CIRCULAR TO SHAREHOLDERS Proposal for issue of up to 94,075,974 new ordinary shares

Transcription

1 CIRCULAR TO SHAREHOLDERS Proposal for issue of up to 94,075,974 new ordinary shares

2 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION This Circular is issued by Scangroup Limited ( the Company ) and has been prepared in compliance with the requirements of The Capital Markets Act (Cap. 485A); The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002 and the Nairobi Securities Exchange Listing Manual. The Capital Markets Authority ( CMA ) has approved the issue of this Circular and the transaction described in it, including the issue of up to 94,075,974 additional new ordinary shares of KShs 1.00 of the Company ( New Shares ) on the terms described herein. CMA has also granted exemption to Cavendish Square Holding B.V from compliance with The Capital Markets (Take-overs and Mergers) Regulations, As a matter of policy, CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Circular. An application has been made to the Nairobi Securities Exchange ( NSE ) to list the New Shares on the NSE, subject to the approval by the shareholders of the proposals contained in this Circular and other regulatory approvals specified herein. The New Shares are to be listed on the Main Investment Market Segment of the NSE. As a matter of policy, the NSE assumes no responsibility for the correctness of any statements made or opinions or reports expressed or contained or referred to in this Circular. Admission to the Official List of the NSE is not to be taken as an indication of the merits of the Company or of the New Shares. The responsibility for preparation of this Circular resides with the Company which accepts responsibility for the accuracy and completeness of the information, reports or opinions expressed, contained or referred to in this Circular. If you have disposed of all your shares in Scangroup Limited please forward this document and the attached proxy to the purchaser or transferee, or to the stockbroker, banker or other agent through whom the sale or transfer was effected, for delivery to the purchaser or transferee. If you are currently a shareholder but are unable to attend the Extraordinary General Meeting (the EGM ) on 14th November, 2013, please complete the form of proxy and send it to the Company s Share Registrar, Comp-rite Kenya Limited, The Crescent, Off Parklands Road, Crescent Business Centre, 2nd Floor Nairobi P.O. Box Nairobi not later than 11 a.m. on 12th November, A form of proxy is enclosed at the end of this Circular. CIRCULAR TO SHAREHOLDERS Acquisition from Cavendish Square Holding B.V. ( Cavendish ) of the Cavendish Shares meaning those shareholdings beneficially owned by Cavendish, particulars of such shareholdings being set forth in Part 3 of this Circular to Shareholders and the proposed issue of up to 72,720,076 new ordinary shares as the acquisition consideration for the Cavendish Shares and the subscription by Cavendish in cash for 21,355,898 new ordinary shares at a subscription price of KShs per new ordinary share A Notice of an Extraordinary General Meeting of the Company to be held at The Bomas of Kenya, Nairobi on 14th November, 2013 at a.m. is set out on Part 8 of this Circular. 18th October

3 CONTENTS PAGE PART 1 - GENERAL 4 1. KEY DATES 4 2. DIRECTORS OF SCANGROUP LIMITED 4 3. ADVISERS 4 4. TERMS AND DEFINITIONS 5 PART 2 - LETTER FROM THE CHAIRMAN OF SCANGROUP 8 1. INTRODUCTION 8 2. BACKGROUND TO AND REASONS FOR THE TRANSACTION 9 3. SALIENT TERMS OF THE TRANSACTION AND THE CONSIDERATION EFFECT OF THE TRANSACTION ON EXISTING SHAREHOLDERS AND THE COMPANY S FINANCIAL POSITION EXTRAORDINARY GENERAL MEETING RECOMMENDATION 13 PART 3 - INFORMATION ON THE ACQUIRED COMPANIES 14 PART 4 - PRO-FORMA FINANCIAL INFORMATION PRO-FORMA CONSOLIDATED FINANCIAL POSITION IMPACT ON PROFITABILITY 16 PART 5 - STATUTORY AND GENERAL INFORMATION RESPONSIBILITY STATEMENT THE COMPANY S SHARE CAPITAL DIRECTORS INTERESTS CONSENTS INFORMATION ON THE TRANSACTION GENERAL INFORMATION GOVERNING LAW DOCUMENTS AVAILABLE FOR INSPECTION 19 2

4 CONTENTS (Continued) PAGE PART 6 CORPORATE GOVERNANCE STATEMENT GENERAL BOARD AND COMMITTEES DIRECTORS CHAIRMAN AND CHIEF EXECUTIVE OFFICER INTERNAL CONTROLS DEALING IN COMPANY S SHARES INVESTOR RELATIONS SUBSIDIARIES OF SCANGROUP LIMITED 21 PART 7 PROFILE OF CURRENT DIRECTORS AND SENIOR MANAGEMENT BRIEF PROFILE OF THE DIRECTORS AND SECRETARY OF THE COMPANY SENIOR MANAGEMENT TEAM 23 PART 8 - EGM NOTICE 26 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE 28 APPENDIX II AUDITOR S CERTIFICATE ON SUBSCRIPTION PRICE 34 APPENDIX III DIRECTORS DECLARATION 36 APPENDIX IV STATEMENT FROM THE AUDITORS 37 PROXY FORM 3

5 PART 1 - GENERAL 1. KEY DATES Latest time to return proxy forms for the Extraordinary General a.m. on 12th November, 2013 Meeting (EGM) The EGM a.m. on 14th November, 2013 Press announcement of outcome of the EGM 15th November, 2013 Date for admission of New Shares to Listing, subject to NSE approval Within 24 hours upon receipt of all other approvals, which event will be announced in the Press 2. DIRECTORS OF SCANGROUP LIMITED Name Address Nationality David Hutchison P.O. Box Nairobi GP British Bharat Thakrar P.O. Box Nairobi GPO Kenyan Manish Shah P.O. Box Nairobi GPO Indian Richard Omwela P.O. Box Nairobi GPO Kenyan Muchiri Wahome P.O. Box Nairobi GPO Kenyan Andrew Scott (representing WPP Group) 27 Farm Street, London W1J 5RJ British Laurence Mellman (representing WPP Group) 27 Farm Street, London W1J 5RJ British A brief profile of the Directors and Senior Management employees is set out in Part 7 of this Circular. Pursuant to this Transaction, Cavendish shall have the right to appoint a majority of the directors and to remove or replace any such director. Currently Cavendish has not made any proposal to change the directorship of the Company. 3. ADVISERS Sponsoring Stockbrokers & Legal adviser Independent Adviser to the Company Auditors Standard Investment Bank Limited Daly & Figgis Deloitte & Touche Advocates Certified Public Accountants 16th Floor, ICEA Building, 6F ABC Towers Deloitte Place, Kenyatta Avenue ABC Place, Waiyaki Way Waiyaki Way, Westlands, P.O.Box13714, P.O. Box 40034, P.O. Box 40092, 00100, Nairobi, Kenya Nairobi, Kenya Nairobi, Kenya Contact : Mr. Job Kihumba Contact: Mr. Hamish Keith Contact: Ms. A N Muraya 4

6 4. TERMS AND DEFINITIONS Unless otherwise stated and as the context allows, the words in the first column have the meaning stated opposite them in the second column, throughout this Circular. Words in the singular include the plural and vice versa, words signifying one gender include the other gender and references to a person include references to juristic persons and associations of persons Act Acquired Companies or Jointly Held Entities The Companies Act (Chapter 486 of the Laws of Kenya); the Company Subsidiaries, the Cavendish Subsidiaries and the Joint Company as described in the Agreement. Brief particulars of such companies being set forth in Part 3 of this Circular; Agreement the conditional share purchase and subscription agreement entered into by the Company with Cavendish dated 12th August 2013 for the purchase of the Cavendish Shareholdings and the subscription by Cavendish for the Subscription Shares in the Company; Articles of Association the articles of association of the Company; Cavendish Cavendish Square Holding BV of Wilhelminaplein 10, 3072 DE Rotterdam, the Netherlands, a wholly owned subsidiary of WPP plc; Cavendish Shares or Cavendish Shareholdings those shareholdings beneficially owned by Cavendish in the Acquired Companies as described in the Agreement. Brief particulars of such shareholdings being set forth in Part 3 of this Circular to Shareholders; Cavendish Options means the options now held by Cavendish, which, if exercised, would enable Cavendish to acquire a controlling interest in each of the Company Subsidiaries and the Joint Company; Company or Scangroup Scangroup Limited, a public limited liability company (incorporated in Kenya under registration number C 11/ 2006) and listed on the Nairobi Securities Exchange; Consideration Shares 72,720,076 shares of KShs 1.00 each all credited as fully paid and listed on the Nairobi Securities Exchange to be issued to Cavendish by the Company as its consideration for the transfer by Cavendish of the Cavendish Shares in accordance with the Agreement; Completion completion of the Transaction as stipulated in the Agreement; CMA the Capital Markets Authority established under The Capital Markets Act (CAP 485A) of the Laws of Kenya; Directors or Board the persons named herein on page 4 as Directors of the Company; EGM the Extraordinary General Meeting of the Company to be held on the date and time as mentioned in Part 1 Key Dates; Existing Ordinary Shares the 284,789,128 existing issued and fully paid up ordinary shares of KShs 1.00 each in the Company; 5

7 4. TERMS AND DEFINITIONS (Continued) Increased Share Capital the increase in the authorised share capital of the Company to be approved at the EGM to provide for the New Shares; Jointly Held Entities or Acquired Companies the Company Subsidiaries, Cavendish Subsidiaries and the Joint Company as described in the Agreement. Brief particulars of such companies being set forth in Part 3 of this Circular; JWT JWT is the brand name of the global advertising and marketing agency, J. Walter Thompson, a WPP Company, headquartered in New York City; KShs or KSH Kenya Shillings; Listing admission of the New Shares to the Official List of the NSE; GroupM New Shares GroupM, a WPP Company is a media investment management company headquartered in New York City; 94,075,974 Ordinary Shares in the Company with a par value of KShs 1.00 each, being the aggregate of the Consideration Shares and the Subscription Shares; NSE the Nairobi Securities Exchange; Ordinary Share an ordinary share of KShs 1.00 par value in the Company; Subscription Shares 21,355,898 shares of KShs 1.00 each all credited as fully paid and listed on the Nairobi Securities Exchange to be issued to Cavendish by the Company for the Subscription Price in accordance with provisions of the Agreement; Subscription Amount KShs 1,833,403,843 being the amount obtained by multiplying the Subscription Price of KShs by the number of Subscription Shares; Subscription Price KShs per Subscription Share being the volume weighted average traded price of the shares in the Company on the NSE for the three months immediately prior to the issue by Cavendish of its Notice of Intention dated 12th August 2013 plus a premium of 30% as certified in writing by the Auditors of the Company; Transaction means the indivisible transactions as described in the Agreement comprising (i) the waiver by Cavendish of the Cavendish Options; (ii) the sale by Cavendish of the Cavendish Shares in Jointly Held Entities in consideration for the issue by the Company of the Consideration Shares; and (iii) the subscription and payment by Cavendish for the Subscription Shares at the Subscription Price and the issue by the Company to Cavendish of the Subscription Shares, all such New Shares being issued by the Company credited as fully paid and listed on the Nairobi Securities Exchange on Completion; 6

8 4. TERMS AND DEFINITIONS (Continued) WPP WPP Group WPP plc a global communications services group incorporated under the laws of Jersey with its registered office at Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES under registration number WPP is listed on the London Stock Exchange plc and NASDAQ Stock Market LLC; WPP plc, its subsidiaries and associated companies from time to time. 7

9 PART 2 - LETTER FROM THE CHAIRMAN OF SCANGROUP Scangroup Limited The Chancery, 5th Floor Valley Road P.O. Box Nairobi, Kenya 18th October 2013 To all shareholders of Scangroup Limited Dear Shareholder, Issue by the Company of 94,075,974 New Shares to Cavendish in terms described herein of which 72,720,076 new shares to be issued in consideration for the purchase of Cavendish Shares and 21,355, 898 new shares to be issued at a subscription price of KShs each. 1. INTRODUCTION The purpose of this document is to provide you with information on the: Background to and reasons for the Transaction paragraph 2 Salient terms of the Transaction and the consideration paragraph 3 Effect of the Transaction on existing shareholders and the company s financial position paragraph 4 Extraordinary General Meeting paragraph 5 Recommendation of the Board paragraph 6 As required by the Articles of Association, an EGM has been called in order to give you an opportunity to consider and, if thought fit, approve the Transaction in particular by authorising an increase in the Company s authorised share capital and the issue of up to 94,075,974 New Shares for the purposes of the Transaction. Regulatory approval for the Transaction has been obtained from the CMA under the Capital Markets Act pursuant to The Fourth Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, In addition, the CMA has also granted an exemption to Cavendish under Regulation 5 of the Capital Markets (Take-overs and Mergers) Regulations, 2002 from compliance with those Regulations. Application has been made to the NSE to list the New Shares on the NSE, subject to approval of the shareholders having been obtained at the EGM for the Increased Share Capital and the Transaction. 8

10 2. BACKGROUND TO AND REASONS FOR THE TRANSACTION Cavendish is a wholly owned subsidiary of WPP plc. WPP Group is one of the world s leading communications services groups, employing approximately 165,000 people (including associates) working in over 3000 offices in 110 countries. In 2008, Cavendish acquired 27.5% shareholding in the Company for cash and Scangroup became an associated company of the WPP. Through the support of WPP, the Company has expanded its foot print in various parts of Africa by setting up various jointly owned ventures with WPP, including the acquisition in 2010 from Ogilvy South Africa (Proprietary) Limited, another WPP subsidiary, of an interest in Ogilvy Africa BV, a company incorporated in the Netherlands and Ogilvy Kenya Limited. The beneficial shareholding of the Company and Cavendish in the Jointly Held Entities is detailed in Part 3 of this Circular. At the time of setting up these Jointly Held Entities, Scangroup granted Cavendish call options to enable it to acquire a controlling interest in several of these Jointly Held Entities. The exercise of these call options would deny Scangroup its current controlling interest in those companies. WPP, through Cavendish and Ogilvy South Africa (Proprietary) Limited, already owns a significant shareholding in Scangroup of %, comprising 95,735,442 Ordinary Shares. Both Scangroup and WPP consider that it will be in the best interests of both the Scangroup shareholders and WPP to consolidate the shareholdings in the Jointly Held Entities through Scangroup. Consequently, as part of the Transaction, it is proposed that: a) Cavendish waive its call options; and b) Scangroup acquires Cavendish s shareholding in the Jointly Held Entities, which on completion will become 100% subsidiaries of Scangroup, in consideration for the issue by the Company of the Consideration Shares; and c) Cavendish will subscribe for the Subscription Shares in the Company in cash to enable WPP to achieve a controlling shareholding in Scangroup of 50.10%. The conclusion of the Transaction will provide Scangroup with a stable and long-term strategic partner of world-wide repute, which will result in Scangroup obtaining the following benefits as a subsidiary (rather than as an associate) of WPP: Scangroup will be strategically placed as the gateway to East and Sub Saharan Africa; As a subsidiary of WPP, Scangroup will be able to leverage its unique position to partner with other WPP Group companies for licensing of their brands and offer its customers a wider reach and distribution platform. Following Completion of the Transaction, WPP and Scangroup will finalise agreements for the licensing of the GroupM brand (for media investment management) and the JWT brand (advertising) for specified territories within Sub-Saharan Africa; WPP will play a significant role in participating in the management and succession of senior management of the Company and Scangroup will be able to leverage the global resources of the WPP Group for the benefit of its existing and prospective clients; Provide an opportunity to Scangroup to expand the business into the new discipline areas where the WPP Group has expertise and also provide Scangroup access to their multinational clients; Scangroup will have access to learning in the area of digital marketing, resources and technology through the WPP Digital companies and the digital arms of its other global businesses. Digital is today a key component in the marketing mix and is a key growth opportunity for Scangroup; and Scangroup will receive KShs 1,833,403,843 pursuant to subscription of the Subscription Shares. Scangroup will apply this money to fund its expansion programme specifically with regards to a series of acquisitions primarily outside Kenya. As a result, Scangroup s shareholders will benefit from the increased revenues that will accrue to Scangroup from its greater reach and improved value proposition. It will also give all current Scangroup clients a greater sense of confidence as they are now assured of WPP s commitment to Scangroup. Scangroup only receives its proportionate share of the profits from the Jointly Held Entities and as a result of the Transaction it will receive 100% of the profits. 9

11 Bharat Thakrar, the current Chief Executive Officer and founder-shareholder of Scangroup, will continue to remain the Group Chief Executive Officer, a shareholder and director of the Company. Scangroup and Cavendish entered into the Agreement on 12th August 2013, which provides, inter alia, as follows: 1. the purchase by the Company of the Cavendish Shares in consideration of the issue by the Company of the Consideration Shares; 2. the subscription by Cavendish for the Subscription Shares at the Subscription Price; and 3. the waiver by Cavendish of the Cavendish Options. 3. SALIENT TERMS OF THE TRANSACTION AND THE CONSIDERATION The salient terms of the Transaction contemplated under the Agreement are set out below: (a) The purchase consideration for the acquisition of Cavendish Shares The consideration for the purchase of the Cavendish Shares was determined on the basis of the relative share in terms of profit after tax for the year 2012 attributable to: i. the shareholding beneficially owned by Cavendish in the Acquired Companies; and ii. the Scangroup shareholders (after minority interests) in the Company on a consolidated basis, plus a premium of 30% for the contribution from companies in Scangroup (adjusted for one-off items) other than the Acquired Companies, Squad Digital Limited, interest and other income/expenses. The Consideration Shares were thus determined as follows: Summary Portion attributable to existing Scangroup shareholders Portion attributable to Cavendish Shares Acquired Companies 19.47% 19.16% 38.63% Other companies within Scangroup 38.68% 0.00% 38.68% (adjusted for one-off items) net of minority interests Squad Digital Limited 0.23% 0.00% 0.23% Other income / expenses -2.15% 0.40% -1.75% Interest income 11.83% 0.78% 12.61% Share of profits after tax 68.06% 20.34% 88.40% 30% Premium on other companies within Scangroup net of minority interest 11.60% % Allocation for shareholding 79.66% 20.34% % Total Number of Ordinary Shares Existing shareholding in Scangroup Cavendish Total Current Shareholding in Scangroup 284,789, ,789,128 Consideration Shares to be issued to Cavendish 72,720,076 72,720,076 Totals 284,789,128 72,720, ,509, % 20.34% % The Company has obtained an independent opinion on the fairness of the consideration and this is attached in Appendix I. 10

12 (b) The Subscription Price for the Subscription Shares This has been calculated on the basis of the volume weighted average traded price of the shares in the Company on the NSE for the three months immediately prior to the issue by Cavendish of its Notice of Intention (pursuant to the regulations of the CMA) as certified by the Auditors of the Company plus a control premium of 30%. The Subscription Price so computed is KShs per Ordinary Share. A copy of the certificate from the Auditors is attached in Appendix II. This price also falls within the range of valuation verified by the independent advisor whose report is attached as Appendix I. (c) Shareholding by Cavendish and Ogilvy South Africa (Proprietary) Limited The Transaction contemplated under the Agreement will bring Cavendish s and Ogilvy South Africa (Proprietary) Limited s shareholding in Scangroup to 50.1% as shown below: Shareholding in Scangroup No. of shares post - Transaction Ordinary shares of KShs 1.00 each Existing shares held in Scangroup by Cavendish 82,827,586 Consideration Shares to be issued to Cavendish 72,720,076 Subscription Shares to be subscribed by Cavendish 21,355,898 % of fully diluted capital Total Shareholding by Cavendish 176,903, % Ogilvy South Africa (Proprietary) Limited 12,907, % WPP Group shareholding 189,811, % Other shareholders 189,053, % Total Shareholding post - Transaction 378,865, % The Consideration Shares and the Subscription Shares, when issued, will have the same rights and be subject to the same obligations as the existing ordinary shares of the Company, and shall rank pari passu with the existing issued ordinary shares and will be entitled to all dividends declared after Completion. (d) Other Terms The Agreement provides for various matters that need to be satisfied before the Transaction is completed. These include: i. Regulatory approval from the CMA; ii. The approval of the NSE for the admission of the New Shares; iii. The approval of the shareholders of Scangroup to the Transaction including the increase in the Authorized Share Capital and the waiver of pre-emption rights and the issue of the New Shares as provided for in the resolutions to be proposed at the EGM; and iv. Regulatory approvals as may be required under the Competition Act of Kenya or elsewhere. Copies of the Agreement are available for inspection by shareholders, as noted in paragraph 8 of Part 5 of this Circular. 11

13 4. EFFECT OF THE TRANSACTION ON EXISTING SHAREHOLDERS AND THE COMPANY S FINANCIAL POSITION As a consequence of the Transaction, all existing shareholders current shareholdings will be diluted by 24.83% as shown below: Shareholding in Scangroup No. of shares % of fully diluted capital Ordinary shares of KShs 1.00 each Consideration Shares to be issued to 72,720, % Cavendish Subscription Shares to be subscribed 21,355, % by Cavendish Total New Shares to be issued 94,075, % Existing shares in issue 284,789, % Total number of shares in issue after Transaction 378,865, % The table below illustrates the impact on shareholders shareholdings in the Company in terms of the number of ordinary shares and the shareholders respective shareholding percentages in the Company before and after the issue of New Shares. Name of shareholder No. of Ordinary Shares Before Shareholding Percentage Proposed Issue of New Shares No. of Ordinary Shares After Shareholding Percentage Cavendish Square Holding BV 82,827, % 94,075, ,903, % Ogilvy South Africa 12,907, % - 12,907, % (Proprietary) Limited Sub-total (WPP plc) 95,735, % 94,075, ,811, % Mr. Bharat Thakrar 51,811, % - 51,811, % Others (representing approximately 137,242, % - 137,242, % 26,000 Shareholders) Total 284,789, % 94,075, ,865, % Pro-forma spread of shareholders after proposed issue of New Shares Category Numbers of shares held Shareholding % of issued share capital Foreign Investors 271,188, % East African Individuals 68,024, % East African Institutions 39,652, % Total 378,865, % It should be noted that WPP, with its existing shareholding in Scangroup through Cavendish and Ogilvy South Africa (Proprietary) Limited will, following Completion of the Transaction, have an aggregate direct and indirect interest in Scangroup of 50.10%. Your Board considers that this dilutive impact will be offset by the incremental earnings per ordinary share anticipated and the other benefits resulting from the Transaction. The potential impact on the Company s financial position and profitability is illustrated in Part 4. 12

14 5. EXTRAORDINARY GENERAL MEETING Currently, the Company s authorised share capital is not sufficient to allow for the increase in the number of ordinary shares required for the issue of the New Shares. Therefore, the approval of shareholders will be required to: a) increase the nominal share capital of the Company from KShs 302,154,855 (Kenya Shillings three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) divided into 302,154,855 (three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) ordinary shares of KShs 1.00 each by an amount of KShs 97,845,145 (Kenya Shillings ninety seven million eight hundred and forty five thousand one hundred and forty five) divided into 97,845,145 (ninety seven million eight hundred and forty five thousand one hundred and forty five) new ordinary shares of KShs 1.00 each to KShs 400,000,000 (Kenya Shillings four hundred million) divided into 400,000,000 (four hundred million) ordinary shares of KShs 1.00 each; and b) the issue of the New Shares without first offering the New Shares to existing shareholders of the Company upon the terms contained in the Agreement and this Circular. Resolutions to approve the Transaction, the increase in the authorised share capital of the Company and to authorise the issue of the New Shares are set out in the notice of the EGM, which is set out in Part 8 of this Circular. If you are currently a shareholder but are unable to attend the EGM to be held on the date mentioned in Part 1 - Key Dates, please complete the form of proxy and send it to the Company s Share Registrar no later than date mentioned in Part 1 - Key Dates. The completion and return of a proxy form will not prevent you from attending and voting in person if you wish to do so. 6. RECOMMENDATION Your Board considers that the Transaction is in the best interest of the Shareholders for the reasons given in paragraph 2 above. Accordingly, the Directors (other than the WPP appointed directors listed on page 4, who having declared their interest in the transaction as WPP directors abstained from voting ) unanimously resolved to recommend to all shareholders to vote in favour of the resolutions to be proposed at the EGM, as they have agreed to so do in respect of their own beneficial holdings of shares. If you are in any doubt as to what action to take, you are recommended to seek independent advice from your stockbroker, bank manager, lawyer or other professional adviser. Yours sincerely David Hutchison Chairman 13

15 PART 3 - INFORMATION ON THE ACQUIRED COMPANIES CAVENDISH SHAREHOLDINGS TO BE TRANSFERRED TO SCANGROUP ARE SHOWN IN THE TABLES BELOW Company Subsidiaries Company Country of Shareholding % incorporation Company Cavendish Ogilvy Africa Limited Kenya 51% 49% Ogilvy Tanzania Limited Tanzania 51% 49% Ogilvy Africa B.V. Netherlands 51% 49% Ogilvy Mauritius Holdings Limited Mauritius 51% 49% Hill + Knowlton Strategies Africa Holding Limited Mauritius 51% 49% Hill & Knowlton East Africa Limited Kenya 51% 49% Cavendish Subsidiaries Company Country of Shareholding % incorporation Company Cavendish Millward Brown Mauritius Limited Mauritius 49% 51% Millward Brown East Africa Limited Kenya 49% 51% Joint Company Country of Shareholding % Company incorporation Company Cavendish Ogilvy Kenya Limited Kenya 50% 50% It should be noted that the financial statements of the Company Subsidiaries and of the Joint Company, by virtue of Scangroup having operational control over them, are consolidated in the financial statements of the Company as subsidiaries. Cavendish Subsidiaries are accounted for as jointly controlled entities in the consolidated financial statements of the Company. The audited consolidated financial statements of the Company and Cavendish Subsidiaries for the year ended 31 December 2012 are available for inspection as noted in paragraph 8 of Part 5 of this Circular. 14

16 PART 4 - PRO-FORMA FINANCIAL INFORMATION The following paragraphs highlight the impact of the acquisition of the Cavendish Shares in the Acquired Companies and the additional investment in cash for the Subscription Shares. 1. PRO-FORMA CONSOLIDATED FINANCIAL POSITION The table below sets out the impact on the financial position of the Company as at 30th June 2013, on the assumption that the Transaction took place on 30th June For purpose of illustration it has been assumed that the proceeds from the Subscription Shares were held in bank deposits / government securities. PRO-FORMA CONSOLIDATED FINANCIAL POSITION Acquisition of Cavendish Subsidiaries Acquisition of minority interest in Company Subsidiaries and Joint Company Cash consideration received for Subscription Shares All amounts in KShs 000 As at 30 June 2013 Note 1 Note 2 Note 3 Position post -Transaction Assets Equipment & Investments 504, ,803 Goodwill 315,671 2,390,986 2,706,657 Deferred tax asset 107, ,566 Investment in Associates 158,438 (152,236) 6,202 Cash and Cash equivalents 730,161 1,808,404 2,538,565 Other Current Assets 6,737, ,685 7,048,412 Total Assets 8,554,366 2,549,436-1,808,404 12,912,205 Equity and Liabilities Share Capital 284,789 20,864 51,856 21, ,865 Share premium 1,754,388 1,356,988 3,372,714 1,787,048 8,271,139 Retained Earnings 2,071,256 1,171,583 (2,793,304) 449,536 Translation Reserve (6,640) (6,640) Total Shareholders Funds 4,103,793 2,549, ,267 1,808,404 9,092,899 Minority Interest 667,200 (631,267) 35,933 Non Current Liabilities 297, ,474 Current Liabilities 3,485,899 3,485,899 Total Equity and Liabilities 8,554,366 2,549,436-1,808,404 12,912,205 Notes 1. Accounting method applied for the Acquisition of Cavendish Subsidiaries is step acquisition in accordance with IFRS 3 - Business Combination. 2. Accounting method applied for Acquisition of minority interests in Company Subsidiaries and Joint Company is in accordance with IFRS 10 - Consolidated Financial Statements. 3. Costs of the Transaction estimated at KShs 25 million are deducted from the proceeds from the Subscription Shares. 15

17 2. IMPACT ON PROFITABILITY The table below illustrates the potential impact on the Company s consolidated earnings for the year ended 30th June 2013, assuming that the Transaction had been completed on 1st July PRO-FORMA CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30TH JUNE 2013 All figures in KShs 000 Scangroup - for the period 1st Jul 2012 to 30th Jun 2013 Consolidation on acquisition of Cavendish Subsidiaries Acquisition of minority interest in Company Subsidiaries and Joint Company Additional income attributable to cash consideration received for Subscription Shares Adjusted Consolidated results for Scangroup % Change Revenue 3,841, , ,590,829 20% Profit before Tax 617,812 99, , ,877 52% Tax (228,827) (32,996) - (67,115) (328,939) Profit after tax 388,985 66, , ,939 57% Less : Attributable to (75,524) - 46,013 - (29,511) -61% minority interest Attributable to shareholders of Scangroup Earnings per share-kshs No. of Shares in Scangroup 313,461 66,351 46, , ,428 86% pre- Transaction % Number of shares attributable to the Transaction post- Transaction 284,789,128 20,863,905 51,856,171 21,355, ,865,102 Notes 1. The above workings exclude the gain arising on revaluation of 49% shareholding by the Company in Millward Brown entities of about KShs 1.17 billion since it is one off income. As per IFRS 3 para 42, any gain arising out of revaluation should be dealt with through the Income statement. 2. It is assumed that net proceeds from the Subscription Shares after meeting the expenses of the Transaction were invested on 1st July 2012 at % per annum; being the average yield on 10 Year Treasury Bond Issue No FXD 1/2013/10 dated 26th August 2013 (Source: Central Bank of Kenya). Tax is assumed at 30%. 3. Earnings per share are based on shares in issue pre- transaction and post-transaction. It should be noted that the above is only an illustration and the actual future results could be different. 16

18 PART 5 - STATUTORY AND GENERAL INFORMATION 1. RESPONSIBILITY STATEMENT 1.1 The Directors, whose names appear on page 4 of this Circular accept responsibility for the information contained in this Circular. The Directors declare that all information contained in this Circular is correct, and neither the Board of directors minutes, audit reports or any other internal documents contain information which could distort the interpretation of this Circular. A copy of the duly signed declaration of directors is attached in Appendix III. 1.2 The Directors are the persons responsible for the application made to the CMA pursuant to paragraph 17 of the Fourth Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, THE COMPANY S SHARE CAPITAL 2.1 The Company s authorised share capital as at the date of this Circular is KShs 302,154,855 (Kenya Shillings three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) divided into 302,154,855 (three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) ordinary shares of KShs 1.00 each. The authorised and issued share capital of the Company is not divided into different classes of shares and all of the ordinary shares carry equal rights. 2.2 The Articles of Association describes all of the rights attached to the ordinary shares as regards such matters as voting, dividends, liquidation proceeds and other matters. A copy of the Articles of Association is available for inspection as noted in paragraph 8 below. 2.3 The authorised share capital of the Company will be increased from KShs 302,154,855 (Kenya Shillings three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) divided into 302,154,855 (three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) ordinary shares of KShs 1.00 each to KShs 400,000,000 (Kenya Shillings four hundred million) divided into 400,000,000 (four hundred million) ordinary shares of KShs 1.00 each by the creation of 97,845,145 (ninety seven million eight hundred and forty five thousand one hundred and forty five) new ordinary shares of KShs 1.00 each to provide for the issue of up to 94,075,974 New Shares. 2.4 New shares shall be issued and credited as fully paid upon Completion as follows: (a) 72,720,076 Consideration Shares to Cavendish (b) 21,355,898 Subscription Shares to Cavendish On Completion, the Company shall issue instructions to the Central Depositories and Settlement Corporation Limited to transfer the New Shares to Cavendish s CDSC account. The Consideration Shares and the Subscription Shares shall when issued rank pari passu with the existing issued ordinary shares and will be entitled to all dividends declared after Completion. 2.5 The Consideration Shares and Subscription Shares, when issued, are to be admitted to Listing at Nairobi Securities Exchange upon Completion as per the Agreement. 2.6 On 3rd October 2013 the Board resolved, pursuant to the Articles of Association, to convene an EGM for the purpose of amongst other things, seeking the approval from the Company s shareholders to the Transaction, to increase the authorised share capital of the Company, and to authorise the Directors to issue, pursuant to the Transaction, the Consideration Shares and the Subscription Shares without first offering them to existing shareholders. 17

19 2.7 The table below illustrates the pro-forma impact on the Company s shareholders and their respective shareholding percentages in the Company before and after the issue of the New Shares to Cavendish. Name of shareholder Before No. of Ordinary Shares held After Proposed Issue % of New Shares No. of Ordinary Shares held Cavendish Square Holding BV 82,827, % 94,075, ,903, % Ogilvy South Africa 12,907, % - 12,907, % (Proprietary) Limited Sub-total 95,735, % 94,075, ,811, % Mr Bharat Thakrar 51,811, % - 51,811, % Others (representing 137,242, % - 137,242, % approximately 26,000 shareholders) Total 284,789, % 94,075, ,865, % The potential overall dilutive effect on existing shareholders in Scangroup Limited will be 24.83%. It should be noted that WPP with its existing shareholding in Scangroup through Cavendish Square Holding BV and Ogilvy South Africa (Proprietary) Limited will, following Completion, have an aggregate direct and indirect interest in Scangroup of 50.10%. 2.8 At the Annual General Meeting of the Company held on 18 May 2007, the shareholders authorised the Directors to issue a maximum of 5 million ordinary shares of the Company in connection with any acquisition of assets or subsidiaries or other property as consideration. No shares have been issued for this purpose as at the date of this Circular. % 3. DIRECTORS INTERESTS 3.1 At the due date of this Circular, the following Directors had direct and indirect beneficial interests in the ordinary shares of the Company as follows: Name of Director Number of Ordinary Shares held in the Company David Hutchison 1,200 Bharat Thakrar 51,811,360 Manish Shah 1,300 Richard Omwela 2, At the date of this Circular, there was no existing or proposed contract between any of the Directors and the Company, other than employment contracts for those Directors who are employed in the ordinary course of business. 3.3 Save for any indirect beneficial interests in WPP held by Laurence Mellman and Andrew Scott in their personal capacities, none of the directors has or has had any direct or indirect beneficial interest in the Acquired Companies. 18

20 4. CONSENTS Standard Investment Bank Limited has given and not withdrawn their consent to the inclusion herein of the references to their report in the form and context in which it appears and Deloitte & Touche have given and not withdrawn their consent to the issue of this Circular with the inclusion herein of the references to their reports in the form and context in which they appear. 5. INFORMATION ON THE TRANSACTION 5.1 On 12th August 2013, the Company and Cavendish entered into the Agreement. 5.2 Part 2 of this Circular contains the background to and reasons for the Transaction, the consideration and payment details and the recommendation of the Board; Part 3 of the Circular details the shareholding of the Acquired Companies and details of the Cavendish Shareholdings; and Part 4 of this Circular details the financial information. 6. GENERAL INFORMATION 6.1 The fees payable by the Company to CMA and NSE in respect of the Listing of the New Shares will be approximately KShs 10 million. 6.2 In accordance with the disclosure requirements under paragraph 28(a) of the Fourth Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002, the Board hereby declares that the annual financial statements of the Company for the year ended 31 December 2012 have been audited and received an unqualified opinion. 6.3 The Company s auditors Deloitte & Touche have issued a statement under paragraph 28(b) of The Fourth Schedule to the CMA Regulations which requires the auditor to consider whether all circumstances regarding the issue of the New Shares known to them which could influence the evaluation by investors of the assets, liabilities, financial position, results and prospects of the Company are included in the Circular. A copy of their statement is attached in Appendix IV. 6.4 As Cavendish is a foreign investor, all future dividends payable to it by Scangroup will be subject to applicable withholding tax, currently 10%. 7. GOVERNING LAW This Circular is governed by and construed in accordance with Kenyan law. 8. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents will be available for inspection by shareholders, free of charge, at the Company s offices at 5th Floor The Chancery, Valley Road, Nairobi, Kenya between 9.00 a.m. and 5.00 p.m. Monday to Friday (except public holidays) from the date hereof until 13th November 2013: (a) the Agreement; (b) the Company s audited financial statements for the five financial years ended 31 December 2012; (c) audited financial statements for the financial year ended 31 December 2012 of the Cavendish Subsidiaries; (d) the Company s Memorandum and Articles of Association; (e) the independent opinion issued by Standard Investment Bank Limited on the fairness of the Transaction value; (f) the statement issued by the Company s auditors as required by regulation 28(b) of the Fourth Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002; (g) the approval of the CMA relating to this Circular, the Increased Share Capital and the issue of the New Shares; and (h) The Auditors certification of the calculation of the Subscription Price. 19

21 PART 6 CORPORATE GOVERNANCE STATEMENT 1. GENERAL The Board of Directors is committed to complying with legislation, regulation and best practice and has in particular adopted the Capital Markets Authority (CMA) guidelines on corporate governance practices by public listed companies in Kenya. 2. BOARD AND COMMITTEES The Company is led by an effective Board that provides strategic direction and is ultimately responsible for the functioning of the Company and Group. To assist the Board in the performance of its duties, the Board has constituted Committees which operate under written mandates that clearly define their composition, terms of reference, scope of authority, and procedures for reporting to the Board. The current membership of the Committees is as follows: Audit & Risk Management Committee - David Hutchison, Richard Omwela and Andrew Scott Nominating & Remuneration Committee - David Hutchison, Muchiri Wahome and Bharat Thakrar 3. DIRECTORS Out of the current seven Directors three (3) are independent, two (2) are non-executive directors appointed by Cavendish Square Holding BV in accordance with the Company s Articles of Association and two (2) are executive directors as detailed below: The independent directors are David Hutchison (Chairman), Richard Omwela and Muchiri Wahome; The two non-executive directors appointed by Cavendish Square Holding BV are Andrew Scott and Laurence Mellman; and The executive directors are Bharat Thakrar (Group Chief Executive Officer) and Manish Shah (Group Finance Director). All the independent directors are required to retire at regular intervals and may offer themselves for re-election. 4. CHAIRMAN AND CHIEF EXECUTIVE OFFICER The roles of the Chairman and Chief Executive Officer are separate and distinct. The Chairman is a non-executive Independent Director. 5. INTERNAL CONTROLS The Group has defined procedure and financial controls to ensure the reporting of complete and accurate accounting information and has recently upgraded its management accounting system to provide financial and operational performance measurement indicators more timely and accurately. These cover systems for obtaining authority for major transactions and for ensuring compliance with laws and regulations. Procedures are also in place to ensure that assets have proper physical controls and that the organization remains structured to ensure appropriate segregation of duties. In reviewing the effectiveness of the systems of internal control, the Board takes into account the results of all the work carried out by the internal audit function, or any other audit, on the activities of the Group. 6. DEALING IN COMPANY S SHARES The Company complies with CMA s rules on Insider Trading and has formulated a policy that governs the trading of Company s shares by Directors and designated staff. 7. INVESTOR RELATIONS The Company values its relationship with shareholders and the investment community and ensures regular and reliable communication through publication of its financial performance, publication of the Annual Report, holding of the Annual General Meeting, and other general meetings prescribed by law. The primary communication channel remains the Nairobi Securities Exchange and media releases consistent with legal and regulatory requirements. 20

22 8. SUBSIDIARIES OF SCANGROUP LIMITED Business Activities Country Business Activities Country Advertising agency Media agency Redsky Angola Limited Angola Media Compete East Africa Limited Kenya Scanad Burundi Limited SPRL Burundi Mindshare Kenya Limited Kenya STE Scanad DRC DRC Scangroup (Malawi) Limited Malawi Scanad Ghana Limited Ghana MIA Mauritius Limited Mauritius Ogilvy Ghana Limited Ghana Scangroup Mozambique Limitada Mozambique Scanad Kenya Limited Kenya Ogilvy Africa B.V (Branch Office) South Africa Ogilvy & Mather (Eastern Africa) Limited Kenya Scangroup (Zambia) Limited Zambia Scanad Africa Limited Kenya Grey East Africa Limited Kenya Field marketing Redsky Limited Kenya Smollan East Africa Limited Kenya J. Walter Thompson Kenya Limited Kenya Ogilvy Africa Media Limited Kenya Public relations agency Blueprint Marketing Limited Kenya Hill & Knowlton East Africa Limited Kenya Ogilvy Africa Limited Kenya Hill and Knowlton Strategies South Africa South Africa (Proprietary) Limited Ogilvy Kenya Limited Kenya Ogilvy Public Relations Limited Kenya Scanad Nigeria Limited Nigeria Scanad Rwanda Limited Rwanda Investment holding company Scanad Tanzania Limited Tanzania Scanad East Africa Limited Kenya J. Walter Thompson Tanzania Limited Tanzania Scangroup Mauritius Holdings Limited Mauritius Ogilvy Tanzania Limited Tanzania Scangroup (Mauritius) Limited Mauritius Scanad Uganda Limited Uganda Media Buying Africa Limited Mauritius JWT Uganda Limited Uganda Millward Brown Mauritius Mauritius Ogilvy Mauritius Holding Limited Mauritius Speciality communication Scanad Nigeria Holding Limited Mauritius Roundtrip Limited Kenya H+K Strategies Africa Holding Limited Mauritius Ogilvy Africa B.V Netherlands Digital advertising Squad Digital Limited Kenya 21

23 PART 7 PROFILE OF CURRENT DIRECTORS AND SENIOR MANAGEMENT 1. BRIEF PROFILE OF THE CURRENT DIRECTORS AND SECRETARY OF THE COMPANY 22 David Hutchison Chairman and Independent Non-Executive Director David, age 68, is a Certified Public Accountant and formerly senior partner of Ernst & Young Eastern Africa. He has many years of experience in related aspects of audit, tax advice and financial management, reconstruction and consulting covering many sectors, in a diversity of African countries. David is a non-executive director of ICEA Lion General and Life Companies, East Africa Reinsurance Company Limited, East African Packaging Industries Limited (Chairman), Prime Bank Limited, Synresins Limited, and Chairman of a number of companies within The Banda educational and property groups. Bharat Thakrar Group Chief Executive Officer Bharat, age 61, is the founder shareholder of Scangroup and a Director of all Scangroup subsidiaries and has over 38 years working experience in the advertising and communications industry. He holds a Diploma in Advertising and Marketing from the Communications and Marketing Foundation - UK. He is a former Chairman of the Advertising Practitioners Association (APA). He has undergone various executive management courses including one at the Harvard Business School. Richard Omwela, OGW Independent Non-Executive Director Richard, age 57, holds a Bachelor of Honours Degree in Law (LLB) Upper Class Division from the University of Nairobi, a diploma in law from the Kenya School of Law and is an advocate of the High Court of Kenya. Richard is the Managing Partner of Hamilton Harrison and Mathews Advocates. He is a member of the Law Society of Kenya and the Institute of Certified Public Secretaries of Kenya. He is the Chairman of Nairobi Airport Services Limited (NAS), and is a member of the Board of Directors of ABC Bank Limited, Solio East Africa, The Monarch Insurance Company Limited, Genesis Kenya Investments Limited and Octagon Pension Services Limited. Muchiri Wahome Independent Non-Executive Director Muchiri, age 50, has over 22 years of retail experience and is currently the Chief Executive Officer of Deacons Group Of Companies. He is also a Non-Executive Director of Tea Brokers E.A and Kiko Romeo Limited. He is also the Chairman of the Board of Governors of Moi Equator Girls Secondary School, a member of the Federation of Kenya Employers (FKE) management board. In 2005 he was awarded the Head of State Commendation medal for implementing performance contracts with public bodies. Muchiri is a fellow of the Aspen Leadership Institute. Andrew Scott Non-Executive Director Andrew, age 44, is Chief Operating Officer for WPP in Europe and is also WPP s Director of Corporate Development leading the Group s global Mergers and Acquisition activity. Prior to joining WPP Andrew was a strategy consultant at LEK Consulting. He holds an MBA with distinction from INSEAD. Laurence Mellman Non-Executive Director Laurence, age 47, is director of Special Projects at WPP. He has worked at WPP since 1996 and has undertaken a number of roles in both the parent company and in the operating companies. Currently Laurence is also Chief Operating Officer at the United Network, an advertising agency network within WPP with agencies in Europe and the United States of America. Prior to joining WPP, Laurence trained as a Chartered Accountant with Price Waterhouse in London and Manchester, qualifying in Laurence holds a degree in Commerce and Accounting from the University of Birmingham in the UK. Manish Shah Group Finance Director Manish, age 39, is a member of the Institute of Certified Public Accountants of Kenya and The Institute of Chartered Accountants of India. He holds a Bachelor of Commerce degree from University of Bombay and a Diploma in Information & System Management. He has a wealth of experience spanning 13 years in advertising and marketing industry having worked with the French advertising group Publicis in India prior to joining Scangroup in 2003.

24 1. BRIEF PROFILE OF THE CURRENT DIRECTORS AND SECRETARY OF THE COMPANY (Continued) Margaret Muhuni-Kipchumba Company Secretary Margaret, age 39, joined Scangroup as Head of Legal and Company Secretary in 2009 and also serves on the boards of the Kenyan subsidiaries in this capacity. She is an advocate of the High Court of Kenya and a Certified Public Secretary. She is a member of the Law Society of Kenya, the Institute of Certified Public Secretaries of Kenya and the Institute of Directors - Kenya. 2. SENIOR MANAGEMENT TEAM A Chief Executive Officer (CEO) or a Managing Director (MD) heads each of the operating subsidiaries / divisions and is responsible for the operations and activities of the underlying business. All CEOs and MDs report to the Group CEO, who is responsible for policy matters, investment, financial control and co-ordination of Scangroup and its subsidiaries as directed by the Board. Pursuant to this Transaction, leadership and management of Scangroup and its operating subsidiaries / divisions will not change. Bharat Thakrar Group Chief Executive Officer His brief profile is presented above Manish Shah Group Finance Director His brief profile is presented above Margaret Muhuni-Kipchumba Head of Legal and Company Secretary Her brief profile is presented above Ayub Ahmed Chief Operating Officer Ayub has been with the Group since He has held various positions cutting across Operations, Accounts, and Audit within the Group. He is in charge of the media and production business. He is also an Executive Director in a number of Scangroup subsidiaries. Ayub holds a Diploma in Printing and Graphic Design from City Technical Institute and a Diploma in Flight Services from Pan-American Flight Academy. Satyabrata Das Chief Commercial Officer Satya, is a member of the Institute of Certified Public Accountants of Kenya and The Association of Chartered Certified Accountants, UK. He holds a Post Graduate qualification in Business Administration and a Diploma in Business Finance. Satya started his career as a sponsored candidate to Siemens Industrie Kaufmann program in After 8 years in the Commercial function in manufacturing sector, he moved into Advertising and Media with Publicis Groupe Media (now Vivaki) prior to joining Scangroup in Since then he leads the commercial function of the Group. Saurin Gawarwala Chief Information Officer Saurin Gawarwala has been with the Group since He oversees the IT infrastructure of around 15 sites across East & West Africa. Saurin holds Advanced Diploma in Systems Management, Diploma in RDBMS, Database Administration, Bachelor s Degree in Commerce & also Microsoft Certified IT Professional. He has attained CIO100 Awards twice (2011 & 2013) for using information technology in innovative ways to deliver business value, whether by creating competitive advantage or optimizing business processes. 23

25 2. SENIOR MANAGEMENT TEAM (Continued) Irene Odhiambo Business Partner - HR Irene actively works together with other senior management employees of the Group to build HR excellence. She has been involved in promoting the HR agenda by implementing successful resourcing and retention strategies, learning & development initiatives and performance management. Irene has over 7 years of experience in diverse industries and has worked in various capacities at Barclays Bank, PwC Kenya and Safaricom Ltd. She holds a Post Graduate Diploma in Human Resource Management and a degree in Business Administration majoring in HR and is also a member of the Institute of Human Resource Management. Nandkishor Buty Chief Executive Office Ogilvy Africa With over 20 years of experience in the communications business with 13 years on the African continent, Nandkishor led the Tanzania business for Scangroup for 7 years as Group Managing Director before moving back to Nairobi to lead the Ogilvy business for Africa. He successfully led the Zain Airtel rebranding exercise across 16 markets in Africa. Sandeep Madan Managing Director - Scanad Kenya Sandeep brings with him over 19 years in communication development / management between India, Thailand and Africa. He has worked with major advertising power houses such as Y&R and Publicis. He demonstrates a very keen interest in Pop Culture in various markets that leads to developing bonds with the core target group across boundaries. He believes in making huge impact on the revenues of the companies as brand affinity is built. He was associated with launch of Airtel across 17 countries in Africa and launch of Amazing Thailand in Thailand and across the world. Sally Sawe General Manager - JWT Kenya Sally has been in the business for over 12 years. She is BA Graduate and an MSK and APA Member. She has handled leading local, regional and multi-national business such as Nokia, Visa, KCB and launch campaigns for KCB in Sudan, Uganda, Rwanda and Burundi. Instrumental in the strategy, development and roll out of the Magical Kenya campaign for the international market for KTB. Gaurav Singh Chief Digital Officer Gaurav is a Mobile Innovation & Digital Marketing professional, with a proven record of generating profitable business growth and delivering inspiring, award-winning campaigns from highly motivated, multi-channel teams. He has spent over a decade primarily managing and driving technology solutions, both on client and agency side. Over the last 13 years he has had the opportunity to work on some of the leading technology brands across Asia Pacific and Africa. Over time, he has developed a passion for technology, data driven creative solutions and different ways of connecting with consumers and customers in the digital ecosystem. Caroline Mbui Delivery Agency Leader - Grey East Africa Caroline has had an illustrious 13-year career in Marketing & Communication after graduating with a Bachelor of Arts Degree in Communication from Daystar University, Kenya. Her agency experience includes Account Management while at Scanad managing Kenya Airways, PSI, Telkom Kenya, CFC and Public Relations at Scanad Public Relations managing Uchumi, Unga Group, APA Insurance to name some key clients. She made it to the Business Daily Top 40 under 40 women to watch list for two years running. 24

26 2. SENIOR MANAGEMENT TEAM (Continued) Alexander Doll Chief Executive Officer Hill+Knowlton Strategies Alex, leads the Public Relations business under the brand Hill+Knowlton Strategies across Africa. He has been with the Group since 2010 when Hill+Knowlton started its first office in Nairobi. Before relocating to Africa Alex was based in The Netherlands where he worked with Schiphol Group (Airport) and was later in 2007 hired by H+K to run their Corporate and Internal change communication unit. Alex holds a Bachelor Degree in Leisure Management / Mass Communication and a Master Degree in Corporate Communication from the Rotterdam School of Management, Erasmus University. He is a Board Member of the American Chamber of Commerce Kenya (ACCK). Alex, is now based in Johannesburg, South Africa where he closely oversees the recently acquired PR firm, Corporate Communications Consultants, and continues to carry out his duties towards other offices in Africa. Alex consults with a range of clients across African markets in the Telecommunications, Banking and FMCG industries as well as NGOs and governments. 25

27 PART 8 - EGM NOTICE SCANGROUP LIMITED Incorporated in Kenya on 26 January 1999 under the Companies Act (Cap 486) (Registration Number C 11/2006) NOTICE OF EXTRAORDINARY GENERAL MEETING NOTICE IS HEREBY GIVEN that an EXTRAORDINARY GENERAL MEETING of the Company will be held at the Bomas of Kenya, Nairobi on 14th November 2013 at a.m. for the purpose of considering and, if thought fit, passing the Ordinary Resolutions and Special Resolutions set out below. AS ORDINARY RESOLUTIONS: (1) Acquisition of Shareholdings THAT subject to any required regulatory approvals and/or exemptions being received (including but not limited to those from the Capital Markets Authority, the Nairobi Securities Exchange and the Competition Authority ( the Regulatory Approvals ) the purchase by the Company of the Cavendish Shareholdings as described in the Agreement dated the 12th day of August 2013 between Scangroup Limited and Cavendish Square Holding BV ( the Agreement ) be and is hereby approved. (2) Increase in authorized share capital. That in pursuance to the acquisition of the Cavendish Shareholdings specified in paragraph 1 above and pursuant to Article 57 of the Company s Articles of Association, the nominal share capital of the Company be increased from Kshs 302,154,855 (Kenya Shillings three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) divided into 302,154,855 (three hundred and two million one hundred and fifty four thousand eight hundred and fifty five) ordinary shares of KShs 1.00 each by an amount of KShs 97,845,145 (Kenya Shillings ninety seven million eight hundred and forty five thousand one hundred and forty five) divided into 97,845,145 (ninety seven million eight hundred and forty five thousand one hundred and forty five) new ordinary shares of KShs 1.00 each to KShs 400,000,000 (Kenya Shillings four hundred million) divided into 400,000,000 (four hundred million) ordinary shares of KShs 1.00 each. 26 AS SPECIAL RESOLUTIONS: (1) Waiver of Pre-emption and authority to Issue New Shares That notwithstanding Article 13 (a) and Article 58 of the Company s Articles of Association, and subject to the Regulatory Approvals referred to in paragraph (1) above being obtained, the directors be and are hereby authorized to allot and issue to Cavendish Square Holding BV : i. 72,720,076 ordinary shares of KShs 1.00 credited as fully paid in respect of the consideration for the acquisition by the Company of the Cavendish Shareholdings; and ii. 21,355,898 ordinary shares of KShs 1.00 each credited as fully paid at an issue price of KShs per share. As a consequence whereof the Company shall become a subsidiary of WPP plc. (2) Amendment to Articles of Association of the Company That the Articles of Association of the Company be and are hereby amended, effective from the date of completion of the acquisition of the Cavendish Shareholdings under the Agreement, as follows: A. That Article 92 be deleted in its entirety and be replaced by the following: Article 92 So long as WPP plc holds directly or indirectly fifty per cent (50%) or more of the nominal value of the issued and fully paid

28 share capital of the Company, Cavendish Square Holding B.V. (Cavendish) shall have the right to appoint a majority of the Directors for the time being and to remove or replace any such Director. Subject as aforesaid so long as WPP plc directly or indirectly holds twelve and a half per cent (12.5%) or more of the nominal value of the issued and fully paid share capital of the Company, Cavendish shall have the right to appoint, remove or replace (up to a maximum of four such nominated directors) one Director as their nominee in respect of each and every complete twelve and a half percent (12.5%) held directly or indirectly by WPP plc of the issued and fully paid share capital of the Company. All appointments, removals or replacements of Directors in respect hereof shall be by notice in writing served by Cavendish upon the Company Secretary. B. By the addition of the following new Article 119 A Article 119 A Meetings of the Board may be conducted by conference telephone facilities or any other telecommunications system by which all participants are able to hear and speak to each other provided that any resolution passed thereat shall only be valid and effective if the resolution is reduced to writing and signed, including signature by facsimile, as duly confirmed by all Directors attending the telephone or other telecommunications conference. By Order of the Board Margaret M. Kipchumba Company Secretary 18th October A member entitled to attend and vote at the meeting may appoint a proxy to attend and vote on his/her behalf and such proxy need not be a member of the Company. A Proxy form is enclosed at the end of this Circular. The Proxy form should be returned to the Company s Share Registrar, Comp-rite Kenya Limited at The Crescent, Off Parklands Road, Crescent Business Centre, 2nd Floor Nairobi P.O. Box Nairobi not later than 11a.m.on 12th November, Registration of members and proxies attending the General Meeting will commence at 8 a.m. on 14th November 2013 and will close at the conclusion of the meeting. Members and proxies will be required to produce a national identity card, a passport or other acceptable means of identification. CDS account numbers or Member numbers will also be required for ease of the registration process. 3. Courtesy transport will be provided for members between 7.30 a.m. to a.m. from town (pick-up and drop-off points: behind Kencom House - Moi Avenue, Nairobi) to the venue of the meeting and back to town at the conclusion of the meeting. 27

29 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE 28 1 Acquisition Offer by Cavendish Cavendish Square Holding B.V. ( Cavendish ) is based in Rotterdam, the Netherlands and operates as a 100% subsidiary of WPP plc ( WPP ). WPP is a global marketing communications services group incorporated under the laws of Jersey with its registered office is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES and the address of the principal executive office is 27 Farm Street, London, United Kingdom, W1J 5RJ. It employs around 165,000 people in 3,000 offices across 110 countries and has a revenue base of 10.4 billion (as at 31 Dec 2012). WPP is listed on the London Stock Exchange plc and NASDAQ Stock Market LLC. Cavendish currently owns 82,827,586 ordinary shares in Scangroup Limited ( Scangroup or the Company ). Ogilvy South Africa (Proprietary) Limited, another subsidiary of WPP, owns 12,907,856 ordinary shares of KES 1.00 in the Company. Consequently, WPP indirectly owns 95,735,442 ordinary shares of KES 1.00 in the Company representing a % equity stake. On Monday 12 th August 2013, Cavendish announced to the public of its intention to acquire 94,075,974 additional new ordinary shares in Scangroup ( New shares ), split into the following two indivisible parts; 1) Subscription of 21,355,898 New shares for cash at a price of KES each; and 2) Issue of 72,720,076 New share in exchange for the transfer of all the shares beneficially held by Cavendish in the following companies, which are jointly held with Scangroup and thereby making them 100% subsidiaries of Scangroup: O&M Africa B.V. Ogilvy Africa Limited, Ogilvy Kenya Limited, Ogilvy Mauritius Holdings Limited, Ogilvy Tanzania Limited, Hill + Knowlton Strategies Africa Holdings Limited, Hill & Knowlton East Africa Limited, Millward Brown East Africa Limited and Millward Brown Mauritius Limited. Consequently, on 12 th August 2013, Scangroup entered into a conditional Share Sale and Share Subscription Agreement with Cavendish for the acquisition of up to 94,075,974 additional new ordinary shares in the Company. 2 Mandate to Standard Investment Bank The Board of Directors of Scangroup has engaged Standard Investment Bank Limited ( we or us or SIB ) to provide a review opinion on the fairness of the transaction value. Standard Investment Bank is an independent investment bank licensed by the Capital Markets Authority and a member of the Nairobi Securities Exchange since SIB s principal activities include investment banking, corporate finance and securities trading. These business activities entail actively performing valuations on companies such as Scangroup. We confirm that we are eligible for appointment as Independent Adviser to value, review the details of the Transactions and give an independent opinion on the transaction value. As at the date of this report, we have not had any shareholding in Scangroup or other relationship with Scangroup or Cavendish that could reasonably be regarded as capable of affecting our ability to provide an unbiased opinion in relation to this transaction. 3 Description of the Transaction Cavendish sent to Scangroup a notice of intention to acquire additional new ordinary shares in the Company that would result in WPP, the parent company of Cavendish owning up to 50.10% shareholding in Scangroup, thereby, effectively making Scangroup a subsidiary of WPP (the Cavendish Offer or the Transaction ) Scangroup will send out a circular to its shareholder explaining the terms and the impact of the issue of New shares to Cavendish as well as the financial impact of the Transaction on the Company s financial position and profitability.

30 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE (Continued) 3.1 Number of Shares Sought Cavendish is offering to acquire 94,075,974 additional new fully paid ordinary shares in Scangroup. 3.2 Considerations The consideration for the acquisition of the New shares is set out in the below steps; 1) In consideration for the acquisition of 72,720,076 New shares, Cavendish is offering to transfer all shares beneficially held by Cavendish in the following companies (hereinafter Acquired companies ), which are jointly held with the Company, and thereby making them 100% owned subsidiaries of Scangroup: % Shareholding Acquired Companies Pre-transaction Pro-forma Post-transaction Scangroup Cavendish Scangroup Cavendish 1. O&M Africa B.V. 51% 49% 100% 0% 2. Ogilvy Africa Limited 51% 49% 100% 0% 3. Ogilvy Kenya Limited 50% 50% 100% 0% 4. Ogilvy Mauritius Holdings Limited 51% 49% 100% 0% 5. Ogilvy Tanzania Limited 51% 49% 100% 0% 6. Hill + Knowlton Strategies Africa Holdings Ltd 51% 49% 100% 0% 7. Hill & Knowlton East Africa Limited 51% 49% 100% 0% 8. Millward Brown East Africa Limited 49% 51% 100% 0% 9. Millward Brown Mauritius Limited 49% 51% 100% 0% We note that for the transfer of equity in the Acquired companies, Cavendish is also foregoing its call options to acquire 2% equity shares in the companies listed above where it owns 49% and 1% equity shares in case of Ogilvy Kenya Limited. We further note that the above Acquired companies 2012 normalised net income (i.e. excluding one-off incomes and exceptional costs ) that was not attributable to Scangroup was KES 194 million, this is approximately 23.01% of Scangroup s normalised net income for the year ended 31 st December 2012 (on a combined basis). 2) The issue of 21,355,898 New shares in the Company for cash to Cavendish at a subscription price of KES each is based on volume weighted average of traded prices of Scangroup shares on the Nairobi Securities Exchange for the three months immediately prior to 8 th August 2013 plus a control premium of 30 (thirty) per cent. 29

31 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE (Continued) 3.3 Conditions Pre-completion In order for the Transaction to take place, the following conditions need to have been fulfilled; Regulatory approval from the CMA; The approval of the NSE for the admission of the New Shares; The approval of the shareholders of Scangroup to the Transactions including the increase in Authorized Share Capital and the waiver of pre-emption rights and the issue of the New Shares as provided for in the resolutions to be proposed at the EGM; Regulatory approvals as may be required under the Competition Act of Kenya or elsewhere. 4 De inition of Fair and Reasonable Fair Market Value is defined as the price that a willing but not anxious buyer, with access to all relevant information and acting on an arm s length basis, would be prepared to pay to a willing but not anxious seller in an open, unrestricted and stable market. An offer is generally fair and reasonable if the consideration is equal to or greater than the value of the shares being the subject of the transaction. In our review of the fairness of the valuation and the transaction, we have considered the quantitative as well as the qualitative issues surrounding the particular offer. An offer may be fair and reasonable if all significant factors have been considered in arriving at the consideration to be offered. It should be noted that this review opinion does not purport to cater for individual shareholders positions, but rather the general body of Shareholders. A shareholder s decision regarding the fairness and reasonableness of the offer maybe influenced by his or her particular circumstances. Should a shareholder be in doubt, he or she should consult an independent adviser as to the merits of the offer, considering his or her personal circumstances. 5 Procedures used for the Review of the Opinion In arriving at our review opinion in respect of the fairness of the transaction value, we have inter alia, considered the following: 1. Our valuation outcome for Scangroup s fair market value using the below valuation methods; Income Approaches Market Multiples (Relative Value) Approach Asset Approach 2. Review of the assumptions used for the economic, regulatory and market conditions in arriving at our valuation forecasts; 3. Market information such as the price earnings ratio, price to book ratio and EBITDA multiples of listed comparable companies; 4. Scangroup s share price trend and performance on the Nairobi Securities Exchange; 5. The synergies to be created between Scangroup and WPP, the parent company of Cavendish; 6. Review of the reasonableness of the representations made by the Management. 30

32 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE (Continued) 6 Share Swap Consideration for the Acquired Companies In consideration for the acquisition of 72,720,076 new shares, Cavendish is offering to transfer all shares beneficially held by Cavendish in the Acquired companies. The below table highlights the computation used to arrive at the 72,720,076 new ordinary shares of KES each fully paid in the Company as consideration for the transfer of the Acquired companies; Scangroup Contribution (Including a 30% premium) Acquired Companies' Contribution Total Proforma after Merger Net Normalized Earnings for the year ended 31 December 2012 KES '000' 759, , ,397 Contribution ratio of the Total combined net earnings 79.66% 20.34% % Total attributable ordinary shares 284,789,128 72,720, ,509,204 The computation considered a 30% premium on Scangroup s normalized Net Operating income from Non Joint Ventures excluding income of Squad Digital Limited, interest and other income; to obtain KES million normalised net earnings. The total net earnings of the Acquired companies of KES 194 million was then expressed as a percentage of the combined net earnings to obtain the share swap exchange ratio of 20.34% on the existing Scangroup s total fully paid ordinary shares of KES 1.00 each. The control premium of 30% applied to Scangroup s Net Operating income from Non Joint Ventures excluding income of Squad Digital Limited, interest and other income is in our opinion fair. 7 Value of Scangroup Shares Compared with the Offer Price In our opinion, the full underlying value of Scangroup ordinary shares is in the range of KES to KES per share, as set out in Section 3 of our Full Independent Adviser s Report which is available for inspection. This value is for 100% of the ordinary shares based on the Company s current strategic and operational initiatives and therefore reflects the value of control. The Cavendish Offer consideration in cash is KES per ordinary share, which is 50.96% above the bottom end of our valuation range; this implies a premium of 50.96% on the possible lowest valuation of Scangroup. 8 Scangroup Ordinary Share Price Compared with Offer Price The Cavendish Offer of KES per ordinary share represents a premium of 33.1% relative to the closing price of KES on 12 August 2013, being the last trading session before the Cavendish Offer was announced, and premia ranging from 25.5% to 31.9% over the Volume Weighted Average share price (VWAP) measured over one to twelve months. The chart below depicts the various VWAPs for Scangroup over the past twelve (12) months. 31

33 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE (Continued) KES Comparison of the Offer Price with Pre-Offer Share Prices Last Price Preoffer 12 Aug Month VWAP 3 Months VWAP 6 Months VWAP 12 Months VWAP Offer Price We have independently computed the Volume Weighted Average Price of Scangroup s Shares over the last three months, between 9 th May 2013 to 8 th Aug 2013, using data from the NSE. Our computed value of KES is consistent with that of Scangroup s auditors. This is the value on which a 30% control premium was applied to arrive at KES Offer price as part consideration for the issue of New shares to Cavendish. We also have reviewed Scangroup s share price on the NSE over a period of the last twelve months and confirm that the recent three months VWAP was not the lowest over the twelve months period. We consequently conclude that the premium of 30.0% has fairly been applied to Scangroup s share price that was not the lowest over the last twelve (12) months and that the Offer by Cavendish cannot be considered to have been opportunistic in any way. 9 Sources of Information used The statements and opinions expressed in this report are based on the following main sources of information: The Cavendish takeover notice dated 13 th August 2013; The Scangroup Cautionary Statement; Scangroup audited annual reports for the years ended 31 st December, 2007 to 2012; The Scangroup interim report for the 6 months ended 30 th June 2013; Scangroup budgeted and management financial forecast to 31 st December 2013 and 31 st December 2014; Share price data and relative comparables from NSE and Bloomberg; Publicly available information regarding the Kenyan, East African and West Africa advertising sector. The Directors of the Company have confirmed that we have been provided for the purpose of this Independent Adviser s Report with all information relevant to the Cavendish Offer that is known to them and that all the information is true and accurate in all material aspects and is not misleading by reason of omission or otherwise. We also confirm that we have obtained all the information that we believe is necessary for the purpose of preparing this Independent Adviser s Report. In our opinion, the information set out in this Independent Adviser s Report is sufficient to enable the shareholders understand all the relevant factors and to make an informed decision in respect of the Cavendish Offer. 10 Limitation of the Review This assignment was undertaken solely and expressly on the basis that we shall not be liable for any direct, indirect or consequential loss for damage suffered by any party arising from the fulfilment of these transactions. This report is intended for the use of the Board of Directors of Scangroup, the shareholders of Scangroup, the Capital Markets Authority of Kenya ( CMA ) and the Nairobi Securities Exchange ( NSE ) in connection with the acquisition of additional new shares of Scangroup by Cavendish, and hence may not be reproduced or used for any other purposes without our prior written consent. 32

34 APPENDIX I INDEPENDENT OPINION ON FAIRNESS OF TRANSACTION VALUE (Continued) This report does not constitute a recommendation to any ordinary shareholder of Scangroup as to how to vote at any meeting relating to the proposed acquisition or any matters relating to it, nor as to the acceptance of the transaction. Therefore, it should not be relied upon for any other purpose. We assume no responsibility to anyone if this review opinion is used or relied upon for anything other than its intended purpose. Our report holds true as at the date of issue of the report, and based on the current economic and regulatory conditions and the assumptions made thereon as well as the information made available to us by Scangroup s management up to the date of this report. Accordingly, we are under no obligation to update this report because of events and transactions occurring subsequent to the date of this report. 11 Review Opinion Based on the review performed, and after taking into consideration the underlying valuation of Scangroup plus all the financial considerations, foregoing assumptions current economic and regulatory environment and the valuations working using the various projections, nothing has come to our attention that the proposed acquisition by Cavendish is not fair and reasonable. In respect of this, our review opinion is that the valuations and considerations thereon are fair and reasonable. 12 Consents We consent to the issuing of this report in the form and context in which it is to be included in the Shareholder Circular to Scangroup s shareholders. Nairobi, 3 rd September 2013 Job Kihumba Executive Director Standard Investment Bank 33

35 APPENDIX II AUDITOR S CERTIFICATE ON SUBSCRIPTION PRICE 34

36 APPENDIX II AUDITOR S CERTIFICATE ON SUBSCRIPTION PRICE (Continued) 35