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Conclusion Of A Settlement Agreement Between R&E And PricewaterhouseCoopers Incorporated
Randgold & Exploration Company Limited
(Incorporated in the Republic of South Africa)
Registration number: 1992/005642/06
Share code: RNG
ISIN: ZAE000008819
(“R&E” or “the Company” or “the Group”)
CONCLUSION OF A SETTLEMENT AGREEMENT BETWEEN R&E AND
PRICEWATERHOUSECOOPERS INCORPORATED, DISTRIBUTION OF A
VOLUNTARY CIRCULAR AND GENERAL MEETING OF R&E SHAREHOLDERS AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are hereby advised that R&E and its former
auditor, PricewaterhouseCoopers Incorporated (“PWC”) have
concluded a settlement agreement dated 16 April 2014
(“the Settlement Agreement”), in respect of the legal
dispute between R&E and PWC arising from PWC’s
appointment as R&E’s auditor during the financial period
2000 to 2003 and PWC's alleged failure to audit R&E
properly resulting in losses claimed by R&E which are
disputed by PWC (“the Settlement”).
2. DETAILS OF THE SETTLEMENT
2.1. Background information
2.1.1. On 3 August 2008, R&E instituted a civil action
against PWC in the High Court of South Africa (“the
Action”), which Action arose as a consequence of
PWC’s engagement as R&E’s auditor in respect of the
financial period 2000 to 2003.
2.1.2. Arising from PWC’s alleged failure to properly
perform its audit, R&E has, by way of its amended
particulars of claim in the Action, claimed damages
from PWC as set out therein, contending that in
consequence of such alleged audit failures it
suffered the damages claimed by it, being the
replacement cost of various shares allegedly
misappropriated from it and further losses sustained
by it in consequence of the misappropriations (“the
R&E Claims”).
2.1.3. For the purposes of the Settlement Agreement, “the
R&E Claims” means all and any claims enjoyed by R&E
against PWC which arose on or before the signature
date of the Settlement Agreement, including any
claims which R&E becomes aware of subsequent to the
signature date of the Settlement Agreement, in
respect of transactions, dealings, conduct and/or
acts or omissions which occurred prior to the
signature date of the Settlement Agreement, in
respect of which R&E enjoys a claim against PWC,
whether or not a claim has been instituted against
PWC, and incorporating the claims made by R&E
against PWC including the capital of, interest
incurred on and legal costs in respect of such
claims.
2.1.4. PWC has defended the Action, denying any wrongdoing
on its part and that it is liable to R&E in the
amount claimed, or at all. PWC has raised a number
of defences to the R&E Claims, as set out in its
amended plea. For the purposes of the Settlement
Agreement, “the PWC Claims” (which are to be
settled) means all and any claims enjoyed by PWC
against R&E which arose on or before the signature
date of the Settlement Agreement, including any
claim which PWC becomes aware of subsequent to the
signature date of the Settlement Agreement, in
respect of transactions, dealings, conduct and/or
acts or omissions which occurred prior to the
signature date of the Settlement Agreement, in
respect of which PWC enjoys a claim against R&E,
whether or not a claim has been instituted and
includes the capital of, interest incurred on, and
legal costs in respect of such claims.
2.1.5. As at the date of this announcement, the pleadings
have closed and the disputes have been referred by
R&E and PWC to arbitration (“the Arbitration”),
pursuant to the conclusion of an arbitration
agreement on 26 July 2013.
2.1.6. Without any admission of liability or the making of
any concessions on the part of either R&E or PWC and
purely with a view to avoiding costly litigation and
for commercial reasons, R&E and PWC have decided to
settle the R&E Claims and the PWC Claims on the
basis as provided for in the Settlement Agreement,
in terms of which PWC shall make payment to R&E of
R150 000 000.00 (one hundred and fifty million rand)
(“the Settlement Amount”).
2.2. Conditions precedent
The implementation of the Settlement Agreement is subject
to the conditions precedent that:
2.2.1. R&E procures written irrevocable undertakings from
shareholders holding at least 51% (fifty one
percent) of the issued ordinary share capital of
R&E, within 7 (seven) business days of the signature
date of the Settlement Agreement, to vote in favour
of the R&E Resolution; and
2.2.2. R&E shareholders approve and ratify the conclusion
and implementation of the Settlement Agreement
within 40 (forty) business days of the signature
date of the Settlement Agreement, by way of an
ordinary resolution requiring 51% (fifty one
percent) of R&E shareholders voting in favour of
such resolution (“the R&E Resolution”).
2.3. Payment of the Settlement Amount
2.3.1. PWC shall make payment of the Settlement Amount to
R&E within 30 (thirty) days of the closing date of
the Settlement Agreement, being the date of
fulfilment of the conditions set out in paragraph
2.2 above (“the Closing Date”).
2.3.2. To the extent that it is determined by the South
African Revenue Service that value added tax (“VAT”)
is payable on the Settlement Amount, or any portion
thereof, PWC shall, over and above the Settlement
Amount, pay such VAT as is due to R&E, on
presentation of a VAT invoice by R&E to PWC.
2.3.3. Prior to PWC making payment of the Settlement Amount
to R&E, in the event of any person obtaining an
order of court in South Africa (including an interim
order), prohibiting R&E from adopting the R&E
Resolution and/or either or both of R&E and PWC from
implementing the Settlement Agreement and such
prohibition does not cease to operate within 12
(twelve) months of the Closing Date, either party
shall be entitled to resile from the Settlement
Agreement, upon giving 5 (five) days written notice
to the other party of its intention to do so, in
which event the Settlement Agreement shall be of no
force or effect and the parties shall be restored to
the positions they occupied prior to entering into
the Settlement Agreement.
2.4. Effect of the Settlement
2.4.1. Against payment of the Settlement Amount by PWC to
R&E (including any VAT that may be payable thereon):
2.4.1.1. R&E shall have no further claims against PWC in
respect of the R&E Claims, which shall be fully
and finally settled;
2.4.1.2. PWC shall have no further claims against R&E in
respect of the PWC Claims, which shall be fully
and finally settled;
2.4.1.3. the R&E Group shall have no claims against PWC,
which shall be fully and finally settled; and
2.4.1.4. the Action and Arbitration shall be at an end.
2.4.2. For the avoidance of any doubt, the Settlement as
contained in the Settlement Agreement is specific to
R&E and PWC only, and shall not affect any claims
enjoyed by R&E against any third party, which R&E
has instituted a claim for, prior to the signature
date of the Settlement Agreement.
3. R&E BOARD RATIONALE FOR THE SETTLEMENT
The R&E board (“the Board”) is of the view that the claim
against PWC is robust and good progress has been made in
preparing for the Arbitration. The Company issued sixteen
claims against PWC, amounting to billions of Rands.
The PWC matter is however complex and it is estimated
that the arbitration could endure for a lengthy period of
time. Extensive and technical evidence will need to be
led in establishing PWC's alleged audit breaches and the
resultant losses to R&E. Litigation is by its very nature
uncertain and the Board cannot therefore guarantee a
successful outcome in the matter.
Furthermore, the pursuit of the Arbitration requires the
commitment of major resources and large legal and
forensic expenses. The total legal and forensic
expenditure for R&E’s matters for the 2013 financial year
amounted to more than 10% of the Group’s NAV. The total
legal costs incurred to date relating to the PWC matter
amounts to R34 million.
The likelihood of a substantial arbitration award should
therefore be weighed against the time it will take to
attain an award, the possibility of appeals and the legal
and related costs to sustain the process.
The PWC offer of R 150 million (R2.10/share) represents
80% of the Group’s NAV and 99% of its weighted average
share price (as quoted on the JSE), which makes the offer
significant.
The Board has consistently approached the Company’s
recovery process on a commercial basis and has concluded
that the Settlement offer of R150 million by PWC is
economically attractive and should be proposed to
shareholders.
4. PRO FORMA FINANCIAL INFORMATION
The pro forma financial effects set out below have been
prepared to assist R&E Shareholders in assessing the
impact of the Settlement Amount on the earnings per Share
(“EPS”), headline earnings per Share (“HEPS”), net asset
value (“NAV”) and tangible net asset value (“TNAV”) per
Share. Due to the nature of these pro forma financial
effects, they are presented for illustrative purposes
only and may not fairly present R&E’s financial position
or the results of its operations post the receipt of the
Settlement Amount.
The pro forma financial effects have been prepared in
terms of the Listings Requirements of the JSE and the
Guide on Pro Forma Financial Information issued by the
South African Institute of Chartered Accountants. These
pro forma financial effects are the responsibility of the
Board. The material assumptions are set out in the notes
following the table.
Audited Pro forma Pro forma Percentage
results adjustments post the change
prior to receipt of (%)
the the
receipt of Settlement
the Amount
Settlement
Amount
EPS 9.7 219.7 229.4 2 259%
(cents)
HEPS 8.2 219.7 227.9 2 672%
(cents)
NAV per 261.1 209.2 470.3 80%
Share
(cents)
TNAV per 261.0 209.2 470.2 80%
Share
(cents)
Ordinary 71 585 172 - 71 585 172 -
Shares in
issue
(‘000)
Weighted 71 585 172 - 71 585 172 -
average
number of
Ordinary
Shares in
issue
Notes and assumptions:
1. The “Audited results prior to the receipt of the
Settlement Amount” have been extracted from the audited
financial results of R&E for the year ended 31 December
2013.
2. For the purposes of calculating EPS and HEPS it was
assumed that the Settlement Amount was received on 1
January 2013.
3. For the purposes of NAV per share and TNAV per share it
was assumed that the Settlement Amount was received on
31 December 2013.
4. The proceeds received from the Settlement, being R150
million, are assumed to be invested in a short term
call account for the 12 month period earning interest
at 5% per annum, being the interest rate current
achieved by the Company on cash reserves.
5. Transaction costs of R245 000 relating to the
Settlement have been assumed.
6. All adjustments have a continuing effect on the
financial results of the Company.
5. DISTRIBUTION OF VOLUNTARY CIRCULAR AND GENERAL MEETING OF
R&E SHAREHOLDERS
Shareholders are hereby advised that a voluntary circular
setting out the full details of the Settlement,
incorporating a notice convening a general meeting, will be
distributed to R&E shareholders in due course.
Shareholders are hereby advised that the notice of the
general meeting and the relevant details relating to the
general meeting will be provided on SENS in due course.
6. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement
dated 7 April 2014 and are advised that as the details of
the Settlement have now been announced, caution is no
longer required to be exercised by shareholders when
dealing in their securities.
Johannesburg
16 April 2014
Sponsor:
PSG Capital
Date: 16/04/2014 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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