Wrap Text
Proposed disposal of Fleet Management and Logistics, and Industrial Equipment Divisions to enX and recapitalisation
EQSTRA HOLDINGS LIMITED
(Incorporated in South Africa)
(Registration number 1998/011672/06)
Share code: EQS ISIN: ZAE000117123
(“Eqstra” or the “Company” or “Eqstra Group”)
Proposed disposal of Eqstra’s Fleet Management and Logistics Division and Industrial Equipment
Division to enX Group Limited (“enX”), together with a recapitalisation of the remaining Eqstra
business by enX
The unbundling of the enX Consideration Shares to Eqstra shareholders
The restructure of the Eqstra Group’s debt
Proposed name change
Withdrawal of cautionary announcement
1. Introduction
Shareholders of Eqstra (“Eqstra Shareholders”) are referred to the cautionary announcement
released on SENS on 8 April 2016 and renewed on 24 May 2016, wherein it was advised that
Eqstra had received a conditional, non-binding expression of interest from a third party.
Eqstra Shareholders are hereby advised that Eqstra and MCC Contracts Proprietary Limited
(“MCC”), a wholly-owned subsidiary of Eqstra, have signed an agreement dated 29 June 2016
(“Signature Date”) with enX (“Transaction Agreement”) in terms of which, inter alia:
- Eqstra proposes to dispose of its Fleet Management and Logistics (“FML”) division and
Industrial Equipment (“IE”) division (“Disposal Assets”) to enX in exchange for 52,715,390
ordinary shares in enX (“enX Consideration Shares”) at R21 per enX share (post the
consolidation of enX’s authorised and issued share capital on an 11:1 basis, as more fully
described in paragraph 9.4 below) and an assumption of Eqstra debt in the amount of
approximately R4.8 billion (“Disposal”). The enX Consideration Shares equate to 0.13 enX
shares per 1 Eqstra ordinary share;
- Eqstra will subsequently unbundle the enX Consideration Shares to Eqstra Shareholders
(“Unbundling”);
- the remaining Eqstra, consisting of the Contract Mining and Plant Rental (“CMPR”) division,
will be recapitalised through the issue to enX of: (i) 101,400,000 new Eqstra ordinary
shares (“Eqstra Subscription Shares”) at R1 per share for a total consideration of
R101,400,000; and (ii) cumulative, fixed rate, redeemable preference shares in the
authorised share capital of MCC (“MCC Preference Shares”) for a cash consideration of
R600,000,000 (“Recapitalisation”); and
- in the context of the Recapitalisation and the refinancing of the CMPR division, enX has
agreed to advance a loan to MCC in an amount of R700 million (“Second enX Loan”) (“Debt
Restructure”);
collectively, the “Proposed Transaction”. The effective date of the Proposed Transaction is
anticipated to be during the last quarter of 2016, pending obtaining the necessary regulatory
approvals for the implementation of the Proposed Transaction.
Warranties normal for a transaction of this nature have been given by both Eqstra and enX.
In order to give effect to the Proposed Transaction, a series of transaction steps, structured as
part of a single composite and indivisible transaction, must be implemented in a prescribed
sequence between enX and various entities within the Eqstra Group.
Paul Mansour, the current CEO of enX, will, with effect from the completion of the Proposed
Transaction, assume the role of Executive Deputy Chairman of enX and Jannie Serfontein, the
CEO of Eqstra, will assume the role of enX’s Chief Executive Officer. The key executives of each
of the underlying businesses will continue in their current roles.
The Board of Eqstra will be reconstituted and details of the proposed candidates will be included
in the circular to Eqstra Shareholders (“Circular”) giving notice of a meeting to consider the
resolutions necessary to give effect to the Proposed Transaction.
Eqstra Shareholders are also referred to the announcement published by enX
(“enX Announcement”), which was released on SENS simultaneously with this announcement,
for additional information on the Proposed Transaction and matters related thereto.
2. Rationale for the Proposed Transaction
Eqstra Shareholders are referred to Eqstra’s unaudited interim results announcement published
on 1 March 2016 relating to the implementation of Eqstra’s 2020 strategy. In terms of this
strategy, Eqstra sought to, inter alia, balance its capital structure, evolve to a differentiated
services-orientated business model, recalibrate its mining operation and drive efficiencies and
cash generation.
The implementation of Eqstra’s 2020 strategy includes disposing of excess assets and engaging
with financial institutions (“Banking Consortium”) with respect to Eqstra’s bank refinancing. As
part of the engagements with the Banking Consortium, the Eqstra board of directors (“Eqstra
Board” or “Eqstra Directors”) concluded that Eqstra required an injection of capital to address
the medium term note maturities, capital structure and successfully refinance the bank debt. In
its current construct, Eqstra’s ability to provide the requisite capital support to the FML and IE
divisions was impeded by the capital and debt markets liquidity constraints to provide funding
support to Eqstra. In addition, it became apparent that as part of this capital raise, the long-term
interests of Eqstra stakeholders would be best served by Eqstra separating the FML and IE
divisions from the CMPR division. However, given Eqstra’s cross-guarantees under its existing
banking facilities, any change in the Eqstra Group and capital structures would require, inter alia,
the support and approval of the Banking Consortium and Eqstra’s noteholders (“Noteholders”).
In order to successfully achieve the separation of the Eqstra operations, the Eqstra Board would
need to satisfy itself that any change in the Eqstra Group structure would be in the interest of all
stakeholders, including Eqstra Shareholders and other providers of capital, employees and
clients. Furthermore, Eqstra Directors would need to be convinced that the CMPR division,
which is currently facing challenging trading conditions, would be sustainable in the long-term
on a standalone basis, including having the long-term support of capital providers and a
shareholder base which supports the strategic direction of the division. Eqstra Directors
reviewed the various options available to it and concluded that the Proposed Transaction
represented the optimal and most sustainable outcome for all stakeholders. The Eqstra Board’s
decision is fully supported by the operational management team, the Banking Consortium, a
large proportion of Noteholders and other providers of capital.
In summary, the Proposed Transaction results in:
- The disposal of the FML and IE divisions to enX in return for the enX Consideration Shares,
thereby allowing Eqstra Shareholders to participate in the equity returns of the enlarged
enX with an appropriate level of gearing; and
- A recapitalisation of the remaining Eqstra business (consisting only of the CMPR division)
by way of enX subscribing for the Eqstra Subscription Shares, MCC Preference Shares and
advancing a subordinated shareholder loan (“Second enX Loan”), thus materially reducing
the third party debt in Eqstra.
The Proposed Transaction will ensure that the CMPR division will function independently of the
FML and IE divisions, with each division being managed independently, focused solely on its core
operations, and able to pursue its own strategic agenda independent of the capital requirements
of the other divisions.
In the Eqstra Board’s view, the Proposed Transaction addresses issues that have suppressed
value creation in each division and places each operation on a sustainable growth path:
- The equity and debt structures of each division will, post the Proposed Transaction, more
closely match the operational risks, capital expenditure requirements and cash flow
profiles of each division;
- The FML and IE divisions are being separated from the CMPR division, allowing for focused
management and different points of entry for equity investors;
- The Noteholders will extend maturities to better match the cash flow profile of the FML
and IE divisions and reduce financing risks;
- The Banking Consortium will provide long-term funding support to all divisions; and
- Wild Rose Capital Proprietary Limited and enX’s strategic empowerment shareholder,
CapLeverage Proprietary Limited (collectively, “Shareholders of Reference”), will be
established as anchor enX shareholders to drive the direction of the enlarged enX group
and the remaining Eqstra business (i.e. the CMPR division) going forward. Importantly, the
Shareholders of Reference in the remaining Eqstra business will provide access to capital,
support the strategic direction of the management team and, as relevant, drive and
support its acquisitive growth strategy.
The Proposed Transaction will also ensure that Eqstra Shareholders retain equity exposure to all
of Eqstra’s divisions, now with appropriately structured balance sheets. Furthermore, the
Proposed Transaction will ensure that other stakeholders, including Eqstra’s current clients and
employees, are not adversely impacted.
Eqstra Shareholders are referred to Eqstra’s website for further information relating to the
Proposed Transaction steps and mechanics.
3. Background information on the Disposal Assets
3.1 The FML division
The FML division is comprised of the following Eqstra subsidiaries: Eqstra Corporation
Limited (“Eqstra Corporation”), Eqstra Fleet Services (PVPS) Proprietary Limited, Amasondo
Fleet Services Proprietary Limited, Eqstra FlexiFleet Proprietary Limited, GPS Tracking
Solutions Proprietary Limited, Eqstra Fleet Services Namibia Proprietary Limited, Eqstra
Lesotho Proprietary Limited, Eqstra Zambia Limited, Fleet Services Lesotho (PVPS)
Proprietary Limited, Eqstra (Swaziland) Proprietary Limited, Omatemba Fleet Services
Proprietary Limited, Eqstra Risk Solutions Proprietary Limited, Eqstra Financial Services
Proprietary Limited and Eqstra NH Equipment Proprietary Limited (“FML Subsidiaries”).
The FML division provides a full spectrum of passenger vehicle services including leasing,
fleet management, outsourcing solutions, maintenance and warranty management as well
as vehicle tracking solutions. It further provides fleet management solutions for commercial
vehicle fleet owners and logistics solutions. Its footprint is in South Africa and sub-Saharan
Africa.
3.2 The IE division
The IE division is comprised of the following Eqstra subsidiaries: Saficon Industrial Equipment
Proprietary Limited, Impact Fork Trucks Limited, Eqstra TA Equipment Proprietary Limited
and 600SA Holdings Proprietary Limited (“IE Subsidiaries”).
The IE division distributes mobile capital equipment through leasing and rental as well as
value added services for the materials-handling and industrial sectors. The division offers
recognised brands and excellent aftermarket service for a unique one-stop solution.
Customer interfacing functions are decentralised by business and region with back office
support provided through a shared services facility.
4. Terms and conditions of the Disposal and the Unbundling
In anticipation of the Disposal and the Unbundling and as pre-requisites to give effect to the
aforementioned, (i) Eqstra will, as an asset-for-share transaction in terms of section 42 of the
South African Income Tax Act, 1962 (No. 58 of 1962) (“Income Tax Act”), dispose of all its shares
in the FML Subsidiaries and IE Subsidiaries to a newly established private limited liability
company (Eqstra Investments Proprietary Limited) (“EQS”), a wholly-owned subsidiary of Eqstra,
in exchange for the issue of eighteen ordinary shares in EQS (“Internal Restructure”); and (ii) enX
will raise at least R1.5 billion by way of a fully underwritten offer and share placement process
through the issue of new enX shares to third party investors, existing enX shareholders and
Anchor Capital Proprietary Limited at an issue price of at least R21 (twenty one Rand) per share
(“enX Capital Raise”).
Following the Internal Restructure and the enX Capital Raise, Eqstra will dispose of its shares in
EQS, which company now houses the FML and IE divisions, to enX for the enX Consideration
Shares (being 52 715 390 enX shares), as an asset-for-share-transaction in terms of section 42 of
the Income Tax Act. The Disposal is classified as a category 1 transaction in terms of the JSE
Limited (“JSE”) Listings Requirements.
Eqstra will thus become the beneficial owner of the enX Consideration Shares which shall
constitute 29.6% of the entire issued share capital of enX as at the date of implementation of
the Proposed Transaction. EQS will become a wholly-owned subsidiary of enX, resulting in the
FML and IE divisions forming part of the enlarged enX group.
Following the Disposal, and subject to Eqstra Shareholder approval, Eqstra will unbundle the enX
Consideration Shares to Eqstra Shareholders registered as such at the relevant record date for
the Unbundling.
The Unbundling will be effected as a dividend in specie in compliance with the provisions of
section 46(1)(a)(ii) of the Companies Act, 2008 (No. 71 of 2008) (“Companies Act”) and section
46 of the Income Tax Act. The Unbundling will result in Eqstra Shareholders holding a direct
interest in enX rather than holding that interest through Eqstra.
As both the Disposal and the Unbundling qualify as disposals of the greater part of the assets of
the Company in terms of section 115 as read with section 112 of the Companies Act, Eqstra has
established an independent board (“Independent Board”) to consider the Disposal and the
Unbundling (and therefore the Proposed Transaction). The Independent Board is comprised of
the following Eqstra Directors: Messrs Mageza, Ross, Swanepoel, Von Zeuner and Croucamp.
The Independent Board has appointed KPMG Services Proprietary Limited (“Independent
Expert”) to opine on the fairness and reasonableness of the Proposed Transaction for Eqstra
Shareholders (“Expert Opinion”).
5. Terms and conditions of the Recapitalisation
5.1 Recapitalisation structure
Simultaneously with the Disposal and Unbundling, Eqstra’s remaining business, the CMPR
division, will be recapitalised.
The Recapitalisation of the CMPR division is proposed to include, subject to Eqstra
Shareholder approval:
- the specific issue to enX of the Eqstra Subscription Shares (equal to approximately 20%
of the remaining Eqstra issued share capital post the implementation of the Proposed
Transaction) at a price of R1 per Eqstra Subscription Share, which represents a 54.2%
discount to the 30-day volume weighted average traded price of an Eqstra Ordinary
Share to Tuesday, 28 June 2016, for a total consideration of R101,400,000 (“Specific
Issue of Shares”);
- the issue to enX by MCC of 400 MCC Preference Shares for a total consideration of R600
million; and
- the subscription by Eqstra for 10 ordinary shares of no par value in MCC for a total
consideration of R101,400,000.
Currently, the authorised ordinary share capital of Eqstra is not sufficient to allow for the
Specific Issue of Shares. The Eqstra Board therefore proposes that the Company’s authorised
ordinary share capital of 500 000 000 (five hundred million) Eqstra Ordinary Shares of no par
value, be increased to 1 500 000 000 authorised Eqstra Ordinary Shares of no par value.
In order to facilitate the increase in Eqstra’s authorised ordinary share capital amendments
are required to be made to the Company’s memorandum of incorporation (“MOI”), which
are required to be approved by Eqstra Shareholders in general meeting. Amendments are
also required to be made to MCC’s memorandum of incorporation to facilitate the creation,
allotment and issue of the MCC Preference Shares.
5.2 Terms of the MCC Preference Shares
Set out below are the salient terms of the MCC Preference Shares:
- coupon equivalent to an after tax rate of 13% nominal annual compounded quarterly
(“NACQ”);
- subordinate to bank debt but will rank pari passu as to payment with the enX Loans, but
rank ahead of the Eqstra Ordinary Shares;
- no dividends may be declared or paid on any Eqstra Ordinary Share for so long as any
dividend on the MCC Preference Shares is in arrears and for so long as the MCC
Preference Shares have not been redeemed in full;
- may be redeemed at the option of enX at any time after 3 years and 1 day after the date
of their issue;
- MCC shall, on any date, be entitled to voluntarily redeem the MCC Preference Shares;
- shall be compulsory redeemed by MCC on the 5th anniversary of the date of their issue;
and
- will not have voting rights unless, inter alia, (i) the MCC Preference Shares are not
redeemed in accordance with their terms; or (ii) a special resolution of MCC is proposed
or a resolution is proposed which affects the rights of the MCC Preference Shares or the
interest of the MCC Preference Shareholder, in which event the MCC Preference Shares
shall in aggregate carry that number of votes which would entitle the MCC Preference
Shareholder to exercise, in aggregate, 95% of the total votes exercisable at general
meetings of MCC.
5.3 enX Call Option
Upon redemption of the MCC Preference Shares (which shall be on a day which is not sooner
than 3 years and 1 day and not later than 5 years after the date of issue thereof) or, if the
MCC Preference Shares have not been redeemed by the expiry of the 5th year from the date
of issue of the MCC Preference Shares for any reason, enX (as holder of the MCC Preference
Shares) shall have the irrevocable right and option (“enX Call Option”) to deliver written
notice to Eqstra, by not later than the 30th day following the expiry of the 5th year from the
date of issue of the MCC Preference Shares, requiring Eqstra to allot and issue to enX such
number of new Eqstra Ordinary Shares as determined by dividing R600 million by R1.50.
6. The Debt Restructure
6.1 Debt Restructure overview
Eqstra, as part of the Proposed Transaction, is required to implement a restructuring of its
debt. The Debt Restructure is proposed to encompass:
- amendments to the applicable pricing supplements in relation to the Eqstra Corporation
Limited R8 billion Domestic Medium Term Note Programme (“Eqstra DMTNP”), dated
March 2016 establishing the DMTNP, in terms of which Eqstra Corporation has issued
R900 million senior unsecured floating rate notes due 25 April 2017 (“Series 176 Notes”)
and R340 million senior unsecured floating rate notes due 9 April 2018 (“Series 191
Notes”) (“Note Programme Restructure”). The Note Programme Restructure seeks to (i)
establish EQS as the guarantor under the DMTNP; and (ii) release Eqstra, MCC and
Mutual Construction Company (Transvaal) Proprietary Limited as guarantors for the
obligations of Eqstra Corporation. A complete schedule of amendments to the pricing
supplements will be provided in the Circular;
- a new banking facility (“Eqstra Corporation Finance Agreements”) to be granted by ABSA
Bank Limited, FirstRand Bank Limited, acting through its Rand Merchant Bank division,
HSBC Bank plc, Johannesburg Branch, Nedbank Limited and The Standard Bank of South
Africa Limited acting through its Corporate and Investment Bank (“New Lenders”) to
Eqstra Corporation, which will entitle Eqstra Corporation to draw-down R3.357 billion
comprising a term loan facility of R2.357 billion (which shall be used to repay Eqstra’s
existing debt to ABSA Bank Limited, FirstRand Bank Limited, HSBC Bank plc,
Johannesburg Branch, Nedbank Limited and The Standard Bank of South Africa Limited
acting through its Corporate and Investment Bank (“Lenders”)), a general banking facility
of R400 million, a liquidity facility of R600 million and an indirect general banking facility;
- a new banking facility (“MCC Finance Agreements”) to be granted by the New Lenders to
MCC which will entitle MCC to draw-down R2 billion comprising a term loan facility of
R1.8 billion (which shall be used to repay a portion of MCC’s existing debt to Eqstra
Corporation (“Existing MCC Debt”)), a general banking facility of R200 million and an
indirect general banking facility (MCC Finance Arrangements”); and
- enX will lend and advance R700 million to MCC (“Second enX Loan”) which shall be
applied by MCC to pay the New Lenders, together with an amount of R701.4 million
(being the sum of the subscription amount received for the issue of the MCC Preference
Shares (R600 million) and the Eqstra Subscription Shares (R101.4 million)).
Long form credit approved term sheets have been concluded providing the various facilities
mentioned above.
6.2 enX Loans
In addition to the Second enX Loan, Eqstra Corporation and MCC will enter into a further
loan agreement to regulate the payment of the outstanding balance remaining of the
Existing MCC Debt up to an amount of R766 million (“First enX Loan”) (together, the “enx
Loans”).
6.2.1 Salient terms of the Second enX Loan:
- Interest accrued at 3 month JIBAR + 4.5% NACQ;
- Guaranteed by way of a second ranking debt guarantee provided by a ring-
fenced special purpose vehicle to be established; and
- Repayments by way of a quarterly cash sweep of free cash in Eqstra and its
South African subsidiaries after scheduled repayment of the MCC Finance
Arrangements.
6.2.2 Salient terms of the First enX Loan:
- Interest accrued at 3 month JIBAR + 4.5% NACQ;
- Guaranteed by way of a second ranking debt guarantee provided by Eqstra
Corporation; and
- Repayments by way of a quarterly cash sweep of free cash in Eqstra and its
South African subsidiaries after scheduled repayment of the MCC Finance
Arrangements.
Complete terms and conditions of the enX Loans will be provided in the Circular.
7. enX support agreement
In terms of a services agreement to be concluded between enX and Eqstra, enX will provide
certain management services to Eqstra to enable Eqstra to continue to run and operate the
CMPR division.
8. Proposed name change
In terms of the Proposed Transaction, Eqstra will, subject to Eqstra Shareholder approval,
change its name so as to exclude the word “Eqstra” from its name and from the name of any
other CMPR subsidiaries which possess or use the “Eqstra” name and which will remain
members of the Eqstra Group.
9. Suspensive conditions
The Proposed Transaction is subject to, inter alia, the fulfilment or waiver, as the case may be,
by not later than 31 March 2017, of the following suspensive conditions (“Suspensive
Conditions”):
9.1 the approvals required in terms of the Competition Act, 1998 (No. 89 of 1998), as
amended;
9.2 all approvals required by the Competition Authorities in each of Botswana, Namibia,
Swaziland and Zambia;
9.3 the approvals of all other regulatory authorities (including the JSE and the Takeover
Regulation Panel (“TRP”));
9.4 the requisite majority of Eqstra Shareholders, MCC shareholders and enX shareholders in
general meeting pass all the ordinary and special resolutions which are required:
- in the case of Eqstra, to (i) increase its authorised ordinary share capital to allow for
the issue of Eqstra Subscription Shares and the enX Call Option; (ii) authorise the
granting of the enX Call Option; (iii) amend its memorandum of incorporation so as
to provide for the increase in its authorised share capital and the inclusion of the
terms relating to the enX Call Option; (iv) change its name; and (v) authorise the
allotment and issue of the EQS shares to enX;
- in the case of MCC, to (i) approve and authorise the creation of the MCC Preference
Shares in its authorised share capital and the subsequent issue and allotment of the
MCC Preference Shares; and (ii) amend its memorandum of incorporation so as to
provide for the creation of the MCC Preference Shares, as well as the inclusion of
their terms;
- in the case of enX, to (i) provide for and give effect to the consolidation of enX’s
authorised and issued share capital in the ratio of one consolidated enX share for
every 11 existing enX shares; (ii) increase its authorised and issued share capital to
authorise the creation, issue and allotment of, inter alia, the enX Consideration
Shares; (iii) amend its memorandum of incorporation so as to provide for the
increase of enX’s authorised ordinary share capital; and (iv) authorise the allotment
and issue of the enX Consideration Shares to Eqstra; and
- to implement each step of the Proposed Transaction in the prescribed sequence, as
set out in the Transaction Agreement, in accordance with the provisions of the
Companies Act and the JSE Listings Requirements, including to approve of the
disposal to enX of the greater part of Eqstra’s assets or undertaking in terms of
section 115 as read with section 112 of the Companies Act;
9.5 the Eqstra Board and the enX board of directors adopting all resolutions required to
approve and give effect to the provisions of the Transaction Agreement and the Proposed
Transaction;
9.6 the requisite approval of the JSE for the listing on the JSE of, inter alia, the enX
Consideration Shares and the Eqstra Subscription Shares having been obtained;
9.7 Metropolitan Life Botswana Limited and Eqstra agree in writing to the early redemption of
all the promissory notes issued to it by Eqstra Botswana Proprietary Limited;
9.8 the Lenders shall have, inter alia, consented in writing to the implementation of the
Proposed Transaction and to the assumption by enX of the debt owed to the Lenders by
Eqstra Corporation;
9.9 the lenders to each of (i) Eqstra Botswana Proprietary Limited; (ii) Eqstra Zambia Limited;
(iii) Impact Fork Trucks Limited; and (iv) Eqstra Mozambique Limitada have, inter alia,
consented in writing to the implementation of the Proposed Transaction;
9.10 the waiver by each of the minority shareholders in each Eqstra subsidiary having minority
shareholders of any pre-emptive or other similar rights they may enjoy to acquire any of
the shares in the company concerned which are being disposed of to enX;
9.11 Eqstra obtains, in writing, all the consents and approvals required to ensure that none of
the Eqstra Material Agreements (as defined in the Transaction Agreement) are capable of
being accelerated, cancelled, amended or otherwise varied as a result of or pursuant to the
implementation of the Proposed Transaction;
9.12 Eqstra delivers to enX a copy of a duly signed extension letter or agreement which
extension letter or agreement has become unconditional and has the effect of extending
the duration of any of the Eqstra Material Agreements (as defined in the Transaction
Agreement) as may be designated in writing by enX to Eqstra within 30 days after the
Signature Date;
9.13 that a requisite majority of the holders of the Series 176 Notes and the Series 191 Notes
(being, in terms of the JSE’s Debt Listings Requirements, no less than 66.67% of the value
of all outstanding notes under the Eqstra DMTNP) approve, at a meeting of Noteholders
convened and held by Eqstra Corporation, all such amendments in terms of the Note
Programme Restructure;
9.14 each of the documents required to give effect to the Proposed Transaction is signed and
becomes unconditional in accordance with their terms, save for any conditions therein
requiring that the Transaction Agreement must have become unconditional; and
9.15 by no later than the date upon which all of the abovementioned suspensive conditions
(save for the suspensive condition in this paragraph) have been fulfilled or waived, as the
case may be, no material adverse event, circumstance or matter (defined in the
Transaction Agreement as a “MAC”) shall have occurred with respect to either the Eqstra
Group or the enX group.
10.Exclusivity and break fee
Eqstra has undertaken, subject to compliance with applicable laws:
- not to enter into any negotiations, agreement or arrangement, and refrain from soliciting,
encouraging or initiating anything, in respect of any proposed transaction in competition
with the Proposed Transaction (“Competing Offer”), or take any action which could
prevent, hamper or delay the conclusion of the Proposed Transaction, or any part thereof
(“Exclusivity Undertakings”); and
- to notify enX within 1 business day after the date upon which Eqstra is obliged, in terms of
regulation 92 of the Takeover Regulations, for the first time to make any information
available to a particular bona fide offeror, that Eqstra has received a Competing Offer.
If Eqstra receives a competing offer, enX will be entitled to match or better such competing
offer. Irrespective of whether or not enX submits a matching or better offer, Eqstra will still be
obliged to put the Proposed Transaction or any improved offer made by enX to Eqstra
Shareholders for their approval.
A break fee of R12.5 million (representing 0.5% of the Proposed Transaction value, calculated
with reference to the Disposal, the Recapitalisation and the Second enX Loan) shall become
payable by Eqstra to enX if (i) Eqstra breaches its Exclusivity Undertakings; (ii) the Eqstra Board
withdraws its support or approval of the Proposed Transaction or recommends any Competing
Offer; (iii) the Eqstra Shareholders do not approve with the requisite majority the resolutions
required to implement each step of the Proposed Transaction; or (iv) Eqstra fails to comply with
its material obligations in terms of the Transaction Agreement and does not remedy any such
breach.
A break fee of R12.5 million (representing 0.5% of the Proposed Transaction value, calculated
with reference to the Disposal, the Recapitalisation and the Second enX Loan) shall become
payable by enX to Eqstra if (i) the shareholders of enX do not approve with the requisite majority
the resolutions required to implement any step of the Proposed Transaction; (ii) the enX Capital
Raise is not implemented by the Second Preliminary Completion Date (as defined in the
Transaction Agreement); (iii) the Eqstra Corporation Finance Agreements and the MCC Finance
Agreements are not signed by the parties (in a manner which conforms materially with the
terms sheets concluded by such parties in circumstances where the failure to sign the aforesaid
agreements is through the fault of enX or as a result of enX unreasonably refusing to enter into
such agreement); or (iv) enX fails to comply with its material obligations in terms of the
Transaction Agreement.
11.Pro forma financial effects of the Proposed Transaction
Based on the pro forma financial information contained in an Eqstra circular dated 10 June 2016
(“Excess Assets Disposal Circular”), which circular details the “The Excess Assets Disposal”, the
pro forma financial effects of the Proposed Transaction on Eqstra’s earnings per share (“EPS”),
headline earnings per share (“HEPS”), net asset value per share (“NAV”) and tangible net asset
value per share (“TNAV”) are set out below (“Financial Effects”).
The Financial Effects are presented in accordance with the JSE Listings Requirements, the Guide
on Pro Forma Financial Information issued by The South African Institute of Chartered
Accountants, ISAE 3420 and the measurement and recognition requirements of International
Financial Reporting Standards (“IFRS”).
The Financial Effects have been prepared using accounting policies that are consistent with IFRS
and with the basis on which the historical financial information has been prepared in terms of
the Eqstra Group’s accounting policies as at 31 December 2015.
The Financial Effects have been prepared for illustrative purposes only in order to assist Eqstra
Shareholders to assess the impact of the Proposed Transaction and, because of their nature,
may not give a fair presentation of the financial position, changes in equity, results of operations
or cash flows. The Financial Effects are the responsibility of the Eqstra Board.
Pro forma
after the Pro forma
Before the The Excess Excess The after the
Per Eqstra Ordinary Excess Assets Assets Assets Proposed Proposed Percentage
Share Disposal (1) Disposal Disposal(2) Transaction Transaction(3) change
Basic and diluted
EPS – continued
operations (cents) (112.5) 4.3 (108.2) (182.0) (290.2) (158%)
Basic and diluted
EPS – discontinued
operations (cents) (174.9) 17.5 (157.5) 54.8 (102.7) 41%
Total basic and
diluted EPS (cents) (287.4) 21.8 (265.7) (127.2) (392.9) 37%
Basic and diluted
HEPS – continued
operations (cents) 22.2 10.0 32.2 (47.7) (15.5) (170%)
Basic and diluted
HEPS – discontinued
operations (cents) (24.4) (2.9) (27.3) 41.3 14.0 157%
Total basic and
diluted HEPS (cents) (2.2) 7.1 4.9 (6.4) (1.4) 36%
NAV (cents) 704.8 (1.5) 703.3 (518.4) 184.9 (74%)
TNAV (cents) 648.3 (1.5) 646.9 (470.1) 176.8 (73%)
Eqstra Ordinary
Shares in issue
(millions) 405.5 405.5 405.5 506.9 506.9 25%
Weighted average
number of Eqstra
Ordinary Shares in
issue (millions) 391.2 391.2 391.2 498.5 498.5 27%
Notes:
1. The “Before the Excess Assets Disposal” information has been extracted, without adjustment, from Eqstra’s
unaudited interim results for the six months ended 31 December 2015.
2. The “Pro forma after the Excess Assets Disposal” information has been extracted, without adjustment, from the
Excess Assets Disposal Circular.
3. The EPS and HEPS “Pro forma after the Proposed Transaction” are based on the assumption that the Proposed
Transaction is effected on 1 July 2015 for the statement of comprehensive income purposes. The NAV and TNAV
“Pro forma after the Proposed Transaction” are based on the assumption that the Proposed Transaction was
effected on 31 December 2015 for the statement of financial position purposes.
4. The financial information forming the basis of the Disposal Assets (being the FML Subsidiaries and the IE
Subsidiaries, together, the “Subject Companies”) is an aggregate of the underlying management accounts of the
companies concerned which were included in Eqstra’s 31 December 2015 published interim results. The Eqstra
Directors have satisfied themselves as to the accuracy thereof.
5. Included in EPS is the loss on sale of the Subject Companies amounting to R815 million as at 1 July 2015. It is
calculated using proceeds of R1 107 million, being the enX Consideration Shares received and the net asset values
of the Subject Companies as at 1 July 2015. This is a once-off loss. The Independent Expert has advised the
Independent Board that the terms and conditions of the Disposal and the Unbundling (and therefore the
Proposed Transaction) are fair and reasonable to Eqstra Shareholders.
6. Interest and commitment fees have been included according to the new Eqstra Group debt structure and term
sheets, which are of a continuing nature.
7. Corporate taxation restructuring rules have been applied for the Proposed Transaction.
8. The MCC Preference Share and terms are assumed to be at fair value.
9. The terms of the enX Loans granted to MCC are assumed to be at fair value.
10.The value received for the Eqstra Subscription Shares of R1 per share is deemed to be at fair value at the date of
the Proposed Transaction.
11.Cash received is used immediately to repay bank debt.
12.The MCC Preference Shares conversion is assumed to take place at fair value and has an anti-dilutive effect.
13.The NAV per share is calculated using a loss on sale of the Subject Companies of R829 million as at 31 December
2015.
12. Irrevocable undertakings
enX has obtained irrevocable undertakings from Eqstra Shareholders holding 52.85% of Eqstra’s
issued share capital to vote in favour of the resolutions necessary to give effect to the Proposed
Transaction. In addition, and in terms of the Suspensive Conditions, enX has obtained
irrevocable undertakings from Noteholders holding not less than 66.67% in the aggregate of the
value of all outstanding notes.
13. Independent Board’s opinion and Expert Opinion
The Independent Board, having considered the rationale for and terms and conditions of the
Proposed Transaction and the Expert Opinion, are unanimously of the opinion that the terms
and conditions of the Proposed Transaction are fair and reasonable to the Eqstra Shareholders,
are beneficial for Eqstra and in the best interest of the Eqstra Shareholders and accordingly
recommend that Eqstra Shareholders vote in favour of all resolutions to be considered at the
general meeting convened to consider and, if deemed fit, approve the resolutions required to
give effect to the Proposed Transaction. Those members of the Independent Board who hold
Eqstra Ordinary Shares intend voting in favour of the relevant resolutions.
The Independent Expert has advised the Independent Board that the terms and conditions of
the Disposal and the Unbundling (and therefore the Proposed Transaction) are fair and
reasonable to Eqstra Shareholders. The full text of the Expert Opinion will be contained in the
Circular.
14. Withdrawal of cautionary announcement and posting of the Circular
Eqstra Shareholders are referred to the previous cautionary announcements referred to in
paragraph 1 above, and are advised that they are no longer required to exercise caution when
dealing in Eqstra’s securities.
The Circular, containing the details of the Proposed Transaction and incorporating, inter alia, the
Independent Expert’s opinion and a notice convening a general meeting of Eqstra Shareholders,
will be posted in due course.
15. Responsibility statement
In terms of the Takeover Regulations, the Independent Board accepts responsibility for the
information contained in this announcement and that, to the best of its knowledge and belief
(having taken all reasonable care to ensure that such is the case), the information contained in
this announcement is in accordance with the facts and, where appropriate, that it does not omit
anything likely to affect the import of such information.
30 June 2016
Johannesburg
Corporate Advisor: Rothschild (South Africa) Proprietary Limited
Transaction Sponsor: Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Legal Advisor: Werksmans Inc.
Independent Reporting Accountant and Auditor: Deloitte & Touche
Independent Expert: KPMG Services Proprietary Limited
Date: 30/06/2016 08:59:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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