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HOSKEN CONSOLIDATED INVESTMENTS LTD - Sale of stake in Sabido by HCI to Seardel and Cautionary Announcement

Release Date: 17/05/2013 15:55
Code(s): HCI     PDF:  
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Sale of stake in Sabido by HCI to Seardel and Cautionary Announcement

HOSKEN CONSOLIDATED INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1973/007111/06
Share code: HCI
ISIN: ZAE000003257
(“HCI”)


REPURCHASE OF HCI ORDINARY SHARES FROM SACTWU FOR CASH AND AN INDIRECT STAKE IN
SABIDO AND CAUTIONARY ANNOUNCEMENT



1. Introduction

   As previously announced to the market, HCI has undertaken a strategic review of its investments, and has
   taken the decision to restructure its investments where value can be created for shareholders. In addition,
   HCI is committed to furthering the interests of empowerment across the various industries in which it
   invests. In furtherance of this strategy, several strategic initiatives were undertaken with a view to creating
   separately focused and empowered entities which can apply an investment strategy which is focused on a
   specific investment mandate, backed by strong empowerment credentials. The most recently completed
   example of HCI’s strategy was the successful listing of Niveus Investments Limited, which resulted in a
   separately listed and empowered investment holding company, principally focused on the gaming,
   entertainment and alcoholic beverages sectors.

   The Southern African Clothing and Textile Workers Union (“Sactwu”), which currently holds 40.2% of the
   issued share capital of HCI, has expressed an interest in acquiring a stake in Sabido Investments
   Proprietary Limited (“Sabido”), which is the investment vehicle that currently houses HCI’s media
   investments, including inter alia, South Africa’s first and only private commercial free-to-air television
   channel, e-tv, South Africa’s first 24-hour television news channel, the eNews Channel as well as yfm and
   Sasani Studios. This is consistent with Sactwu’s mandate to secure investments which provide consistent
   dividend flows in order for Sactwu to provide enhanced benefits to its members.

   In light of Sactwu’s preference for a specific investment in Sabido and in line with HCI’s strategic objectives
   referred to above, HCI and Sactwu have concluded transaction agreements for the repurchase by HCI
   from Sactwu of up to 15 824 300 HCI ordinary shares for cash and an indirect interest in Sabido.

2. The Repurchase Transactions

   The Repurchase Transactions involve the following:
      - HCI will internally restructure its stake in Sabido, which restructuring will result in HCI Invest 3
          Holdco Proprietary Limited (“SPV”), a wholly owned subsidiary of HCI, acquiring HCI’s 63.9%
          interest in Sabido. This restructuring will facilitate Sactwu acquiring an indirect holding in Sabido
          through SPV;
      - HCI and Sactwu have entered into an option agreement (“Option Agreement”) which entitles HCI
          or a company in the HCI Group to repurchase from Sactwu up to 14 024 300 HCI ordinary shares
          for a period of 90 days following the fulfilment of the conditions precedent as set out in paragraph 6
          below, for an agreed amount of R112.00 per HCI ordinary share. The repurchase of the HCI
          ordinary shares from Sactwu, will result in HCI selling to Sactwu such number of ordinary shares in
          SPV which will constitute up to 30% of the issued equity share capital of SPV for a cash
          consideration of R240 million and Sactwu having a claim on loan account against SPV; and
                                                       
          -   HCI and Sactwu have entered into an agreement (“Sactwu Sale of Shares Agreement”) whereby
              HCI will acquire from Sactwu a further 1 800 000 HCI ordinary shares for a cash consideration of
              R112.00 per HCI ordinary share.

   Collectively the Option Agreement and the Sactwu Sale of Shares Agreement (the “Transaction
   Agreements”), to the extent HCI or a company in the HCI Group, exercises its right and option in terms of
   the Option Agreement:
       - will result in the restructure of HCI in line with its investment strategy to create an empowered
            media focused platform; and
       - will facilitate the repurchase of up to 15 824 300 HCI ordinary shares from Sactwu.

   HCI views these outcomes to be in line with its investment strategy and anticipates that they will be value
   enhancing for its shareholders.

3. Terms of the Repurchase Transactions

   The current structure of Sactwu’s investment in HCI, and HCI’s investment in Sabido is as follows:
   [Please refer to the Business Day on Monday, 20 May 2013 for the image]

   The Repurchase Transactions will be implemented in terms of the following transaction steps:

    3.1       HCI will implement an internal restructuring on the basis set out in the Subscription and Sale of
              Shares Agreement entered into by HCI and SPV (“Restructuring Agreement”) in terms of which
              HCI will subscribe for shares in SPV for an amount of R800 million. SPV will then acquire HCI’s
              63.9% interest in Sabido for R5 236 485 560 to be settled by the payment of R800 million in cash,
              SPV assuming the liability of Squirewood Investments 64 Proprietary Limited ("Squirewood"), a
              wholly owned subsidiary of HCI, to Sactwu on loan account referred to in paragraph 3.2 below,
              and the balance of the consideration constituting an interest free loan by HCI to SPV.

    3.2       Sactwu currently holds a 40.2% interest in HCI and has indicated that it wishes to exchange a
              portion of its shareholding in HCI for an indirect equity interest in Sabido, to be held through the
              SPV. In terms of the Option Agreement, Squirewood has the right and option to acquire up to
              14 024 300 HCI ordinary shares from Sactwu at a price of R112.00 per HCI ordinary share for a
              maximum total consideration of R1 570 721 600 (the “Option Repurchase”).

    3.3       In terms of the Option Repurchase, HCI will sell to Sactwu such number of ordinary shares in SPV
              (“SPV Shares”) up to a maximum of 30% of its equity interest in SPV, the value of which has been
              agreed as R240 million. As a result, HCI’s shareholding in SPV will reduce from 100% to 70%,
              should Squirewood exercise the option to repurchase all of the HCI ordinary shares over which it
              has the option, in terms of the Option Repurchase.

    3.4       The balance of the consideration owing by Squirewood to Sactwu in terms of the Option
              Repurchase will constitute an interest free loan by Sactwu to Squirewood.

    3.5       In terms of the Option Agreement, the loan owing by Squirewood to Sactwu referred to in
              paragraph 3.4 above will be assumed by SPV, with the effect that SPV will owe Sactwu the
              balance of the consideration in terms of the Option Repurchase. Such assumption of liability by
              SPV will constitute a part settlement of the purchase consideration owing by SPV to HCI under the
              Restructuring Agreement referred to in 3.1 above.

    3.6    SPV will issue and allot preference shares to HCI and Sactwu to the value of the outstanding loan
           balances owing by SPV to HCI and Sactwu referred to above. The preference shares will:

               -    entitle HCI and Sactwu to receive a dividend of 72% of the prime rate on the issue price of
                    the preference shares, to be paid from time to time out of the free cash of SPV, as and
                    when determined by SPV's directors;
               -    in the case of HCI's preference shares, be redeemable by not later than 3 years and 1
                    day after their issue and will be convertible into ordinary shares in SPV should they not be
                    redeemed for any reason; and
               -    in the case of Sactwu's preference shares, will be convertible into ordinary shares in SPV
                    if HCI's preference shares are redeemed in full or SPV's interest in Sabido is disposed of,
                    on the basis that Sactwu will retain an equity interest in SPV of not less than 30%.

    3.7    In addition to the Option Repurchase, HCI will repurchase a further 1 800 000 HCI ordinary shares
           from Sactwu in cash, at a price of R112.00 per HCI ordinary share.

    3.8    In compliance with the Companies Act, 2008, as amended ("Companies Act") such number of
           HCI ordinary shares held as treasury shares, will be cancelled to ensure that no more than 10%, in
           aggregate, of the issued share capital of HCI is held as treasury shares.

    The implementation of the Repurchase Transactions will result in the following structure:
    [Please refer to the Business Day on Monday, 20 May 2013 for the image]
                                               
                                  

4. An overview of Sabido

   Sabido is a media group that is jointly owned by HCI and Remgro Limited. The media group grew out of
   the success of e.tv, South Africa’s first and only private commercial free-to-air television channel, which
   launched in 1998 and which is wholly owned by Sabido.

   In 2008, Sabido launched South Africa’s first 24-hour television news channel, the eNews Channel. It also
   operates a pan-African entertainment channel, e.tv Africa, which broadcasts in 49 countries across the
   continent and has direct investments in broadcasting businesses in Botswana and Ghana.

   Sabido continues to expand its media business with investments in content, production and distribution as
   well as the launch of services across multiple platforms and territories.

5. Rationale for the Repurchase Transactions

   The Repurchase Transactions are intended to achieve several strategic objectives for HCI, including, inter
                                                     
   alia, the following:
        - as an investment holding company, HCI is committed to furthering the interests of empowerment
            across the various industries in which it invests. It is in this light that several strategic initiatives
            were undertaken with a view to creating separately focused and empowered entities. The
            Repurchase Transactions will create an empowered media platform with an attractive portfolio of
            cash generative media assets;
        - the Repurchase Transactions are anticipated to unlock value for HCI shareholders; and
        - HCI will be able to repurchase a significant portion of its shares from Sactwu, which is anticipated
            to be both earnings and value enhancing for HCI shareholders.

   From a Sactwu perspective, the Repurchase Transactions provide Sactwu with an indirect interest in a
   cash generative media asset which will significantly increase Sactwu's current dividend flow so as to
   enable Sactwu to further enhance the benefits to its members.

6. Conditions precedent to the Repurchase Transactions

   The Transaction Agreements are subject, inter alia, to the fulfilment or waiver of the following conditions
   precedent:

       -   the Restructuring Agreement becoming unconditional;

       -   HCI obtaining a fairness opinion from an independent expert acceptable to the JSE Limited ("JSE")
           in compliance with the JSE Listings Requirements and a report from an independent expert in
           terms of section 114 of the Companies Act;

       -   the passing by the shareholders of HCI of the shareholders' resolutions required to authorise,
           approve and implement the Repurchase Transactions in terms of the Companies Act, the JSE
           Listings Requirements and HCI’s Memorandum of Incorporation;

       -   HCI and SPV satisfying the solvency and liquidity test contemplated in section 4 of the Companies
           Act;

       -   the obtaining of the consents of the bankers of HCI to the Repurchase Transactions; and

       -   the obtaining of such regulatory approvals as may be necessary, including, but not limited to, the
           approval of the JSE and the Competition Authorities in terms of the Competition Act, 1998, as
           amended.

7. Financial effects and salient dates

   The financial effects and the salient dates relating to the Repurchase Transactions will be released in due
   course.

8. Documentation

   A circular will be issued to HCI shareholders in accordance with the JSE Listings Requirements and the
   Companies Act, which will incorporate a notice convening a general meeting to approve the Repurchase
   Transactions.

9. Cautionary announcement

   HCI shareholders are advised that the Repurchase Transactions, if successfully concluded, may have a
   material impact on the price of the HCI’s securities. Accordingly, HCI shareholders are advised to exercise
   caution when dealing in HCI securities until a further announcement incorporating the financial effects of
   the Repurchase Transactions is made.


                                                        
Cape Town
17 May 2013




Investment bank & Sponsor       
Investec Bank Limited


Joint legal advisors
Edward Nathan Sonnenbergs


Joint legal advisors
Tabacks



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