MTN
MTN
MTN - MTN Group Limited - Announcement Relating To The Proposed Acquisition
Of Newshelf 664 (Proprietary) Limited
MTN Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1994/009584/06
Share code: MTN ISIN: ZAE000042164
("MTN" or "the Company")
ANNOUNCEMENT RELATING TO THE PROPOSED ACQUISITION OF NEWSHELF 664
(PROPRIETARY) LIMITED
1. Introduction
In an announcement published on the Securities Exchange News Service ("SENS")
of the JSE Limited ("JSE") on 15 December 2008 and in the press on 17
December 2008, MTN shareholders were advised that MTN and the Government
Employees Pension Fund ("GEPF"), represented by the Public Investment
Corporation Limited ("PIC"), had entered into a memorandum of understanding
recording the salient terms and conditions for the proposed acquisition of
Newshelf 664 (Proprietary) Limited ("Newshelf") by MTN from the Alpine Trust
("AT"), the acquisition and settlement of the funding obligations outstanding
to PIC in Newshelf from PIC and the specific repurchase by MTN of the MTN
ordinary shares ("MTN Shares") held by Newshelf ("Newshelf Acquisition").
MTN shareholders are advised that a due diligence investigation in respect of
Newshelf has been finalised on behalf of MTN, the approval of the South
African competition authorities for the acquisition of Newshelf has been
secured and all agreements necessary to implement the proposed Newshelf
Acquisition ("Transaction Agreements") were entered into on Thursday, 26
March 2009 and that, subject to the fulfilment of the conditions precedent
set out in paragraph 6 below ("Conditions Precedent"), the Newshelf
Acquisition will be implemented.
2. Rationale
Since its incorporation in 1994, MTN has been and remains fully committed to
the principles of broad-based black economic empowerment ("BEE"). MTN also
embraces the principles of BEE enshrined in the Government of South Africa`s
Broad-Based Black Economic Empowerment Codes of Good Practice ("Codes").
Until December 2008, MTN obtained the majority of its equity ownership points
in terms of the Codes through the approximately 13.0% shareholding which AT
holds in MTN, through Newshelf ("Newshelf Structure"). The Newshelf Structure
was established independently from MTN in 2002, prior to and independent of
the promulgation of the Codes, and was always anticipated to unwind in
December 2008. Accordingly 34 389 980 MTN Shares were distributed to the
beneficiaries of AT in February 2009 and the trustees of AT are currently in
the final stages of unwinding AT.
MTN believes that broad-based BEE participation in MTN has contributed to
MTN`s success to date and is equally important to its future success. In
addition, MTN recognises that share ownership acts as an important
incentivisation, retention and attraction mechanism for employees.
Accordingly, MTN is committed to ensuring its continued support of both the
letter and spirit of the Codes through the implementation of a new BEE
transaction ("BEE Transaction"). MTN originally planned to implement the
Newshelf Acquisition and the BEE Transaction during the first half of 2009,
but in light of the extreme market volatility and uncertainty of current
financial markets, the board of MTN ("Board") determined that it is not in
the best interests of the Company, MTN shareholders and the potential BEE
investors to implement the BEE Transaction during the first half of 2009 as
originally planned. Shareholders were informed of the Board`s decision in
this regard in an announcement released on SENS on 18 February 2009. The
Board nevertheless remains fully committed to implementing the BEE
Transaction and is, together with its advisors, actively updating proposals
that will better satisfy MTN`s BEE objectives and be in the best interests of
MTN`s shareholders.
MTN and PIC have agreed to discuss in good faith (but without any obligation
to agree on) the potential participation by PIC in the BEE Transaction
through PIC making up to 6% of MTN`s issued ordinary share capital (on a
fully diluted basis) and a proportionate level of funding available for
purposes of the BEE Transaction.
The Board believes that it remains in the best interests of MTN to implement
the Newshelf Acquisition at the present time. The purpose of the Newshelf
Acquisition is to:
- facilitate and minimise the dilutionary impact of the future BEE
Transaction on earnings going forward. In terms of the Newshelf
Acquisition, MTN will effectively acquire Newshelf at a discount of
approximately 8% to the market value of Newshelf`s MTN Shares on 20
March 2009. MTN intends to apply a significant portion of this discount
to offer future participants in the BEE Transaction an incentive to
invest in the BEE Transaction when the BEE Transaction is implemented.
The Newshelf Acquisition is therefore the first step towards
implementing the BEE Transaction;
- facilitate the orderly unwind of the Newshelf Structure. Had the
Newshelf Structure been unwound without this mechanism, a significant
proportion of Newshelf`s MTN Shares would have been sold in the open
market in order to settle Newshelf`s funding obligations, thereby
creating a significant overhang in the market; and
- reduce the total number of MTN Shares in issue in anticipation of the
BEE Transaction. The Newshelf Acquisition will result in an immediate
reduction of approximately 1.6% in the total number of MTN Shares in
issue.
3. Overview of the Newshelf Acquisition
Through a series of inter-conditional transactions, MTN will acquire Newshelf
from AT and then acquire and settle the funding obligations outstanding to
PIC in Newshelf in consideration for the issue of 213.9 million new MTN
Shares and R787 million (plus interest) in cash. MTN will then repurchase the
MTN Shares owned by Newshelf ("Newshelf`s MTN Shares"). The value of the MTN
Shares to be issued and repurchased (as described above) has been calculated
using the same MTN Share price. The net effect of the Newshelf Acquisition on
the shareholding of MTN would be to reduce the total number of MTN Shares in
issue by approximately 1.6%. The detailed transaction steps and financial
effects are set out in paragraphs 4 and 5 below.
4. Detailed transaction steps
The following transactions are inter-conditional so that none of them will be
implemented unless the others become unconditional and are implemented.
4.1 Acquisition and redemption of preference shares
MTN will acquire all of the preference shares in Newshelf`s share
capital, namely the one redeemable B participating preference share
with a par value of R1.00 ("B Participating Pref") and the 214 300
cumulative redeemable B preference shares with a par value of R0.01
each ("B Redeemable Prefs", the B Participating Pref and the B
Redeemable Prefs are hereinafter collectively referred to as the "B
Prefs"), from PIC through (i) the specific issue of approximately
111.5 million new MTN Shares ("B Prefs Consideration Shares") to
PIC at an issue price of R91.67 per MTN Share (a discount of 0.3%
to the 30-day VWAP on the date that the issue price was determined)
and (ii) a cash payment of R387 million (equal to the dividend per
MTN Share declared by MTN on 11 March 2009 multiplied by the total
number of MTN Shares to be issued to PIC pursuant to the Newshelf
Acquisition) plus interest. The R387 million cash payment will
accrue interest at a call deposit rate from the date of payment by
MTN of the dividend to the Closing Date (as defined in paragraph
4.3 below). The amount payable for the B Prefs may also be
increased by up to R65 million (payable in cash) for assumed
liabilities in Newshelf which do not materialise following the
implementation of the Newshelf Acquisition. The B Prefs
Consideration Shares equate to approximately 6.1% of MTN`s issued
ordinary share capital on a fully diluted basis. Following MTN`s
acquisition of the B Prefs, Newshelf will redeem the B Prefs on
loan account as contemplated in the B Prefs Redemption Agreement.
4.2 Acquisition of Newshelf issued share capital
AT has granted a call option to PIC ("Newshelf Equity Option"), in
terms of which PIC (or any person to whom PIC has transferred the
option) is entitled to acquire the entire issued ordinary share
capital of Newshelf ("Newshelf Equity") from AT for R1.00.
Immediately after the B Prefs have been redeemed, MTN will acquire
the Newshelf Equity Option from PIC for R1.00. After MTN has
acquired the Newshelf Equity Option, that Option will be exercised
by MTN and MTN will, pursuant to such exercise, acquire the
Newshelf Equity from AT for an amount equal to Newshelf`s residual
net asset value of R1.00. Newshelf will then become a wholly-owned
subsidiary of MTN and the articles of Newshelf will be amended to
comply with Schedule 10 of the JSE Listings Requirements.
4.3 Settlement of the Bridge Facility
Immediately after MTN has acquired the Newshelf Equity, it will
settle, on behalf of Newshelf, the bridge facility ("Bridge
Facility") extended to Newshelf by GEPF, partially through a cash
payment of R400 million (plus interest) and partially through the
specific issue of approximately 102.4 million new MTN Shares
("Bridge Facility Consideration Shares") to PIC. The Bridge
Facility Consideration Shares will be issued at a price equal to:
- the balance outstanding on the Bridge Facility on the day
immediately prior to the date on which the last of the Conditions
Precedent are fulfilled or, where permitted, waived ("Closing
Date"), less the R400 million cash payment and any interest payable
thereon,
- divided by the number of Bridge Facility Consideration Shares.
The Bridge Facility Consideration Shares equate to approximately
5.6% of MTN`s issued ordinary share capital on a fully diluted
basis. The R400 million cash payment will accrue interest at the
Johannesburg Interbank Acceptance Rate ("JIBAR") from 21 March 2009
to the Closing Date.
4.4 Specific repurchase of Newshelf`s MTN Shares
Newshelf`s MTN Shares currently constitute approximately 13.0% of
MTN`s entire issued ordinary share capital. After the proposed
acquisition by MTN of the Newshelf Equity, MTN will, through its
subsidiaries, hold more than 10% of its total issued ordinary share
capital as treasury shares. As a result, MTN`s subsidiaries will
in terms of the relevant provisions of the Companies Act, 1973 (Act
61 of 1973), as amended ("Companies Act") have no capacity to
purchase further MTN Shares to hold as treasury shares. To create
capacity for such further purchases, the Board has resolved that
MTN should, subject to the requirements of the Companies Act and
the JSE Listings Requirements, repurchase Newshelf`s MTN Shares
("Specific Repurchase") at the closing price of an MTN Share on the
business day immediately prior to the Closing Date ("Transaction
Price"), which shares will then be cancelled and delisted from the
JSE and restored to the status of authorised but unissued shares,
thereby resulting in MTN`s subsidiaries holding no treasury shares
and reducing the total number of MTN Shares in issue by
approximately 243.5 million shares. The net effect on shareholding
of the Newshelf Acquisition will therefore be a reduction of
approximately 1.6% in the total number of MTN Shares in issue.
The Specific Repurchase will be effected by using a combination of
MTN`s share capital and premium (in an aggregate amount of R3 381
966 783) and retained earnings as contemplated in the MTN Share
Repurchase Agreement concluded between MTN and Newshelf. The
Specific Repurchase will be effected as an intra-group transaction
and as such will not require any external funding. Accordingly, the
Specific Repurchase will have no financial effect on MTN, other
than in respect of transaction costs that are normally incurred in
transactions of this nature.
5. Financial effects of the proposed Newshelf Acquisition
The table below sets out the unaudited pro forma financial effects of the
proposed Newshelf Acquisition on, inter alia, MTN`s audited basic earnings
per share, diluted earnings per share, headline earnings per share, adjusted
headline earnings per share, net asset value per share and net tangible asset
value per share based on the most recently published audited annual results
of MTN for the year ended 31 December 2008. The unaudited pro forma
financial effects are based on the assumptions set out below and include
assumptions on MTN`s share price.
The unaudited pro forma financial information is the responsibility of the
directors of MTN and was prepared for illustrative purposes only and may not,
because of its nature, fairly present MTN`s financial position as at the date
of this announcement, changes in equity and results of its operations or cash
flows for the period then ended. It does not purport to be indicative of
what the financial results would have been, had the proposed Newshelf
Acquisition been implemented on a different date.
For the year ended 31 Before After Change
December 2008 (see (%)
note
10, 11)
Net asset value per share SA cents 4,095.1 0.5
(see note 1) 4,114.4
Tangible net asset value per SA cents 1,640.5 (1.2)
share (see note 1) 1,620.1
Basic earnings per share SA cents 821.0 0.5
(see note 2, 3) 825.5
Diluted earnings per share SA cents 806.1 0.5
(see note 2, 4) 810.3
Headline earnings per share SA cents 836.5 0.6
(see note 2, 5) 841.1
Adjusted headline earnings SA cents 904.4 910.1 0.6
per share (see note 2, 6)
Weighted average number of millions 1,865.3 (1.6)
shares in issue (see note 7) 1,835.7
Weighted average diluted millions 1,876.0 (1.6)
number of shares in issue 1,846.3
(see note 8)
Number of shares in issue millions 1,868.0 (1.6)
(see note 9) 1,838.4
Notes:
1. Net asset value per share is computed by dividing total equity
attributable to MTN shareholders by the weighted average number of MTN
Shares in issue. Tangible net asset value per share is equal to the
total equity attributable to MTN shareholders minus the sum of goodwill
and other intangible assets divided by the weighted average number of
MTN Shares in issue.
2. Earnings are reduced by the non-recurring securities transfer tax and
transaction costs incurred as part of the Newshelf Acquisition as well
as the opportunity cost of interest on R860 million cash costs
associated with the Newshelf Acquisition, including cash payable to PIC
(R787 million), estimated securities transfer tax (R106 million) and
transaction costs associated with the Newshelf Acquisition (R32
million), offset by net cash in Newshelf (R65 million).
3. Basic earnings per share is computed by dividing net earnings
attributable to MTN shareholders by the weighted average number of MTN
Shares in issue.
4. The diluted earnings per share is computed by dividing net earnings
attributable to MTN shareholders by the weighted average diluted number
of MTN Shares in issue.
5. Headline earnings is calculated in terms of Circular 8/2007 on Headline
Earnings issued by the South African Institute of Chartered Accountants.
Headline earnings per share is computed by dividing headline earnings
attributable to MTN shareholders by the weighted average number of MTN
Shares in issue.
6. Adjusted headline earnings, as published in MTN`s most recently
published annual results for the year ended 31 December 2008, is
calculated based on headline earnings adjusted for the effects of the
reversal of the deferred tax asset relating to Pioneer status in MTN
Nigeria (R441 million) and the reversal of the impact of the put option
in respect of a subsidiary (R826 million). Adjusted headline earnings
per share is computed by dividing adjusted headline earnings
attributable to MTN shareholders by the weighted average number of MTN
Shares in issue. The pro forma adjustments to adjusted headline earnings
per share are as reported in note 2 above.
7. The weighted average number of MTN Shares in issue was 1,865.3 million
for the period ended 31 December 2008 and following the implementation
of the Newshelf Acquisition was 1,835.7 million for the period ended 31
December 2008.
8. The weighted average diluted number of MTN Shares in issue was 1,876.0
million for the period ended 31 December 2008 and following the
implementation of the Newshelf Acquisition was 1,846.3 million for the
period ended 31 December 2008.
9. The number of MTN Shares in issue as at 31 December 2008 was 1,868.0
million and following the implementation of the Newshelf Acquisition was
1,838.4 million as at 31 December 2008.
10. The assumed Transaction Price for the Specific Repurchase and the
redemption of the B Prefs, and the Bridge Facility Consideration Shares
Issue Price, is R91.67.
11. The financial effects assume that the Newshelf Acquisition took place to
its full extent on 1 January 2008 for the purposes of the income
statement for the year ended 31 December 2008 and as at 31 December 2008
for the purposes of the balance sheet.
12. The net effect of the Newshelf Acquisition on MTN is a net cash outflow
of R860 million and a net repurchase of MTN Shares of 1.6%.
6. Conditions precedent
The implementation of the proposed Newshelf Acquisition is subject to the
fulfillment or (where permitted) waiver of the following conditions
precedent:
- amending the B Participating Pref`s terms in the articles of Newshelf to
the extent required for the implementation of the Newshelf Acquisition;
- PIC not being in unremedied breach of any of the warranties,
representations or the interim undertakings given by PIC to MTN in terms
of the Transaction Agreements;
- obtaining MTN shareholder approval for all the inter-conditional
resolutions required to effect the Newshelf Acquisition (as set out in
the notice of general meeting referred to in paragraph 8 below) and the
registration of those resolutions, if required, by the Registrar of
Companies;
- Webber Wentzel attorneys certifying to MTN and PIC that the special
resolutions referred to above have been registered by the Registrar of
Companies;
- the shareholders of Newshelf passing a special resolution in terms of
section 228 of the Companies Act approving, inter alia, the sale of
Newshelf`s MTN Shares to MTN, and such special resolution being
registered by the Registrar of Companies; and
- the JSE consenting to the admission to listing of the MTN Shares to be
issued to PIC as set out in paragraphs 4.1 and 4.3 above.
7. Related parties and fairness opinion
PIC and Newshelf are related parties (as defined by the JSE Listings
Requirements) in respect of MTN, as they respectively held an 11.6% and 13.0%
interest in MTN as at 20 March 2009. MTN`s executive directors are also
related parties as a result of a 0.14% economic interest that they hold in
the B Prefs. As such, the interests of PIC, Newshelf and the executive
directors will be taken into account in determining a quorum at the general
meeting of MTN shareholders where MTN shareholders will vote on the
resolutions required to be passed to implement the Newshelf Acquisition.
However, the voting rights attaching to the shareholdings of these related
parties (and the voting rights of their associates) will not be taken into
account in determining the results of the voting at such meeting in relation
to the resolutions proposed in connection with the Newshelf Acquisition.
In terms of the JSE Listings Requirements, a fairness opinion from an
independent professional expert, acceptable to the JSE, is required for a
related party transaction. Investec Bank Limited ("Investec") has therefore
been appointed by the Board as the independent professional expert and has
considered the terms and conditions of the Newshelf Acquisition and is of the
opinion that such terms and conditions are fair to MTN shareholders. The full
opinion of Investec and the basis for their opinion will be included in the
circular which will be posted to MTN shareholders on or about 6 April 2009
and will lie open for inspection at the registered office of MTN from Monday,
6 April 2009 until Tuesday, 5 May 2009.
The Board (excluding the executive directors) has considered the terms and
conditions of the Newshelf Acquisition and the opinion of Investec and is of
the opinion that the proposed Newshelf Acquisition is in the best interests
of MTN shareholders.
8. Circular and general meeting
The circular to MTN shareholders pertaining to the proposed Newshelf
Acquisition will be posted to MTN shareholders on or about 6 April 2009. A
notice convening a general meeting of MTN shareholders to be held in the
Auditorium, Phase II, 216 - 14th Avenue, Fairland, Roodepoort, 2195, South
Africa at 14.00 on Tuesday, 5 May 2009, will form part of the circular. The
circular will also be available on MTN`s website at www.mtn.com.
Fairland
26 March 2009
Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Limited)
Legal and tax adviser
Webber Wentzel
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Legal adviser to MTN`s independent directors
Werksmans Attorneys
Joint reporting accountants
PricewaterhouseCoopers Inc.
SizweNtsaluba VSP
Independent professional expert
Investec Corporate Finance, a division of Investec Bank Limited
Date: 27/03/2009 07:05:02 Produced by the JSE SENS Department.
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