1. TSB Acquisition Introduction

Transcription

1 RCL Foods Limited (Incorporated in the Republic of South Africa) (Registration number 1966/004972/06) Share code: RCL ISIN: ZAE ( RCL Foods or the Company ) PROPOSED ACQUISITION BY RCL FOODS OF TSB SUGAR RSA AND TSB SUGAR INTERNATIONAL FROM TSB SUGAR HOLDINGS, THE IMPLEMENTATION OF THE TSB BEE TRANSACTION, THE UNWINDING OF THE CURRENT RCL FOODS BEE STRUCTURE, THE IMPLEMENTATION OF A NEW RCL FOODS BEE TRANSACTION AND A PROPOSED EQUITY CAPITAL RAISING 1. TSB Acquisition 1.1. Introduction RCL Foods has entered into an agreement with TSB Sugar Holdings (Proprietary) Limited ( TSB Sugar Holdings ) to acquire 100% of the issued ordinary shares in its two operating subsidiaries, namely TSB Sugar RSA (Proprietary) Limited ( TSB Sugar RSA ) and TSB Sugar International (Proprietary) Limited ( TSB Sugar International ) (collectively referred to as TSB ) from TSB Sugar Holdings ( TSB Acquisition ). The effective date of the TSB Acquisition is subject to the fulfillment of the conditions precedent outlined in paragraph 1.6, by no later than Friday, 28 February TSB Sugar Holdings is an indirect wholly owned subsidiary of Remgro Limited ( Remgro ), RCL Foods controlling shareholder Background to TSB TSB is one of South Africa s leading producers of refined and raw sugar. TSB is engaged in the business of sugar cane agriculture, sugar manufacturing, marketing, sales and distribution. TSB operates three mills in South Africa at Malalane, Komati and Pongola, which are all situated in the Lowveld of South Africa and in close proximity to Mozambique. TSB has the capacity to produce tonnes of sugar per annum, directly employing more than staff. In addition, TSB supports c commercial and small-scale farmers on c hectares of irrigated land, from which farmers supply c.85% of the sugar cane to TSB s three mills. TSB is currently the lowest-cost sugar producer in the South African sugar industry. In addition to its sugar expertise, TSB produces animal feed from by-products of the sugar manufacturing process. During the 2013 financial year, TSB produced c tonnes of animal feed. TSB Sugar International is invested in The Royal Swaziland Sugar Corporation Limited (27.4%) ("The Royal Swaziland Sugar Corporation"), Mananga Sugar Packers (Proprietary) Limited (50%) ("Mananga Packers") and Booker Tate Holdings Limited (100%) ("Booker Tate"). The Royal Swaziland Sugar Corporation is incorporated in Swaziland and operates the Simunye and Mhlume mills. This company produces c tonnes of sugar and 32 million litres of ethanol per annum. Mananga Packers procures c tonnes of sugar per annum from the Swaziland Sugar Association for packing and distribution into the Southern African Customs Union. Booker Tate, incorporated in the United Kingdom, renders worldwide consulting and management services to businesses operating in the sugar industry Rationale The TSB Acquisition provides a unique opportunity for RCL Foods to diversify across the food industry value chain and represents an attractive opportunity for RCL Foods in that it will, inter alia: create a more broadly diversified revenue stream; harness selling, distribution and credit management synergies; provide potential to consolidate resources towards a holistic and focused food strategy with enhanced scale and critical mass; and establish an attractive, well capitalised agri-foods platform for future sub-saharan Africa expansion opportunities.

2 Upon the successful completion of the TSB Acquisition, the equity value of the RCL Foods group will be approximately R15 billion TSB Acquisition consideration The TSB Acquisition consideration is R4 billion and will be discharged through the issue of ordinary shares in the share capital of RCL Foods ( Shares ) to TSB Sugar Holdings, at an issue price of R17.32 per Share ( TSB Acquisition Share Price ), calculated with reference to the 30-day volume weighted average price per Share to Tuesday, 19 November Upon implementation of the TSB Acquisition, Remgro will effectively hold 77.7% of the total Shares in issue through its internal holding structure. The TSB Acquisition constitutes a category 1 related party transaction for RCL Foods in terms of the JSE Limited Listings Requirements ( Listings Requirements ) and will require the approval of RCL Foods shareholders ("Shareholders") Related party transaction and fairness opinion Remgro is a material shareholder of both RCL Foods and TSB Sugar Holdings. As a result, the TSB Acquisition constitutes a related party transaction in terms of paragraph 10.1(b)(i) of the Listings Requirements. In terms of paragraph 10.4(f) of the Listings Requirements, a fairness opinion is required from an independent professional expert indicating whether the terms of the TSB Acquisition are fair to Shareholders. Deloitte & Touche ( Deloitte ) has been appointed as the independent professional expert to consider the terms and conditions of the TSB Acquisition. The fairness opinion will be included in the circular to referred to below. In accordance with paragraph 10.4(d) of the Listings Requirements, RCL Foods will seek the approval of its Shareholders prior to implementing the TSB Acquisition on the basis that Remgro and its related parties will be precluded from voting on the TSB Acquisition Conditions precedent to the TSB Acquisition The TSB Acquisition is subject to the fulfillment of inter alia the conditions precedent that: by no later than 17h00 on Friday, 28 February 2014 o Shareholders pass all resolutions required to approve the implementation of the TSB Acquisition; o the counterparties to the material contracts of TSB consent in writing to the change of control of TSB, to the extent necessary; and within 30 days of the signature date of the TSB Acquisition agreement, RCL Foods delivers a written notice to TSB Sugar Holdings confirming that it is satisfied with the disclosures prepared by TSB Sugar Holdings in respect of the warranties given by it in terms of the TSB Acquisition agreement. 2. TSB BEE Transaction 2.1. Introduction and rationale In line with its long-term goal of value creation for its shareholders, TSB Sugar Holdings has developed a Black Economic Empowerment ( BEE ) ownership transaction in terms of which its strategic partner, Dr. Nakedi Mathews Phosa (who is a director of TSB Sugar Holdings and has been a key participant in driving its strategic initiatives), would be issued shares in TSB Sugar Holdings on a notional vendor finance ( NVF ) basis. As part of the TSB Acquisition, RCL Foods has undertaken to implement this BEE ownership transaction at the RCL Foods level at an equivalent transaction value ( TSB BEE Transaction ) Details of the TSB BEE Transaction In terms of the TSB BEE Transaction, RCL Foods will issue new shares ("TSB BEE Shares") to a special purpose vehicle established for the benefit of the MTM Family Trust (the beneficiaries of whom are Dr. Phosa and his family) ("TSB BEE Co ) subject to the terms and conditions of the relevant subscription agreement. The number of TSB BEE Shares has been calculated as 3% of TSB s equity value and with reference to the TSB Acquisition Share Price. The TSB BEE Transaction will be facilitated by RCL Foods on an NVF basis, over a period of 8 years.

3 2.3. Conditions precedent to the TSB BEE Transaction The TSB BEE Transaction is subject to the fulfillment of inter alia the conditions precedent that, by no later than 17h00 on Friday, 28 February 2014: Shareholders pass all resolutions required to approve and implement the TSB BEE Transaction; and the TSB Acquisition agreement becomes unconditional in accordance with its terms. 3. RCL Foods BEE Transaction 3.1. Unwinding of the Current BEE Structure In terms of the Company s existing BEE structure as approved by Shareholders in 2008 ( Current BEE Structure ), RCL Foods' strategic partners, being the Imbewu Consortium, the Ikamva Labantu Empowerment Trust and Mrs. Manana Margaret Nhlanhla ( Strategic Partners ) and a share ownership trust established for the employees of the RCL Foods group (collectively the BEE Parties ), subscribed for Shares ("Current BEE Shares") through a special purpose vehicle, Eagle Creek Investments 620 (Proprietary) Limited ("Eagle Creek"). At the time of issue, the Current BEE Shares represented 15% of the Company s issued Shares which has since been diluted by virtue of the BEE Parties not participating in the RCL Foods rights issue in February The Current BEE Structure was funded by RCL Foods through the subscription for preference shares in Eagle Creek ("Eagle Creek Preference Shares"). The Current BEE Structure is considered unlikely to deliver any equity value to the BEE Parties and as such, RCL Foods and the BEE Parties have agreed to unwind the Current BEE Structure and implement a new BEE ownership transaction in order for RCL Foods to sustain its BEE ownership and to create value for the BEE Parties. The Current BEE Structure will be unwound by implementing a redemption of the Eagle Creek Preference Shares and a specific repurchase of the Current BEE Shares, at a repurchase price per Current BEE Share based on the 30-day volume weighted average price per Share to the date on which the Eagle Creek Preference Shares are redeemed ( Specific Repurchase ). The Current BEE Shares will, pursuant to the Specific Repurchase, be delisted from the securities exchange operated by the JSE Limited ("JSE") and the proceeds of the Specific Repurchase will be utilised by Eagle Creek to redeem the Eagle Creek Preference Shares Conditions precedent to the Specific Repurchase The Specific Repurchase is subject to the fulfillment of inter alia the conditions precedent that, by not later than 17h00 on Friday 28 February 2014: the board of directors of Eagle Creek approve the redemption of the Eagle Creek Preference Shares; Shareholders approve the Specific Repurchase, in accordance with section 48(8) of the Companies Act, No. 71 of 2008, as amended ("Companies Act"); and the shareholders of Eagle Creek approve the sale of the Current BEE Shares by Eagle Creek to RCL Foods, in accordance with the provisions of section 112 as read with section 115 of the Companies Act Fair and reasonable opinion The Specific Repurchase will amount to a repurchase of c.6.0% of the issued Shares at the time of the repurchase (i.e. post implementation of the TSB Acquisition) and, as such, triggers the provisions of section 48(8) as read with section 114 of the Companies Act. In the circumstances, an independent expert is required to prepare a report to the board of directors of RCL Foods (the Board") regarding the effects of the Specific Repurchase, including an opinion on the fairness and reasonableness thereof. Deloitte has been appointed as the independent expert to consider the terms and conditions of the Specific Repurchase RCL Foods BEE Transaction A new BEE ownership transaction will be implemented through the issue of new Shares ("New RCL Foods BEE Shares") to the BEE Parties by way of both a special purpose vehicle and a new employee share ownership trust ( RCL Foods BEE Transaction ). The issue of the New RCL Foods BEE Shares will be facilitated partly through a NVF mechanism (c.69% or New RCL Foods Shares) and through the issue of preference shares to RCL Foods (c.31% or New RCL Foods Shares) of the New RCL Foods BEE Shares will, subject to the terms and conditions of the relevant subscription agreement, be

4 issued to the BEE Parties at R0.01 per Share in terms of a NVF mechanism. The NVF facilitation will be based on a 30-day volume weighted average price per Share to Tuesday, 19 November 2013, being R17.32 per Share. The remaining of the New RCL Foods BEE Shares will, subject to the terms and conditions of the relevant subscription agreement, be issued to the BEE Parties at R17.32 per Share, being the 30-day volume weighted average price per Share to Tuesday, 19 November 2013, which will be funded through the issue of preference shares to RCL Foods. Of the total New RCL Foods BEE Shares to be issued to the BEE Parties, 30% of the New RCL Foods BEE Shares will be allocated to the Strategic Partners (i.e New Foods BEE Shares) and 70% to be allocated to the new employee share ownership trust (i.e New RCL Foods BEE Shares). The New RCL Foods BEE Shares issued to both the Strategic Partners and the new employee share ownership trust will be facilitated in terms of a NVF mechanism (c.69%) and the balance through the issue of preference shares to RCL Foods (c.31%) Conditions precedent to the RCL Foods BEE Transaction The RCL Foods BEE Transaction is subject to the fulfillment of inter alia the conditions precedent that, by no later than 17h00 on Monday, 31 March 2014: the Specific Repurchase becomes unconditional; Shareholders pass all resolutions required to approve and implement the RCL Foods BEE Transaction; and all legal agreements necessary to implement the RCL Foods BEE Transaction (including the relevant NVF and preference shares subscription) have been entered into and become unconditionally operative in accordance with their terms. 4. Pro forma financial information The pro forma financial effects set out below have been prepared to assist Shareholders in assessing the impact of the TSB Acquisition, and the TSB BEE Transaction (together the TSB Transactions ), the Specific Repurchase and the RCL Foods BEE Transaction (together the RCL Foods BEE Transactions ) on the Company's earnings per Share, headline earnings per Share, net asset value per Share and tangible net asset value per Share. Due to their nature, the pro forma financial effects may not fairly present the Company s financial position, results of its operations, changes in equity or cash flows after implementation of the TSB Transactions and the RCL Foods BEE Transactions. 1. The pro forma financial effects have been prepared in accordance with the Listings Requirements and the Guide on Pro Forma Financial Information issued by The South African Institute of Chartered Accountants. These pro forma financial effects are the responsibility of the directors of RCL Foods and are provided for illustrative purposes only.

5 TSB Transactions RCL Foods BEE Transactions 9-11 Published and Audited 2 Adjustments relating to the TSB Acquisition 3-6 Adjustments for the TSB BEE Transaction 7, 8 Pro forma after the TSB Transactio ns % change Reintro ductio n of Strate gic Partn ers Unwindin g of Current BEE Structur e and reintrod uction of an RCL Foods employe e share ownersh ip trust Pro forma after TSB Transacti ons and RCL Foods BEE Transacti ons % change Earnings per Share (cents) - Basic and diluted - From continuing operations - From discontinued operations Headline earnings per Share (cents) - Basic and diluted - From continuing operations - From discontinued operations (5.2) % (5.2) % (13. 7) (6.9) % (13. 7) (6.9) % 2.5 (0.9) (36.0%) (36.0%) (5.2) % (5.2) % (13. 7) (6.9) % (13. 7) (6.9) % 2.5 (0.9) (36.0%) (36.0%) Net asset value per share (cents) (104.8) (0.9) (9.0%) (0.3) (0.6) (9.1%) Tangible net asset value per Share (cents) (0.9) % (0.3) (0.6) % Number of Shares in issue (millions) Weighted average number of Shares in issue (millions) Weighted average diluted number of Shares in issue (millions) % 19.1 (6.5) % % % % % Number of Shares in issue (net of treasury shares) (millions) % % Notes and assumptions: 1. The pro forma effects on earnings and headline earnings per Share were prepared on the assumption that the TSB Transactions and the RCL Foods BEE Transactions were effective 1 July The pro forma effects on net asset value per Share and tangible net asset value per Share were prepared on the assumption that the TSB Transactions and the RCL Foods BEE Transactions were effective 30 June The financial information of RCL Foods is based on the audited financial statements of the RCL Foods group for the year ended 30 June The financial information of TSB Sugar Holdings is based on the audited financial statements of TSB Sugar Holdings for the year ended 30 June The TSB Acquisition consideration is R4 billion which will be settled by the issuance of Shares, at an issue price of R17.32 per Share, being the 30-day volume weighted average price per Share to 19 November The TSB Acquisition is a transaction under common control and therefore excluded from the scope of IFRS 3. RCL Foods will apply the principles of predecessor accounting which results in the recording of financial information being consolidated at historical book values and gives rise to an assumed common control reserve of approximately R2.1 billion. 6. Transaction costs relating to the TSB Acquisition of R8 million have been assumed.

6 7. In terms of IFRS 2, the fair value of the deemed option arising upon the TSB BEE Transaction is an expense which will be charged through the income statement of RCL Foods. The fair value of the deemed option is assumed to be R25 million derived using option pricing methodology, based on the subscription price and the closing Share price on 19 November 2013 of R The actual IFRS 2 cost will be determined on the effective date of the TSB BEE transaction. 8. Transaction costs relating to the TSB BEE Transaction of R7 million have been assumed. 9. The RCL Foods BEE Transaction results in a total economic cost of R276 million derived using option pricing methodology. The key assumptions include a 30-day volume weighted average price per Share of R17.32, closing Share price on 19 November 2013 of R18.50, RCL Foods dividend yield of 4%, Share volatility of 28% and preference Share dividend yield based on the prime interest rate. The portion of the deemed option value attributable to the Strategic Partners, amounting to R83 million, will be expensed up-front. The balance of the deemed option value relating to the new RCL Foods employee share ownership trust is amortised equally over the vesting period of 8 years. The actual IFRS 2 cost will be determined on the effective date of the RCL Foods BEE transaction. 10. An accelerated charge of R16.9 million will be incurred in relation to the current RCL Foods employee share ownership trust due to termination of the agreement pursuant to the RCL Foods BEE Transaction. The accelerated charge is based on an assumed remaining period for the vesting of the options from 1 July 2013 to 30 June Transaction costs relating to the RCL Foods BEE Transactions of R7 million have been assumed. 5. Proposed Equity Capital Raising 5.1. Introduction and rationale RCL Foods is currently considering significant growth and expansion projects in South Africa and sub-saharan Africa in the broader food and fast moving consumer goods space. In order to capitalise fully on these opportunities, RCL Foods has determined that it requires additional capital. The Board has accordingly resolved to propose a capital raising in the amount of R2.5 billion through a combination of a pro rata offer to all Minority Shareholders (namely, all Shareholders excluding Remgro and its subsidiaries, and Eagle Creek) ("Pro Rata Offer") and a specific issue of new Shares via a placement to qualifying investors ( Placement ) (collectively the Equity Capital Raising ) Details of the Pro Rata Offer In light of the anticipated dilution of Minority Shareholders relative shareholdings pursuant to the implementation of the TSB Acquisition, the Company intends to make a pro rata offer to all Minority Shareholders in order to afford them the opportunity to subscribe for that number of Shares as will enable them to maintain their respective shareholding percentages in RCL Foods following the implementation of the TSB Acquisition. In terms of the Pro Rata Offer, post the implementation of the TSB Acquisition and Specific Repurchase, the Company will offer Shares ("Pro Rata Offer Shares") to Minority Shareholders in the ratio of Pro Rata Offer Shares for every 100 Shares held by Minority Shareholders on the record date for the Pro Rata Offer, which is expected to be Friday, 31 January The final terms of the Pro Rata Offer, including the Pro Rata Offer price and the pro forma financial effects of the Pro Rata Offer will be announced on the finalisation date of the Pro Rata Offer, which is expected to be Friday, 17 January It is the intention of the Board that the subscription proceeds from the Pro Rata Offer will be applied, inter alia, towards the future growth and expansion of RCL Foods operations in South Africa and sub-saharan Africa. Minority Shareholders that do not elect to subscribe for Pro Rata Offer Shares in terms of their entitlements will continue to own the same number of Shares, but their respective shareholding percentages in RCL Foods will be diluted as a consequence of the issue of Shares pursuant to the TSB Acquisition and the Pro Rata Offer. There will be no right to apply for excess Pro Rata Offer Shares and Minority Shareholders will not be entitled to trade their entitlements under the Pro Rata Offer. Further details of the Pro Rata Offer, including the salient dates and times and procedures for acceptance will be contained in the circular to Shareholders referred to below.

7 5.3. Details of the Placement Market conditions permitting, it is the intention of the Board to place Shares with qualifying South African and international investors in order to raise the balance of the R2.5 billion not raised pursuant to the Pro Rata Offer. The Placement is intended to diversify the RCL Foods shareholder base, further increase the free float and improve liquidity in the Shares. The quantum and pricing of the Placement will be communicated to qualifying investors post the implementation of the Pro Rata Offer. Qualifying existing shareholders will also be entitled to participate in the Placement Conditions precedent to the Equity Capital Raising The Pro Rata Offer will be subject to the fulfilment of the conditions precedent that the TSB Acquisition is implemented; and Shareholders pass the necessary resolutions to authorise the specific issue of Shares in terms of the Pro Rata Offer. The Placement will be subject to Shareholders approving the specific issue of Shares in terms of the placement. 6. General Meeting The Company will convene a general meeting of Shareholders in order to obtain the necessary Shareholder approvals to implement the TSB Transactions, the RCL BEE Transactions and the Equity Capital Raising ("General Meeting"). 7. Salient dates and times The proposed salient dates and times pertaining to the General Meeting are set out below. Record date to determine which Shareholders are entitled to receive the circular Circular posted to Shareholders on or about Last day to trade in Shares in order to be recorded in the register in order to participate in and vote at the General Meeting on Record date to be entitled to participate in and vote at the General Meeting Last day to return forms of proxy in respect of the General Meeting to the transfer secretaries by 13:30 on (Note 2) General Meeting to be held at the Company s registered office, Six The Boulevard, Westway Office Park, Westville, Durban at 13:30 on Results of the General Meeting to be published on SENS on 2013 Friday, 6 December Thursday, 12 December 2014 Friday, 3 January Friday, 10 January Tuesday, 14 January Thursday, 16 January Thursday, 16 January Results of the General Meeting to be published in the press on Friday, 17 January Notes: 2. The abovementioned times are South African times and dates and are subject to change. Any such change will be released on SENS and published in the South African press. 3. Any form of proxy not returned to the transfer secretary by this time may be handed to the chairperson of the General Meeting any time before the appointed proxy exercises any of the shareholder rights at the General Meeting. 8. Documentation

8 A circular to Shareholders, detailing the TSB Transactions, the RCL BEE Transactions, and the Equity Capital Raising, and incorporating revised listing particulars and a notice of General Meeting, will be posted to Shareholders on or about Thursday, 12 December Durban 21 November 2013 Merchant bank and sponsor to RCL Foods Rand Merchant Bank (a division of FirstRand Bank Limited) Attorneys to RCL Foods Cliffe Dekker Hofmeyr Inc. Attorneys to TSB Sugar Holdings Webber Wentzel Independent professional expert Deloitte Corporate Finance Reporting accountants PricewaterhouseCoopers Inc.