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The introduction of a strategic empowerment partner to Alexander Forbes and withdrawal of cautionary
ALEXANDER FORBES GROUP HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2006/025226/06)
JSE Share Code: AFH ISIN: ZAE000191516
(“Alexander Forbes” or “the Company”)
ANNOUNCEMENT REGARDING THE INTRODUCTION OF A STRATEGIC EMPOWERMENT PARTNER
TO ALEXANDER FORBES’ AFRICAN OPERATIONS AND WITHDRAWAL OF CAUTIONARY
1. Introduction and rationale
Further to the cautionary announcement dated 14 March 2016 and
subsequent renewal of cautionary announcements, the last of which was
dated 7 September 2016, the board of directors of Alexander Forbes
(“the Board”) is pleased to advise shareholders that it has entered
into agreements (“Transaction Agreements”) to introduce African Rainbow
Capital Proprietary Limited (“ARC”), a wholly-owned subsidiary of
Ubuntu-Botho Investments Proprietary Limited (“Ubuntu-Botho
Investments”), as an empowerment shareholder into the African
operations (including South Africa) of Alexander Forbes and its
subsidiaries (“the Group”). The rationale for the transaction is to,
amongst other things, improve the black economic empowerment ownership
position of the Group and to further promote and support Alexander
Forbes’ African business.
In terms of the Transaction Agreements, ARC will subscribe for 10% of
the total issued shares of the Company’s wholly-owned subsidiary,
Alexander Forbes Limited (“AFL”), equating to 51 278 477 ordinary par
value shares (“Subscription Shares”) for a total cash consideration of
R753 450 000(“the Subscription”)(before taking into consideration the
Post Completion Dividend described in paragraph 2.3 below).
AFL is currently the holding company of all the main operating
subsidiaries of Alexander Forbes, housing both the Company’s African
and international operations (through Alexander Forbes International
Limited (“AFIL”)). Thus, in order for AFL to be reflective of the
Group’s African operations only (which is in line with ARC’s investment
objectives), prior to the Subscription being effected, AFL will
distribute its shares in AFIL to AFL’s holding company, Alexander
Forbes Acquisition Proprietary Limited (“AF Acquisition”)(“the
Unbundling”). Following the Unbundling and the Subscription, AF
Acquisition will hold 90% of the Group’s African operations (AFL) and
100% of its international operations (AFIL).
Furthermore, in terms of the Transaction Agreements and subject to
shareholder approval and the happening of certain specified events, ARC
will have the right to exchange its shareholding in AFL for listed
Alexander Forbes shares, subject to certain suspensive conditions set
out in paragraph 3.2 below (“the Flip-Up”) (the Subscription and the
Flip-Up together referred to as “the Proposed Transaction”).
As contemplated in the Company’s existing relationship agreement with
its largest shareholder, Mercer Africa Limited (“Mercer”) (which
agreement was addressed in the pre-listing statement published in
anticipation of the Company’s listing), Alexander Forbes proposes to
issue a number of ordinary shares at market value to Mercer at the time
of the Flip-Up (if Mercer elects to take up such shares), so as to
mitigate the dilutionary effect of the Flip-Up on Mercer’s current
shareholding in Alexander Forbes (“the Specific Issue”).
The Specific Issue will be subject to separate shareholder approval.
2. The Subscription
2.1. Details of AFL
AFL is the holding company of all the main operating subsidiaries of
the Company. The main services provided by its subsidiaries include
retirement funds and asset consulting, actuarial consulting,
investment and administration services, employee risk benefits and
healthcare consulting, multi-manager investment and platform
solutions, individual financial advice and personal lines insurance.
Primary clients span both the private and public sector market
segments, including employers, retirement funds, investment and other
special purpose funds on the institutional side, and individual
members and beneficiaries of these retirement funds, as well as the
wider individual market, on the retail side.
AFL’s geographic focus (prior to the Unbundling) includes South
Africa, rest of Africa, the UK and other selected jurisdictions which
have employee benefits legislative frameworks similar to South
Africa.
2.2. ARC Overview
ARC is a wholly-owned subsidiary of Ubuntu-Botho Investments which
was created in 2004 with its initial main purpose of building black
controlled capital through being Sanlam Limited's empowerment
partner. In addition, the vision of Ubuntu-Botho Investments from the
outset was to make a difference in the lives of ordinary South
Africans by creating a premier black-owned and controlled financial
services entity.
This objective is being partly achieved through ARC. ARC aims to
become a leading South African based pan-African financial services
company which is black-owned and controlled. ARC has done a number of
transactions since its inception in 2015.
2.3. Subscription Price and use of proceeds
ARC will subscribe for the Subscription Shares for a total
consideration of R753 450 000 (being R14.69 per Subscription
Share)(“Subscription Price”), which will be settled in cash.
Immediately prior to the Subscription, the board of directors of AFL
will declare a dividend of R753 450 000 (being an amount equal to the
Subscription Price), such dividend to be declared by the board of
directors of AFL on the basis that it will be paid to the
shareholders of record of AFL immediately after completion of the
Subscription, and paid within 14 (fourteen) days of completion of the
Subscription (“the Post Completion Dividend”).
Accordingly, a net cash amount of R678 105 000 (being an amount equal
to the Subscription Price less ARC’s pro rata portion of the Post
Completion Dividend) will be retained by Alexander Forbes.
2.4. Effective date of the Subscription
The effective date of the Subscription will be 5 (five) business days
following the fulfilment and/ or waiver of the relevant suspensive
conditions, detailed in paragraph 2.5.
2.5. Suspensive conditions to the Subscription
The Subscription is conditional on the fulfilment of the following
suspensive conditions:
2.5.1. AFL taking such steps as are necessary to distribute the
shares held by it in AFIL to AF Acquisition;
2.5.2. the shareholders of Alexander Forbes passing the following
resolutions:
2.5.2.1. an ordinary shareholders resolution, requiring at
least 50% shareholder approval, authorising and
approving the issue of the Subscription Shares to
ARC; and
2.5.2.2. an ordinary shareholders resolution, requiring at
least 50% shareholder approval, authorising and
approving the Flip-Up; and
2.5.3. the declaration by the board of directors of AFL of the Post
Completion Dividend.
The suspensive conditions are to be fulfilled on or before
30 December 2016, or such later date as may be agreed between the
parties in writing.
2.6. The value of net assets and profits attributable to AFL
The value of the net assets attributable to AFL amounts to
R1 890 million, while the attributable profit after tax amounts to
R718 million for Alexander Forbes’ most recent financial year ended
31 March 2016.
2.7. Other salient items
ARC has provided certain warranties to the Company (including in
relation to ownership and conduct) which are standard for a
transaction of this nature.
3. The Flip-Up
3.1. Following the completion of the Subscription, ARC will remain a
shareholder of AFL until the occurrence of the Flip-Up Trigger
Date, being the earlier of:
3.1.1. the end of a 3 year period commencing on the closing of the
Subscription; or
3.1.2. a change of control of the Company or similar transaction; or
3.1.3. Alexander Forbes being delisted from the JSE.
Following the Flip-Up Trigger Date, Alexander Forbes (or its nominee)
will acquire the Subscription Shares from ARC, subject to the
fulfilment of certain suspensive conditions set out in paragraph 3.2,
the consideration for which shall be the issue of Alexander Forbes
ordinary shares. Such number of shares shall be determined in
accordance with a formula set out in the Transaction Agreements, in
terms of which ARC’s proposed shareholding in Alexander Forbes will
be calculated relative to its shareholding in AFL on a value-for-
value basis, using the 30 day volume weighed average price (“VWAP”)
as at the close of trading on the 3rd (third) business day prior to
the Flip-Up Trigger Date.
3.2. Suspensive conditions to the Flip-Up
The implementation of the Flip-Up shall be subject to the fulfilment
after the Flip-Up Trigger Date of the suspensive conditions that:
3.2.1. any additional approvals that may be legally required for the
Flip-Up are obtained;
3.2.2. if the Flip-Up is triggered by an announcement in relation to
a change of control or similar transaction, such change of
control transaction becomes unconditional; and
3.2.3. no event of default has occurred in respect of ARC which is
continuing.
3.3. Other salient items
For so long as ARC is a shareholder of AFL (or, if the Flip-Up occurs
before the end of the three year period, until the end of the three
year period), Alexander Forbes will have a right to acquire ARC’s
interest in AFL or Alexander Forbes if, amongst other limited items,
ARC commits a material breach of the Transaction Agreements. The
price of such acquisition will be at a 15% discount to the fair
market value of ARC’s interest in AFL or Alexander Forbes, as the
case may be.
4. The Specific Issue
Pursuant to the relationship agreement between Alexander Forbes and
Mercer as disclosed in the Company’s pre-listing statement (as amended
from time to time), Mercer may elect to participate in the issuance of
equity securities (“Anti-Dilution Right”) after the occurrence of a
Flip-Up Trigger Event as detailed in paragraph 3.1.
In order to give effect to the Anti-Dilution Right, Alexander Forbes
will have 5 (five) business days after the Flip-Up Trigger Date to
notify Mercer of the occurrence of a Flip-Up Trigger Event.
If Mercer elects to exercise its Anti-Dilution Right, the maximum number
of ordinary Alexander Forbes shares which Mercer may subscribe for will
be such number of ordinary shares that results in Mercer’s current
ownership percentage remaining unchanged following the occurrence of the
Flip-Up(“Mercer anti-dilution shares”).
The Mercer anti-dilution shares will be issued for cash and the price
per ordinary share at which Mercer will subscribe for the Mercer anti-
dilution shares, to the extent that Mercer elects to do so, will be the
30 day VWAP as at the close of trading on the day before Mercer
notifies Alexander Forbes of its intention to exercise its Anti-
Dilution Right (“Mercer Subscription Price”).
In terms of the JSE Listings Requirements, Alexander Forbes will be
required to obtain a fairness opinion in respect of the Specific Issue.
5. Shareholder approval
The Board recognises that while the Proposed Transaction may not
ordinarily require shareholder approval in terms of the JSE Listings
Requirements, in the interest of transparency and good corporate
governance, the Company is seeking approval from shareholders for the
Subscription and the Flip-Up in addition to the Specific Issue.
The Specific Issue will be conditional upon shareholders passing an
ordinary resolution, requiring at least 75% approval from shareholders
(other than Mercer), approving such issue. The Specific Issue is also
conditional upon the Proposed Transaction being approved by shareholders
(however, the Proposed Transaction will not be conditional on
shareholders approving the Specific Issue).
To this end, a combined circular is being prepared and will be sent to
shareholders in due course.
6. Shareholder Support
Alexander Forbes has obtained an irrevocable undertaking from Mercer to
vote in favour of the Subscription and Flip-Up.
7. Withdrawal of cautionary
Shareholders are advised that further to this announcement, shareholders
no longer need to exercise caution when dealing in Alexander Forbes’
securities.
Johannesburg
29 September 2016
Corporate Advisor and Transaction Sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Ltd.
Legal Advisor to Alexander Forbes
Bowmans
Corporate Advisor to ARC
UBS South Africa Proprietary Limited
Legal Advisor to ARC
Allen & Overy
Date: 29/09/2016 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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