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PPC LIMITED - Firm Intention Offer by Fairfax to make a Conditional Partial Offer to Acquire ordinary shares of PPC

Release Date: 04/09/2017 14:15
Code(s): PPC     PDF:  
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Firm Intention Offer by Fairfax to make a Conditional Partial Offer to Acquire ordinary shares of PPC

PPC Ltd
(Incorporated in South Africa)
(Company registration number: 1892/000667/06)
JSE and ZSE Code: PPC
ISIN: ZAE000170049
(“PPC” or the “Company”)


FIRM INTENTION OFFER BY FAIRFAX AFRICA INVESTMENTS PROPRIETARY LIMITED TO MAKE A
CONDITIONAL PARTIAL OFFER TO ACQUIRE ORDINARY SHARES OF PPC, NOTIFICATION OF
OTHER THIRD PARTY INDICATIVE PROPOSALS TO COMBINE WITH PPC, AND RENEWAL OF PPC
CAUTIONARY ANNOUNCEMENT

1.   INTRODUCTION

      1.1 Shareholders are referred to the announcement published on SENS on 25
          August 2017, in terms of which shareholders were notified of the
          termination of the heads of terms entered into between AfriSam Group
          Proprietary Limited (“AfriSam”) and PPC in respect of a potential merger
          between the two companies.   That announcement also noted that,
          notwithstanding such termination, AfriSam had indicated to PPC that it
          intended to submit a new proposal regarding a possible merger of the two
          companies.

      1.2 Further to that announcement, shareholders are hereby advised that on 1
          September 2017, Fairfax Africa Investments Proprietary Limited
          (“Fairfax”), on behalf of a subsidiary to be nominated by Fairfax (the
          “Offeror”), delivered to the board of directors of PPC (“the Board”) a
          letter (“Firm Intention Letter”), indicating that the Offeror has a firm
          intention to make a partial offer to acquire ordinary shares representing
          a value of R2 billion of the issued ordinary stated capital of PPC, at an
          offer price of R5.75 per ordinary share of PPC (“the Partial Offer”).
          One of the conditions precedent to the Partial Offer becoming effective
          is that shareholders of PPC approve a proposal to give effect to a merger
          between PPC and AfriSam, further details of which are set out below.
          Fairfax has participated with AfriSam in the latest engagement with PPC.

      1.3 The purpose of this announcement is to:

      1.3.1 set out the background to the Partial Offer, and to advise PPC
            shareholders of the terms and conditions of the Partial Offer, in
            compliance with Regulation 101 of the Companies Regulations, 2011
            (“Companies Regulations”); and
         
      1.3.2 notify shareholders that that the Board has also received indicative
            proposals from two other trade bidders, each in respect of potential
            pan-African combination with PPC (“Indicative Proposals”).

2.   INDEPENDENT BOARD

   2.1 The Partial Offer constitutes an “affected transaction” for purposes of
       section 117(1)(c) of the Companies Act, 2008 (the “Companies Act”) and is
       accordingly regulated by the Companies Act and Companies Regulations, and
       the Takeover Regulation Panel (“the TRP”).

   2.2 Accordingly, in accordance with Regulation 108 of the Companies
       Regulations, PPC has constituted an independent board (the “Independent
       Board”) to consider the terms and conditions, and the merits, of the
       Partial Offer and the transactions contemplated by it as well as the
       Indicative Proposals.

3.   IDENTITY OF THE OFFEROR

     Fairfax has indicated in the Firm Intention Letter that the Offeror is a
     subsidiary of Fairfax Africa Holdings Corporation (“Fairfax Africa”), which
     is an investment holding company listed on the Toronto Stock Exchange
     (“TSX”) under the symbol "FAH.U", with a market capitalisation of over
     USD600 million and approximately USD400 million of investable cash. Fairfax
     Africa's controlling shareholder, Fairfax Financial Holdings Limited, is a
     holding company which, through its subsidiaries, is engaged in property and
     casualty insurance and reinsurance and investment management. Fairfax
     Financial Holdings Limited is listed on the TSX under the symbol "FFH".

4.   SALIENT TERMS OF THE OFFER

     The Firm Intention Letter contemplates a Partial Offer on the terms and
     conditions set out below:
 
4.1  Nature of Offer and Mechanics

       Fairfax has indicated in the Firm Intention Letter that:

   4.1.1 the Offeror intends to offer to acquire ordinary shares representing a
         value of R2 billion of the issued and outstanding ordinary stated
         capital of PPC (the “Offer Shares”) held by all shareholders of PPC
         other than management and any shareholders who are not entitled to
         dispose of their shares (“Eligible PPC Shareholders”); and
  
   4.1.2 the Offeror proposes to acquire the Offer Shares on a proportionate
         basis from those Eligible PPC Shareholders who accept the Partial
         Offer, and Eligible PPC Shareholders will be entitled to sell
         additional shares to the Offeror in addition to their proportionate
         share if the other Eligible PPC Shareholders do not accept the Partial
         Offer or accept the Partial Offer for a lesser proportion than their
         full entitlement.

4.2  Consideration Offered

     Fairfax has indicated in the Firm Intention Letter that the acquisition
     consideration offered by the Offeror is R5.75 per ordinary share of PPC,
     payable in cash for a total offer consideration of R2 billion (“Offer
     Consideration”).

4.3  Conditions to the posting of the circular to PPC Shareholders

     Fairfax has indicated in the Firm Intention Letter that the posting of
     the Partial Offer circular (“Offer Circular”) to PPC Shareholders is
     subject to the fulfilment of the conditions that, by no later than 3
     October 2017:

4.3.1  the Board has retained an independent expert in terms of the Companies
       Act and the Companies Regulations, and such expert has prepared and
       issued a report concerning the Partial Offer confirming that the
       Partial Offer is fair and reasonable;

4.3.2  the Board recommends to Eligible PPC Shareholders that they accept the
       Partial Offer; and

4.3.3  to the extent applicable, the approval of the JSE and the TRP for the
       posting of the Offer Circular has been obtained.

4.4  Conditions to the Partial Offer

     Fairfax has indicated in the Firm Intention Letter that the Partial Offer
     must be subject to fulfilment of the following conditions precedent on or
     before 31 December 2017:

4.4.1     shareholders of PPC approving the proposal to give effect to a merger
          between PPC and AfriSam (and PPC and AfriSam passing all requisite
          resolutions to give effect to the merger, subject to the customary
          regulatory processes) in terms of which PPC will acquire all of the
          issued shares in AfriSam in exchange for an issue of PPC ordinary
          shares to the shareholders of AfriSam on the following basis:

4.4.1.1     the merger between AfriSam and PPC occurring based on a share
            exchange ratio of 58 (PPC) : 42 (AfriSam), which share exchange
            ratio is calculated based on the following factors:

            (i)    a share price of R5.75 per PPC ordinary share;

            (ii)   AfriSam's equity value calculated on an enterprise value of
                   R7.55 billion and net debt no greater than R866 million;

4.4.1.2    the recapitalisation of AfriSam by way of, amongst others, the
           subscription by Fairfax Africa (together with its affiliates and
           allied co-investors) (“Fairfax Consortium”) for such number of
           ordinary shares in AfriSam that will equate to an issue price of R4
           billion;

4.4.2     Eligible PPC Shareholders holding a minimum value of R1 billion in
          Offer Shares accepting the Partial Offer; and

4.4.3     in respect of the implementation of the Partial Offer, and only to the
          extent that same may be applicable, the approval of the competition
          authorities, South African Reserve Bank, the JSE, the TRP and any
          other relevant regulatory authorities (either unconditionally or
          subject to conditions acceptable to the Offeror).

5.   CASH CONFIRMATION

     Fairfax enclosed with the Firm Intention Letter a copy of a cash
     confirmation, delivered to the TRP, in the form of a bank guarantee issued
     by FirstRand Bank Limited (acting through its Rand Merchant Bank Division)
     in terms of Regulations 111(4) and 111(5) of the Companies Regulations, in
     the amount of R2 billion, which amount meets the maximum total
     consideration which may be payable in connection with the Partial Offer.

6.   INDICATIVE PROPOSALS

     Shareholders are advised that the Board has recently received, in addition
     to the Firm Intention Letter, credible Indicative Proposals from two other
     trade bidders, each in relation to a potential pan-African combination with
     PPC (one of which also includes a potential cash component), further
     details of which remain confidential at this stage.   The Independent Board
     is of the view that each of the Indicative Proposals is sufficiently
     credible and potentially value enhancing to shareholders to merit careful
     consideration and further engagement with the respective bidders.

7.   PROCESS AND PRELIMINARY OBSERVATION

7.1    Consistent with its fiduciary duties, the Companies Act and Companies
       Regulations, and in order to ensure that it is maximising possible
       returns for PPC’s shareholders, the Independent Board is considering the
       merits of the Partial Offer and each of the Indicative Proposals, and
       intends engaging further with each such bidder in order to determine what
       course of action is in the best interests of PPC’s shareholders. As part
       of the engagements with Fairfax, the Independent Board will, amongst
       other things, determine any additional obligations in terms of the rules
       governing partial offers in section 125 of the Companies Act, including
       whether the Partial Offer is required to be conditional on shareholder
       approval as contemplated in terms of section 125(3)(b).

7.2    In this regard, the Independent Board is mindful of avoiding any unduly
       protracted engagement with any of the bidders, and accordingly aims to be
       in a position to make a decision on the best way to proceed within a
       sensible time period.

7.3    The Independent Board will also appoint an independent expert
       ("Independent Expert"), as contemplated in Regulation 110 of the
       Companies Regulations, to provide a fair and reasonable opinion.

7.4    The Independent Board has not yet had an opportunity to fully consider
       the Partial Offer or the opinion of the Independent Expert.    However,
       based on the prior extensive engagement in respect of a possible merger
       with AfriSam, and the Independent Board’s own views regarding the
       underlying value of PPC, it notes, as a preliminary observation, that the
       offer price of R5.75 per ordinary share fundamentally undervalues PPC
       and, when considered in conjunction with the proposed exchange ratio,
       does not constitute sufficient compensation for PPC’s shareholders. This
       is particularly so given the partial nature of the offer and the
       effective control that would vest in the Fairfax Consortium.

8.   CAUTIONARY

     PPC shareholders are accordingly advised to continue exercising caution
     when dealing in securities of the Company until such time as a further
     announcement is made.
9.   RESPONSIBILITY STATEMENT

     The PPC Independent Board accepts responsibility for the information
     contained in this firm intention announcement to the extent that it relates
     to PPC or reflects or summarises the position set out in the Firm Intention
     Letter, accepts full responsibility for the accuracy of such and certifies
     that, to the best of its knowledge and belief, the information contained in
     this firm intention announcement is true and nothing has been omitted which
     is likely to affect the importance of the information.

Sandton
4 September 2017

Investor contacts:
PPC:
Anashrin Pillay
Tel: +27 (0) 11 386 9000
Anashrin.Pillay@ppc.co.za

Joint Financial Advisor and Sponsor to PPC
Merrill Lynch South Africa (Pty) Ltd

Joint Financial Advisor to PPC
Identity Advisory (Pty) Ltd

Independent Advisor to the Board of PPC
The Standard Bank of South Africa Limited

Legal Advisor to PPC
Bowmans

Date: 04/09/2017 02:15:00 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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