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REMGRO LIMITED - Distribution of RMH ordinary shares to Remgro shareholders

Release Date: 14/04/2020 17:46
Code(s): REM     PDF:  
Wrap Text
Distribution of RMH ordinary shares to Remgro shareholders

REMGRO LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1968/006415/06)
ISIN: ZAE000026480
Share code: REM
("Remgro")


ANNOUNCEMENT REGARDING THE DISTRIBUTION OF RMB HOLDINGS LIMITED ("RMH") ORDINARY
SHARES ("RMH SHARES") TO HOLDERS OF REMGRO NO PAR VALUE ORDINARY SHARES AND REMGRO
UNLISTED NO PAR VALUE B ORDINARY SHARES("REMGRO SHAREHOLDERS").

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, IN OR INTO AUSTRALIA, CANADA, JAPAN, THE UNITED STATES OF AMERICA OR ANY
JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT OR WOULD REQUIRE
FURTHER ACTION TO DO SO. THIS ANNOUNCEMENT DOES NOT CONSTITUTE OR FORM PART OF ANY
OFFER TO SELL OR ISSUE OR INVITATION TO PURCHASE OR SUBSCRIBE FOR, OR ANY SOLICITATION
OF ANY OFFER TO PURCHASE OR SUBSCRIBE FOR, ANY SECURITIES. THE SECURITIES REFERRED
TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES, EXCEPT PURSUANT
TO AN APPLICABLE EXEMPTION FROM REGISTRATION. NO PUBLIC OFFERING OF SECURITIES IS
BEING MADE IN AUSTRALIA, CANADA, JAPAN, THE UNITED STATES OR ELSEWHERE.

1. Introduction

   Remgro Shareholders are referred to the cautionary announcements released on
   the Stock Exchange News Service ("SENS") on 19 November 2019, 7 January 2020
   and 18 February 2020 relating, inter alia, to the in-principle decision by
   Remgro to pursue the distribution, in full or in part, of its shareholding in
   RMH and FirstRand Limited ("FirstRand") to Remgro Shareholders. Concurrently
   with Remgro's cautionary announcements, RMH proposed the distribution by RMH
   of its FirstRand shares to its shareholders ("RMH Unbundling") as part of a
   restructuring of the RMH portfolio of assets and liabilities.

   Remgro Shareholders are further referred to the cautionary announcement
   released on SENS on 31 March 2020 in terms of which Remgro Shareholders were
   advised that the board of directors of Remgro ("Board") had resolved to proceed
   with the distribution of Remgro's 28.2% interest in RMH to Remgro Shareholders
   (the "Remgro Unbundling"), but to retain Remgro's 3.9% direct interest in
   FirstRand.

   Remgro Shareholders are also referred to the terms announcement released by
   RMH concurrently with this announcement in which RMH has advised RMH
   shareholders that it intends distributing its entire shareholding in FirstRand
   to RMH shareholders by way of a distribution in specie. Following the
   implementation of the RMH Unbundling, RMH will remain listed, with its property
   portfolio as its sole remaining asset.

   The purpose of this announcement is to provide Remgro Shareholders with
   detailed information regarding the implementation of the Remgro Unbundling.

2. Rationale

   Remgro constantly evaluates the optimal composition of its investment portfolio
   to ensure that it remains an attractive and appropriately rated permanent
   capital investment vehicle for investors. It is important to Remgro to ensure
   that the portfolio composition is shaped by a long-term perspective on
   shareholder value creation. Key considerations in this context include the
   level of maturity, independence and the size of an investment relative to the
   size of the overall Remgro portfolio.
   
   As RMH has developed into a large, mature, independently run business of scale
   with an overweight contribution to the Remgro portfolio, Remgro is of the
   opinion that the Remgro Unbundling will unlock significant value for Remgro
   Shareholders. The Remgro Unbundling also presents an opportunity to rebalance
   the maturity of Remgro's remaining investment portfolio, as well as the
   relative contribution of the remaining portfolio investments to enable greater
   impact and shareholder value creation.

   The Remgro Unbundling has significant benefits for Remgro Shareholders,
   including, inter alia:
    -   Reducing the underlying discount to net asset value that the Remgro shares
        currently trade at by reducing the three listed entry points into the
        underlying operations via FirstRand, RMH and Remgro;
    -   Giving Remgro Shareholders direct access to RMH shares and the dividends
        payable in respect thereof; and
    -   Enabling Remgro Shareholders to participate in the RMH Unbundling pursuant
        to which FirstRand shares will be distributed to them.

   Remgro's direct 3.9% interest in FirstRand will be retained to provide
   additional balance sheet capacity that will support growth in Remgro’s existing
   portfolio, as well as its ability to pursue new opportunities that may arise.

3. Key terms of the Remgro Unbundling

   Remgro will distribute all its RMH Shares (comprising 397,447,747 ordinary
   shares) (the "Unbundled RMH Shares") on a pro-rata basis to all the Remgro
   Shareholders as a dividend in specie.

   Remgro Shareholders will receive 0.69939 Unbundled RMH Shares for every 1
   Remgro share held on the Record Date (as defined in paragraph 11 below). The
   transfer of the Unbundled RMH Shares will result in fractional entitlements,
   which is explained in more detail in paragraph 4 below.

   The Remgro Unbundling will result in Remgro Shareholders holding a direct
   interest in RMH. As direct shareholders of RMH, Remgro Shareholders will be
   entitled to participate in the RMH Unbundling.

   The detailed tax implications of the Remgro Unbundling are set out in paragraph
   9 below.

4. Fractional entitlements, cash proceeds and applicable rate

   In accordance with the JSE Listings Requirements, fractional entitlements will
   be rounded down to the nearest whole number. The aggregated excess fractions
   of the Unbundled RMH Shares to which Remgro Shareholders will remain entitled,
   will be sold in the market, on the Remgro Shareholders’ behalf, as soon as
   practicable after the Remgro Unbundling. The cash proceeds of the sale of the
   fractional entitlements ("Cash Proceeds") will be paid to the relevant Remgro
   Shareholders on the basis set out below, net of any applicable taxes (such as
   Securities Transfer Tax ("STT")) and costs.

   Cash Proceeds due to Remgro Shareholders will be determined at a 10% discount
   to the VWAP of RMH Shares on the Johannesburg Securities Exchange ("JSE") on
   Wednesday, 3 June 2020, being the day on which Remgro shares will begin to
   trade 'ex' the entitlement to receive the Unbundled RMH Shares. The actual
   price used to calculate the Cash Proceeds will be announced on SENS on Thursday,
   4 June 2020, by 11h00.

5. Financial effects

   Based on Remgro’s unaudited results for the six months ended 31 December 2019,
   the pro forma financial effects of the Remgro Unbundling on the earnings per
   share ("EPS"); diluted EPS, headline earnings per share ("HEPS"); diluted HEPS,
   HEPS, excluding option remeasurement, diluted HEPS, excluding option
   remeasurement; net asset value per share ("NAV"); net tangible asset value per
   share ("NTAV") and intrinsic NAV per share ("INAV") of Remgro, are set out
   below.

   These financial effects are prepared for illustrative purposes only to assist
   Remgro Shareholders to assess the impact of the Remgro Unbundling but, because
   of their nature, may not give a fair presentation of the effect of the Remgro
   Unbundling on Remgro’s results of operations.

   The summarised pro forma financial effects have been prepared in a manner
   consistent in all respects with International Financial Reporting Standards
   ("IFRS"), the accounting policies adopted by Remgro as at 31 December 2019 and
   the JSE Listings Requirements. The summarised pro forma financial effects have
   not been audited, or reported on, by Remgro’s auditors or reporting
   accountants.

   The pro forma financial effects are the responsibility of the Board. The
   material assumptions used in the preparation of the pro forma financial effects
   are set out in the notes following the table below.

                                          Unaudited    Unaudited
                                          financial    pro forma
                                         results at   results at
                                        31 December  31 December
                                        2019 before   2019 after
                                       the proposed the proposed
                                        Transaction  Transaction       Change
                                            (cents)      (cents)          (%)
EPS
  - Basic                                    766.3      4 634.0         504.7
  - Diluted                                  762.7      4 622.8         506.1
HEPS
  - Basic                                    750.9        484.6        (35.5)
  - Diluted                                  747.4        481.7        (35.5)
HEPS, excluding option remeasurement
  - Basic                                    750.7        484.5        (35.5)
  - Diluted                                  747.2        481.6        (35.5)

NAV                                         18 669       17 079         (8.5)
NTAV                                        14 446       12 857        (11.0)
INAV                                        24 093       18 429        (23.5)

Notes:
1.     The pro forma financial effects are based on the unaudited financial
       results of Remgro for the six months ended 31 December 2019. The
       financial impact on the earnings of Remgro are illustrated as if the
       Remgro Unbundling had been completed on 1 July 2019, while the impact
       on the net assets of Remgro are shown as if the Remgro Unbundling had
       been implemented on 31 December 2019.
2.     The following common assumptions have been used in the calculation of
       the pro forma financial information:
          a. A FirstRand share price of R62.80 at 31 December 2019; and
          b. An RMH share price of R80.44 at 31 December 2019.
3.     As a result of the Remgro Unbundling, Remgro ceases to have significant
       influence in FirstRand and would therefore have to derecognise its
       FirstRand equity accounted investment and account for it as a financial
       asset at fair value through other comprehensive income (the “FirstRand
       Reclassification”). The pro forma income statement effects represent
       the dividends received from FirstRand and the reversal of Remgro's
       attributable portion of FirstRand’s and RMH’s equity accounted earnings
       for the six months ended 31 December 2019, as well as the profit realised
       on the Remgro Unbundling and FirstRand Reclassification
4.     The statement of financial position effects represent the profit
       realised on the Remgro Unbundling and FirstRand Reclassification as
       described above, as well as the dividend in specie.
5.     The financial effects set out above have been prepared based on IFRS
       and interpretations of IFRS applicable at 31 December 2019.

6. Information relating to RMH

   RMH is an investment holding company with a track record of investing in
   disruptive and entrepreneurial financial services businesses.

   RMH was listed on the JSE in 1992 as a vehicle to allow investors to co-invest
   with the founders of Rand Merchant Bank, and since then has played a significant
   role in the establishment and growth of some of South Africa’s most iconic
   financial services businesses, including FirstRand, Discovery, Momentum
   Metropolitan and OUTsurance.

   In 2011, RMH's insurance interests (Discovery, Momentum Metropolitan and
   OUTsurance) were separately listed as Rand Merchant Investment Holdings
   Limited. Since then RMH has been an investment vehicle into FirstRand, one of
   South Africa’s most successful financial services groups. RMH is the largest
   shareholder in FirstRand.

   During July 2016 RMH expanded its investment strategy to include a property
   investment business alongside its 34% investment in FirstRand. This involved
   establishing a diversified portfolio of scalable entrepreneur-led businesses
   with proven track records in managing and growing property portfolios.

   For further detailed information on RMH, Remgro Shareholders are referred to
   the annual report of RMH for the financial year ended 30 June 2019 and the
   unaudited interim results of RMH for the six-month period ended 31 December
   2019, both of which can be accessed on RMH's website (www.rmh-online.co.za).

7. Condition precedent

   The implementation of the Remgro Unbundling is subject to the fulfilment, or
   waiver, as the case may be, of the condition precedent that by no later than
   30 April 2020 the Ontario Securities Commission has granted an exemption from
   the prospectus requirement of section 53 of the Securities Act (Ontario) in
   connection with the Remgro Unbundling.

8. Exchange Control Regulation

   The Unbundled RMH Shares are not freely transferable from the common monetary
   area and must be dealt with in terms of the South African Exchange Control
   Regulations, 1961 (as amended) ("Exchange Control Regulations"). The following
   summary of the Exchange Control Regulations is intended as a guide only and
   is not a comprehensive statement of the Exchange Control Regulations or advice.
   Remgro Shareholders who are in any doubt regarding the Exchange Control
   Regulations should contact their own professional advisers. This summary is
   based on the laws and regulations as in force and as applied in practice as
   at the date hereof and is subject to changes to those laws and regulations and
   practices subsequent to such date.

   8.1 Emigrants from the Common Monetary Area consisting of South Africa, the
   Republic of Namibia and the Kingdoms of Lesotho and eSwatini ("CMA")

   Any share certificates that may be issued by RMH to emigrants from the CMA
   will be endorsed "non-resident" in accordance with the Exchange Control
   Regulations.
   
   Uncertificated Unbundled RMH Shares will be credited directly to the emigrants’
   respective emigrant share accounts at the CSDP or broker controlling their
   remaining portfolios and an appropriate electronic entry will be made in the
   relevant register reflecting a “non-resident” endorsement. The CSDP or broker
   will ensure that the emigrant adheres to the Exchange Control Regulations.

   Any Unbundled RMH Shares and/or securities issued in certificated form, cash
   dividends and residual cash payments based on emigrants’ Unbundled RMH Shares
   and/or securities controlled in terms of the Exchange Control Regulations will
   be forwarded to the authorised dealer in foreign exchange controlling their
   remaining assets.

   8.2 Residents outside of the CMA

   Any share certificates that may be issued by RMH to non-residents of the CMA
   will be endorsed "non-resident" in accordance with the Exchange Control
   Regulations.

   Uncertificated Unbundled RMH Shares and/or securities will be credited directly
   to the non-resident’s non-resident share accounts at the CSDP or broker
   controlling their portfolios and an appropriate electronic entry will be made
   in the relevant register reflecting a "non-resident" endorsement. The CSDP or
   broker will ensure that the non-resident adheres to the Exchange Control
   Regulations.

   Any Cash Proceeds payable to non-resident Remgro Shareholders in relation to
   their fractional entitlements are freely transferable from South Africa,
   subject to being converted into a currency other than Rand or paid for the
   credit of a non-resident Rand account.

9. Taxation

   The following summary describes the tax consequences of the Remgro Unbundling
   that may apply to Remgro Shareholders generally. This summary is based on the
   laws as in force and as applied in practice as at the date hereof and is
   subject to changes to those laws and practices subsequent to such date.

   In the case of persons who are non-residents of South Africa for tax purposes,
   this summary should be read in conjunction with the provisions of any
   applicable double tax agreement between South Africa and their country of
   residence. Remgro and its advisers cannot be held responsible for the taxation
   consequences that the Remgro Unbundling may have on individual Remgro
   Shareholders and therefore if you are in any doubt about your tax position you
   should consult an appropriate independent professional adviser.

   The Remgro Unbundling will constitute a disposal by Remgro of the Unbundled
   RMH Shares to Remgro Shareholders. It is intended that the disposal will be
   implemented in terms of section 46 of the Income Tax Act, which allows for a
   tax neutral implementation of the Remgro Unbundling from an income tax, Capital
   Gains Tax ("CGT"), dividend tax and STT perspective, including the following
   concessions for Shareholders:

   9.1 Remgro shares held as trading stock

   Remgro Shareholders holding Remgro shares as trading stock will be deemed to
   acquire the Unbundled RMH Shares as trading stock through a dividend in specie
   that must be disregarded for dividends tax purposes. The distribution must
   also not be treated as a return of capital for the purposes of paragraph 76B
   of the Eighth Schedule to the Income Tax Act.

   The original expenditure incurred in respect of the Remgro shares will be
   apportioned between the Unbundled RMH Shares and the Remgro shares based on a
   ratio that is determined with reference to the respective closing prices of
   the shares in RMH and Remgro on the first business day after the LDT Date (as
   defined in paragraph 11 below).

   9.2 Remgro shares held as capital assets

   Remgro Shareholders holding Remgro shares as capital assets will be deemed to
   acquire the Unbundled RMH Shares as capital assets through a dividend in specie
   that must be disregarded for dividends tax purposes. The distribution must
   also not be treated as a return of capital for the purposes of paragraph 76B
   of the Eighth Schedule to the Income Tax Act.

   The CGT 'base cost' of the Remgro shares in the hands of Remgro Shareholders
   immediately before the Remgro Unbundling will be apportioned between the
   Unbundled RMH Shares and the Remgro shares based on a ratio that is determined
   with reference to the respective closing prices of the shares in RMH and Remgro
   on the first business day after the LDT Date (as defined in paragraph 11
   below).

   Remgro Shareholders will be deemed to have acquired the Unbundled RMH Shares
   on the date on which the Remgro shares were originally acquired.

   9.3 Apportionment ratios to be used

   Remgro will advise Remgro Shareholders of the relevant apportionment ratios
   to be used to determine their tax cost bases in the Remgro shares and the
   Unbundled RMH Shares by way of an announcement to be released on SENS on the
   second business day after the LDT Date (as defined in paragraph 11 below).

   These ratios must be used in the determination of any income or capital gains
   or losses (as the case may be), derived on any future disposals of the Unbundled
   RMH Shares or Remgro shares.

10. Foreign Shareholders

   The following summary describes the restrictions applicable to Remgro
   Shareholders in terms of the Remgro Unbundling who have registered addresses
   outside South Africa and/or who are nationals, citizens or residents of
   countries other than South Africa ("Overseas Shareholders") or who are persons
   (including, without limitation, custodians, nominees and trustees) who have a
   contractual or legal obligation to forward this announcement to a jurisdiction
   outside South Africa, or who hold Remgro shares for the account or benefit of
   any such Overseas Shareholder and will therefore hold RMH in a similar manner
   and hence may have an impact on Remgro Shareholders.

   The Remgro Unbundling will be implemented as a pro-rata distribution in specie
   for no consideration to all Remgro Shareholders recorded as such in the
   register of Remgro on the Record Date.

   It is the responsibility of any Overseas Shareholder (including, without
   limitation, nominees, agents and trustees for such persons) being notified by
   this announcement of the Remgro Unbundling and wishing to have their Unbundled
   RMH Shares transferred to them in terms of the Remgro Unbundling to satisfy
   themselves in respect of the applicable laws in their territory, including
   obtaining any requisite governmental or other consents, observing any other
   requisite laws, requirements or formalities and paying any issue, transfer or
   other taxes due in such territories.

   Accordingly, persons (including, without limitation, nominees, agents and
   trustees) being notified in terms of this announcement should not distribute
   or send the announcement to any person in, or citizen or resident of, or
   otherwise into any jurisdiction where to do so would or might contravene
   applicable law or regulation, including local securities laws or regulations.
   Any person who does distribute this announcement into any such territory
   (whether under a contractual or legal obligation or otherwise) should draw the
   recipient’s attention to the contents of this paragraph.

   Remgro reserves the right, but shall not be obliged, to treat as invalid any
   transfer of Unbundled RMH Shares in terms of the Remgro Unbundling, which
   appears to Remgro or its agents to have been executed, effected or dispatched
   in a manner which may involve a breach of the securities laws or regulations
   of any jurisdiction; or if Remgro believes (in its discretion) or its agents
   believe that the same may violate applicable legal or regulatory requirements;
   or if Remgro believes (in its discretion) that it is prohibited or unduly
   onerous or impractical to transfer the RMH Shares to such Overseas Shareholder
   in terms of the Remgro Unbundling.

   If an Overseas Shareholder is of the view that the transfer of the Unbundled
   RMH Shares in terms of the Remgro Unbundling to such Overseas Shareholder may
   involve a breach of the securities laws or regulations or violate applicable
   legal or regulatory requirements, such Overseas Shareholder must as soon as
   reasonably practicable notify their CSDP or broker of such fact or
   circumstance.

   Remgro shall be entitled (in its discretion), including in either of the
   aforementioned instances, to do all things necessary or desirable to ensure
   compliance with applicable law and/or regulation including selling the
   Unbundled RMH Shares that would otherwise have been transferred to the Overseas
   Shareholder under the Remgro Unbundling on behalf of the Overseas Shareholder
   and at their risk, with the net proceeds of such sale (after deduction of any
   applicable taxes which may in this instance include STT, withholdings or costs)
   to be paid to the Overseas Shareholder. In this regard, the Unbundled RMH
   Shares may be aggregated and disposed of on the JSE in an orderly manner by
   the Remgro transfer secretaries on behalf of and for the benefit of such
   Overseas Shareholders as soon as is reasonably practical after the
   implementation of the Remgro Unbundling at the best price that can reasonably
   be obtained at the time of sale.

11. Salient dates and times

                                                                           2020

Terms announcement released on SENS                      Tuesday, 14 April 2020
Terms announcement published in South African press    Wednesday, 15 April 2020
Finalisation announcement released on SENS              Thursday, 30 April 2020
Finalisation announcement published in South African         Monday, 4 May 2020
press
Last day to trade in Remgro shares on the JSE to           Tuesday, 2 June 2020
participate in the Remgro Unbundling ("LDT Date")
Remgro shares trade "ex" entitlement to receive the      Wednesday, 3 June 2020
Unbundled RMH Shares
Announcement of specified ratio in respect of             Thursday, 4 June 2020
apportionment of costs/base costs of Remgro for
taxation/CGT purposes released on SENS
Announcement of Cash Proceeds released on SENS, by        Thursday, 4 June 2020
11h00
Record date to receive Unbundled RMH Shares in terms        Friday, 5 June 2020
of the Remgro Unbundling ("Record Date")
Remgro unbundles the Unbundled RMH Shares to Remgro         Monday, 8 June 2020
Shareholders
Remgro Shareholder’s account with CSDP or broker            Monday, 8 June 2020
updated

Notes:
1. All times shown in this announcement are South African times unless otherwise stated.
2. The above dates and times are subject to change. The above dates have been determined based on
   certain assumptions regarding the Remgro Unbundling. If the relevant dates change and the dates set
   out above are therefore impacted, details of the relevant change will be released on SENS and
   published in the South African press.
3. There may be no rematerialisation or dematerialisation of Remgro shares between Wednesday, 3 June
   2020 and Friday, 5 June 2020, both days inclusive.

12. Withdrawal of cautionary

    Remgro Shareholders are advised that, as a result of the publication of this
    announcement, all prior cautionary announcements are now withdrawn and caution
    is no longer required to be exercised by Remgro Shareholders when dealing in
    their Remgro shares.

Stellenbosch
14 April 2020

Financial adviser and Sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)

Legal adviser
DLA Piper Advisory Services Proprietary Limited

Date: 14-04-2020 05:46:00
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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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