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LBH
LBH
LBH - Liberty Holdings - Terms Announcement In Relation To The Acquisition By
Liberty Of A Controlling Interest In Cfc Insurance Holdings Limited ("CfCIH")
LIBERTY HOLDINGS LIMITED
(Registration number 1968/002095/06)
Share code: LBH ISIN: ZAE000127148
("Liberty" or "the Company")
TERMS ANNOUNCEMENT IN RELATION TO THE ACQUISITION BY LIBERTY OF A CONTROLLING
INTEREST IN CfC INSURANCE HOLDINGS LIMITED ("CfCIH")
1. INTRODUCTION
1.1 Shareholders of Liberty are hereby advised that Liberty has entered into
agreements in terms of which Liberty will acquire control of CfCIH, a leading
Kenyan wealth company that comprises life, general and health insurance
businesses in Kenya and Tanzania.
Liberty will acquire control of CfCIH through a two-stage process in terms of
which:
- Liberty will become a shareholder in CfCIH through a subscription for
ordinary shares in CfCIH; and
- Stanbic Africa Holdings Limited ("SAHL"), a wholly-owned subsidiary of
Standard Bank Group Limited ("Standard Bank"), will renounce, in favour of
Liberty, its right to receive a dividend in specie of ordinary shares in CfCIH.
In order to facilitate the acquisition through these steps ("the Transaction"),
a share subscription agreement and renunciation agreement have been entered
into between the relevant parties, the details of which are set out in
paragraphs 4 and 5 respectively, below.
1.2 Description of the Business of CfCIH
On 1 June 2008, through a series of transactions, SAHL acquired a 60%
shareholding in CfC Bank Limited, a Nairobi Stock Exchange ("NSE") listed
financial services company, which it merged with its existing business, namely
Stanbic Bank Kenya Limited. The merged business is now known as CfC Stanbic
Holdings Limited ("CSH"), which ultimately remains 60% owned by Standard Bank,
which is also the holding company of Liberty.
CSH currently controls both The Heritage Insurance Company Limited ("Heritage")
and CfC Life Assurance Limited ("CfC Life"), which are both composite insurers,
offering life, general and health insurance products.
Since 1976 Heritage has represented the general and life insurance arms of CSH
and in 1997 Heritage acquired a health business, giving it an entry point into
the health insurance market. Heritage owns direct interests in two companies,
namely Azali Limited (a 100% owned property company) and The Heritage Insurance
Company Tanzania Limited (a 60% owned Tanzanian general insurance company which
also has interests in Strategis Insurance (Tanzania) Limited, a health
insurance company, and Alliance Insurance Corporation Limited, a Tanzanian
composite insurer).
In 2004, CSH acquired the composite insurance business of American Life
Insurance Company, which was rebranded as CfC Life, under a separate legal
entity which is currently wholly owned by CSH and which has now been renamed
CfCIH. CfC Life`s business offers ordinary and group life, health insurance,
deposit administration, general insurance and mortgage products.
2. OVERVIEW OF THE TRANSACTION
In terms of the agreements:
- the shareholding of the insurance businesses currently controlled by CSH,
namely CfC Life and Heritage (together the "Insurance Businesses") will be
restructured ("the Restructuring") and CfC Life and Heritage will be
constituted as wholly-owned subsidiaries of CfCIH;
- Liberty will subscribe for ordinary shares in CfCIH. The proceeds of this
subscription will be used to enhance the capital base of the Insurance
Businesses, meet certain transaction costs and reduce the level of financial
gearing of CfCIH in preparation for a demerger from the banking and financial
services business of CSH ("the Demerger");
- the Demerger will be effected by means of a dividend in specie by CSH;
- Liberty will acquire from SAHL the shares that it will receive as a
consequence of the dividend in specie, which shareholding will give Liberty
control over CfCIH; and
- CfCIH will be separately listed on the NSE by way of introduction.
3. RATIONALE
Liberty has made clear its strategic intent to grow its business within
Africa`s important economies, leveraging off Standard Bank`s presence, and
specifically to develop a presence in East Africa. Its intention is to enter
markets benefiting from political and regulatory stability, strong economic
growth and where there is potential for greater penetration of wealth products,
thus providing the opportunity to build critical mass.
East Africa is a specific focus area for Liberty to develop a strong presence
as Liberty believes that the region`s growing economies and opportunities for
expanding financial services penetration present opportunities to add
significant value to Liberty`s shareholders. CfC Life and Heritage provide
life, health and general insurance in the Kenyan and Tanzanian markets and
would provide Liberty with a solid platform from which to achieve its growth
objectives in the region.
Liberty is of the view that the benefits to be obtained by its shareholders in
the medium-to long-term as a result of the Transaction would include the
following:
(a) CfCIH, as a separate listed entity with Liberty as an anchor shareholder,
will benefit from greater focus and the value available from having a strategic
shareholder with significant insurance expertise and access to funds for
growth;
(b) CfCIH will be positioned to benefit from economies of scale, the extraction
of synergies between the Insurance Businesses and from greater capital
efficiency, resulting in improved returns for all shareholders; and
(c) the restructured and demerged Insurance Businesses will provide Liberty
with a sound platform for organic and acquisitive growth in the region.
4. SALIENT TERMS OF THE SHARE SUBSCRIPTION AGREEMENT
4.1 The CfCIH Subscription
On 2 December 2009, Liberty entered into a share subscription agreement with
CfCIH and CSH (the "Share Subscription Agreement"), pursuant to which Liberty
will subscribe for approximately 24% of the ordinary shares in CfCIH for an
amount of KES 880 million (approximately ZAR88 million) in accordance with the
terms and conditions as set out in the Share Subscription Agreement (the
"CfCIH Subscription").
4.2 Appointments to the Board
Liberty will have the right to appoint Board members and members of other
committees of the Board, in proportion to the ratio of its aggregate holding
in CfCIH, from time to time. Liberty representatives have sat as directors on
the boards of CfC Life and Heritage since May 2009.
4.3 Put Option
If, within 24 months of the CfCIH Subscription, the Demerger does not take
place or it becomes clear that the Demerger will not take place, Liberty will
have the right to give notice to CSH to require CSH to purchase Liberty`s stake
in CfCIH at a price equal to the sum of the subscription price plus a capital
return of 3%, less any dividends paid to Liberty by CfCIH.
4.4 Conditions precedent of the Share Subscription Agreement
The obligations of Liberty in relation to the Restructuring and Demerger in
accordance with the terms of the Share Subscription Agreement are subject to
the fulfilment of, inter alia, the following conditions precedent, by 15
December 2009 or such later date as may be agreed between the parties to the
Share Subscription Agreement:
(a) all necessary South African regulatory and corporate approvals and
authorisations being applied for and obtained by each of the relevant parties
to the Share Subscription Agreement, and the approval of the Kenyan Insurance
Regulatory Authority being obtained and, where necessary, gazetted;
(b) the warranties as set out in the Share Subscription Agreement not being
materially breached; and
(c) Liberty not having terminated its obligations under the Share Subscription
Agreement in accordance with the termination rights set out in the Share
Subscription Agreement.
5. SALIENT TERMS OF THE RENUNCIATION AGREEMENT
5.1 The Renunciation Transaction
In addition to the Share Subscription Agreement, Liberty has entered into a
Renunciation Agreement with SAHL dated 2 December 2009 (the "Renunciation
Agreement"), in terms of which, subsequent to the Demerger, SAHL has agreed to
renounce in favour of Liberty its right to receive the shares in CfCIH to which
it would be entitled as a CSH shareholder in terms of the distribution in
specie, for an initial amount of US$14 million (approximately ZAR105 million)
and deferred amounts capped at a maximum of US$4.9 million (approximately ZAR37
million), which will be determined based on the increase in cumulative value
of certain investment portfolios of the Insurance Businesses at 31 December
2010, 2011 and 2012. Consequently, Liberty will acquire an additional
approximate 33% stake in CfCIH and will become the controlling shareholder of
CfCIH, holding approximately 57% of the issued shares ("the Renunciation
Transaction").
5.2 Put Option
If, within 24 months of the CfCIH Subscription the Demerger has taken place
and the Renunciation Transaction does not take place, Liberty will have the
right to give notice to SAHL to require SAHL to purchase Liberty`s stake in
CfCIH acquired in terms of the Share Subscription Agreement at a price equal
to either i) the sum of the subscription price plus a capital return of 3%,
less any dividends paid to Liberty by CfCIH, or ii) if CfCIH is listed on the
NSE, the 30-day Volume Weighted Average Price ("VWAP") of the CfCIH shares.
5.3 Conditions precedent of the Renunciation Agreement
The obligations of Liberty in relation to the Restructuring and Demerger in
accordance with the terms of the Renunciation Agreement are subject to the
fulfilment of, inter alia, the following conditions precedent, by 31 March 2010
or such later date as may be agreed between the parties to the Renunciation
Agreement:
(a) the completion of the Share Subscription Agreement;
(b) all necessary South African regulatory and corporate approvals and
authorisations being applied for and obtained by each of the relevant parties
to the Renunciation Agreement, and the necessary approvals of the Kenyan
Insurance Regulatory Authority, the Kenyan Capital Markets Authority and the
Kenyan Minister of Finance being obtained and, where necessary,
gazetted;
(c) the warranties as set out in the Renunciation Agreement not being
materially breached; and
(d) Liberty not having terminated its obligations under the Renunciation
Agreement in accordance with the termination rights set out in the
Renunciation Agreement.
6. RELATED PARTY TRANSACTION
According to paragraph 10.1 of the Listings Requirements of the JSE, the CfCIH
Subscription and the Renunciation Transaction are together regarded as a small
related party transaction, as Standard Bank is both a majority shareholder of
Liberty with a holding of 53.65% and the ultimate controlling shareholder,
through SAHL, of CSH.
The board of directors of Liberty ("the Board") has retained Fidelis Advisory
Partners (Proprietary) Limited ("Fidelis") to act as an independent expert to
provide a fairness opinion to the Board in respect of the Transaction.
Fidelis is currently completing its fairness opinion and an announcement in
this regard will be made in due course.
7. FINANCIAL EFFECTS
The pro forma financial effects of the Transaction for Liberty are not
significant.
By order of the Board
Liberty Holdings Limited
Braamfontein
3 December 2009
Sponsor
MERRILL LYNCH South Africa (Pty) Limited
Independent expert
Fidelis Partners
Legal advisers in Kenya
COULSON HARNEY ADVOCATES
Legal advisers in South Africa
WERKSMANS
Incorporating
JAN S. DE VILLIERS
Date: 03/12/2009 07:45:02 Produced by the JSE SENS Department.
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