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Proposed Acquisitions of Snowball Wealth and Midbrook Lane, and Renewal of Cautionary Announcement
CONDUIT CAPITAL LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/017351/06)
Share code: CND ISIN: ZAE000073128
(“Conduit Capital” or “the Company”)
PROPOSED ACQUISITIONS OF SNOWBALL WEALTH AND MIDBROOK LANE, AND RENEWAL
OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Further to the cautionary announcement dated 4 August 2016, the board of directors of Conduit
Capital (“the Board”) is pleased to advise shareholders that Conduit Capital has submitted a non-
binding expression of interest to each of the boards of directors of:
1.1 Snowball Wealth Proprietary Limited (“Snowball Wealth”) in terms of which, subject to the
fulfilment or waiver of the conditions precedent as set out in paragraph 2.4 below (“Conditions
Precedent”), Conduit Capital will acquire the entire issued share capital in, and claims against
Snowball Wealth (if any), from the shareholders of Snowball Wealth (“Snowball Wealth
Shareholders”), for a total purchase consideration of approximately R464.61 million as detailed
in paragraph 2.3.1 below (“Snowball Wealth Purchase Consideration”), which consideration
is to be settled by way of issue of Conduit Capital shares (“Consideration Shares”)
(“Snowball Wealth Acquisition”); and
1.2 Midbrook Lane Proprietary Limited (“Midbrook Lane”) in terms of which, subject to the
fulfilment or waiver of the Conditions Precedent, Conduit Capital will acquire the entire issued
share capital in, and claims against Midbrook Lane (if any), from the shareholders of Midbrook
Lane (“Midbrook Lane Shareholders”), for a total purchase consideration of approximately
R167.65 million as detailed in paragraph 2.3.2 below (“Midbrook Lane Purchase
Consideration”), which consideration is to be settled by way of issue of Consideration Shares
(“Midbrook Lane Acquisition”).
The Snowball Wealth Acquisition and the Midbrook Lane Acquisition are collectively referred to
hereinafter as “the Acquisitions”.
For clarity, the expressions of interest submitted to each of the boards of directors of Snowball
Wealth and Midbrook Lane constitute non-binding expressions of interest, and neither such
expressions of interest nor this announcement represent or should be construed as a firm intention
either to make an offer or to propose an affected transaction for the purposes of Chapter 5 of the
Companies Act, 2008 (Act 71 of 2008), as amended (“Companies Act”) or the regulations
published in terms of section 120 of the Companies Act (“Takeover Regulations”) or otherwise.
2. THE ACQUISITIONS
2.1 Nature of Snowball Wealth and Midbrook Lane
Snowball Wealth and Midbrook Lane are South African investment companies, investing for the
long-term in a portfolio of mostly listed companies. The underlying investments of Snowball
Wealth and Midbrook Lane are in many respects similar to the underlying investments of the
Conduit Capital group’s investment portfolio.
2.2 The rationale for the Acquisitions:
Conduit Capital, which is listed on the Main Board of the securities exchange operated by JSE
Limited (“the JSE”), is an investment holding company, investing primarily in the insurance
industry, supported by a value-oriented long-term investment strategy. The Acquisitions are in
line with the objectives of the Company, namely the pursuit of insurance and non-insurance
opportunities that are expected to deliver acceptable returns over the long-term.
It is the intention of Conduit Capital to become the sole shareholder of each of Snowball Wealth
and Midbrook Lane, and for the Snowball Wealth Shareholders and the Midbrook Lane
Shareholders to become shareholders in Conduit Capital.
The Acquisitions will therefore represent an opportunity for Conduit Capital to increase its
investment in companies in which it is already invested, and for the Snowball Wealth
Shareholders and the Midbrook Lane Shareholders to retain an investment exposure to those
investments.
The Acquisitions would also result in a larger investment portfolio, enhanced earnings and
balance sheet for Conduit Capital, which would allow the Snowball Wealth Shareholders and
the Midbrook Lane Shareholders to benefit from:
- greater liquidity in terms of their investments;
- earnings at an enhanced multiple;
- the additional value created by being directly exposed to, and having the benefit of, Conduit
Capital’s non-listed assets; and
- being in a position to utilise Conduit Capital as a more attractive investment vehicle through
which they would be able to enhance their investment objectives over the long-term.
In addition, the Midbrook Lane Acquisition will effectively align the interests of those directors of
and shareholders in Conduit Capital who are, as set out in paragraph 2.6 below, also directors
of and shareholders in Midbrook Lane.
2.3 Purchase Consideration
2.3.1 Snowball Wealth Purchase Consideration
2.3.1.1 The Snowball Wealth Purchase Consideration will be based on the net asset
value (“NAV”) of Snowball Wealth as at 19 July 2016 (“the Determination
Date”), determined by reference to the closing prices of the underlying
investments on the JSE on the Determination Date.
2.3.1.2 Based on the closing prices of the underlying investments of Snowball Wealth
on the Determination Date, the unaudited balance sheets, financial
information furnished by Snowball Wealth and certain assumptions, Snowball
Wealth’s NAV at the Determination Date is estimated to be R464 606 000.
2.3.1.3 The NAV will be finally agreed following the completion of a due diligence
investigation of Snowball Wealth, its investments and its liabilities.
2.3.2 Midbrook Lane Purchase Consideration
2.3.2.1 The Midbrook Lane Purchase Consideration will be based on the NAV of
Midbrook Lane as at the Determination Date, determined by reference to the
closing prices of the underlying investments on the JSE on the Determination
Date.
2.3.2.2 Based on the closing prices of the underlying investments of Midbrook Lane
on the Determination Date, the unaudited balance sheets, financial
information furnished by Midbrook Lane and certain assumptions, Midbrook
Lane’s NAV at the Determination Date is estimated to be R167 651 000.
2.3.2.3 The NAV will be finally agreed following the completion of a due diligence
investigation of Midbrook Lane, its investments and its liabilities.
2.3.3 Purchase Consideration
The Consideration Shares will be issued at the closing price of Conduit Capital’s shares
on the JSE on the Determination Date, being 245 cents per share.
2.4 Conditions Precedent and Effective Date of the Acquisitions
The Acquisitions will be subject to the fulfilment or waiver, as the case may be, of inter alia, the
following conditions precedent:
2.4.1 the parties to the proposed Acquisitions entering into legally binding agreements
(“Binding Agreements”) (at which point, the Effective Date of the Acquisitions will be
communicated to shareholders);
2.4.2 compliance with all the applicable requirements pertaining to the Listings Requirements
(including the completion of a fairness opinion in respect of the Acquisitions prepared by
an independent expert acceptable to the JSE in accordance with Schedule 5 to the
Listings Requirements (“Fairness Opinion”)), the Companies Act and the Takeover
Regulations (to the extent applicable), as the case may be;
2.4.3 approval by the relevant regulatory authorities, including the JSE, the South African
competition authorities and the Financial Services Board, as the case may be;
2.4.4 shareholders of Conduit Capital passing in general meeting all such resolutions as are
required to approve the implementation of the Acquisitions, including the increase in
authorised share capital of the Company, the amendments to Conduit Capital’s
Memorandum of Incorporation and the issue of the Consideration Shares in terms of
sections 41(1) and 41(3) of the Companies Act, as the case may be; and
2.4.5 approval by the Board, Snowball Wealth Shareholders and Midbrook Lane
Shareholders, as the case may be.
2.5 Pro forma financial effects
The following unaudited pro forma financial effects have been prepared to illustrate the impact
of the Acquisitions on the reported financial information of Conduit Capital for:
2.5.1 the six months ended 31 December 2015, had the Acquisitions occurred on 1 July 2015
for statement of comprehensive income purposes and as at 31 December 2015 for
statement of financial position purposes; and
2.5.2 the year ended 31 December 2015, had the Acquisitions occurred on 1 January 2015 for
statement of comprehensive income purposes and as at 31 December 2015 for
statement of financial position purposes.
The unaudited pro forma financial effects have been prepared using accounting policies that
comply with International Financial Reporting Standards and that are consistent with those
applied in the annual financial statements of Conduit Capital for the year ended 30 June 2015.
The unaudited pro forma financial effects, which are the responsibility of the directors, are
provided for illustrative purposes only and, because of their pro forma nature, may not fairly
present Conduit Capital’s actual financial position, changes in equity, results of operations or
cash flow.
Six months ended 31 December 2015
Before the After the Percentage
Acquisitions Acquisitions change (%)
Basic earnings per share (cents) 3.8 0.5 (86.8)
Headline earnings per share (cents) 3.8 0.5 (86.8)
Net asset value per share (cents) 184.9 220.4 19.2
Tangible net asset value per share (cents) 148.3 197.4 33.1
Weighted average number of shares in issue
(000’s) 289,076 472,570 63.5
Total number of shares in issue (000’s) 331,377 524,842 58.4
Notes:
1 The amounts in the “Before the Acquisitions” column relate to the published financial statements of
Conduit Capital for the six-month period ended 31 December 2015.
2 The amounts in the “After the Acquisitions” column reflect the financial effects of the Acquisitions on
Conduit Capital as if they had occurred on 1 July 2015 for statement of comprehensive income
purposes and on 31 December 2015 for statement of financial position purposes, and are based on
the following assumptions:
2.1 The “Total Purchase Consideration”, being the Snowball Wealth Purchase Consideration
and the Midbrook Lane Purchase Consideration, is based on the respective NAVs of Snowball
Wealth and Midbrook Lane as at 31 December 2015 (the “Pro Forma Determination Date”);
2.2 The Consideration Shares will be issued at the closing price of Conduit Capital’s shares on the
JSE on the Pro Forma Determination Date, being 285 cents per share;
2.3 50,378,334 Conduit Capital shares included in the NAV of Snowball Wealth and Midbrook
Lane as at the Pro Forma Determination Date have been accounted for as treasury stock;
2.4 Earnings for Snowball Wealth and Midbrook Lane, adjusted for the impact of the treasury
stock above, have been included with effect from 1 July 2015;
2.5 Transaction costs estimated at 1% of the Total Purchase Consideration have been offset
against share premium and attract no tax credits; and
2.6 an effective tax rate of 63.9% has been taken into account.
All financial effects are ongoing, with the exception of transaction costs, which are once-off.
3 The effects on basic earnings per share and headline earnings per share are calculated based on the
assumption that the Acquisitions were effected on 1 July 2015.
4 The effects on net asset value per share and tangible net asset value per share are calculated based
on the assumption that the Acquisitions were effected as at 31 December 2015.
Year ended 31 December 2015
Before the After the Percentage
Acquisitions Acquisitions change (%)
Basic earnings per share (cents) 11.1 41.5 273.9
Headline earnings per share (cents) 11.1 41.5 273.9
Net asset value per share (cents) 184.9 220.4 19.2
Tangible net asset value per share (cents) 148.3 197.4 33.1
Weighted average number of shares in issue
(000’s) 286,802 469,760 63.8
Total number of shares in issue (000’s) 331,377 524,842 58.4
Notes:
1 The amounts in the “Before the Acquisitions” column relate to the unpublished financial statements of
Conduit Capital for the year ended 31 December 2015.
2 The amounts in the “After the Acquisitions” column reflect the financial effects of the Acquisitions on
Conduit Capital as if they had occurred on 1 January 2015 for statement of comprehensive income
purposes and on 31 December 2015 for statement of financial position purposes, and are based on
the following assumptions:
2.1 The Total Purchase Consideration is based on the respective NAVs of Snowball Wealth and
Midbrook Lane as at the Pro Forma Determination Date;
2.2 The Consideration Shares will be issued at the closing price of Conduit Capital’s shares on the
JSE on the Pro Forma Determination Date, being 285 cents per share;
2.3 50,378,334 Conduit Capital shares included in the NAV of Snowball Wealth and Midbrook Lane
as at the Pro Forma Determination Date have been accounted for as treasury stock;
2.4 Earnings for Snowball Wealth and Midbrook Lane, adjusted for the impact of the treasury stock
above, have been included with effect from 1 January 2015;
2.5 Transaction costs estimated at 1% of the Total Purchase Consideration have been offset
against share premium and attract no tax credits; and
2.6 an effective tax rate of 20.9% has been taken into account.
All financial effects are ongoing, with the exception of transaction costs which are once-off.
3 The effects on basic earnings per share and headline earnings per share are calculated based on the
assumption that the Acquisitions were effected on 1 January 2015.
4 The effects on net asset value per share and tangible net asset value per share are calculated based
on the assumption that the Acquisitions were effected as at 31 December 2015.
2.6 Related party implications, classification of the Acquisitions and circular to shareholders
As Snowball Wealth is a material shareholder of the Company, it is considered to be a ‘related
party’ in terms of paragraph 10.1(b)(i) of the Listings Requirements.
Furthermore, as Messrs Sean Riskowitz and Tyrone Moodley, the Chief Executive Officer and a
non-executive director of Conduit Capital, respectively, are both shareholders in and the
Chairman and Chief Executive Officer of Midbrook Lane, respectively, they are considered to
be ‘related parties’ in terms of paragraphs 10.1(b)(i) and 10.1(b)(vii) of the Listings
Requirements.
Accordingly, the proposed Acquisitions - which constitute ‘related party transactions’ in terms of
the Listings Requirements – will be subject to approval by shareholders present or represented
in general meeting and voting (excluding the related party/ies and their associates), and in
terms of paragraph 10.4(f) of the Listings Requirements, Conduit Capital will be required to
obtain a Fairness Opinion on each of the Acquisitions and the Board is required to include a
statement in the circular to be issued to shareholders (“Circular”) confirming whether each of
the Acquisitions is fair to shareholders.
As related party/ies, Snowball Wealth and its associates will be precluded from voting on the
Snowball Wealth Acquisition, and Messrs Sean Riskowitz and Tyrone Moodley and their
associates will be precluded from voting on the Midbrook Lane Acquisition. However, as
shareholders in Conduit Capital, they may be taken into account in determining a quorum for the
purposes of the general meeting.
A Circular incorporating, inter alia, full details of the proposed Acquisitions, Revised Listings
Particulars, pro forma financial effects of the Acquisitions, the Fairness Opinion and a notice to
convene a general meeting of shareholders in order to consider and if deemed fit, to pass with
or without modification, inter alia, the resolutions necessary to approve and implement the
Acquisitions, will be sent to shareholders following signature of Binding Agreements.
3. RENEWAL OF CAUTIONARY
As Binding Agreements have not yet been entered into, shareholders are advised to continue
exercising caution when dealing in Conduit Capital securities until a further announcement is made.
Johannesburg
11 August 2016
Corporate Advisor and Sponsor
Merchantec Capital
Legal Advisor
Cliffe Dekker Hofmeyr
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