to Blue shareholders in the cautionary
announcement published on the Securities Exchange News
Service of the JSE Limited on 21 January 2013, Blue is
contemplating a transaction with Mayibuye which will inter
alia give effect to the commencement of phase 2 of the Blue
strategic plan referred to in 4.1 above.
4.3 An update on the progress of these negotiations will be
provided by the Company in due course.
5. Unaudited Pro forma Financial Effects
5.1 The table below sets out the unaudited pro forma financial
effects of the issue of the Warranty Shares by Blue based on
the interim financial results for the six-month period ended
31 August 2012. The unaudited pro forma financial effects of
Blue are the responsibility of the board of directors of
Blue and have been prepared for illustrative purposes only
to provide information about how the issue of Warranty
Shares may have affected Blue’s consolidated income
statement and consolidated statement of financial position
had it been undertaken on 1 March 2012 for the purposes of
calculating the pro forma basic earnings and headline
earning per share as well as the pro forma diluted earnings
and diluted headline earnings per share, and on 31 August
2012 for the purposes of calculating the pro forma net asset
value and tangible net asset value per share.
5.2 The unaudited pro forma financial effects have been prepared
to give effect to the issuance of par value ordinary shares.
5.3 The unaudited pro forma financial effects of Blue have been
prepared using the accounting policies that comply with
International Financial Reporting Standards and that are
consistent with those applied in the preparation of the
audited consolidated financial statements of Blue for the
year ended 29 February 2012 and unaudited interim results
for the six months ended 31 August 2012.
5.4 The unaudited pro forma financial effects have been prepared
for illustrative purposes only and may not, because of its
nature, fairly present Blue’s financial position, changes in
equity, and results of its operations or cash flows of Blue
after the issue of the Warranty Shares. It does not purport
to be indicative of what the financial results would have
been, had the Warranty Shares been issued on a different
date.
Before Pro forma Pro forma Change
the issue adjustments after the (%)
of issue of
Warranty Warranty
Shares Shares
(cents)1 (cents)2
Basic Earnings per share 0.46 0.42 -8.09
Headline earnings per share 0.46 0.42 -8.09
Diluted earnings per share 0.46 0.42 -8.09
Diluted headline earnings
per share 0.46 0.42 -8.09
Net asset value per share -
R/share 0.06 0.06 -6.89
Tangible net asset value
per share - R/share 0.06 0.06 -6.89
Actual number of shares in
issue (‘000) 7,662,880 566,893 8,229,773 7.40
Weighted average number of
shares in issue (‘000) 6,444,395 566,893 7,011,288 8.80
Notes and assumptions:
1. The before column has been extracted without adjustment
from the published unaudited interim results for the 6
months ended 31 August 2013.
2. The after column has been calculated after taking in
consideration the issue of 566 893 424 Warranty Shares
Johannesburg
28 February 2013
Designated Adviser
Grindrod Bank Limited
Date: 28/02/2013 08:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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