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Terms announcement regarding the acquisition of Guardrisk and Euroguard by MMI Holdings from Alexander Forbes
Alexander Forbes Preference Share Investments Limited
Incorporated in the Republic of South Africa
(Registration number: 2006/031561/06)
ISIN code: ZAE000098067
Share code: AFP
(“AF Pref”)
Terms announcement regarding the acquisition of Guardrisk and its associate,
Euroguard, by MMI Holdings from Alexander Forbes
1. INTRODUCTION
AF Pref linked unitholders (“Linked Unitholders”) are advised that sale and
purchase agreements (the “Agreements”) have been concluded in terms of
which, MMI Holdings Limited (“MMI Holdings”) will acquire Alexander Forbes
Equity Holdings Proprietary Limited’s (“Alexander Forbes”) effective 100%
interest in Guardrisk Holdings Limited and its associate, Euroguard Insurance
Company PCC Limited (collectively referred to herein as “Guardrisk”), subject to
the conditions precedent set out in the Agreements and summarised in
paragraph 4 below (the “Proposed Transaction”).
2. RATIONALE FOR THE PROPOSED TRANSACTION
As set out in the announcement released on the Stock Exchange News Service
(“SENS”) on 20 May 2013 (“SENS Announcement”), Alexander Forbes received
a number of expressions of interest to potentially acquire its Guardrisk business.
Following a detailed strategic review of its portfolio of businesses, Alexander
Forbes explored these expressions of interest and undertook a formal process to
explore the disposal of Guardrisk. MMI Holdings was the successful bidder in
this process.
The Proposed Transaction enhances Alexander Forbes’ continued commitment
to grow its core employee benefits, investment and risk businesses to facilitate
Alexander Forbes’ strategic objective to secure its clients’ financial well being.
Alexander Forbes will continue to pursue organic growth in its established
institutional and corporate client base, as well as the three additional and specific
target growth markets of retail (individuals), public sector and sub-Saharan
Africa, as previously indicated in the SENS Announcement.
3. SALIENT TERMS OF THE PROPOSED TRANSACTION
3.1. Purchase Consideration
The cash consideration payable by MMI Holdings to Alexander Forbes in respect
of the Proposed Transaction is R1.6 billion (the “Purchase Consideration”).
3.2. Allocation of the Proposed Transaction Proceeds
The net proceeds of R1.5 billion (the “Proposed Transaction Proceeds”) will be
applied to reduce the existing debt in Alexander Forbes.
3.3. Effective Date
Unless otherwise agreed by the parties, it is expected that the Effective Date of
the Proposed Transaction will be on the first day of the calendar month
immediately following fulfilment or waiver (where applicable), of all the conditions
precedent.
4. CONDITIONS PRECEDENT
The Proposed Transaction is subject, inter alia, to the fulfilment or waiver (where
applicable) of the following material conditions precedent:
4.1. All applicable regulatory and statutory approvals in South Africa and
Mauritius having been granted, including but not limited to approvals
from the:
4.1.1. South African Competition Commission established in terms of
the Competition Act, 89 of 1998;
4.1.2. The Registrar of Long-Term Insurance in accordance with the
Long-Term Insurance Act, 52 of 1998; and
4.1.3. The Registrar of Short-Term Insurance in accordance with the
Short-Term Insurance Act, 53 of 1998
4.2. The written consent for the Proposed Transaction being obtained from
the material financiers of Alexander Forbes; and
4.3. Other conditions typical in a transaction of this nature.
5. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED
TRANSACTION
The table below sets out the unaudited pro forma financial effects of the
Proposed Transaction on the published audited financial results of Alexander
Forbes for the financial year ended 31 March 2013.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only, in order to provide information about how the Proposed
Transaction might have affected the Statement of Comprehensive Income and
Statement of Financial Position of Alexander Forbes for the financial year ended
31 March 2013 had the Proposed Transaction been implemented on 1 April
2012 for the purposes of earnings per Alexander Forbes share (“Alexander
Forbes Share”) and headline earnings per Alexander Forbes Share and on 31
March 2013 for the purposes of the net asset value (“NAV”) per Alexander
Forbes Share and tangible net asset value (“TNAV”) per Alexander Forbes
Share and does not purport to be indicative of what the financial results would
have been had the Proposed Transaction been implemented on a different date.
The unaudited pro forma financial effects, because of their nature, may not fairly
present Alexander Forbes’ financial position, changes in equity, and results of
operations or cash flows.
The Board of Directors of Alexander Forbes are responsible for the preparation
of the unaudited pro forma financial information.
The pro forma financial effects have not been reviewed or audited by Alexander
Forbes’ auditors.
Before the After the
Proposed Proposed
Transaction(1) Transaction(2) % Change
Attributable (loss) /
profit per Alexander
Forbes Share (cents)(3) (48.5) 162.5 434.9%
Headline loss per Alexander Forbes
Share (cents)(3) (4.2) (7.1) (68.1%)
NAV per Alexander Forbes Share
(cents)(4) 6.1 7.8 27.5%
TNAV per Alexander Forbes Share
(cents)(4) (9.0) (5.8) 35.0%
Weighted average number of
Alexander Forbes Shares
(millions)(5) 377.4 377.4
Number of Alexander Forbes
Shares as at 31 March 2013
(millions)(5) 377.4 377.4
Notes:
1. Alexander Forbes "Before the Proposed Transaction" results were extracted
from the published, audited annual results of Alexander Forbes for the year
ended 31 March 2013 as released on SENS on 19 June 2013 and in the
annual financial statements released subsequently.
2. Represents the pro forma financial effects of the Proposed Transaction, which
have been accounted for in terms of IFRS3 (revised): Business Combinations.
3. Attributable earnings and headline earnings per Alexander Forbes share are
based on the following assumptions:
3.1. the Proposed Transaction was effective on 1 April 2012;
3.2. adjustment has been made for dis-synergy costs, being Alexander
Forbes Group Corporate and Information Technology charges that
would have been recovered from Guardrisk but will continue to be
carried by Alexander Forbes after the Proposed Transaction;
3.3. the adjustment to finance costs is calculated on the Proposed
Transaction Proceeds (after capital gains tax and transaction costs) of
R1.5 billion being utilised to repay the Senior Preference Shares; and
3.4. tax has been calculated based on the statutory rate of 28% and, where
there are tax losses, deferred tax assets have been assumed.
4. NAV and TNAV per Alexander Forbes Share effects are based on the
following assumptions:
4.1. the Proposed Transaction was effective on 31 March 2013;
4.2. goodwill attributable to the cash generating units of R386 million and
intangible assets of R127 million (net of deferred tax); and
4.3. Proposed Transaction Proceeds (after capital gains tax and
transaction costs) of R1.5 billion being utilised to repay the Senior
Preference Shares.
5. The number of shares in issue used to calculate the NAV and TNAV is
377 358 491.
6. The unaudited pro forma financial effects have been prepared using the same
accounting policies as those applied in the most recently published annual
financial statements of Alexander Forbes.
6. NATURE OF BUSINESS OF GUARDRISK
Guardrisk is the largest specialist cell captive insurance group of its kind, and the
leading alternative risk transfer provider in South Africa comprising a short-term
insurer, life insurer and an underwriting manager (binder holder).
Guardrisk pioneered the cell captive concept, introducing cell captives to the
South African short-term insurance industry in 1993 and extended the structure
to the life insurance industry in 1999. Guardrisk provides structured insurance
products, traditional cell captive facilities and access to a broad and diversified
panel of related services and professional reinsurance markets through its
businesses in South Africa (headquarters), Mauritius and Gibraltar..
7. SHAREHOLDER APPROVAL
As the Proposed Transaction is a “Reserved Matter” as defined in the Alexander
Forbes shareholders’ agreement, and does not require shareholder approval in
terms of the Companies Act, 71 of 2008, AF Pref is not required to vote on the
Proposed Transaction. Alexander Forbes Shareholder approval in relation to the
Reserved Matters (as defined) has been obtained.
In terms of paragraph 19.27 of the JSE Listings Requirements (“Listings
Requirements”), AF Pref is not required to comply with sections 8, 9 and 10 of
the Listings Requirements.
4 November 2013
Sandton
Joint Financial Advisers to Alexander Forbes and AF Pref
Deutsche Bank
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal Adviser to Alexander Forbes
Edward Nathan Sonnenbergs Inc
Sponsor to AF Pref
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 04/11/2013 08:00:00 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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