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IMPERIAL HOLDINGS LIMITED - Unbundling of Imperials Automotive Business and separate listing on the JSE, and cautionary announcement

Release Date: 21/06/2018 11:14
Code(s): IPL IPLP IPL10 IPL8 IPL9 IPL11     PDF:  
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Unbundling of Imperial’s Automotive Business and separate listing on the JSE, and cautionary announcement

Imperial Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1946/021048/06
Ordinary share code: IPL
ISIN: ZAE000067211
Preference share code: IPLP
ISIN: ZAE000088076
(“Imperial” or “Group”)

Imperial Group Limited
Incorporated in the Republic of South Africa
Registration number: 1983/009088/06
Company code: IMG

 Unbundling of Imperial’s Automotive Business (known as Motus) and
     separate listing on the JSE, and cautionary announcement

1.      Introduction

     Shareholders of Imperial (“Shareholders”) are referred to the
     pre-closed period briefing announcement dated 10 May 2018 and
     prior communication relating to the restructuring of Imperial’s
     operations   into   two    large   independent,   self-sufficient
     businesses, namely the logistics business known as Imperial
     Logistics (“Imperial Logistics”) and the automotive business
     known as Motus (“Motus”); and progress with the plans relating to
     Imperial’s potential unbundling of Motus (“Unbundling”).

     Imperial is pleased to advise that at a Board of Directors
     (“Board”) meeting on 21 June 2018, the Board resolved to proceed
     with the steps required to implement the Unbundling. This
     strategic decision to separate the business operations and
     management of Imperial will provide shareholders with the
     opportunity to participate directly in Imperial Logistics and/or

     The Unbundling will be implemented through: the transfer by
     Imperial of all of its automotive related interests to Motus
     Holdings Limited (“Motus Holdings”), a wholly-owned subsidiary of
     Imperial, in terms of an asset-for-share transaction; a
     distribution in specie of the shares in Motus Holdings to
     Shareholders in terms of Section 46 of the South African
     Companies Act, 71 of 2008, as amended (the “Companies Act”) and
     Section 46 of the Income Tax Act, 58 of 1962; and the
     simultaneous listing of Motus Holdings (the “Listing”) on the
     main board of the JSE Limited (“JSE”)(collectively, the “Proposed

     The Proposed Transaction is subject to the fulfilment of
     conditions   precedent,  including,   inter  alia, approval by
     Shareholders and the requisite regulatory authorities.

2.      Background to and rationale for the Proposed Transaction

     The transformation and development of Imperial in recent years
     has been directed at value creation through strategic clarity,
     managerial focus and shareholder insight.    The first has been
     achieved through portfolio rationalisation, the second through
     organisation structure and the third through disclosure.    This
     approach has exposed the absence of operational synergies and
     resulted in the rapid establishment of Imperial Logistics and
     Motus as two large independent divisions. Both are now managed
     and currently reported on separately, with separate Chief
     Executive Officers (“CEO”), Boards and Executive Committees, and
     have self-sufficient balance sheets with decreasing functional
     support from the holding company.

     After considering whether the long-term prospects of Imperial
     Logistics and Motus will be enhanced by them being separately
     listed, the Board believes that the separation of the two
     divisions will enable the component parts of Imperial’s
     businesses to operate in a more focused and efficient manner,
     thereby allowing each of the businesses to achieve their
     respective strategic goals and unlocking value for Shareholders
     over the long term. The Proposed Transaction will be underpinned
     by the following:

     a. Strategic focus and independence:

           providing the platform to pursue independent strategic
           initiatives, with enhanced flexibility and efficiency;
           enhancing the ability to mitigate and manage specific
           risks and challenges faced by each business unit and
           proactively react to changes within the specific market
           segments and economic landscapes in which they operate;
           enabling management teams to express entrepreneurial
           flair, including the identification and execution of
           acquisition opportunities, locally and abroad, with direct
           responsibility and accountability for performance and

     b. Improved operational efficiency mainly through the reduction
        in complexity and costs over time:

           managing separate operating entities, completely
           independent of one another, which enhances streamlined
           activities and operations; and
           in-depth asset focus.

     c. Focused capital and funding structures:

           provide respective management teams with direct access and

            accountability to the equity and debt capital markets,
            each with the appropriate capital structure to support
            their strategies on a long term sustainable basis, and the
            ability to raise funding independently; and
            on implementation of the Proposed Transaction, Imperial
            Logistics and Motus will have self-sufficient capital
            structures, with an optimal mix of debt and equity on a
            standalone basis and within the industries in which they
            operate (net debt to equity of between 55% and 65% in the
            short term), to facilitate growth, provide flexibility and
            maintain sufficient liquidity and headroom.

         In this context, Imperial has secured sufficient commitments
         from funders with respect to the debt restructure required
         for Imperial Logistics and Motus to operate on a standalone
         basis, post the Unbundling.

      d. Enhanced investor understanding and insight of each business
         and its sub-divisions:

            Provide greater insight to investors with regard to the
            nature of the activities and geographies within which
            Imperial Logistics and Motus operate, and the potential
            value of each business, and facilitating discretionary
            investment in independent and dedicated business units
            with greater comparability to focused peers.

3. Overview of Imperial Logistics

      Imperial Logistics is an integrated outsourced logistics service
      provider with a diversified presence across Africa and Europe.
      With    its   strong  regional   growth   platforms,   specialist
      capabilities customised to serve multi-national clients in
      attractive industry verticals, and “asset-right” business model,
      Imperial Logistics is expected to deliver sustainable revenue
      growth,    enhanced  profitability   and   a   stable   dividend.
      Improvements in asset mix and cash flow, and plans to achieve
      targeted returns on capital in excess of weighted average cost of
      capital (“WACC”), will support this expectation.

      Ranked in the top 25 global third-party logistics (3PL) providers
      as published by Armstrong & Associates Inc (#15 for land-based
      revenue in 2017), with a presence in 33 countries on five
      continents and over 30 000 employees, Imperial Logistics’ key
      investment highlights include:

  •     Track record for consistent growth: proven ability to acquire,
        develop and leverage specialist capabilities to establish
        growth platforms in emerging and advanced markets;
  •     Leading positions in regional markets provide platforms for
        sustainable growth: market leader in South Africa, a leader in
        selected verticals in the African Regions and in certain
        specialised capabilities in Europe;

  •     Competitive differentiation centred on agility and
        customisation: specialised capabilities across the value chain
        enable customised and integrated solutions, with service
        offerings and operating models tailored to client requirements
        and market maturity;
  •     Trusted partner to multinational clients: quality contract
        portfolio in high-growth and defensive verticals, with
        partnerships demonstrating  reach, capabilities, assets,
        innovation and legitimacy;
  •     Vision to unlock benefits of ‘one Imperial Logistics’:
        strategy focused on sustainable revenue growth, enhanced
        returns and improved competitiveness, with initiatives to
        drive substantial organic growth enabled by differentiated
        approach to digitalisation and innovation, and enhanced
        financial flexibility supporting selective acquisitive growth;
  •     “Asset-right” business model underpins financial profile: more
        optimal asset mix and targeted returns on capital, support
        prospects for sustainable  revenue growth and enhanced
        profitability; and
  •     Strong and committed leadership: highly experienced, long-
        serving management team and a strong independent Board.

4. Overview of Motus

      Motus is a diversified (non-manufacturing) service provider to
      the automotive sector with unrivalled scale and scope in South
      Africa, and a selected international presence in the United
      Kingdom and Australia. Motus’ unique business model is fully
      integrated   across  the   motor  value   chain   -  Import   and
      Distribution, Retail and Rental, Motor Related Financial Services
      and Aftermarket Parts. This business model provides diversified
      service offerings, maximises revenue and income opportunities,
      and provides returns in excess of WACC, enabling Motus to
      maintain sustainable free cash flow and pay an attractive

      Supported by over 18 600 employees and as Southern Africa’s
      largest vehicle group, Motus’ key investment highlights include:

      • Diversified (non-manufacturing)  service   provider  in  the
        automotive sector with a leading position in South Africa and
        selected international presence (UK and Australia);
      • Fully integrated business model across the vehicle value
        chain: Import and Distribution, Retail and Rental, Motor
        Related Financial Services and Aftermarket Parts;
      • Unrivalled scale in South Africa underpins a differentiated
        value proposition to Original Equipment Manufacturers (OEM’s),
        customers and business partners, providing multiple customer
        touch points supporting resilience and customer loyalty
        through the entire vehicle ownership cycle;
      • Exposure to annuity income streams, sustainable free cash flow
        generation with best-in-class earnings, return on invested

        capital exceeding WACC, providing a platform for an attractive
        dividend yield;
     • Defined organic growth trajectory through portfolio
        optimisation,    continuous    operational    enhancements   and
        innovation, with a selective acquisition strategy outside
        South Africa leveraging best-in-class expertise; and
      • Highly   experienced   management   team   with   deep  industry
        knowledge of regional and global markets, and a proven track
        record with years of collective experience.

     Motus will be reported as a discontinued operation in the
     financial year ended 30 June 2018.

5.       Salient dates and stakeholder engagement

     The Unbundling is presumed to constitute a section 112 disposal
     in terms of the Companies Act, and as such Imperial is required
     to consider the provisions of the Companies Act and Takeover
     Regulations in implementing the Unbundling. The Unbundling will
     result in Shareholders holding a direct interest in Motus through
     Motus Holdings rather than holding that interest through

     It is anticipated that the Proposed Transaction will be
     implemented during the fourth quarter of calendar 2018. In this
     regard, a general meeting for Shareholder approval of the
     Proposed Transaction will be convened on or about 30 October
     2018. An Imperial circular and Motus pre-listing statement,
     setting out the key dates of the Proposed Transaction will be
     circulated to Shareholders on or about 30 September 2018.

     A formal debt syndication process, engagement with Imperial’s
     preference shareholders (noting, however, that holders of the
     preference shares do not vote on or participate in the
     Unbundling, and that such shares are not redeemable), and the
     bond holder engagement process will commence in July 2018.

     Post the Unbundling, the existing structure of the Ukhamba broad-
     based black economic empowerment scheme will be replicated to
     ensure that all shareholders in Ukhamba Holdings Proprietary
     Limited (“Ukhamba Holdings”) retain the same economic rights that
     they presently enjoy. Approval relating to a scheme of
     arrangement in this regard will be sought at a general meeting of
     the “A” shareholders and a combined general meeting of the
     shareholders of Ukhamba Holdings, which is anticipated to take
     place on or about the end of October 2018.

6.       Cautionary announcement

     If successfully concluded, the Proposed Transaction may have an
     effect on the price of Imperial’s securities. Accordingly,
     Shareholders, preference shareholders and bond holders of
     Imperial Group Limited are advised to exercise caution when
     trading in their Imperial securities until a further announcement
     in this regard is made.

 7.       Executive management changes

      In line with succession planning, on conclusion of the Proposed

      • Mr Osman Arbee will relinquish his role as CEO of Imperial and
        will remain the CEO of Motus;
      • Mr Marius Swanepoel will undertake the role of CEO of
        Imperial, which will be renamed Imperial Logistics. Mr
        Swanepoel will retire as CEO in June 2019 and will remain as
        director to 31 December 2019. Mr Mohammed Akoojee, currently
        Chief Financial Officer (“CFO”) of Imperial, will succeed Mr
        Swanepoel as CEO with effect from 1 July 2019;
      • Mr Akoojee will be appointed as CEO Designate of Imperial
        Logistics to facilitate an orderly transition and handover;
      • Mr George de Beer will undertake the role of CFO of Imperial
        Logistics; and
      • Mr Ockert Janse van Rensburg will remain as CFO of Motus.


      Imperial management will be hosting a conference call for the
      investment community on 21 June at 14h00 CAT to further discuss
      this announcement.


Johannesburg (Telkom)                    010 201 6800

Johannesburg (Neotel)                    011 535 3600

Other Countries (Neotel)                 +27 11 535 3600

Other Countries (Telkom)                 +27 10 201 6800

USA and Canada                           1 508 924 4326

UK                                       0 333 300 1418

Merrill Lynch SA (Pty) Limited

Transaction Sponsor:
Standard Bank

Joint Financial Advisors:
Standard Bank
J.P. Morgan

Joint Debt Advisors
Standard Bank
J.P. Morgan

Mandated Lead Arrangers
Standard Bank
J.P. Morgan

Legal advisors
Tugendhaft Wapnick Banchetti and Partners
Date: 21 June 2018


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