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THE PROPOSED ACQUISITION BY VUKILE OF THE PROPERTY ASSET

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THE PROPOSED ACQUISITION BY VUKILE OF THE PROPERTY ASSET Powered By Docstoc
					Vukile Property Fund Limited (Incorporated in the Republic of South Africa) (Registration number 2002/027194/06) JSE code: VKE • ISIN: ZAE000056370 • NSX code: VKN (“Vukile”)

Sanlam Limited (Incorporated in the Republic of South Africa) (Registration number 1959/001562/06) JSE code: SLM • ISIN: ZAE 000070660 • NSX code: SLA (“Sanlam”)

THE PROPOSED ACQUISITION BY VUKILE OF THE PROPERTY ASSET MANAGEMENT BUSINESS OF SANLAM PROPERTIES (PROPRIETARY) LIMITED (“SANLAM PROPERTIES”) AS A GOING CONCERN, CALL OPTION TO ACQUIRE CERTAIN PROPERTIES FROM SANLAM LIFE INSURANCE LIMITED (“SANLAM LIFE”) AND RIGHT OF FIRST REFUSAL IN RESPECT OF THE REMAINDER OF SANLAM LIFE’S PROPERTY PORTFOLIO WITHDRAWAL OF VUKILE’S CAUTIONARY ANNOUNCEMENT
1 INTRODUCTION Vukile unitholders are referred to the renewal of the cautionary announcement, dated 25 May 2009, as well as the announcement dated 3 March 2009 and the circular to Vukile unitholders dated 12 March 2009, in which Vukile unitholders were advised that Vukile was in discussions with Sanlam Properties regarding the proposed acquisition of the asset management business (including the IT infrastructure and software, furniture and equipment and certain employees) of Sanlam Properties directly related to the asset management of the Vukile property portfolio (“the Vukile ManCo Business”), as a going concern. Nedbank Capital, a division of Nedbank Limited, is authorised to announce that Vukile, Sanlam Properties, Sanlam and Sanlam Life have signed a term sheet (“the Term Sheet”), dated 27 May 2009, approved by the boards of directors of Vukile and Sanlam, which Term Sheet became binding on 10 June 2009, relating to: 1.1 the acquisition by Vukile of the Vukile ManCo Business and, in addition, the acquisition by Vukile of the property asset management business of Sanlam Properties constituted by the IT infrastructure and software, furniture and equipment and the take-on of employees directly related to the asset management function of the Sanlam Life property portfolio (collectively “ManCo”), from Sanlam Properties as a going concern (“the ManCo Acquisition”); 1.2 a call option to be granted by Sanlam Life to Vukile to acquire certain properties valued at approximately ZAR500 million (“the Initial Sanlam Life Property Portfolio”) from Sanlam Life (“the Call Option”); and 1.3 a right of first refusal to be granted by Sanlam Life to Vukile in respect of the remainder of Sanlam Life’s property portfolio, excluding certain properties that are subject to rights of first refusal in favour of third parties (“the Right of First Refusal”), collectively, “the Transaction”. To facilitate the implementation of the Transaction, Vukile and Sanlam Properties have agreed to extend Vukile’s asset management contract with Sanlam Properties (“the Extension”) for a maximum period of six months to 30 September 2009. The Extension was approved by Vukile unitholders at the general meeting that was held on Friday, 27 March 2009. This announcement contains the details of the Transaction as contained in the Term Sheet. Formal agreements (“the Agreements”), which will contain terms and conditions normally found in transactions similar in nature to the Transaction, will be executed in due course. THE MANCO ACQUISITION 2.1 Nature of business Sanlam Properties is primarily involved in the business of property asset management and currently has the responsibility, in terms of specific asset management contracts, to manage Vukile’s and Sanlam Life’s respective property portfolios. The asset management services performed by Sanlam Properties include, inter alia, the following: • appointment of property management companies and managing the property management contracts; • preparation of business plans for the properties; • preparation of budgets for the properties, including benchmarking; • drafting and updating of the selling strategy; • management strategies and letting strategies; • bi-annual property valuations; • advising on the replacement value of the buildings; • performance analysis of the portfolio; and • building life cycle forecasting. 2.2 Rationale for the ManCo Acquisition It is global best practice for property companies to conduct the asset management functions inhouse and the proposed implementation in South Africa of the Real Estate Investment Trust (REIT) structure will lend impetus to this practice. Taking the above factors into consideration, the Vukile board of directors has decided that Vukile should internalise the asset management function. With this in mind, Vukile approached Sanlam Properties with a view to concluding the ManCo Acquisition. 2.3 Terms of the ManCo Acquisition Vukile proposes to conclude the ManCo Acquisition with effect from the beginning of the month following the month in which the last of the conditions precedent set out in paragraph 4 below (“the Effective Date”) is fulfilled, for a total consideration of ZAR331 887 000.00, to be settled by the issue of 36 470 000 new Vukile units (“Consideration Units”) at a price of 910 cents per Vukile unit. The Consideration Units will only be entitled to participate in distributions with effect from the Effective Date, and furthermore Sanlam Properties has agreed to forego distributions of ZAR10 million in relation to the Consideration Units. ManCo includes, inter alia, the majority of the relevant Sanlam Properties’ employees, IT infrastructure and software, and its furniture and equipment required to currently render the asset management services to Vukile and Sanlam Life. Following the ManCo Acquisition, Vukile will perform its own asset management services in respect of its property portfolio, as well as enter into an asset management agreement with Sanlam Life (“the Sanlam Life Asset Management Agreement”) to render asset management services to Sanlam Life in respect of Sanlam Life’s property portfolio. The Sanlam Life Asset Management Agreement is proposed to be for an indefinite period, and will impose certain service levels on Vukile. THE CALL OPTION AND THE RIGHT OF FIRST REFUSAL (“THE PROPOSED PROPERTY TRANSACTION”) 3.1 Rationale for the Proposed Property Transaction In line with Vukile’s objective to build a quality portfolio of properties with strong contractual cash flows in order to achieve meaningful capital appreciation and sustainable growth in its distribution to Vukile unitholders, Vukile has been granted the Call Option and the Right of First Refusal. 3.2 Terms of the Call Option Vukile will, subject to the fulfilment of the conditions precedent set out in paragraph 4 below and the implementation of the ManCo Acquisition, be granted the Call Option by Sanlam Life for a period of 12 months from the Effective Date to acquire the Initial Sanlam Life Property Portfolio (either in its entirety or by individual property) at market value. Sanlam Life will identify and agree with Vukile the properties that will form part of the Initial Sanlam Life Property Portfolio. The purchase consideration will, subject to Sanlam Life’s approval, be settled through the issue of new Vukile units, failing which, Vukile will settle the purchase consideration in cash. The exercise of the Call Option will, where Vukile units are issued as consideration for the acquisition of the Initial Sanlam Life Property Portfolio, at the time and if applicable, be subject to the condition precedent that a waiver of the requirement for Sanlam to make a mandatory offer to Vukile’s minority unitholders in terms of the Securities Regulation Code on Take-Overs and Mergers (“the Code”) is obtained. 3.3 Terms of the Right of First Refusal Vukile will, subject to the fulfilment of the conditions precedent set out in paragraph 4 below and the implementation of the ManCo Acquisition, be granted the Right of First Refusal by Sanlam Life for a period of five years from the Effective Date or until the termination of the Sanlam Life Asset Management Agreement, whichever is earlier, to acquire the balance of the Sanlam Life property portfolio at market value. The Right of First Refusal will relate to property sales initiated by Sanlam Life as well as unsolicited third party offers, and not to properties disposed of by tender or auction. Sanlam Life will elect the nature of the purchase considerations, whether cash or new Vukile units. The issue of new Vukile units as consideration for the acquisition of any property in terms of the Right of First Refusal will, at the time and if applicable, be subject to the condition precedent that a waiver of the requirement for Sanlam to make a mandatory offer to Vukile’s minority unitholders in terms of the Code is obtained. CONDITIONS PRECEDENT The Transaction will be subject to fulfilment of the following conditions precedent: 4.1 conclusion of the Agreements to give effect to the Transaction; 4.2 conclusion of the Sanlam Life Asset Management Agreement; 4.3 the required approval and consents by the Vukile unitholders; 4.4 approval by the relevant competition authority, to the extent required; 4.5 the obtaining of the dispensation detailed in paragraph 5.2 and the passing of the resolution approving the waiver of the Vukile unitholders’ rights to require Sanlam, the Sanlam group of companies and their concert parties to make a mandatory offer as contemplated in paragraph 5.2; and 4.6 any other regulatory and other approvals that may be required including, but not limited to, the JSE Limited (“the JSE”) and the Securities Regulation Panel (“the SRP”). 5 REGULATORY IMPLICATIONS 5.1 JSE Listings Requirements As Sanlam Properties and its associates, as defined in terms of the JSE Listings Requirements, currently hold more than 10% of Vukile’s issued capital, the ManCo Acquisition is a related party transaction in terms of the JSE Listings Requirements, which requires, inter alia, a circular to Vukile unitholders and their approval. Vukile has appointed an independent professional expert acceptable to the JSE, BDO Spencer Steward (Cape) Inc. (“the Independent Professional Expert”), to provide it with an opinion on the terms of the ManCo Acquisition, which will be included in the circular. The circular setting out the details of the Transaction, and incorporating a notice of general meeting whereby approval from the requisite majority of Vukile unitholders will be sought, will be posted to Vukile unitholders in due course. As the exercise of the Call Option and the acquisition of any properties in terms of the Right of First Refusal will be solely at Vukile’s discretion, they will only be categorised in terms of the JSE Listings Requirements upon exercise by Vukile of the Call Option or the acquisition of any properties in terms of the Right of First Refusal. 5.2 The Code As a result of the ManCo Acquisition, Sanlam, the Sanlam group of companies (including policyholder funds) and their concert parties (“the Group”) may control up to 46% of the voting rights attaching to Vukile units. In terms of Rule 8 of the Code, the Group would be obliged to make an offer (“Mandatory Offer”) to acquire the Vukile units at 910 cents per Vukile unit held by the other Vukile unitholders pursuant to the ManCo Acquisition. The SRP has advised that it is willing to consider an application to grant a dispensation (“the Dispensation”) to the Group, in terms of the Code, which would have the effect of releasing the Group from any obligation to make the Mandatory Offer. The Dispensation would, inter alia, be subject to Vukile unitholders, who are independent from the Group, passing a resolution in general meeting approving a waiver of the Vukile unitholders’ right to require the Group to make the Mandatory Offer. SUPPORT FOR THE TRANSACTION 6.1 As mentioned in paragraph 5.1 above, BDO Spencer Steward (Cape) Inc. has been appointed by Vukile as the Independent Professional Expert, in terms of the JSE Listings Requirements, to advise the Vukile unitholders on whether the terms and conditions of the ManCo Acquisition are fair. 6.2 The Independent Professional Expert has provided a preliminary written opinion, which opinion will be formalised at the last practicable date prior to the publication of a circular to Vukile unitholders. The favourable preliminary opinion, which may be subject to change, is based on information available to the Independent Professional Expert up to 29 May 2009 and is subject to review of, inter alia, the Agreements as well as the limitations and conditions to be set out in its formal opinion. 6.3 The Vukile board, other than for Messrs UJ van der Walt and AD Botha, who are directors of Sanlam Properties and Sanlam respectively, and who have accordingly recused themselves from all meetings and discussions relating to the Transaction (“Vukile Board”), having taken into account the Independent Professional Expert’s favourable preliminary opinion, is of the opinion that the terms and conditions of the ManCo Acquisition are fair, in terms of the JSE Listings Requirements, as far as Vukile unitholders are concerned. Subject to the receipt of the final fairness opinion from the Independent Professional Expert, the Vukile Board recommends that Vukile unitholders vote in favour of the resolutions required to give effect to the ManCo Acquisition at a general meeting of unitholders to be convened at a date to be advised. PRO FORMA FINANCIAL EFFECTS OF THE MANCO ACQUISITION Based on the published audited results of Vukile for the year ended 31 March 2009, the unaudited pro forma financial effects of the ManCo Acquisition on Vukile’s earnings, headline earnings, fully diluted earnings, fully diluted headline earnings, net asset value ("NAV") and tangible NAV (“TNAV”) per Vukile unit are set out below. The preparation of the pro forma financial effects is the responsibility of Vukile’s directors. The pro forma financial effects have been prepared for illustrative purposes only and because of its nature may not provide a true reflection of Vukile’s financial position and results of operations as a result of the ManCo Acquisition. Vukile before the ManCo acquisition(1) 98.09 139.17 99.56 139.17 99.56 906.62 880.80 295 550 877 295 550 877 295 550 877 Vukile after the ManCo acquisition(2) 100.54 137.44 101.85 137.44 101.85 905.02 783.91 332 020 877 332 020 877 332 020 877

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Per Vukile unit (cents) Available for distribution Earnings per Vukile unit(3) (“EPU”) Headline earnings per Vukile unit(3) (“HEPU”) Fully diluted earnings per Vukile unit(3) (“DEPU”) Fully diluted headline earnings per Vukile unit(3) (“DHEPU”) NAV per Vukile unit(4) TNAV per Vukile unit(4) Weighted average Vukile units in issue for calculating EPU and HEPU Weighted average fully diluted Vukile units in issue for calculating DEPU and DHEPU Vukile units in issue for calculating NAV and TNAV

Percentage change 2.5% (1.2)% 2.3% (1.2)% 2.3% (0.18)% (11.0)%

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Notes 1) Based on the published audited results of Vukile for the year ended 31 March 2009. 2) Based on the assumption that the ManCo Acquisition was effected on 1 April 2008 for income statement purposes and 31 March 2009 for balance sheet purposes. 3) EPU, HEPU, DEPU and DHEPU have been adjusted to include the following: a) the extract of the ManCo results for the year ended 31 December 2008, reflecting recurring and nonrecurring income of ZAR50.0 million and ZAR26.3 million, respectively, and administrative expenditure of ZAR24.6 million; b) acquisition costs (ZAR5.1 million) and JSE listing costs (ZAR0.1 million) funded by way of overdraft at an average interest rate of 12.95% p.a., being an additional finance cost of ZAR0.673 million from 1 April 2008; c) an increase in the amortisation of debenture premium, through the income statement, by ZAR1.1 million as a result of an increase of debenture premium, following the additional issue of 36 470 000 Vukile units to Sanlam Properties; d) an increase in tax payable by ZAR7.1 million as a result of an increase in taxable income of ZAR25.4 million; and e) the actual distribution of debenture interest of 97.70 cents per linked unit has been increased by the additional debenture interest on the new issue of linked units less ZAR10 million debenture interest refundable by Sanlam Properties in terms of the Term Sheet. 4) NAV and TNAV per Vukile unit have been adjusted for the following: a) assets have increased as a result of the ManCo Acquisition of ZAR325.4 million plus acquisition costs of ZAR5.1 million, comprising an intangible asset of ZAR325.8 million, furniture, fittings and computer equipment of ZAR2.2 million and long-term bonus scheme (financial asset-held-for sale) of ZAR2.5 million; b) an increase in short-term bank finance by ZAR5.2 million to fund the transaction and JSE listing costs; c) a and b equate to an increase in NAV of ZAR325.3 million; and d) TNAV has been calculated by deducting goodwill of ZAR76 million and intangible assets of ZAR325.8 million from NAV. 5) The pro forma financial information has been prepared in accordance with International Financial Reporting Standards and in terms of the guide on Pro Forma Financial Information issued by The South African Institute of Chartered Accountants, in line with the JSE Listings Requirements.

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WITHDRAWAL OF VUKILE’S CAUTIONARY ANNOUNCEMENT As all the details of the Transaction as contained in the Term Sheet have been disclosed, Vukile unitholders are advised that they are no longer required to exercise caution when dealing in their Vukile units.

Roodepoort 11 June 2009

Investment bank, corporate adviser and transaction sponsor to Vukile

Attorneys to Vukile

Independent professional expert

Reporting accountants and auditors to Vukile

JSE sponsor to Vukile

NSX sponsor to Vukile

Sponsor to Sanlam

Attorneys to Sanlam

dPA 5045/e


				
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Description: THE PROPOSED ACQUISITION BY VUKILE OF THE PROPERTY ASSET