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SHOPRITE HOLDINGS LIMITED - Detailed terms of the Proposed Transaction with the Shoprite Deferred Shares and a withdrawal of cautionary

Release Date: 18/04/2019 12:53
Code(s): SHP     PDF:  
 
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Detailed terms of the Proposed Transaction with the Shoprite Deferred Shares and a withdrawal of cautionary

SHOPRITE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration no. 1936/007721/06
ISIN: ZAE000012084
JSE share code: SHP
NSX share code: SRH
LuSE share code: SHOPRITE
(“Shoprite Holdings” or “the Company”)



DETAILED TERMS OF THE PROPOSED TRANSACTION WITH THE SHOPRITE
DEFERRED SHARES AND A WITHDRAWAL OF CAUTIONARY (INCORPORATING A
FIRM INTENTION ANNOUNCEMENT IN TERMS OF REGULATION 101 OF THE
REGULATIONS ISSUED UNDER THE COMPANIES ACT, ACT 71 OF 2008)



1.   Introduction

     Shoprite Holdings’ ordinary shareholders (“Shareholders”) are referred to the
     cautionary announcement released on the stock exchange news service operated by
     the JSE Limited (“JSE”) (“SENS”) on 26 February 2019 and subsequent renewal of
     the cautionary announcement released on SENS on 9 April 2019, relating to the
     Company’s consideration of a potential acquisition and cancellation of all the Shoprite
     Holdings deferred shares (“Deferred Shares”) comprising of 264,969,112 Deferred
     Shares and 32.3% of the votes in Shoprite Holdings in issue (the “Proposed
     Transaction”), being the Deferred Shares in issue other than the Additional Deferred
     Shares referred to hereunder.

     On 18 April 2019, Shoprite Holdings entered into a tripartite agreement with Thibault
     Square Financial Services Proprietary Limited (“Thibault”) and Titan Premier
     Investments Proprietary Limited (“Titan”) on the salient terms detailed below
     (“Transaction Agreement”).

     The directors of the Shoprite Holdings board, excluding Dr Wiese and his alternate
     director JD Wiese (“Board”), being cognisant of the actual and potential conflicts
     between the position of Thibault, Titan and their related and inter-related parties
     (“Titan Group”) and Shoprite Holdings in relation to the Proposed Transaction, has
     taken due care to ensure that its independence has been and will remain in place for
     the duration of the Proposed Transaction.

     The Proposed Transaction is subject to the suspensive conditions set out in
     paragraph 3, which includes the adoption of the special resolutions by the requisite
     number of Shareholders, other than the Titan Group (the Shareholders other than
     the Titan Group are hereinafter referred to as the “Minority Shareholders”) in terms
     of the Companies Act No 71 of 2008, as amended (“Companies Act”) and in terms
     of the Listings Requirements of the JSE (the “Listings Requirements”).

2.   Rationale of the Proposed Transaction

     The Board is of the view that the Proposed Transaction will have the following
     benefits for the Company and its Shareholders:

         -   simplify the Company’s voting share structure and align the Company with
             international best corporate governance practice;
         -   all shares in the Company post implementation of the Proposed Transaction
             will have equal economic and voting rights. Voting interest of Minority
             Shareholders, will increase from c.57.7% to c.82.2% (representing an equal
             proportion to Shareholders’ economic rights in the Company post the
             implementation of the Proposed Transaction);
        -    together with being a simpler and more equitable shareholding structure, the
             post transaction single class of ordinary shares is believed to be more
             appealing to institutional investors and may therefore have a positive impact
             on the demand for the Company’s shares; and
        -    the cancellation of the Deferred Shares removes uncertainty around a future
             sale of Thibault and thus a transfer of significant influence over Shoprite
             Holdings to a third party.

3.   Key terms of the Transaction Agreement

     The Proposed Transaction will be implemented through the specific issue of
     20,000,000 new Shoprite Holdings ordinary shares (“Consideration Shares”) to Titan
     in exchange for the agreement by Titan to acquire the Shoprite Holdings ordinary
     shares held by Thibault (“Disposal Ordinary Shares”) and causing the acquisition and
     cancellation of the Deferred Shares by Shoprite Holdings. The issuance of the
     Consideration Shares will result in an economic dilution to Shareholders of c.3.5%.
     The Proposed Transaction will be categorised as a small related party transaction in
     terms of the Listings Requirements.

     Shoprite Holdings is already entitled to acquire 40,652,489 Deferred Shares
     (“Additional Deferred Shares”) as explained below. The acquisition by Titan of the
     Disposal Ordinary Shares will, in accordance with the terms of Shoprite Holdings’
     memorandum of incorporation, result therein that Shoprite Holdings will also acquire
     and cancel the Deferred Shares (other than the Additional Deferred Shares)
     (“Transaction Deferred Shares”) for a nominal consideration of 0.1 cent per share.
     The total consideration to be paid to acquire all the Transaction Deferred Shares is
     approximately R265,000.

     The acquisition by Shoprite Holdings of all of the Deferred Shares, pursuant to
     section 48 of the Companies Act, is subject to the provisions of sections 114 and 115
     of the Companies Act and therefore treated as a scheme of arrangement.

     The Proposed Transaction will be subject to standard warranties and the
     Consideration Shares will be subject to a 180-day lock-up period.

     The Proposed Transaction is subject to, inter alia, the following suspensive
     conditions:

     -       to be met by no later than 31 May 2019:

                 -     the Company has not received written notices from Minority Shareholders
                       who in aggregate hold more than 15% of the total issued Ordinary Shares
                       held by the Minority Shareholders, indicating that they will not vote in
                       favour of the required special resolution, post engagement with Minority
                       Shareholders.

         -       to be met by no later than 30 September 2019:

                 -     the Board and the independent board constituted in terms of the
                       Companies Act comprising of Mr EC Kieswetter, Mr JF Basson, Dr ATM
                       Mokgokong, Ms AM le Roux, Mr JA Rock and Prof SA Zinn (“Independent
                       Board”), have adopted the resolutions required to implement the Proposed
                       Transaction;

                 -     the Board has received an independent expert report in terms of section
                       114(3) of the Companies Act that is acceptable to the Board;
                 -     the Board and/or the Independent Board has received an opinion from an
                       independent expert that reflects that the Proposed Transaction is both fair
                       and reasonable;

                 -     the JSE and Takeover Regulation Panel (“TRP”) have provided the required
                       approvals or exemptions in order to implement the Proposed Transaction;

                 -     the financial institutions that hold any form of encumbrance over the
                       Disposal Ordinary Shares have in writing unconditionally agreed to release
                       the Disposal Ordinary Shares from those encumbrances to enable the
                       Disposal Ordinary Shares to be transferred to Titan;

                 -     Thibault has delivered a certificate signed by the auditors of Thibault to the
                       Company in terms whereof its auditors certify that immediately after the
                       Disposal Ordinary Shares have been transferred and the Consideration
                       Shares have been issued, the fair market value of the assets of Thibault
                       will exceed the aggregate amount of the liabilities of Thibault;

                  -    the required resolutions have been adopted by the requisite number of
                       Minority Shareholders, at a general meeting of Shareholders (“General
                       Meeting”);

                  -    Shareholders not holding more than 2% of all Shoprite Holdings’ issued
                       Ordinary Shares have exercised appraisal rights in terms of section 164 of
                       the Companies Act; and

                  -    Shareholders have not exercised their rights in terms of section 115(3) of
                       the Companies Act or if Shareholders do exercise those rights, the court
                       has finally approved the special resolutions and the Proposed Transaction
                       or finally rejected an application to review the special resolutions and the
                       Proposed Transaction, as the case may be.

         Some of those conditions that are not of a regulatory nature may be waived by the
         Company or jointly by the parties hereto.

         Additional Deferred Shares

         Unrelated to the Proposed Transaction, in December 2017 Thibault sold a number
         of Ordinary Shares held by it at the time. The effect thereof was that Shoprite
         Holdings became entitled to acquire the Additional Deferred Shares, in accordance
         with the terms of Shoprite Holdings’ memorandum of incorporation. On fulfillment
         of the above suspensive conditions the Company will accordingly acquire and cancel
         all the Transaction Deferred Shares as well as the Additional Deferred Shares held
         by Thibault. The effect thereof will be that on completion of those acquisitions
         Shoprite Holdings will have no more issued Deferred Shares. The Additional
         Deferred Shares have not been included in any of the voting percentages calculated
         in this announcement as the rights to exercise any voting rights in respect of the
         Additional Deferred Shares have lapsed and Thibault has undertaken not to exercise
         any voting rights in respect of these shares prior to the cancellation thereof.

         The approvals required to implement the Proposed Transaction, as detailed above,
         will therefore also include approvals for the acquisition and cancellation of the
         Additional Deferred Shares.

         Effective date

         The effective date of the Proposed Transaction is expected to be when all the
         suspensive conditions have been met, which is expected to be on or before
         30 September 2019.


     4. Process

       Board

       The following process was followed by Shoprite Holdings to ensure its
       independence:

       -   the Board appointed an independent committee to negotiate and evaluate the
           benefits of the Proposed Transaction for Shoprite Holdings and its
           Shareholders;

       -   the Board independently evaluated the Proposed Transaction without the
           presence of the Titan Group, its appointed directors and its financial advisors;
           and

       -   the Board appointed independent financial advisors.

      Independent expert

      The Board has appointed Ernst and Young Advisory Services Proprietary Limited
      (“EY”) as the independent expert, as required in terms of the Listings Requirements
      and Companies Act.

      EY has furnished a draft opinion to the Board that considers the Proposed Transaction
      to be both fair and reasonable to Shareholders (the “Draft Independent Expert
      Opinion”). The Draft Independent Expert Opinion is subject to the limitations and
      conditions, normal for a transaction of this nature, to be set out in the final opinion
      and subject to the required regulatory approvals.

5.    Impact of the Proposed Transaction on the economic and voting interest of
      Shareholders

      Following the issuance of the Consideration Shares the total voting interest of
      Minority Shareholders will increase from c.57.7% to c.82.2%, while their economic
      interest will dilute by c.3.5% (calculated using the total Ordinary Shares in issue less
      treasury shares of 35,436,572, which are shares owned by Shoprite Holdings’ main
      trading subsidiary, Shoprite Checkers (Pty) Ltd).

      The voting interest of the Titan Group will decrease from c.42.3% to c.17.8% and
      its economic interest will increase from c.14.8% to c.17.8%.

6.    Potential financial impact of the Proposed Transaction

      The Proposed Transaction is expected to result in a potential once-off reduction in
      earnings and headline earnings of c.R3.3 billion, based on a 30-day-volume-
      weighted-average-price of R165.35 per share as at 17 April 2019, for indicative
      purposes, in Shoprite Holdings’ results for the financial year in which the Proposed
      Transaction is approved. The once-off reduction in earnings is mainly as a result of
      the recognition of Shoprite Holdings’ commitment to issue the Consideration Shares
      (as referred to above) and will not have an impact on Shoprite Holdings’ cash
      resources.

      In addition, the total Ordinary Shares in issue will increase from 591,338,502 to
      611,338,502 post the issuance of the Consideration Shares, which will affect the
      earnings and headline earnings per share calculations.

      Other than as explained above, the Proposed Transaction is not expected to have
      any direct material impact on the future earnings or cash flow of Shoprite Holdings.
      Shareholders are advised that the above potential financial impact and statements
      contained in this announcement have not been reviewed by Shoprite Holdings’
      auditors or a reporting accountant, are provided for illustrative purposes only and
      are the responsibility of the Board.

      Further details on the financial impact of the Proposed Transaction will be provided
      in a circular to be posted to Shareholders.

7.    Shoprite Holdings share capital

      Shoprite Holdings currently has sufficient authorised but unissued Ordinary Shares
      to issue the Consideration Shares.

8.    Cash confirmation provided to the TRP

      Shoprite Holdings delivered to the TRP a confirmation from Werksmans Attorneys
      confirming that Werksmans Attorneys holds an amount equal to the cash
      consideration required to be paid to acquire all the Deferred Shares, other than the
      Additional Deferred Shares, in trust for Shoprite Holdings (in conformity with
      Regulation 111(4) of the Regulations in terms of the Companies Act) (“Cash
      Confirmation”). The Cash Confirmation is for a nominal amount of approximately
      R265,000.

9.    Intention of Titan post the Proposed Transaction

      Immediately post the Proposed Transaction, the Titan Group will remain Shoprite
      Holdings’ largest shareholder. The Titan Group has indicated to Shoprite Holdings
      that its intention is to remain a long-term Shareholder. In addition, Dr Wiese has
      indicated his intention post the Proposed Transaction to remain as chairman of the
      board of directors of Shoprite Holdings.

10.   Notice of General Meeting

      A circular incorporating a notice of General Meeting to be held on or about
      25 June 2019 containing further information in relation to the Proposed Transaction
      will be posted to Shareholders on or about 27 May 2019, subject to the outcome of
      engagement with Shoprite Holdings’ major Minority Shareholders.

11.   Responsibility statement

      The Independent Board accepts responsibility for the information contained in this
      announcement. To the best of its knowledge and belief, the information contained in
      this announcement is true and nothing has been omitted which is likely to affect the
      importance of the information.

12.   Shareholder rights

      Dissenting shareholders

      A Shareholder who is entitled to vote at the General Meeting is entitled to seek relief
      in terms of section 164 of the Companies Act if that Shareholder notified Shoprite
      Holdings in advance in writing of its intention to oppose the special resolution to be
      put to Shareholders in terms of sections 48, 114 and 115 of the Companies Act to
      approve the acquisition of the Deferred Shares ("Scheme Resolution"), was present
      at the General Meeting and voted against the special resolution. A copy of section
      164 will be included in the circular to be posted to Shareholders. In this regard
      Shareholders are also referred to the suspensive conditions above.
      Court approval

      Shareholders are advised that in terms of section 115(3) of the Companies Act,
      despite the Scheme Resolution having been adopted, Shoprite Holdings may not
      proceed to implement that resolution without the approval of a court if the resolution
      was opposed by at least 15% of the voting rights that were exercised on that
      resolution and, within five business days after the vote, any person who voted
      against the resolution requires Shoprite Holdings to seek court approval; or the
      court, on an application within 10 business days after the vote by any person who
      voted against the resolution, grants that person leave to apply to a court for a review
      of the transaction in accordance with section 115(3). In this regard Shareholders are
      also referred to the suspensive conditions above.

13.   Cautionary withdrawal

      Shareholders are advised that following the release of full details of the Proposed
      Transaction, Shareholders no longer need to exercise caution when dealing in their
      Ordinary Shares.



PG DU PREEZ
Company Secretary
On behalf of the board of directors of Shoprite Holdings


Date issued: 18 April 2019

Financial Advisor and Transaction Sponsor to Shoprite Holdings: Investec Bank Limited

Financial Advisor to Titan and Thibault: Rand Merchant Bank, a division of FirstRand
Bank Limited

Date: 18/04/2019 12:53:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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