Black empowerment deal could spell end to Investment Solutions listing

By Staff Writer for Alexander Forbes

Johannesburg, 18 Sep 2002

Millennium Consolidated Investments (MCI), a black empowerment firm headed by Cyril Ramaphosa, is to take a major stake in Alexander Forbes`s SA operation, in a deal which will also see an offer made to Investment Solutions minorities.

MCI is a black economic empowerment investment company headed by Cyril Ramaphosa. Other shareholders of MCI include James Motlatsi, executive directors Ndoda Madalane and Kodwo Mills, as well as other business professionals and two community trusts.

The MCI consortium will take a 30% stake in Alexander Forbes`s SA operations, and to avoid the dilution of Alexander Forbes`s stake in Investment Solution from the current 59.6% to 42%, Alexander Forbes has decided to offer minorities an effective 610 cents a share.

The offer is worth R700 million, and if approved by shareholders and the regulatory authorities, will see Investment Solutions being delisted from the JSE. Alexander Forbes is proposing a scheme of arrangement to Investment Solutions shareholders who have an alternative offer of 0.40667 Alexander Forbes shares for each of their Investment Solutions shares or a combination of the cash and share offer.

The offer is a 25% premium on yesterday`s share price of 489 cents.

Investment Solutions says it has appointed a sub-committee consisting of directors who are not also directors of Alexander Forbes to investigate the offer and to appoint advisors to provide an independent opinion as to whether the terms of the scheme of arrangement are fair and reasonable to Investment Solutions shareholders.

Documentation is being prepared and will be mailed to Investment Solutions shareholders in due course. Among other approvals that are required, the High Court of South Africa and the requisite majority of Investment Solutions shareholders will need to sanction the scheme. Alexander Forbes shareholders should also benefit from:

Alexander Forbes says shareholders will benefit from the proposed delisting through cost savings on the listing costs and from the full participation in the development of Investment Solutions` offshore business through the Schroder Pensions acquisition.

The empowerment deal with MCI will be worth about R810 million after the introduction of gearing in terms of the vendor financing structure, Alexander Forbes says, and will be fully vendor financed by Alexander Forbes.

The parties say there is a balance in the returns to Alexander Forbes between the transaction value and the 18% after tax vendor finance return on the deal.

"MCI and its co-shareholders have an option to sell their shares to Alexander Forbes once the transaction value has been fully repaid, at a price which will be based on the same earnings before interest and tax multiple applied in the entry valuation. In such case, 50% of the sale consideration will be deferred and will be payable in two equal annual instalments," the parties say in a statement.