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Distribution of integrated report, no change statement, notice of AGM and unwind of the Company's B-BBEE transaction
City Lodge Hotels Limited
(“City Lodge” or the “Company” or the “Group”)
(Reg. No. 1986/002864/06)
(Incorporated in the Republic of South Africa)
Share Code: CLH ISIN Code: ZAE000117792
DISTRIBUTION OF INTEGRATED REPORT, NO CHANGE STATEMENT, NOTICE
OF ANNUAL GENERAL MEETING AND UNWIND OF THE COMPANY’S B-BBEE
TRANSACTION, INDIRECT SPECIFIC REPURCHASE OF 35,393,908 CITY
LODGE SHARES AND DISTRIBUTION OF CIRCULAR
DISTRIBUTION OF INTEGRATED REPORT, NO CHANGE STATEMENT, NOTICE
OF ANNUAL GENERAL MEETING (“AGM”)
Shareholders are advised that the Company’s integrated report
for the year ended 30 June 2020, incorporating the audited annual
financial statements and notice of AGM is available on the
Company’s website https://clhg.com/financials. Hard copies are
available upon request to the Company Secretary at Bryanston
Gate Office Park, Building 7 (The Lodge), Corner Homestead
Avenue and Main Road, Bryanston. The annual financial statements
and auditor’s report contain no material changes from the
reviewed group preliminary results and auditors review opinion
published on SENS on 3 September 2020.
The integrated report was distributed today, 13 November 2020,
and notice is hereby given that the 34th AGM of City Lodge
shareholders will be held electronically on Friday, 11 December
2020 at 10:00 to transact the business as stated in the notice
of the AGM. Shareholders are referred to the notice of AGM
which contains full details of electronic participation in the
AGM.
UNWIND OF THE COMPANY’S B-BBEE TRANSACTION, INDIRECT SPECIFIC
REPURCHASE OF 35,393,908 CITY LODGE SHARES AND DISTRIBUTION OF
CIRCULAR
1. Introduction and background
1.1. In 2008, City Lodge entered into a B-BBEE transaction in
terms of which Newshelf 935 (RF) (Proprietary) Limited
(“Education SPV”), Newshelf 892 (RF) Proprietary Limited
(“Staff SPV”) and Vuwa Investments (RF) (Proprietary)
Limited (“Vuwa SPV”) (collectively “the BEE SPVs”)
acquired 6,390,365 ordinary shares (“Shares”) in City
Lodge (representing approximately 15% of the issued
share capital of City Lodge at the time) (“2008 B-BBEE
Transaction”), which acquisition was funded through
preference shares issued to the Standard Bank of South
Africa Limited (“the Funder”), the redemption of which
was effectively guaranteed by City Lodge as were certain
loans granted subsequently by the Funder to the BEE SPVs
(collectively the “BEE Debt”).
1.2. The BEE SPVs, as the Company’s selected BEE partners,
were established for the sole purpose of acquiring
shares in City Lodge and to date own no other material
assets.
1.3. Subsequent to the renounceable rights offer undertaken
by the Company during August 2020 (“Rights Offer”), the
number of Shares held by the BEE SPVs increased to
35,393,908 shares (“BEE City Lodge Shares”), comprising
5,80% of the issued share capital of the Company post
the Rights Offer. The BEE SPVs funded the take up of
their rights under the Rights Offer through the sale of
a portion of their letters of allocation associated with
the Rights Offer.
1.4. The BEE Debt, amounting to R752.2m on 30 June 2020 is
repayable on or before 31 January 2021 (“Maturity
Date”). It is expected that the BEE Debt balances, by
applying the current coupon and interest rates, will
increase to R776.3 million by 31 January 2021.
1.5. The 2008 B-BBEE Transaction is currently materially out
of the money, with the value of the BEE SPVs
shareholding in City Lodge being ZAR95.6 million as at
22 October 2020, against the amount outstanding of the
BEE Debt. In the context of the current market backdrop
and operating conditions, it is extremely unlikely that
there will be equity value in the B-BBEE Transaction by
the Maturity Date. Unless the BEE Debt is settled prior
to the Maturity Date, the Funder will call on the
guarantee provided by City Lodge for the obligations of
the BEE SPVs in relation to the settlement of the BEE
Debt (“Guarantee”) and the Company will be obliged to
settle the BEE Debt on behalf of the BEE SPVs.
1.6. The Company is therefore proposing the unwind of the
2008 B-BBEE Transaction through the subscription by the
Company of 99,99% of the ordinary shares in the BEE SPVs
(“Subscription”), resulting in the indirect repurchase
of the BEE City Lodge Shares by the Company (“Indirect
Specific Repurchase”). The Subscription price will be
equal to the BEE Debt outstanding by the BEE SPVs on the
date of the Subscription and will be used by the BEE
SPVs to be settle their BEE Debt in full (“BEE Unwind”)
immediately thereafter. This is proposed as an
alternative to a direct settlement of the BEE Debt under
the Guarantee, which would not have given the Company an
outright right to take ownership of the BEE City Lodge
Shares.
2. Terms of the Indirect Specific Repurchase
2.1. Prior to embarking on the Rights Offer, the Company
secured its ability to achieve the BEE Unwind in this
manner (i.e. through the Subscription), through the
conclusion of the Subscription option agreements with
the BEE SPVs, in terms of which the Company was granted,
at its sole election, the right to subscribe for 99,99%
of the ordinary shares in the respective BEE SPVs on or
prior to the Maturity Date, and with the Subscription
proceeds to be used by the BEE SPVs to settle their BEE
Debt. Accordingly, the Company acquired the option to
subscribe for:
• 999,900 ordinary shares in the Education SPV,
comprising 99,99% of the Education SPV shares after
the Subscription, for a subscription amount equal to
the BEE Debt owing by the Education SPV on the date of
the Subscription;
• 999,900 ordinary shares in the Staff SPV, comprising
99,99% of the Staff SPV shares after the Subscription,
for a subscription amount equal to the BEE Debt owing
by the Staff SPV on the date of the Subscription; and
• 999,900 ordinary shares in the Vuwa SPV, comprising
99,99% of the Vuwa SPV shares after the Subscription,
for a subscription amount equal to the BEE Debt owing
by the Vuwa SPV on the date of the Subscription;
2.2. Following receipt of the required shareholder approval
(see paragraph 5 below), the Company intends to issue
the requisite notices to the BEE SPVs for the exercise
of the options that will give rise to the Subscription.
3. Conditions Precedent and effective date
3.1. The BEE Unwind is subject to:
• approval by the City Lodge shareholders as
contemplated in paragraph 5 below; and
• the Indirect Specific Repurchase resolution not being
revoked by the directors as a result of shareholders
exercising their appraisal rights in terms of section
164 of the Companies Act, 2008 (Act 71 of 2008), as
amended (“the Act”).
3.2. A further announcement will be made by the Company
providing salient dates and times of the implementation
of the Indirect Specific Repurchase once the conditions
precedent have been met and the notices have been issued
to the BEE SPVs.
4. Pro Forma Financial Effects
4.1. The pro forma financial effects (“Pro Forma Financial
Effects”) below have been prepared to illustrate the pro
forma financial effects relating to certain events
subsequent to the Company’s financial year end of 30
June 2020, in order to establish an appropriate post
balance sheet events starting position for the pro forma
financial effects (“Subsequent Events”). The column
titled ‘After the Subsequent Events’ presents the
starting position for pro forma financial effects of the
BEE Unwind as reflected in the ‘After the BEE Unwind’
columns detailed below.
4.2. The Pro Forma Financial Effects are provided for
illustrative purposes only and, because of their nature,
may not fairly present the financial position or results
of operations of the Group. The Pro Forma Financial
Effects have been prepared to illustrate the impact of
the BEE Unwind on the published financial information of
the Group for the year ended 30 June 2020, adjusted for
the Subsequent Events, based on the assumption that the
Subsequent Events and BEE Unwind took place on 30 June
2020 for purposes of the net asset value (“NAV”) and
tangible NAV (“TNAV”) and on 1 July 2019 for purposes of
the basic and diluted earnings per share (“EPS”),
headline EPS (“HEPS”).
4.3. The Pro Forma Financial Effects has been prepared using
the accounting policies of the City Lodge Group, which
comply with International Financial Reporting Standards
and are consistent with those applied in City Lodge’s
consolidated annual financial statements for the year
ended 30 June 2020.
4.4. A summary of the impact of the BEE Unwind on the basic
and diluted EPS, HEPS, NAV and TNAV is set out below.
Cents Before After the After the %
the Subsequent Subsequent Change
BEE Events (2) events and (4)
Unwind the BEE
(1) Unwind (3)
Basic and (1 329.4) (82.1) (74.5) 9%
diluted EPS:
Basic and (388.1) (21.9) (14.2) 35%
diluted HEPS:
Basic and (181.1) (10.1) (11.6) (15%)
diluted
normalised HEPS
NAV Share 1 549.5 299.6 299.5 (0%)
(cents)
TNAV per Share 1 393.0 289.6 289.5 (0%)
(cents)
Normalised NAV 3 332.0 425.7 425.6 (0%)
per Share
(cents)
Notes:
1) The “Before” column sets out the audited basic and diluted EPS,
basic and diluted HEPS, basic and diluted normalised HEPS, NAV per
share, TNAV per share and normalised NAV per share and for the year
ended 30 June 2020, extracted without adjustment from the
consolidated financial results of the Group.
2) Illustrates the pro forma financial position of the Group subsequent
to the implementation of the Subsequent Events in order to establish
an appropriate post balance sheet events starting position for the
pro forma financial effects relating to the BEE Unwind.
3) Illustrates the pro forma financial effects of the Group, as
adjusted for the Subsequent Events, after the BEE Unwind.
4) Illustrates the effect of percentage change between column 2 and
column 3, being the difference between the opening column after the
Subsequent Events, and the BEE Unwind.
4.5. The full pro forma financial information relating the
Subsequent Events and the BEE Unwind, including the
notes thereto and the independent reporting accountants’
report on the pro forma financial information are set
out in Annexures 2 and 3 to the Appendix (as defined
below).
4.6. The Company has 38 215 383 treasury share in issue,
which includes the BEE City Lodge Shares which have
always been consolidated into the Group accounts. The
BEE Unwind accordingly has no impact on the number of
treasury shares.
4.7. The Pro Forma Financial Effects are the responsibility
of the directors.
5. Shareholder approval requirements and distribution of
circular
5.1. In terms of the JSE Limited (“JSE”) Listings
Requirements, the Subscription will be regarded as an
Indirect Specific Repurchase, in terms of Section 5 of
the JSE Listings Requirements, which requires the
approval by way of a special resolution of City Lodge
shareholders (the “Indirect Repurchase Resolution”),
being the approval of at least 75% of the votes cast by
all shareholders present in person, or represented by
proxy, excluding the votes of any shareholder and its
associates that are participating in the repurchase,
being the BEE SPVs and their associates. None of the BEE
SPVs are related parties as defined by the JSE Listings
Requirements. As the BEE SPVs own, as their only
material assets, shares in City Lodge, the transaction
is, in substance a specific repurchase under Section 5
and not as a transaction within the ambit of Section 9
of the JSE Listings Requirements.
5.2. City Lodge is authorised to undertake the Indirect
Specific Repurchase in terms of article 40 and 42 its
Memorandum of Incorporation.
5.3. In addition, as the Indirect Specific Repurchase will
result in the Company acquiring, indirectly, in excess
of 5% of the entire issued share capital of the Company,
the Indirect Specific Repurchase is, in terms of section
48(8)(b) of the Act, subject to the provisions of
section 114, read with sections 115 and 164 of the Act.
5.4. Therefore, the Indirect Specific Repurchase requires the
distribution of a circular to City Lodge Shareholders,
which is required to include, inter alia, a report by an
Independent Expert on the Indirect Specific Repurchase.
5.5. The circular has been included in the form of an
appendix to City Lodge’s integrated annual report and
notice of AGM (“Appendix”), which has been distributed
today, 13 November 2020. The resolutions required to
give effect to the BEE Unwind are contained in the
notice of AGM and will be voted on during the AGM.
Shareholders are referred to paragraph 6 titled ‘Salient
dates and times’ setting out salient dates and times of
the AGM.
6. Salient dates and times
The salient dates and times of the AGM are set out below.
2020
Record date to determine which Friday, 6 November
shareholders are entitled to receive
notice of AGM with its accompanying
Appendix
Notice of AGM with its accompanying Friday, 13 November
Appendix distributed to City Lodge
shareholders and announced on SENS
Last day to trade to participate in Tuesday, 1 December
and vote at the AGM
Record date to be eligible to Friday, 4 December
participate in and vote at the AGM
Where applicable, forms of proxy Wednesday, 9 December
and/or participation application
forms to be lodged with the transfer
secretaries of City Lodge by 10:00
on (refer Notes 2 and 5 below)
Last date and time for City Lodge Friday, 11 December
shareholders to give notice to the
Company objecting to the special
resolution approving the Indirect
Specific Repurchase, by 10:00 on
AGM to be held at 10:00 on Friday, 11 December
Results of AGM announced on SENS Friday, 11 December
The following dates assume that the Indirect Specific
Repurchase becomes unconditional, and that the Indirect
Repurchase Resolution does not require Court approval or a
review
Expected unconditional date of the Friday, 11 December
Indirect Specific Repurchase (refer
note 7 below)
If the Indirect Repurchase Resolution is approved by
Shareholders at the AGM and is not revoked
Last date for City Lodge Monday, 21 December
shareholders who voted against the
Indirect Repurchase Resolution
(“Dissenting Shareholders”) to
require the Company to seek Court
approval for the Indirect Repurchase
Resolution in terms of section
115(3)(a) of the Act, if at least
15% of the total votes of City Lodge
shares at the AGM were exercised
against the Indirect Repurchase
Resolution
Last day for the Company to send Tuesday, 29 December
notice of adoption of the Indirect
Repurchase Resolution to Dissenting
Shareholders, in accordance with
section 164(4) of the Act
Last day for City Lodge shareholders Tuesday, 29 December
who voted against the Indirect
Repurchase Resolution to apply to
Court for leave to apply to the
Court for a review of the Indirect
Repurchase Resolution in terms of
section 115(3)(b) of the Act
Notes:
1. The above dates and times are subject to amendment. Any such
amendment will be published on SENS and in the press.
2. The time and date suggested for lodgement of proxy forms is an
administrative matter. A shareholder may however submit a form of
proxy at any time up to commencement of the AGM to the transfer
secretaries of City Lodge or to the Chairperson of the AGM.
3. If the AGM is adjourned or postponed, forms of proxy submitted for
the initial AGM will remain valid in respect of any adjournment or
postponement of the AGM.
4. All times given are local times in South Africa.
5. Shareholders who wish to electronically participate in and/or vote
at the AGM are required to complete the electronic participation
application form affixed to the notice of AGM and email same to
proxy@computershare.co.za as soon as possible, but in any event no
later than 10:00 Wednesday, 9 December 2020 for administration
purposes.
6. Shareholders who acquire City Lodge shares after the last day to
trade to participate in and vote at the AGM, namely, Tuesday, 1
December 2020, will not be entitled to participate in and vote at
the AGM.
7. The Company may after this date issue the BEE SPVs with a
subscription notice to implement the BEE Unwind, which will be
issued by the Company between the date on which the conditions
precedent (as contained in paragraph 4 of the Appendix) have been
met and the Maturity Date.
7. Responsibility Statement
The independent board of directors and the board of
directors of City Lodge have considered all statements of
fact and opinion in this announcement; collectively and
individually, accept full responsibility for the accuracy
of the information given; certify that, to the best of
their knowledge and belief, there are no other facts, the
omission of which would make any statement false or
misleading and have made all reasonable enquiries in this
regard; and certify that, to the best of their knowledge
and belief, the announcement contains all information
required in terms of the Act and the JSE Listings
Requirements.
Bryanston
13 November 2020
Sponsor
Nedbank Corporate & Investment Banking
Corporate Advisor and Transaction Sponsor
Questco Proprietary Limited
Legal Adviser
Edward Nathan Sonnenbergs Inc
Independent Expert
BDO Corporate Finance Proprietary Limited
Independent Reporting Accountants and Auditors
KPMG Inc.
Date: 13-11-2020 03:50:00
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