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CONDUIT CAPITAL LIMITED - Disposal of Assets and Withdrawal of Cautionary Announcement

Release Date: 09/12/2019 07:05
Code(s): CND     PDF:  
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Disposal of Assets and Withdrawal of Cautionary Announcement

Incorporated in the Republic of South Africa
(Registration number 1998/017351/06)
Share code: CND ISIN: ZAE000073128
(“Conduit Capital” or “the Company”)



   Further to the cautionary announcement dated 27 November 2019 and the announcement released by
   Trustco Group Holdings Limited (“Trustco”) dated 9 December 2019, the Board of directors of Conduit
   Capital (“the Board”) is pleased to advise shareholders that Conduit Capital has entered into a binding
   term sheet (“Agreement”) with Trustco and its subsidiary, Legal Shield Holdings Limited (“LSH” or “the
   Purchaser”). In terms of the Agreement and subject to certain suspensive conditions, Conduit Capital
   has agreed to dispose of 100% of the issued ordinary shares of Constantia Risk and Insurance Holdings
   Proprietary Limited (“Constantia”) and Conduit Ventures Proprietary Limited (“Conduit Ventures”)
   (Constantia and Conduit Ventures collectively, “the Disposal Assets”) in exchange for shares in LSH
   (“the Disposal”).

   The Disposal constitutes a proposal to dispose of all or the greater part of Conduit Capital’s assets in terms
   of section 112 of the Companies Act, 2008 (Act 71 of 2008), as amended (“Companies Act”) and a
   Category 1 related party transaction in terms of section 9.5(b) of the Listings Requirements of JSE Limited
   (“JSE Listings Requirements”) which will require approval by special resolution of the shareholders of
   Conduit Capital in a general meeting (“Conduit Shareholders Approval”). Conduit Capital will issue a
   circular convening a shareholders meeting and containing full details of the Disposal (“Conduit
   Constantia Disposal Circular”) in due course.

   The parties expect that the Disposal will be implemented on 31 March 2020 or such other date as may be
   agreed before such date (“Closing Date”). Subject to the parties obtaining relevant regulatory approvals,
   the effective date of the Disposal will be the earliest practical date after satisfaction of the last regulatory
   approval in time to be obtained or such later date as may be agreed.


   2.1   Nature of the business of the Disposal Assets and LSH

         2.1.1    Constantia

                  Constantia is Conduit Capital’s wholly owned insurance business which operates across
                  three insurance licences. It offers insurance and risk management solutions, covering
                  areas such as medical malpractice, primary health insurance and medical gap cover
                  products, funeral and life insurance, guarantee and indemnity solutions, medical
                  evacuation insurance, property and casualty, heavy commercial vehicle, small business
                  and other niche lines.

                  Constantia’s products are distributed through underwriting management agencies,
                  administrator managed (binder based) broker distribution, and certain direct broker
                  relationships. Over the past three years, Conduit Capital has invested significantly in
                  capacity, skills and infrastructure at Constantia to improve the underwriting, distribution and
                  innovation capability, thereby building its competitive advantage.

      2.1.2   Conduit Ventures

              Conduit Ventures owns a number of subsidiaries which provide certain insurance related
              services and other support and back office services to insurers, including without limitation
              to Constantia. These services include software solutions, risk management solutions and
              claims related services.

      2.1.3   LSH

              LSH is a diversified financial services provider incorporated in Namibia with a client base
              of more than 280 000 members comprising of individuals and small businesses. It currently
              holds both a short and long-term insurance licence. LSH also owns over 4 000 hectares of
              real estate assets in Namibia, including without limitation property developments and
              vacant land.

              LSH is currently a wholly owned subsidiary of Trustco and, pursuant to the completion of
              the restructuring of the operations of LSH as set out in the Trustco announcement dated
              28 October 2019 (“Trustco Restructuring”), LSH will also hold a commercial banking
              licence in Namibia. On completion of the Trustco Restructuring, LSH will be able provide
              a full spectrum of services across the financial services value chain in Namibia.

              LSH, subject to the completion of the Trustco Restructuring and otherwise as set out in
              LSH’s accounts for the accounting period ending March 2019, will hold assets in a net asset
              value of NAD5.8 billion, capital and reserves of NAD2.1 billion, revenues of NAD1.5 billion
              and generated a net profit after tax of NAD900 million.

2.2   Rationale for the Disposal

      The rationale for the Disposal is to enable the shareholders of Conduit Capital to benefit from an
      investment in a larger and more diversified financial services group with operations in South Africa,
      Namibia and other international markets. The combination of Constantia with LSH will allow
      Constantia to benefit from a larger balance sheet which will unlock growth and value creation
      opportunities in the South Africa, Namibian and other international insurance markets.

2.3   Purchase Consideration

      The consideration payable by LSH to Conduit Capital in respect of the Disposal Assets is an amount
      of R2 000 004 232 (two billion four thousand two hundred and thirty-two Rand). The aforesaid
      purchase consideration will be settled by LSH issuing 231 857 (two hundred and thirty-one
      thousand eight hundred and fifty-seven) ordinary shares to Conduit Capital each of which is valued
      at NAD8626.02 (with the exchange rate of NAD to ZAR being 1:1). The aforesaid consideration
      shares will constitute approximately 16.1% of the issued ordinary shares of LSH on issuance on a
      fully diluted basis.

2.4   Application of the sale proceeds

      The net proceeds of the Disposal, being the LSH ordinary shares, will be held by Conduit Capital
      for investment purposes.


   The Disposal is subject to the fulfilment of the following Suspensive Conditions being satisfied on or before
   the Closing Date:

   3.1   all regulatory and other approvals necessary for the implementation of the Disposal are obtained
         (either unconditionally or subject to such conditions as may be agreed between the parties at the
         time) including without limitation, approval by the JSE, Competition Commission, Takeover
         Regulation Panel, Financial Sector Conduct Authority (FSCA), Prudential Authority (PA);

   3.2   the Independent Board obtaining a fair and reasonable opinion expressed by an independent expert
         on the fairness and reasonableness of the consideration for the Disposal taking into account value
         and price;

   3.3   the parties obtaining such shareholder approval as may be required to proceed with the Disposal,
         including the Conduit Shareholders Approval; and

   3.4   the Purchaser completing their legal, accounting and operational due diligence on or before the
         Closing Date and the results thereof being satisfactory.


   The net asset value of the Disposal Assets as at 30 June 2019 was R700 million. The audited loss after
   tax attributable to the Disposal Assets for the year ended 30 June 2019 was R594 million.

   The financial statements were prepared in accordance with International Financial Reporting Standards
   and the Companies Act, 2008 (Act 71 of 2008), as amended.

   The pro forma financial effects of the Disposal will be detailed in the Conduit Constantia Disposal Circular.


   The Disposal is classified as an affected transaction in terms of the Companies Act. Accordingly, Conduit
   Capital has constituted its independent board in terms of the Takeover Regulations, comprising of Mr
   Ronald Napier, Mr William Thorndike Jnr and Ms Rosetta Xaba (“Independent Board”) to consider the
   terms of the Disposal.

   The Independent Board will appoint an Independent Expert to express an opinion on the fairness and
   reasonableness of the Disposal. The contents of the Independent Expert’s advice and opinion and the final
   views of the Independent Board will be detailed in the Conduit Constantia Disposal Circular.


   Conduit Capital has agreed to negotiate the Disposal exclusively with the Purchaser and will not solicit or
   respond to enquiries relating to the proposed Disposal (other than as approved by LSH), nor shop the
   terms of the Agreement to any other person or organisation.

   Should the Purchaser decide not to pursue the Disposal for any reason other than a material discovery
   during the due diligence, a break fee of R10 million shall be payable by Trustco to Conduit Capital.


   As set out in section 1 of this announcement, the Disposal constitutes a Category 1 related party
   transaction in terms of the JSE Listings Requirements and a proposal to dispose of all or the greater part
   of the assets of Conduit Capital in terms the Companies Act. The Conduit Constantia Disposal Circular
   will contain full details of the Disposal, including without limitation a notice to convene a general meeting
   of shareholders of Conduit Capital in order to consider and, if deemed fit to pass, with or without
   modification, the resolutions necessary to approve and implement the Disposal, including the Conduit
   Shareholders Approval, will be issued in due course.

   Sean Riskowitz, Chief Executive Officer of Conduit Capital, controls Protea Asset Management
   (“Protea”). Protea is the Investment Advisor to the Riskowitz Value Fund LP and other accounts (“RVF”).
   RVF is a material shareholder of Conduit Capital. RVF, through its material shareholding in both Trustco
   and LSH controls in excess of 35% of the votes able to be cast at general meetings of LSH and therefore
   LSH is considered to be an associate of RVF and a related party to Conduit Capital in terms of paragraph
   10.1(b) of the Listings Requirements. RVF is a related party of each of Conduit Capital and Trustco as
   contemplated in section 2(1)(c) of the Companies Act as RVF directly or indirectly controls Conduit Capital.
   Protea, RVF and their associates will accordingly be precluded from voting on the Disposal.

   The Independent Board is currently still reviewing and considering the position of certain of the
   shareholders and directors of Conduit Capital to establish whether any such shareholders and/or directors
   are acting in concert with the Purchaser as contemplated in 117(1)(b) of the Companies Act and Regulation
   84 of the Takeover Regulations, 2011 (“Concert Parties”). Any Concert Parties will not be entitled to
   exercise their respective voting rights for the purposes of the Conduit Shareholder Approval. Should any
   Concert Parties be identified, Conduit Capital will release a further announcement confirming the Concert
   Parties and, if applicable, the details of such Concert Parties and their respective shareholding.


   Following the release of this announcement, shareholders are advised that caution is no longer required
   when dealing in the Company’s securities.

9 December 2019

Corporate Adviser and Sponsor to Conduit Capital
Merchantec Capital

Legal Adviser to Conduit Capital
Africa Solved Advisory Proprietary Limited

Date: 09-12-2019 07:05:00
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