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Joint Announcement of a Firm Intention by Grindrod Holdings and Renewal of Cautionary Announcement
RACEC GROUP LIMITED GRINDROD HOLDINGS (SOUTH AFRICA)
Incorporated in the Republic of South Africa PROPRIETARY LIMITED
(Registration number 1998/006153/06) Incorporated in the Republic of South Africa
Share code: RAC ISIN: ZAE000105409 (Registration number 1999/024434/07)
(“RACEC”) (“Grindrod Holdings”)
JOINT ANNOUNCEMENT OF A FIRM INTENTION BY GRINDROD HOLDINGS TO ACQUIRE THE
ENTIRE ISSUED SHARE CAPITAL OF RACEC OTHER THAN THE 45 472 509 SHARES (25.1%)
HELD BY SOLETHU CIVILS HOLDINGS PROPRIETARY LIMITED (“SOLETHU CIVILS”) (“FIRM
INTENTION ANNOUNCEMENT”) AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
The respective boards of directors of RACEC (“RACEC Board”) and Grindrod Holdings, a wholly-owned
subsidiary of Grindrod Freight Services Proprietary Limited (“GFS”), which is, in turn, a wholly-owned
subsidiary of Grindrod Limited (“Grindrod”), are pleased to announce that Grindrod Holdings has made
an offer (“Offer”) to acquire the entire issued ordinary share capital of RACEC (“RACEC Shares”), other
than 45 472 509 (forty five million four hundred and seventy two thousand five hundred and nine) of the
RACEC Shares held by Solethu Civils (“Proposed Transaction”), being 135 692 865 (one hundred and
thirty five million six hundred and ninety two thousand eight hundred and sixty five) RACEC Shares
(“Scheme Shares”), by way of a scheme of arrangement (“Scheme”), to be proposed by the RACEC
Board between RACEC and the holders of the Scheme Shares (“RACEC Shareholders”), in terms of
section 114(1)(c) of the Companies Act, No 71 of 2008, as amended (“the Companies Act”).
RACEC and Grindrod Holdings entered into a written implementation agreement on 18 July 2013
(“Implementation Agreement”) in relation to the Offer, which agreement contains, inter alia, provisions
relating to the implementation of the Offer and certain undertakings given by RACEC (including
undertakings regarding the conduct of the RACEC business in the period between the signature of the
Implementation Agreement and the implementation of the Scheme).
The terms of the Offer provide for the payment to each RACEC Shareholder (other than the “Excluded
Dissenting Shareholders” contemplated in the paragraph below) (“Scheme Participants”), if the Scheme
becomes unconditional and is implemented, an amount of 20 cents in cash for each Scheme Share held
by such Scheme Participant on the Scheme consideration record date (“Scheme Consideration”).
Scheme Participants will not include RACEC Shareholders (“Excluded Dissenting Shareholders”)
which:
- validly exercise their appraisal rights in terms of section 164 of the Companies Act by demanding, in
accordance with the requirements of sections 164(5) to 164(8) of the Companies Act, that RACEC
pay them the fair value of all of their RACEC Shares;
- do not withdraw that demand before RACEC makes an offer to them in accordance with the
requirements of section 164(11) of the Companies Act (“Dissenting Offer”); and
- do not, after the Dissenting Offer is made to them, allow such Dissenting Offer to lapse, and accept
the Dissenting Offer or, pursuant to an order of Court, tender their RACEC Shares to RACEC in
accordance with the requirements of section 164(15)(v) of the Companies Act.
2. RATIONALE FOR THE SCHEME
The last few months have been challenging for RACEC for the following reasons:
- the protracted contractual disputes associated with the final contract close-out in Sierra Leone
(“Sierra Leone Contract Disputes”) and delays in significant contract awards have resulted in
severe cash flow pressure being experienced by RACEC;
- the awarding of key contracts, which RACEC had anticipated to be awarded during the first six
months of RACEC’s 2013 financial year, both in South Africa and Africa, are to date still
outstanding; and
- RACEC has been formally notified of the breach of its debt service cover ratio covenant by ABSA
Bank Limited and Grindrod Bank Limited (“Grindrod Bank”), the provider of the R45 000 000 (forty
five million Rand) short-term mezzanine funding facility (“Mezzanine Facility”), also has the right to
place RACEC in default.
The arbitration process pertaining to the Sierra Leone Contract Disputes has commenced. However, this
process is only likely to be concluded in October 2013, which is after the repayment date of the
Mezzanine Facility. In addition, RACEC requires between R3 000 000 (three million Rand) and
R5 000 000 (five million Rand) in working capital funding for its business and operations per month, with
limited resources to fund these cash outflows in the near future.
As a result, the financial position of RACEC is currently extremely precarious, and failing the
implementation of the Scheme, the options available to RACEC will be extremely limited and will in all
probability result in significant erosion of value and the inability to fund working capital requirements and
settle debt.
GFS has since 2005 been engaged in the rail sector in Africa and has significantly expanded its rail
service offerings in the last four years, in particular through an extension of the breadth of the rail service
offerings it provides and through a significant increase in scale of existing operations. Given GFS’
enhanced capabilities and capacity set, GFS believes that the acquisition of RACEC, through Grindrod
Holdings, would complement its current service offering and present synergies in respect of track
maintenance and signalling contracts resulting in an opportunity for GFS to capture more of the rail value
chain and to grow its offering to customers.
In order to preserve the RACEC business during its funding crisis, Grindrod Bank, a member of the
Grindrod Group, has provided RACEC with the Mezzanine Facility (of which, R36 750 000 (thirty six
million seven hundred and fifty thousand Rand) of the R40 000 000 (forty million Rand) available for
draw down has been drawn down by RACEC to date). The Mezzanine Facility’s balance as at 12 July
2013 was R39 262 181 (thirty nine million two hundred and sixty two thousand one hundred and eighty
one Rand). Grindrod Bank has indicated its intention to support RACEC in the short-term, however, such
support is subject to the successful conclusion of the Proposed Transaction.
RACEC is in need of further funding and GFS is of the view that RACEC should be delisted from the JSE
Limited (“JSE”) in order for RACEC to be appropriately capitalised and restructured in an unlisted
environment, where the RACEC management can focus on delivering quality service to clients whilst
being supported by GFS’s strategic input and fund raising abilities.
3. CONDITIONS TO THE SCHEME
3.1 The implementation of the Scheme will be subject to the fulfilment or waiver, as the case may be,
of the following conditions –
3.1.1 by not later than 23h59 on the date that is 150 (one hundred and fifty) days from signature
of the Implementation Agreement:
3.1.1.1 the Independent Expert (details of which are set out in paragraph 8 below),
appointed by the independent board of RACEC (“RACEC Independent Board”),
has released a written report to the RACEC Independent Board confirming that
the Scheme Consideration is, in its opinion, fair and reasonable in regards to
holders of the RACEC Shares;
3.1.1.2 the RACEC Independent Board has made, in writing, an unqualified and
unconditional recommendation to the RACEC Shareholders that the RACEC
Shareholders vote in favour of the Scheme;
3.1.1.3 the Proposed Transaction has been unconditionally approved by the South
African Competition Authorities in terms of the Competition Act No 89 of 1998, as
amended, or conditionally approved on terms and conditions which Grindrod
Holdings confirms in writing (by not later than the said date and time) to be
acceptable to it;
3.1.1.4 any exchange control approval which might be required from the Financial
Surveillance Department of the South African Reserve Bank, in terms of the
Exchange Control Regulations, 1961, of the Republic of South Africa, is duly
obtained in writing in accordance with the requirements of such regulations and
accompanying directives and rulings, provided that, if such approval is granted
conditionally or on terms, this condition shall not be regarded as having been
fulfilled unless Grindrod Holdings confirms in writing (by not later than the said
date and time) that such conditions and terms are acceptable to Grindrod
Holdings;
3.1.1.5 the circular in respect of the Scheme (“Scheme Circular”) has been approved by
the JSE and the Takeover Regulation Panel (established in accordance with
section 196 of the Companies Act) (“the Panel”);
3.1.1.6 a special resolution has been passed, at the meeting of RACEC Shareholders
required to consider and approve the Scheme (“General Meeting”), by the
requisite majority of RACEC Shareholders entitled to vote on the Scheme,
approving the Scheme in terms of section 115(2)(a) of the Companies Act and
(i) to the extent required, the implementation of such special resolution is
approved by the court; and (ii) if applicable, RACEC has not elected to treat the
special resolution as a nullity in terms of section 115(5) of the Companies Act;
3.1.1.7 the special resolution referred to in paragraph 3.1.1.6 above is not opposed by
15% (fifteen percent) or more of the voting rights that were exercised in respect of
the special resolution, or if it is so opposed, no person who voted against the
special resolution requires RACEC, within 5 (five) business days after the vote, to
seek court approval in terms of section 115(3) of the Companies Act;
3.1.1.8 if –
3.1.1.8.1 the special resolution referred to in paragraph 3.1.1.6 above is
opposed by 15% (fifteen percent) or more of the voting rights that
were exercised in respect of the special resolution;
3.1.1.8.2 a person who voted against the special resolution requires RACEC,
within 5 (five) business days after the vote, to seek court approval in
accordance with the requirements of section 115(3) of the Companies
Act; and
3.1.1.8.3 Grindrod Holdings has waived the condition contained in paragraph
3.1.1.7 above in accordance with the provisions of paragraph 3.2.2
below, RACEC has not elected to treat the special resolution as a nullity in terms of section 115(5)
of the Companies Act and the court has granted its approval in terms of section 115(3) of
the Companies Act;
3.1.1.9 if the special resolution referred to in paragraph 3.1.1.6 above is not opposed by
15% (fifteen percent) or more of the voting rights that were exercised in respect of
the special resolution, no leave is granted by the court to any person who voted
against the special resolution to apply to court for a review of the Proposed
Transaction in accordance with the requirements of section 115(7) of the
Companies Act; and
3.1.1.10 within the time period prescribed in section 164(7) of the Companies Act, RACEC
Shareholders have not exercised Appraisal Rights, by giving valid demands in
accordance with the requirements of sections 164(5) to 164(8) of the Companies
Act, in respect of more than 5% (five percent) of all the Scheme Shares;
3.1.2 by not later than 23h59 on the 1st (first) business day following the day on which the last of
the conditions contained in paragraph 3.1.1 above is fulfilled or waived, as the case may
be, –
3.1.2.1 there has been no breach by RACEC and/or its wholly-owned subsidiary, RACEC
Rail Proprietary Limited (“RACEC Rail”) of the undertaking provided by RACEC
and RACEC Rail to Grindrod Bank and GFS not to settle all or any of the Sierra
Leone Contract Disputes;
3.1.2.2 no material adverse change has occurred or, if a material adverse change has
occurred, Grindrod Holdings has confirmed, in writing, to RACEC that it wishes to
proceed with the Proposed Transaction. A material adverse change as
contemplated herein, means an adverse effect, fact, circumstance or any
potential adverse effect, fact or circumstance which has arisen or occurred, or
might reasonably be expected to arise or occur, and which is or might reasonably
be expected (alone or together with any other such actual or potential adverse
effect, fact or circumstance) to –
3.1.2.2.1 have (or be reasonably expected to have) an adverse effect on the net
asset value of RACEC of 15% (fifteen percent) or more when
measured against RACEC's results for the period ended 31 March
2013;
3.1.2.2.2 constitute a change in the laws of the Republic of South Africa which
would increase the costs of the Proposed Transaction for Grindrod
Holdings by 15% (fifteen percent) or more; and/or
3.1.2.2.3 consist of a fall of the JSE All Share Index of 15% (fifteen percent) or
more when compared to the JSE All Share Index as at the date of
signature of the Implementation Agreement; and
3.1.3 by not later than 23h59 on the 3rd (third) business day following the day on which the last
of the conditions contained in paragraph 3.1.2 is fulfilled or waived, as the case may be, the
Panel has issued a compliance certificate with respect to the Proposed Transaction in
terms of section 119(4)(b) of the Companies Act, provided that if such compliance
certificate is issued conditionally or on terms, this condition shall not be regarded as having
been fulfilled unless Grindrod Holdings confirms in writing (by not later than the said date
and time) that such conditions and terms are acceptable to Grindrod Holdings.
3.2 The conditions set out in paragraphs –
3.2.1 3.1.1.1, 3.1.1.2, 3.1.1.7, 3.1.1.10 and 3.1.2 above have been inserted for the benefit of
Grindrod Holdings, which will be entitled to waive fulfilment of any of the said conditions, in
whole or in part, on written notice to RACEC prior to the expiry of the relevant time period
set out in paragraph 3.1 above;
3.2.2 3.1.1.8 and 3.1.1.9 above have been inserted for the benefit of Grindrod Holdings, which
will be entitled to waive fulfilment of any of the said conditions, in whole or in part, on
written notice to RACEC prior to the expiry of the relevant time period set out in paragraph
3.1 above, if the court approves the special resolution referred to in paragraph 3.1.1.6 in
terms of section 115(3) of the Companies Act; and
3.2.3 3.1.1.3 to 3.1.1.6 and paragraph 3.1.3 above are not capable of being waived.
4. SHAREHOLDER UNDERTAKINGS
To date, irrevocable undertakings to vote in favour of the Scheme and any other resolutions to be
proposed at the General Meeting have been received from certain RACEC Shareholders holding in
aggregate 72 622 538 (seventy two million six hundred and twenty two thousand five hundred and
thirty eight) Scheme Shares, representing in aggregate 40.1% of the RACEC Shares and 53.5% of the
Scheme Shares held by RACEC Shareholders.
The following RACEC Shareholders have provided irrevocable undertakings to vote the stated number of
Scheme Shares in favour of the Scheme:
Party Date of irrevocable Shares subject to Percentage holding
undertaking undertaking (%)
The Charles and Tertia Harrod
Trust 20 June 2013 17 260 000 9.5
The Mike and Jen Uys Trust 20 June 2013 13 944 840 7.7
RACEC Share Purchase
Scheme 20 June 2013 9 798 460 5.4
Investec Emerging Companies
Fund 2 July 2013 9 058 000 5.0
Ollewagen Family Trust 20 June 2013 7 630 000 4.2
Gary Harrod Family Trust 20 June 2013 5 860 000 3.2
Mrs Sarah Smithyman 8 July 2013 3 153 475 1.7
Khanthu Nkama Capital
Proprietary Limited 26 June 2013 2 659 990 1.5
Mrs Gillian Jacqueline
Kleinschmidt 17 July 2013 2 047 246 1.1
Mr Matthew Smithyman 1 July 2013 1 210 527 0.7
72 622 538 40.1
5. GUARANTEES AND CONFIRMATIONS TO THE PANEL
Nedbank Limited has delivered an irrevocable and unconditional bank guarantee for an amount of
R27 138 573 (twenty seven million one hundred and thirty eight thousand five hundred and seventy three
Rand) to the Panel in compliance with regulations 111(4) and 111(5) of the Takeover Regulations, being
the regulations published in terms of section 120 of the Companies Act (“Takeover Regulations”), which
amount is sufficient for the purpose of fully satisfying the Scheme Consideration that will become payable
in respect of all Scheme Shares.
6. TERMINATION OF THE RACEC LISTING
Following the implementation of the Scheme, application will be made to the JSE to terminate the listing
of the RACEC Shares on the JSE.
7. ACTING AS PRINCIPAL AND BENEFICIAL INTERESTS OF GRINDROD HOLDINGS IN RACEC
SHARES
Grindrod Holdings confirms that it will be the ultimate proposed purchaser of all Scheme Shares and that
it is acting and will act alone and not in concert with, or as agent or broker for, any other party. Grindrod
Holdings and its directors currently do not hold or control any shares or options to acquire any shares in
RACEC.
At present, Grindrod Holdings does not hold a beneficial interest in any RACEC Shares.
8. RECOMMENDATION AND FAIRNESS OPINION
The RACEC Independent Board has appointed BDO Corporate Finance Proprietary Limited as the
“Independent Expert”, being an independent advisor acceptable to the Panel, to provide it with external
advice in relation to the Scheme and to make appropriate recommendations to the RACEC Independent
Board in the form of a report contemplated in section 114(3) of the Companies Act.
The RACEC Independent Board intends, based on the information currently available to it, to make a
recommendation to RACEC Shareholders to vote in favour of the resolutions to be proposed at the
General Meeting, provided that the RACEC Independent Board receives an opinion from the Independent
Expert to the effect that the Scheme Consideration is fair and reasonable to RACEC Shareholders.
The substance of the external advice received from the Independent Expert and the views of the RACEC
Independent Board will be detailed in the Scheme Circular.
9. DOCUMENTATION
Details of the Scheme will be included in the Scheme Circular, which will contain, inter alia, the terms of
the Scheme, a notice convening the General Meeting, a form of proxy in connection with the General
Meeting, and a form of acceptance, surrender and transfer in respect of the Scheme Shares. The
Scheme Circular is expected to be posted to RACEC Shareholders on or about 16 August 2013 in
accordance with the parties’ obligations in terms of the Takeover Regulations.
The salient dates pertaining to the Scheme will be released on SENS and published in the press prior to
the posting of the aforementioned Scheme Circular.
10. RACEC RESPONSIBILITY STATEMENT
The RACEC Independent Board individually and collectively accept full responsibility for the accuracy of
the information contained in this Firm Intention Announcement to the extent that it relates to RACEC. In
addition, the RACEC Independent Board certifies that, to the best of its knowledge and belief, the
information contained in this Firm Intention Announcement pertaining to RACEC is true and, where
appropriate, does not omit anything that is likely to affect the importance of the information contained in
this Firm Intention Announcement pertaining to RACEC.
11. GRINDROD HOLDINGS RESPONSIBILITY STATEMENT
The Grindrod Holdings board of directors, individually and collectively accept full responsibility for the
accuracy of the information contained in this Firm Intention Announcement to the extent that it relates to
Grindrod Holdings. In addition, the Grindrod Holdings board of directors certifies that, to the best of its
knowledge and belief, the information contained in this Firm Intention Announcement pertaining to
Grindrod Holdings is true and, where appropriate, does not omit anything that is likely to affect the
importance of the information contained in this Firm Intention Announcement pertaining to Grindrod
Holdings.
12. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this Firm Intention Announcement and the full terms relating to the Offer,
shareholders are advised that RACEC’s cautionary announcement is no longer related to the potential
acquisition of RACEC. However, as uncertainty still exists in respect of the Sierra Leone Contract
Disputes as referred to in the cautionary announcement published on SENS on 12 June 2013,
shareholders are advised to continue exercising caution when dealing in RACEC securities, until a further
announcement in respect thereof is made.
Johannesburg
18 July 2013
Corporate and Designated Advisor to RACEC
Merchantec Capital
Legal Advisor to RACEC
Werksmans Inc.
Independent Expert
BDO Corporate Finance Proprietary Limited
Corporate Advisor to Grindrod Holdings
Grindrod Bank Limited
Legal Advisor to Grindrod Holdings
Edward Nathan Sonnenbergs Inc.
Date: 18/07/2013 05:19:00 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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