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VERIMARK HOLDINGS LIMITED - Firm Intention Offer to Acquire the Entire Issued Share Capital of Verimark

Release Date: 23/11/2018 15:00
Code(s): VMK     PDF:  
 
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Firm Intention Offer to Acquire the Entire Issued Share Capital of Verimark

Verimark Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1998/006957/06
JSE share code: VMK
ISIN number: ZAE000068011
("Verimark" or "the Company")

Van Straaten Family Trust (“VFT”) via a special purpose
vehicle, established for the sole purpose to satisfy the
requirements of the Transaction, being
K2018535347 (South Africa) Proprietary Limited
Incorporated in the Republic of South Africa
Registration number: 2018/535347/07
(“the Offeror”)

JOINT ANNOUNCEMENT OF THE FIRM INTENTION OFFER BY THE OFFEROR
TO ACQUIRE THE ENTIRE ISSUED SHARE CAPITAL OF VERIMARK, BY WAY
OF A SCHEME OF ARRANGEMENT OR SUBSTITUTE OFFER AND WITHDRAWAL
OF CAUTIONARY ANNOUNCEMENT

1. INTRODUCTION

1.1 Verimark shareholders are referred to the cautionary
    announcement released on SENS on 22 October 2018
    (“Cautionary Announcement”) and are hereby notified of the
    Offeror’s firm intention to make an offer (“Firm Offer”)
    to acquire all the ordinary shares in Verimark (“Ordinary
    Shares”), other than any Ordinary Shares held by VFT, its
    concert party, Prime Rentals CC and any subsidiaries of
    Verimark (“Treasury Shares”) (collectively the “Ineligible
    Shares”). It is proposed that the Firm Offer be
    implemented by way of a scheme of arrangement (“the
    Scheme”) in terms of section 114 of the Companies Act, 71
    of 2008 as amended (“the Companies Act”) or failing that,
    followed by a general offer in terms of section
    117(1)(c)(v) of the Companies Act (“the Substitute
    Offer”), with the Ordinary Shares to be so acquired being
    referred to hereafter as “Scheme Shares” (the Scheme and
    the Substitute offer, collectively as “the Transaction”).
    The amount payable in terms of the Scheme will be a cash
    consideration of R1.50 per Scheme Share (“Scheme
    Consideration”).

1.2 Verimark shareholders are further advised that the board
    of directors of Verimark (“Verimark Board”) has
    established an independent board (“Independent Board”) for
    the purposes of evaluating the terms and conditions of the
    Transaction and to provide the opinion as required by the
    Companies Regulations, 2011 (“the Companies Regulations”)
    promulgated in terms of the Companies Act.
1.3 The purpose of this announcement is to advise Verimark
    shareholders of the terms and conditions of the
    Transaction.

2. RATIONALE FOR THE OFFER

2.1  Rationale for the Offeror

    The Offeror believes that the shareholders of Verimark
    are not deriving the benefits associated with a public
    listed company due to:

  - Verimark’s volatile earnings history which, due to its
    dependence on imports, is hugely affected by exchange
    rate fluctuations. During the last 5 years earnings
    fluctuated between 31.9 cents per share and 8 cents per
    share. This followed a similar cyclical pattern of the
    prior 5 years of a high of 31.5 cents per share and a low
    of -3.4 cents per share.

  - Verimark’s disappointing share price performance, which
    since listing in 2005 at a price of R2.50 per share, has
    fallen to a low of R0.33 per share. Prior to the
    Cautionary Announcement, the shares were trading at R1.00
    per share with a current 30-day volume weighted average
    price (“VWAP”) of R1.04.

  - Verimark’s low market capitalisation, lack of analyst
    coverage and institutional support. At a market
    capitalisation of approximately R101 million prior to the
    Cautionary Announcement, Verimark falls below the radar
    of the institutional investors and gets virtually no
    analyst coverage. It is unlikely that this situation will
    improve in future.

  - The Company’s lack of liquidity over the last 5 years,
    which has averaged only 9% of issued shares traded per
    annum and over the last year only 4% (excluding share buy
    backs).

  - Verimark’s reliance on organic growth and inability to
    use its scrip to fund acquisitive growth. The lack of
    inorganic strategy and the use of highly rated scrip to
    finance acquisitions, negate an important rationale to
    remain listed.

 As a result, the Offeror believes that the disadvantages of
 a continued listing outweigh the advantages and that the
 delisting of Verimark from the JSE will positively impact
 the business both from a cost saving and operational focus
 perspective. It is also VFT’s and the Offeror’s opinion that
 Verimark’s current operations are adequately capitalised and
 in no need of an equity capital raise in the foreseeable
 future.

 Furthermore, considering that the Offeror and its concert
 parties already own a 71% interest in Verimark (excluding
 Treasury Shares), the Scheme will provide a mechanism
 through which the holders of Scheme Shares are able to
 realise their investment in a historically illiquid share at
 an attractive premium to historical market prices.

2.2    Rationale for holders of Scheme Shares

 2.2.1 The Scheme Consideration of R1.50 per Scheme Share,
       represents a premium of 50% to the 30-day VWAP of
       Verimark of R1.00 per Ordinary Share, as at 22 October
       2018.

 2.2.2 The Transaction will provide Verimark shareholders
       with an opportunity to dispose of their Scheme Shares
       at a substantial premium, accordingly the Independent
       Board believes that it is in the interest of Verimark
       and the Verimark shareholders that they be given an
       opportunity to consider the Transaction.

3. MECHANICS OF THE SCHEME

 3.1 The Scheme will constitute an “affected transaction” as
     defined in section 117(1)(c) of the Companies Act. It
     will be implemented in accordance with the Companies
     Act, the Companies Regulations (which include the
     takeover regulations prescribed by the Minister of Trade
     and Industry in terms of section 120 of the Companies
     Act (“Takeover Regulations”)) and will be regulated by
     the Takeover Regulation Panel (“TRP”).

 3.2 The Scheme will be implemented by way of a scheme of
     arrangement in terms of sections 114 and 115 of the
     Companies Act to be proposed by the Verimark Board
     between Verimark and the Verimark shareholders (other
     than the holders of the Ineligible Shares).

 3.3 If the Scheme becomes operative, the delisting of the
     Company’s shares from the JSE will occur and all
     Verimark shareholders, excluding those Verimark
     shareholders that validly exercise their appraisal
     rights in accordance with section 164 of the Companies
     Act ("Appraisal Rights") as a consequence of the
     approval of the Scheme and whose shareholder rights have
     not been reinstated as envisaged in sections 164(9) and
     164(10) and/or 164(15)(c)(v)(aa) of the Companies Act,
     or who have not been ordered by the court to withdraw
     their demands in terms of section 164(15)(v)(aa) of the
     Companies Act, will be deemed to have disposed of all of
     their Scheme Shares to the Offeror in exchange for the
     Scheme Consideration.

4. MATERIAL TERMS OF THE OFFER

The Offer will be made on the basis that –

 4.1 the Offeror will acquire all of the Scheme Shares, being
     29 508 033 Ordinary Shares;

 4.2 following the implementation of the Scheme, Verimark
     will be delisted from the JSE Limited (“JSE”) and wholly
     owned by the Offeror and its concert parties; and

 4.3 upon implementation of the Scheme, holders of Scheme
     Shares will receive the scheme consideration of R1.50
     (one rand and fifty cents) (“the Scheme Consideration”)
     for every 1 (one) Scheme Share disposed of in terms of
     the Scheme.

5. THE SCHEME CONDITIONS

5.1 The Scheme will be subject to (and will become operative
    on the relevant operative date upon) the fulfilment of the
    following conditions precedent (“Scheme Conditions”):

5.1.1 that the Scheme be approved by the requisite majority of
       holders of Scheme Shares by no later than 28 February
       2019 (being presently the “Long Stop Date”), as
       contemplated in section 115(2)(a) of the Companies Act,
       and, in the event of the provisions of section
       115(2)(c) becoming applicable –
    5.1.1.1 by no later than the Long Stop Date, the High
            Court of South Africa approves the implementation
            of such resolution; and
    5.1.1.2 if applicable, Verimark not treating the
            aforesaid resolution as a nullity as contemplated
            in section 115(5)(b) of the Companies Act;

5.1.2 to the extent that Verimark shareholders exercise their
      Appraisal Rights, either:

    5.1.2.1 Verimark shareholders holding no more than 10% of
            all of the Scheme Shares give notice objecting to
            the Scheme as contemplated in section 164(3) of
            the Companies Act and vote against the
            Transaction Resolution at the Scheme Meeting; or

    5.1.2.2 if Verimark shareholders do give notice objecting
            to the Scheme as contemplated in section 164(3)
            of the Companies Act and vote against the
            Transaction Resolution at the Scheme Meeting in
            respect of more than 10% of all the Scheme
            Shares, such Verimark shareholders have not
            exercised Appraisal Rights, by giving valid
            demands in terms of sections 164(5) to 164(8) of
            the Companies Act, in respect of more than 10% of
            all the Scheme Shares within the time periods
            permitted in terms of the Companies Act;

5.1.3 by no later than 28 February 2019 that, the approval of
      the JSE, the TRP and South African Reserve Bank on an
      unconditional basis or, to the extent that any such
      Regulatory Consents are subject to any obligation,
      undertaking, condition or qualification, the party/ies
      adversely affected by the obligation, undertaking,
      condition or qualification confirms in writing to the
      other/s that the obligation, undertaking, condition or
      qualification is acceptable to it or them, which
      confirmation shall not be unreasonably withheld or
      delayed.

5.1.4 subject to paragraph 5.2, in the event that the Scheme
      Conditions are not fulfilled or waived in a timely
      manner and the Scheme is terminated as contemplated in
      paragraph 7, then the Scheme will not become operative
      and shall be of no force or effect.

5.2 The Scheme Condition in paragraph 5.1.2 may be waived by
    the Offeror upon written notice to Verimark, prior to the
    date for fulfilment of the relevant Scheme Condition.
5.3 The Scheme Conditions in paragraphs 5.1.1 and 5.1.3 may be
    waived by the Offeror and Verimark upon written agreement,
    prior to the date for fulfilment of the relevant Scheme
    Condition.

5.4 The dates and times for the fulfilment of the relevant
    Scheme Conditions may be extended by written agreement
    between the Offeror and Verimark.

6. THE SUBSTITUTE OFFER

It is an express condition of the Scheme that, should the
Scheme fail for any reason other than the termination events
in terms of paragraph 7, then immediately after the failure of
the Scheme:

6.1 The Substitute Offer will be deemed to have been made in
    terms of section 117(1)(c)(v) of the Companies Act by the
    Offeror to the Verimark shareholders to acquire the Scheme
    Shares at an offer price of R1.50 per Share (“the
    Substitute Offer Consideration”);

6.2 The Delisting of Verimark from the JSE in terms of
    sections 1.14 to 1.16 of the Listings Requirements will
    become operative if the ordinary resolution to be proposed
    at the Scheme Meeting has been passed by the requisite
    majority of eligible Verimark shareholders.

7. TERMINATION EVENTS

The Scheme will terminate forthwith –

7.1 upon written notice by the Offeror to Verimark if the
    Independent Board recommends a solicited alternative
    proposal to the Verimark shareholders. A “Solicited
    Alternative Proposal” means any solicitation or initiation
    by Verimark of any expression of interest, enquiry,
    proposal or offer regarding certain alternative proposals
    in respect of the Scheme Shares and or the Verimark group;

7.2 upon written notice by Verimark to the Offeror if Verimark
    has received an alternative proposal which the Independent
    Board reasonably determines to be a Superior Proposal, and
    the Offeror has not, within 5 business days from the date
    on which the terms of the alternative proposal is
    communicated to it, made a matching (or superior) offer. A
    "Superior Proposal" is, in summary, a proposal from a
    third party received by Verimark for the acquisition of
    all the Scheme Shares in issue (excluding Treasury Shares
    and Scheme Shares held by the third party and/or persons
    acting in concert with it), and which is at a
    consideration per Scheme Share of greater than the Scheme
    Consideration and is considered by the Board, acting in
    good faith and after having consulted its advisors, to be
    bona fide;

7.3 upon written notice from either Verimark to the Offeror,
    or the Offeror to Verimark, if the Scheme is not approved
    by the requisite majority of eligible Verimark
    shareholders at the Scheme Meeting;

7.4 if any Scheme Condition which may be waived by the Offeror
    becomes incapable of fulfilment, and the Offeror notifies
    Verimark in writing that the Offeror will not waive that
    Scheme Condition;

7.5 upon written notice from either Verimark to the Offeror,
    or the Offeror to Verimark, if all the Scheme Conditions
    have not been fulfilled or waived (to the extent
    permitted), on or before the relevant date/s for
    fulfilment or waiver (to the extent permitted);

7.6 subject to paragraph 7.7 below, upon written notice by the
    Offeror to Verimark, or Verimark to the Offeror
    ("Defaulting Party"), given on or before the last day to
    trade Scheme Shares on the JSE in order to be recorded in
    Verimark's securities register at the close of business on
    the record date for the Scheme, if the Defaulting Party
    commits a material breach of any provision of the Firm
    Offer or the Scheme and fails to remedy such breach within
    10 business days of receipt of a written notice by the
    Defaulting Party from another party requesting such
    remedy. A material breach shall mean any breach by –

7.6.1 the Company of the provisions of paragraph 7.1 relating
      to a Solicited Alternative Proposal, if a Solicited
      Alternative Proposal is made which was a proximate and
      material consequence of a breach of paragraph 7.1; or

7.6.2 any Defaulting Party which would either (i) be such as
      to preclude the due fulfilment of any Scheme Condition
      or implementation of the Scheme; and/or (ii) result or
      is reasonably likely to result in the Offeror, the
      Company or the Scheme Participants incurring or
      suffering losses, damages, liabilities, costs, claims or
      expenses in excess of an amount of R5,000,000.

7.7  No party may terminate the Scheme prior to the last day
     to trade Scheme Shares on the JSE in order to be recorded
     in Verimark's securities register at the close of
     business on the record date for the Scheme.

8. SHAREHOLDING IN VERIMARK AND ACTING AS PRINCIPAL

8.1 The Offeror confirms that its concert parties, VFT,
    together with Prime Rentals CC, are the holders of 71% of
    the issued share capital in Verimark (excluding Treasury
    Shares).

8.2 The Offeror confirms that it is the ultimate prospective
    purchaser of the Scheme Shares and that it is acting alone
    and not in concert with any party, other than with VFT and
    Prime Rentals CC.

9. GUARANTEE

In compliance with regulations 111(4) and 111(5) of the
Companies Regulations, the Offeror has provided the TRP with
an irrevocable, unconditional guarantee issued by Investec
Bank Limited ("Bank") for the maximum amount of the Scheme
Consideration which is an amount of ZAR 44,262,049.50, which
guarantee confirms that in the event that the Scheme
Consideration is not paid within the relevant time period, the
Bank agrees to make payment of the Scheme Consideration to the
transfer secretaries in respect of the Scheme or such other
designated payment agent as the TRP may direct in writing, for
the benefit of the Scheme Participants and, as applicable,
Verimark. The guarantee expires on 21 May 2019.

10. IRREVOCABLE UNDERTAKINGS AND IN-PRINCIPLE LETTERS OF
    SUPPORT

Irrevocable undertakings have been given to vote in favour of
the Transaction by the following Verimark shareholders who
collectively hold 5 490 649 Scheme Shares, representing 18.61%
of the Scheme Shares:
                                   Shares       Percentage
                 Date of           subject to   Shareholding
                 irrevocable       irrevocable Of Scheme
 Shareholder     undertaking       undertaking Shares

 Standard        22 November 2018  3 699 124    12.54%
 Chartered
 Ghana Nominees

 Daarneoc        21 November 2018  1 791 525    6.07%
 Beleggings
 Beperk

In addition, in-principle letters of support and intention to
vote in favour of the Transaction have been given by the
following Verimark shareholders who collectively hold
4 349 654 Scheme Shares, representing 14.74% of the Scheme
Shares.

                                    Shares       Percentage
                                    subject to   Shareholding
                Date of letter of   letter of    Of Scheme
Shareholder     support             support      Shares

Jobre Stassen   22 November 2018    2 899 554    9.83%

Happiness       22 November 2018    1 450 100    4.91%
Trust

11. INDEPENDENT BOARD, OPINION AND RECOMMENDATIONS

11.1   In accordance with the Companies Regulations, the
       Independent Board, comprised of independent non-
       executive directors, being M Kabi, N Gosa and T
       Nzimande, has been appointed by the Verimark Board, to
       evaluate the Transaction.

11.2   The Independent Board has appointed Mazars Corporate
       Finance as the independent expert (“Independent
       Expert”) to provide the Independent Board with external
       advice in regard to the Scheme and to make appropriate
       recommendations to the Independent Board for the
       benefit of Verimark shareholders. Based on the draft
       Independent Expert Report, and subject to the final
       Independent Expert Report being issued in substantively
       the same terms as the draft presented, the Independent
       Board is presently of the opinion that the Scheme and
       the Scheme Consideration are fair and reasonable to
       Shareholders and intends in the Scheme Circular to
       recommend that Shareholders vote in favour of the
       resolution approving the Scheme.

11.3   The substance of the external advice and the opinion of
       the Independent Board on the Scheme will be detailed in
       the Scheme Circular.

12. FURTHER DOCUMENTATION AND SALIENT DATES

12.1   Further details of the Scheme will be included in the
       Scheme Circular that will be posted to Verimark
       shareholders on or about 19 December 2018. The Scheme
       Circular will, inter alia, also contain a notice of the
       Scheme Meeting, a form of proxy and a form of surrender
       and transfer.

12.2   The Scheme will become effective and be implemented
       following the fulfilment of the Scheme Conditions as
      set out above. The salient dates in relation to the
      Scheme will be published in due course.

13. INDEPENDENT BOARD RESPONSIBILITY STATEMENT

The Independent Board accepts responsibility for the
information contained in this announcement which relates to
Verimark and confirms that, to the best of its knowledge and
belief, such information which relates to Verimark is true and
the announcement does not omit anything likely to affect the
importance of such information.

14. OFFEROR RESPONSIBILITY STATEMENT

The Offeror accepts responsibility for the information
contained in this announcement which relates to the Offeror
and confirms that, to the best of its knowledge and belief,
such information which relates to the Offeror is true and the
announcement does not omit anything likely to affect the
importance of such information.

15. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

Verimark shareholders are referred to Verimark’s cautionary
announcement released on SENS on 22 October 2018, and are
advised that, whereas the terms of the Transaction have now
been announced, caution is no longer required to be exercised
by Verimark shareholders when dealing in their Verimark
shares.

Johannesburg
23 November 2018

Joint Transaction Advisor and Transactional Sponsor to
Verimark: PSG Capital

Joint Transaction Advisor to Verimark: Khanda Capital

Transaction Advisor to the Offeror and Sponsor to Verimark:
Grindrod Bank

Date: 23/11/2018 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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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,
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