Johnnic Holdings Limited - Restructuring Of The Johnnic Group
(Incorporated in the Republic of South Africa)
(Registration number 1889/000429/06)
("Johnnic")
M-CELL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1994/009584/06)
("M-Cell")
JOHNNIC COMMUNICATIONS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1889/000352/06)
("Johncom")
(collectively "the Johnnic Group")
RESTRUCTURING OF THE JOHNNIC GROUP
1. INTRODUCTION
Further to the cautionary announcement dated 9 April 2001, the boards of
directors of Johnnic and Johncom ("the boards") have proposed that Johncom
distribute in specie substantially all of its shareholding in M-Cell to its
shareholders ("Johncom shareholders") in terms of section 90 of the
Companies Act, 1973 (Act 61 of 1973), as amended, and in accordance with
section 60 of the Income Tax Act, No. 113 of 1993, as amended ("the Tax
Act") ("the Johncom unbundling").
2. DETAILS OF THE JOHNCOM UNBUNDLING
Subject to the fulfilment of the conditions precedent outlined in paragraph
8 below, it is proposed that Johncom distribute in specie substantially all
of its shareholding in M-Cell, comprising approximately 34,4% of M-Cell's
issued share capital and valued at approximately R13,3 billion, to its
shareholders.
The Johncom unbundling will result in Johncom shareholders receiving 530 M-
Cell shares ("unbundling shares") for every 100 Johncom shares ("the
unbundling ratio") held at the close of business (16:00) on Friday, 6 July
2001 ("the record date"). The unbundling ratio takes into account Johncom's
contingent liabilities to Johncom option holders in respect of the current
Johncom share scheme. Share certificates in respect of the unbundling shares
will be issued on or about Monday, 9 July 2001, and will be posted to
Johncom shareholders on or about Monday, 9 July 2001, by registered post, at
the risk of such shareholders.
3. RATIONALE FOR THE JOHNCOM UNBUNDLING
When control of Johnnic was acquired by the National Empowerment Consortium
("NEC") in 1996, Johnnic was a broad based conglomerate with interests
ranging from brewing, property and pharmaceuticals through to media and a
minority position in telecommunications through Mobile Telephone Networks
Holdings (Proprietary) Limited ("MTN").
In 1998 the board of directors of Johnnic committed to a repositioning of
the company into a focused media, entertainment and telecommunications
group. As a consequence, non-core assets of over R7 billion were disposed
of. Group debt of R5 billion was incurred to consolidate group assets and
was subsequently eliminated. In a series of transactions, Johnnic gained
control of M-Cell, initially the listed holding company for a portion of
cellular telephony operator, MTN. In due course M-Cell acquired 100% of MTN.
A R3,8 billion rights offer was undertaken by Johncom to reduce its debt as
well as fund the consolidation of the Johnnic Group's telecommunications
assets. Johnnic underwrote the rights offer, which resulted in Johnnic
increasing its stake in Johncom to 62,5%.
Further rationalisation of Johncom saw the creation of Johnnic Publishing
Limited, which consolidates all the company's publishing assets under one
entity, as well as the creation of Johnnic Entertainment Limited, which
consists of the filmed entertainment, music and book retailing interests.
Johnnic e-Ventures Limited was launched in April 2000 to house Johncom's
varied internet interests.
Having largely achieved the goals of becoming a focused media, entertainment
and telecommunications group, Johnnic moved from the "Financial-Investment
Trusts" sector of the JSE Securities Exchange South Africa ("the JSE") lists
to the "Industrial-Telecommunications" sector. Attention was then given to
the group's listed three-tier structure. In terms of the current structure
of the Johnnic Group set out in paragraph 5.1 below, Johnnic and Johncom
effectively represent a double pyramid structure to control M-Cell. While
this structure has been effective in enabling the NEC (as the largest
shareholder of Johnnic) to influence the strategy and businesses of the
Johnnic Group and thereby creating significant value for its shareholders,
the structure has also resulted in the locking-up of value in the Johnnic
Group. Both Johnnic and Johncom have continued to trade on the JSE at a
substantial discount to net asset value, which discount, on a full see-
through basis, is currently in the region of 20% - 30%. In addition,
certain international indices, such as the Morgan Stanley Capital
International index, will soon begin weighting stocks according to free-
float. This has necessitated a review of how M-Cell's low free-float of 16%
could be increased.
Accordingly, the Johnnic Group has embarked on a further restructuring
programme designed to achieve, inter alia, the following goals:
* flatten the three-tier group structure;
* increase the liquidity of M-Cell shares on the JSE;
* cause the market to place a value on Johncom's media and entertainment
assets; and
* ensure that the Johnnic Group's black economic empowerment credentials are
maintained.
Various restructuring options have been considered. One key issue has been
that the proposed sale by Transnet Limited of a 20% stake in M-Cell has not
yet eventuated. At the same time there has been a significant down-rating of
telecommunications stocks internationally and uncertainty currently exists
over South Africa's telecommunications regulatory environment. Taking into
account all circumstances the boards have therefore opted for an unbundling
strategy whereby Johnnic retains significant control of M-Cell. It is
accordingly proposed that Johncom will unbundle substantially all of its
shareholding in M-Cell to its shareholders. The boards believe that a more
aggressive unbundling strategy at this time would result in a possible loss
of control of the company's core asset.
Following the Johncom unbundling, Johnnic will have a direct shareholding of
36,7% in M-Cell and will retain its 62,5% in Johncom. The Johnnic Group will
therefore have a listed telecommunications interest through M-Cell and
listed media and entertainment interests through Johncom. Importantly, it is
envisaged that the NEC will retain approximately a 33% stake in Johnnic and
so ensure that Johnnic retains its black economic empowerment status. This
has become increasingly significant considering that Government has
announced that all telecommunications licences should have a black economic
empowerment component of up to 30%.
The free-float of M-Cell will almost double to around a 30% level.
The resultant separate listing of the media and entertainment assets through
Johncom will cause the market to place a value on these assets and is
expected to crystalise substantial shareholder value.
The boards are committed to maximising shareholder value and will continue
to examine further ways to achieve this goal, including further value
unlocking if this is appropriate in the future.
4. FINANCIAL EFFECT OF THE JOHNCOM UNBUNDLING
Upon implementation of the Johncom unbundling, Johncom shareholders will
receive those numbers of M-Cell shares approximately equal to their indirect
effective interest in those shares prior to the implementation of the
Johncom unbundling and/or the net cash proceeds in the event that they are
entitled to fractions of such shares or the net cash proceeds from the
disposal of such shares should shareholders not be entitled to receive the
Johncom unbundling shares by reason of the laws in the jurisdiction to which
they are subject. Other than the unlocking of the value for Johncom
shareholders, through holding M-Cell shares directly, the Johncom unbundling
will have no material financial effect on Johncom shareholders' aggregate
earnings.
5. GROUP STRUCTURE
5.1 Group structure
The summarised group structure, before and after the Johncom unbundling, is
shown below:
(a) Before the Johncom unbundling
GRAPHIC: SEE PRESS FOR DETAIL
(b) After the Johncom unbundling
GRAPHIC: SEE PRESS FOR DETAIL
6. SHARE DEALINGS
6.1 Share trading
All transactions on the JSE in Johncom shares from Monday, 2 July 2001 to
Friday, 6 July 2001 will be for immediate settlement. Johncom shareholders
will be entitled to trade those M-Cell shares which they will receive upon
implementation of the Johncom unbundling, from the commencement of business
on Monday, 9 July 2001.
6.2 Odd-lots
Johncom shareholders are advised that odd-lots of M-Cell shares arising from
the Johncom unbundling may be disposed of by using the odd-lot facility
provided by the JSE. Johncom shareholders wishing to dispose of their odd-
lots in M-Cell shares are advised to contact their stockbroker to facilitate
the disposal of their odd-lots, which will be sold at the then ruling market
price of M-Cell.
6.3 Fractional entitlements
To the extent that fractional entitlements to M-Cell shares arise pursuant
to the Johncom unbundling, they will be aggregated and sold on the JSE for
the benefit of the Johncom shareholders concerned. The cash proceeds from
such sales (net of costs) will be posted to the respective shareholders'
registered addresses, at the risk of such shareholders, on or about Monday,
9 July 2001, or such later date as may be considered appropriate by the
board of directors of Johncom in order to permit an orderly disposal of such
Johncom shares. However, where such cash proceeds amount to less than R5,00,
the proceeds will be retained for the benefit of Johncom.
7. APPROVAL BY THE SOUTH AFRICAN REVENUE SERVICE
Application has been made to the South African Revenue Service ("SARS") to
approve the Johncom unbundling as an "unbundling transaction" in terms of
section 60 of the Tax Act. This application requests, inter alia, the
following exemptions and rulings:
* no stamp duty will be payable in respect of the transfer of M-Cell shares,
being unbundling shares, upon their distribution to and registration in the
names of Johncom's shareholders by way of a distribution in specie in the
course of the Johncom unbundling transaction;
* the distribution will not be subject to Secondary Tax on Companies; and
* where recipients of the unbundling shares held their Johncom shares as
trading stock, the receipt by them of the unbundling shares will be dealt
with in a tax neutral manner, as set out in section 60(5)(b) of the Tax Act.
8. CONDITIONS PRECEDENT
The Johncom unbundling is subject to, inter alia, the fulfilment of the
following conditions precedent:
* approvals by the requisite regulatory bodies, including the JSE,
Securities Regulation Panel, SARS and the South African Reserve Bank, where
necessary; and
* approval by Johncom shareholders in general meeting ("general meeting") of
the ordinary resolution necessary to implement the Johncom unbundling.
9. STATEMENTS OF SOLVENCY, LIQUIDITY AND CAPITAL ADEQUACY
The board of directors of Johncom have considered the impact of the Johncom
unbundling and are of the opinion that:
* Johncom would be able to pay its debts as they become due in the ordinary
course of business for a period of 12 months after implementation of the
Johncom unbundling;
* the consolidated assets of Johncom, fairly valued, would be more than the
consolidated liabilities of Johncom after implementation of the Johncom
unbundling;
* the ordinary share capital, reserves and working capital of Johncom would
in the ordinary course of business be adequate for a period of 12 months
after the implementation of the Johncom unbundling.
10. GENERAL MEETING
The general meeting will be held at 09:00 on Monday, 2 July 2001, in the
Auditorium, Ground Floor, 28 Harrison Street, Johannesburg, 2001, to
consider and, if deemed fit, pass with or without modification the ordinary
resolution necessary to implement the Johncom unbundling.
11. SALIENT DATES AND TIMES
2001
Circular posted to Johncom shareholders on or about Friday, 15 June
Last day for lodging forms of proxy for the
general meeting (by 09:00) on Thursday, 28 June
General meeting at 09:00 on Monday, 2 July
Results of the general meeting published in the press
on or about Tuesday, 3 July
Record date (Johncom shareholders must be registered by
the close of business (16:00) on this date, or
such other date as may be determined by the board of
directors of Johncom and notified in the press, in order
to participate in the Johncom unbundling) on Friday, 6 July
Effective date of the Johncom unbundling
(unbundling shares received by Johncom shareholders will
be good for delivery from the commencement of business
on this date) on Monday, 9 July
Share certificates in respect of the M-Cell shares
posted to Johncom shareholders on Monday, 9 July
Share certificates and cheques in respect of
fractional entitlements, where applicable, in respect
of the M-Cell shares posted to Johncom shareholders
on or about Monday, 9 July
Note:
The dates and times in this announcement are subject to amendments, which
amendments, if any, will be published in the press. All times referred to
above are South African times. All transactions on the JSE in Johncom shares
from Monday, 2 July 2001 to Friday, 6 July 2001 will be for immediate
settlement. Johncom shareholders will be entitled to trade those unbundling
shares, which they will receive upon implementation of the Johncom
unbundling, from Monday, 9 July 2001.
12. DOCUMENTATION
The Johncom circular containing the full details of the Johncom unbundling
and incorporating a notice of general meeting will be posted to Johncom
shareholders on or about Friday, 15 June 2001.
Johannesburg
23 May 2001
If you have any questions regarding the information in this announcement,
please call the Information Agent on 0800 117 472 or +27 11 775 3433 if your
are calling from outside South Africa.
Merchant bank and lead sponsor
SCMB
Standard Corporate and Merchant Bank
(A division of The Standard Bank of South Africa Limited)
(Registration number 1962/000738/06)
Attorneys
Webber Wentzel Bowens
Information agent
Georgeson Shareholder Communications
Auditors
Deloitte & Touche
Tax advisers
Finstruct Financial Services
Deloitte & Touche
Merchant bank
Investec Corporate Finance
Investec Bank Limited
(Registration number 1969/004763/06)
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