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Acquisition of all the issued shares in db X-trackers (RF) Pty Ltd from Deutsche Group Holdings (SA) Pty Ltd
SYGNIA LIMITED
(Incorporated in the Republic of SA)
(Registration number 2007/025416/06)
JSE share code: SYG
ISIN: ZAE000208815
("Sygnia" or the "Company")
ACQUISITION OF ALL OF THE ISSUED SHARES IN DB X-TRACKERS (RF)
PROPRIETARY LIMITED FROM DEUTSCHE GROUP HOLDINGS (SA)
PROPRIETARY LIMITED
1. INTRODUCTION
Sygnia shareholders are advised that the Company has entered into a sale
of shares agreement to acquire all of the issued shares in db X-trackers (RF)
Proprietary Limited ("DBX") from Deutsche Group Holdings (SA)
Proprietary Limited ("Deutsche") ("the Acquisition") for a total consideration
of R325 000 000 to be settled in cash ("the Purchase Price"), subject to the
suspensive conditions set out below.
Sygnia will utilise a bridge loan from Nedbank Limited for the amount of
R320 000 000 ("the Bridge Loan"), as well as internal cash resources, to fund
the Acquisition. Once the suspensive conditions have been met and Sygnia is no longer
in a prohibited period, and permitted to do so under the listings requirements of
the JSE Limited ("the Listings Requirements"), Sygnia will launch a rights offer,
the proceeds of which will be used to settle the Bridge Loan.
DBX is a Collective Investment Schemes management company, which offers
a range of exchange traded funds ("ETFs") listed on the JSE Limited ("the JSE"), referencing
offshore assets.
2. RATIONALE
DBX currently offers five ETFs referencing the following market indices:
- Euro Stoxx 50
- FTSE 100
- MSCI Japan
- MSCI USA
- MSCI World
The assets under management in the five ETFs as at 28 February 2017 were
R11.3 billion.
From Sygnia’s perspective the Acquisition is based on the following strategic
rationale:
- Sygnia has managed assets on an index-tracking basis since the inception
of its asset management company in 2003 and offers these to its retail and
institutional clients through segregated accounts, unit trusts and unitised life
funds. Sygnia currently manages R16.9 billion in domestic and international
index-tracking funds and has a stated intention of becoming a leading
provider of passive solutions in South Africa.
- Sygnia does not currently offer index-tracking products through an ETF
structure. The Acquisition will enable Sygnia to enter the ETF market with a
critical mass of assets and to launch a broader range of ETF products within
a short period of time.
- Sygnia currently manages all domestic index-tracking funds directly, while
using third party asset managers to manage most of its international index-
tracking funds. The Acquisition will enable Sygnia to expand its expertise to
direct management of offshore index-tracking funds.
- Sygnia has a fast-growing retail client base attracted by Sygnia’s low cost
proposition. Many of these clients require access to international products.
Sygnia currently offers its index-tracking funds to retail investors in the form
of unit trusts. However, Sygnia’s management company has limited foreign
exchange capacity available. ETFs referencing offshore assets should allow
retail investors to access international products with no restrictions, while
enabling Sygnia to offer international products with very little constraint in
terms of its offshore capacity.
- Sygnia has a growing institutional client base, which utilises Sygnia’s index-
tracking products, as well as its multi-manager products. All of Sygnia’s
multi-manager products employ a core-satellite investment strategy,
with the core of each product being managed on a passive basis. The
Acquisition will allow Sygnia to utilise ETFs rather than the often more
cumbersome offshore unit trusts to implement international strategies on
behalf of its institutional clients.
- Sygnia RoboAdvisor, launched in 2016 and targeted at the millennial
generation, should benefit from the flexibility of implementing the
recommended investment strategies via ETFs rather than unit trusts.
- The Acquisition is expected to be instantly earnings-enhancing to Sygnia.
- DBX is the largest provider of ETFs referencing foreign assets in South
Africa, with a strong reputation and an established retail and institutional
client base. The Acquisition places Sygnia in a favourable position to
market well-structured international index-tracking funds to its new and
existing clients.
- The DBX structure, in its current form, should offer investors a far greater level
of regulatory protection than standard inward listings, as the investments are
regulated and supervised in South Africa by the Financial Services Board,
in addition to the JSE and South African Reserve Bank. The investments
fall within the ambit of the Collective Investment Schemes Control Act,
2002 ("CISCA"). Hence, from the investors’ security perspective, these should be
much safer investment instruments than standard inward-listed vehicles.
The Acquisition strengthens this framework by making a JSE-listed South
African company responsible for the operations of DBX.
- DBX is an established business which will require little effort to incorporate
into Sygnia’s existing operations.
- From the existing DBX clients’ perspective the Acquisition will not, in any
manner, affect the way in which their investments are managed or are
treated in terms of permitted flow of funds in and out of South Africa.
The Acquisition will result in the existing DBX clients being serviced by a
credible financial services company which has the relevant experience,
operational infrastructure, legal and compliance expertise and financial
resources to operate a South African management company, so as to ensure
that their interests are protected at all times.
3. SALIENT TERMS OF THE ACQUISITION
The Purchase Price payable by Sygnia is R325 000 000.
DBX will be transferred to Sygnia, at closing, with the required minimum
regulatory capital to be maintained as determined by CISCA, and an agreed
extra amount of R5 000 000 working capital. Any capital in excess of this
will be declared as a dividend to Deutsche prior to the completion of the
Acquisition.
Sygnia will make payment of the Purchase Price within five business days after
the last day of the month in which the last of the suspensive conditions has
been fulfilled, or such other date as the parties may agree in writing.
The Acquisition is subject to title warranties.
Suspensive Conditions
The Acquisition is subject to the fulfilment of the following suspensive
conditions by no later than 31 August 2017:
- Approval by the competition authorities; and
- Approval by the Registrar of Collective Investment Schemes.
The effective date of the Acquisition is expected to be before or on
31 August 2017.
DBX will become a wholly owned subsidiary of Sygnia and will align its
memorandum of incorporation with that of Sygnia’s other subsidiaries and in
compliance with the Listings Requirements.
4. FINANCIAL INFORMATION
The profit after tax of DBX for the 12-month period ended 31 December 2016
was R38 128 445, while the net asset value was R71 737 570 as at
31 December 2016. However, any capital in excess of the required minimum
regulatory capital and R5 000 000 working capital will be declared to
Deutsche prior to the completion of the Acquisition.
The profit after tax of Sygnia for the 12-month period ended
30 September 2016 was R72 304 729.
5. CATEGORISATION OF THE ACQUISITION
The Acquisition is categorised as a Category 2 transaction in terms of the
Listings Requirements.
30 March 2017
Transaction Sponsor
PWC
Legal Advisor
WEBBER WENTZEL
Sponsor
NEDBANK
CIB
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