INCE|Connect News

Who's doing what in the South African M&A; space? Exchange Listed Companies

Ethos Capital Partners via a special purpose vehicle established by its Ethos Mid-Market Fund I and Apex Partners has announced a firm intention to acquire Torre Industries. Shareholders are being offered a cash consideration of 1.05 rand per Torre share equivalent to an aggregate cash consideration of 539,91 rand million. In addition shareholders will receive a cash dividend of 0.35 rand per Torre share valued at 179,97 rand million. Subject to the achievement of performance targets a maximum deferred top-up cash payment of 0.10 rand per share equivalent to a maximum cash consideration of 51,42 rand million. In total shareholders will receive cash of between 1.40 rand and 1.50 rand per share which is equal to a 44.6% premium to the 30-day VWAP.

MAS Real Estate via its subsidiary Flensburg is acquiring the shopping centre Flensburg Galerie located in the inner city of Flensburg, Germany. The value to be paid to Commerzbank Aktiengesellschaft is "62,55 million (994,55 rand million).

Tsogo Sun has announced that the proposed disposal of a portfolio of seven mixed-use casino properties to Hospitality Property Fund and the subsequent distribution by Tsogo of its entire holding of Hospitality shares to Tsogo shareholders has not received the support of sufficient shareholders for their implementation. The agreement has been terminated.

Sirius Real Estate has completed the sale of the remaining non-core assets in the portfolio with the sale of its German Bremen Hag Business Park and its Bremen Dtlinger-Strasse Park for "3,8 million (61,56 rand million) and "6,3 million (102,1 rand million) respectively.

Unlisted Companies

Enterprise Outsourcing , a provider of IT solutions and managed online services has announced its agreement with PwC South Africa to acquire the technology solutions division of PwC's Managed IT Services business. The value of the transaction was undisclosed.

MFS Africa , a Johannesburg-based pan-African fintech company, developing innovative value added services for mobile wallets, has raised equity totalling $14 million. The funds were raised from investors which include US-based impact fund manager Equator Capital Partners, through its ShoreCap III fund; China-based investment manager Lun Partners Group; Netherlands-based impact investor and advisory firm Goodwell Investments and Financial Sector Deepening (FSD) Africa which is funded by the UK government. The funds will be used for expansion of its mobile financial services into additional rural areas in Africa.

Atterbury , a property development and investment company has announced a significant B-BBEE deal which results in Talis Investment Partners securing a 30% stake of Atterbury Property Fund. The fund houses all of Atterbury's local investment assets which have a gross value of 4,1 rand billion.

Denel , the South African State-owned defence group has received a $1 billion bid for a partnership from Saudi Arabian Military Industries.

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Corporate finance activity of the week. Discovery

The company has issued 11,445,744 new Discovery ordinary shares at 162.00 rand per

share to raise 1,85 rand billion by way of a vendor consideration placement. The

proceeds of the placement will be used to settle the acquisition of FirstRand

Investment Holdings' 25.01% interest in Discovery Bank, the remaining 25.01%

economic interest in the Discovery card joint venture business and through

Discovery Bank acquire all the rights to the Discovery card book and related

assets.

Cullinan repurchases preference shares

The listing of the ordinary shares in the company was terminated in March this

year but an offer was not extended to the Preference Shareholders at the time

as they were not entitled to vote at the scheme meeting. Preference

Shareholders are now being offered the opportunity to dispose of their shares.

The maximum aggregate consideration will be 1,1 rand million.

South32 repurchases shares

The company this week repurchased a further 2,602,536 shares for A$9,23

million (95,05 rand million).

Hammerson plc repurchases shares

This week the company repurchased 1,130,338 shares at a cost of 4,98 million

(92,49 rand million) as part of a share buyback programme for its ordinary shares

to return realised disposal proceeds to shareholders over the next 12 months.

The maximum aggregate consideration under the programme will be "300 million

up to a maximum of 79,422,719 ordinary shares.

Glencore repurchase shares

This week the company repurchased a further 13,727,303 shares at a cost of

41,48 million (770,08 rand million) in terms of its buy-back programme.

PSG Konsult to take a secondary listing

PSG Konsult has been granted permission by the Stock Exchange of Mauritius to

take a secondary listing on the Official Market of the SEM. The company will

commence trading on the SEM on November 27, 2018.

Phuthuma Nathi Investments to list

Phutuma Nathi, MultiChoice's empowerment scheme, will list on the Equity

Express Securities Exchange on November 23, 2018.

Cargo Carriers

The company is expected to terminate its listing on the JSE on January 22,

2019 following a scheme of arrangement and acquisition by CCH.

Six companies issued a profit warning announcement

The following companies issued profit warnings this week: Rebosis Property

Fund, Tiger Brands, Invicta, Tongaat Hulett, Omnia and African Equity

Empowerment Investments.

Four companies either issued, renewed or withdrew cautionaries

The following companies advised shareholders: Famous Brands, Stellar Capital

Partners, Torre Industries and Distribution and Warehousing Network.

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Who's doing what in the African M&A; space? DealMakers AFRICA

Oikocredit , a Dutch headquartered social impact investor, has made a "2 million investment into Anatrans, a cashew processor in Burkina Faso. Anatrans sources nuts from the local community and supplies fair trade, organic and conventional cashews to international markets.

Terragon a business management consultant in Lagos, Nigeria has acquired Bizense, a Singapore-based mobile technology firm in an undisclosed value cash plus stock deal. Bizense has expertise in mobile advertising and targeting technologies with operations in key Asian markets including India, Singapore and Indonesia. The deal will see Terragon control its intellectual property assets globally, enabling it to further adapt and integrate its marketing technology software for financial services institutions and consumer brands across Africa.

Hipo Resources , the ASX-listed mineral exploration and exploitation company with activities in Australia, the US and Uganda, has signed a joint venture agreement to earn a 60% stake in the Kamola lithium project in the Democratic Republic of Congo. Hipo will sole-fund $5 million in exploration and project development expenditure within a three year period to maintain the stake.

Premier African Minerals , a multi-commodity mining and natural resources development company focused on Southern Africa, has announced its intention to restructure its Zimbabwe minerals projects and purchase exploration and mining assets owned by KME Holdings. Following this the company plans to demerge its Zimbabwe minerals project and seek a separate listing for them and the KME assets on a London-based market.

Mubadala Pertoleum , a leading international oil and gas company headquartered in Abu Dhabi, has announced it is to purchase a 20% participating interest from Eni in the Nour North Sinai Offshore Area concession, an offshore exploration block in Egypt. This is the second investment in Egypt in the last six months.

Actis and Westmont Hospitality Group via a joint venture have acquired the 231-room Four Points by Sheraton in Victoria Island, Lagos Nigeria. The hotel was acquired from Starwood Hotels& Resorts which is a subsidiary of Marriott International. The intention is to use the joint venture to acquire hospitality assets across sub-Saharan Africa.

Catalyst Principal Partners , a Kenyan-based East African focused private equity firm, has raised $155 million in its second round of funding. The firm aims to invest between $7,5 million and $22,5 million in emerging mid-market players within Eastern Africa.

La Sablonniere to be renamed ENL will list on the Official Market of the Stock Exchange of Mauritius following the merger of ENL Commercial, ENL Land and ENL Finance. The shares are expected to trade from January 23, 2019. 5,000 ordinary shares will be made available for trading at an indicative price of MU40 rand per share.

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Bitcoin Plummets Below $6,000 to Lowest Level in Over a Year. The world's largest cryptocurrency tumbled as much as 15 percent, with most of

the initial loss coming within a half hour window. It's the biggest drop since

February. Other digital coins slumped, with smaller rivals Ether, Litecoin and

XRP dropping more than 17 percent. Bitcoin Cash tumbled as much as 21 percent

as the Bitcoin offshoot faces its own split. "The market is trying to find the

bottom," said Michael Terpin, a San Juan, Puerto Rico-based partner at

Alphabit Fund. "People who are chartists look at historical patterns, and they

note there's one last final capitulation drop to get the last people fleeing

out of the market." Some traders speculated that investors may be leaving

Bitcoin to raise funds to buy Bitcoin Cash after it splits in anticipation

that each of the new coins will appreciate. Bitcoin dropped as low as $5,322,

the least since October 2017, or just before the surge in demand that pushed

its price to almost $20,000 in December. It's down about 70 percent from that

record high in the 10-year-old token. Two versions of Bitcoin Cash software

will be competing to become the dominant chain tomorrow, and some miners could

be switching from mining Bitcoin to mining Bitcoin Cash to lend one or the

other version support. "There's a potential for when hash rates declines,

inherently the network is less secure, and that makes Bitcoin less valuable,"

Travis Kling, founder of hedge fund Ikigai, said in a phone interview. Read

More: Satoshi vs. Bitcoin Jesus: Bitcoin Cash Battle Turns Personal. When it

split off a year ago, Bitcoin Cash jump-started the forking craze in which

dozens of software-development teams sought to create money out of thin air by

tweaking the original computer code and releasing coins with "Bitcoin" in

their names. A group headed by Craig Wright is expected to take control

tomorrow of the world's fourth-largest cryptocurrency following a software

upgrade. A rival faction that disagrees on how to best expand has been trying

to persuade the community of computer operators running the network to adopt

their version. About 70 percent of the so-called miners that process the

transactions that keep the network afloat are signaling they support the

version backed by Wright's allies, according to crypto data tracker Coin

Dance. The oldest cryptocurrency is again testing a support-level that's been

rock solid in 2018. Bitcoin plunged to levels under $6,000 time and again

since late last year, only to see buying return and prices come roaring back.

A convincing close of less than the November 2017 low at $5,907.64 could prove

precarious, with analysts including Bloomberg Intelligence's Mike McGlone last

month warning it could drop to $2,000. The digital asset is a good candidate

for technical analysis, because its supply is fixed and its demand is largely

driven by sentiment rather than fundamentals. DM

Gareth's Guests - Pieter-Dirk Uys. Content hosted by iono.fm

Comedian, author, actor and activist Pieter-Dirk Uys reveals the person behind

the persona in a form of his new biography, 'The Echo of a Noise/Weerklank van

a Wanklank'. In a chat with Gareth, he recalls his childhood and family, his

forbidding and musically driven father, his brilliant but disturbed mother,

his sister the child prodigy, and Sannie Abader - the family helper he regards

as a second mother.

Follow @CliffCentral

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Investec on track for demerger. The specialist bank and asset manager says it delivered a sound performance

notwithstanding a challenging operating environment.

Fani Titi and Hendrik du Toit have presented Investec's first results since

they took over at the helm of the specialist bank and asset manager, replacing

Stephen Koseff and Bernard Kantor. And they say that they are on track for the

demerger and separate listing of Asset Management, scheduled for next year.

Reporting back for the six months to end-September, the joint CEO's said the

group delivered a sound performance in the face of rising US interest rates,

the threat of trade wards, weak growth in SA and Brexit-related uncertainty in

the UK.

Its Specialist Banking division was the standout performer over the period,

increasing operating profit by 18.8% to 245.4 million. Operating profit in SA

increased by 4.2% as the weak economy and political uncertainty resulted in

subdued activity. However, its UK and Other business grew operating profit by

96%, reflecting a big decrease in impairment charges due to no longer

incurring substantial losses on its legacy portfolio. It said earnings were

also supported by strong growth in net interest income and fee income.

Among its other divisions, Asset Management grew operating profit by 10% to

91.5 million as net inflows of 4.1 billion helped grow total funds under

management to 109.2 billion. Operating profit at its Wealth & Investment

division fell 6.3% to 46.4 million as it hired more staff for IT initiatives

and compliance requirements, and recruited more experienced portfolio managers

and financial planners to support future revenue growth.

Group operating profit increased by 14.2% to 359 million and was 17.6% higher

on a currency neutral basis. It said its results were negatively affected by

the rand, which was on average 4.1% weaker against the pound over the period.

Its SA businesses reported a 5% improvement in operating profit, while the

combined UK and other businesses grew operating profit by 40.2% in pound

terms.

Adjusted earnings before goodwill, acquired intangibles and non-operating

items increased by 8.2% to 265.3 million and were up 11.1% in neutral

currency. Adjusted EPS were up 6.4% to 28.3p and rose 9.4% on a currency

neutral basis. It's raised its interim dividend by 4.8% to 11p.

The outgoing executives have handed over a resilient business with positive

momentum and good growth potential," joint CEOs Fani Titi and Hendrik du Toit

said in a statement. "It is now up to us to implement our strategy of

simplification and greater focus, involving the demerger and separate listing

of the Asset Management business and the positioning of the Specialist Bank

and Wealth & Investment businesses for sustainable long-term growth."

Invested Limited shares closed 3.1% lower at 89.13 rand yesterday. Investec Plc

shed 3% to 89.25 rand.

Investec one of JSE's big losers on Brexit deal concerns, despite reasonable

half-year numbers. Off 3% (below 90 rand again). Yet share has been a perennial

underperformer. In pounds () the share has gained about 2.8% annually over

5yrs, in rand 5.1% and in dollars ($) -1.9%.

-- David Shapiro (@davidshapiro61) November 15, 2018

Woolworths food sales make up for weaker clothing. The retailer says after a smaller winter sales affected first-quarter sales,

womenswear, in particular, showed signs of life in October.

Woolworths expects a big improvement in first-half earnings after last year's

profit was high by a big impairment of its investment in Australian department

store chain David Jones.

In a trading statement yesterday, the upmarket retailer said earnings per

share for the 26 weeks to 24 December were likely to be more than double what

it reported last year and would be more than 150% higher than the 369.5c per

share loss it reported for the 52 weeks to 24 June 2018. It impaired the

carrying value of David Jones by close to R7 billion last year.

It said it would provide guidance on headline earnings once it had more

certainty on the ranges expected for the half-year.

In a trading update, Woolworths said sales increased by 2.7% in the 20 weeks

to 12 November and were 3.6% higher on a constant currency basis. While

Fashion, Beauty and Home sales declined by 3.3%, Food sales rose 7.2%, with

comparable store sales up 5%. It said a smaller winter sale affected first-

quarter sales but womenswear in particular improved in October. Food sales

benefited from higher levels of promotion.

In Australia, sales momentum at David Jones continued into the new financial

year, rising by 2.9% and by 2.4% on a comparable stores basis. Online sales

jumped 48.4% and now contribute 5.2% of total sales. Country Road sales

increased by 3.4% and by 0.5% in comparable stores.

Woolworths' shares declined 0.3% to 53.53 rand yesterday.

Terrible trading update from Woolworths. Turnaround seems far away.

-- Dave Hazelwood (@hazelwood_dave) November 15, 2018

Woolworths sa food very good but offset by really poor non food sales

fashion etc. They are really battling with this. David Jones in Australia

looks better

-- Wayne McCurrie (@WayneMcCurrie) November 15, 2018

Sappi bullish on its prospects. After reporting an improved fourth-quarter, the paper and pulp producer has

predicted a strong start to 2019.

Sappi has reported an improved fourth quarter after overcoming the production

challenges it faced earlier this year. Although the recovery wasn't enough to

lift its full-year metrics, the pulp and paper producer has raised its annual

dividend, sending its shares higher yesterday.

The group said it also benefited from higher graphic paper prices and stable

demand across most product categories in the three months to end-September.

Demand and pricing for dissolving wood pulp (DWP) remained healthy but net

sales were negatively affected currency translation losses related to currency

hedges it took earlier in the year when the rand was a lot stronger. It said

the impact of lost DWP production volumes in the third quarter, following

start-up issues after mill upgrade projects, was felt in the fourth quarter as

investors levels held back sales growth.

Its European businesses did well as coated paper price increases offset cost

increases. Market share gains helped offset weaker graphic paper markets

during the quarter, it said.

Fourth-quarter sales improved by 8.8% to $1.54 billion from a year earlier.

For the year to end-September, they rose 9.6% to $5.81 billion. Earnings

before interest, tax, depreciation and amortisation (EBITDA), excluding

special items, increased by 1.4% in the fourth quarter. However, full-year

EBITDA was still 2.9% lower at $762 million. Earnings per share excluding

special items were flat at 19c for the fourth quarter but were 6.3% lower at

60c for the year. It's raised its dividend for the year by 13% to 17c.

Sappi said fewer disruptions to its production this year should lead to

increased DWP sales to meet growing demand. It says DWP spot prices are

expected to remain range-bound at current levels. Meanwhile, demand for paper-

based packaging and legislative changes promoting recycling and the use of

recyclable materials is expected to support the market for speciality and

packaging papers.

Having completed significant projects in 2018 to convert paper machines to

higher margin and growing packaging grades, in addition to the debottlenecking

of both Saiccor and Ngodwana mills, we expect EBITDA in the first quarter of

financial year 2019, given current exchange rates, to be comfortably higher

than that of 2018," Sappi said.

Sappi's shares closed 1.5% up at 82.25 rand.

In this video Sappi CEO Steve Binnie talks about Sappi's solid full year

performance and improved 4th quarter results. https://t.co/VPT4CHB1Nl

#SappiQ4results

-- Sappi Group (@SappiGroup) November 15, 2018

Mediclinic falls after impairing Swiss operation. The private hospitals group says regulatory changes are significantly

impacting the healthcare market in Switzerland and all operators are affected.

Mediclinic has slumped into a loss after it wrote down the value of its

investment in Switzerland's Hirslanden by 98 million and took a non-cash

impairment on Spire Healthcare in the UK.

Following a recovery in the United Arab Emirates, the private hospitals group

now faces issues in Switzerland due to regulatory changes which have impacted

all healthcare providers. It said the combined effects of tariff reductions

and a less favourable insurance mix had a big than expected impact on results

from Hirslanden.

Mediclinic reported a 1% decline in revenue to 1.39 billion for the six months

to end-September in constant currency terms as growth in Southern Africa and

the Middle East was offset by a weaker performance in Switzerland. Hirslanden

also weighed on earnings before interest, tax, depreciation and amortisation

(EBITDA), which fell 8% to 213 million. Operating profit fell 71% to 39

million after the Hirslanden impairment and was down 15% on an adjusted basis

at 137 million. It reported a loss of 168 million, reflecting a non-cash

impairment charge on its equity investment in Spire. Adjusted earnings per

share fell 9% to 10.3p. It's maintained its interim dividend at 3.2p.

The rapidly implemented regulatory changes regarding outpatient tariff

adjustments and outmigration of care in Switzerland are significantly

impacting the healthcare market in that country," CEO Dr Ronnie van der Merwe

said. "Steps have been taken to improve the current financial performance

through securing revenue growth, reducing costs and driving efficiency savings

in different areas of the business."

Mediclinic said Hirslanden was likely to report moment revenue growth for the

full year, while growth in Southern Africa would be driven by an expected

increase in bed days sold of between 1% and 2%. In the Middle East, it expects

revenue growth in the high single digits as additional bed capacity comes

online.

Its shares fell 5.2% to 6319 rand yesterday.

At 63 rand, Mediclinic is down 70% since the high of 214 rand reached post the Al-

Noor transaction in Jun'16. Seventy percent. That's real wealth destruction.

-- Karin Richards (@Richards_Karin) November 15, 2018

Mediclinic Switzerland much worse than expected had to take an impairment on

investment. While one theme supports medical companies: living longer, the

second theme unfortunately may be bigger: government initiatives to reduce

costs and grow cover

-- Wayne McCurrie (@WayneMcCurrie) November 15, 2018

Thorts - Foreign lenders; South African borrowers. Given South Africa's strict foreign exchange controls, it is not surprising

that foreign lenders often ask if one or other regulation could prevent them

from taking their money "out of South Africa". The answer is: all should be

well if the i's are dotted and the t's crossed at the outset.

When a foreign lender advances a loan to a South African borrower, three key

sets of laws or regulations must be considered: the South African Exchange

Control Regulations, the National Credit Act and the financial assistance

sections of the Companies Act, 2008. All three are pivotal to the success of

lending transactions that involve a South African corporate borrower.

Borrowers must have prior approval

The Exchange Control Regulations apply to any cross-border lending transaction

involving a South African borrower, and to the taking security for such a

transaction. No South African corporate may borrow any foreign currency from

any person who is not an authorised dealer. The only exception is if the

borrower has prior approval from the Financial Surveillance Department of the

South African Reserve Bank.

The onus of obtaining exchange control approval rests on the South African

borrower, not the foreign lender. Even so, a foreign lender would be wise to

confirm that the borrower has obtained approval properly and in good time to

avoid the transaction being tainted. For this reason, the appropriate

representations and warranties should be included in the transaction

documentation.

Generally, once the Financial Surveillance Department has approved a loan, the

interest payable and loan repayments are freely transferable from South Africa

- unless the loan was made without exchange control approval. The foreign

lender's claim against the South African borrower may then be at risk as the

Financial Surveillance Department has the authority to prevent repayment or

enforcement and could declare the loan invalid.

The most recent case law confirms that although a lack of exchange control

approval does not render an agreement void, it could be declared invalid for

contravening the Regulations. Also, while the Financial Surveillance

Department may grant exchange control approval retrospectively, it can impose

certain penalties on the South African borrower.

Another critical factor for loans from a foreign lender to a South African

borrower is adherence to South African's credit law and regulations.

Foreign lenders bound by local credit law

The National Credit Act regulates the provision of credit in South Africa and

applies to all credit agreements made in or having an effect within South

Africa. Where the borrower is South African, it applies even if the credit

provider is foreign and has its principal place of business outside South

Africa. Lenders whose credit agreements fall under the NCA must register as

"credit providers" with the National Credit Regulator.

Note that these registration requirements are triggered where credit is made

available to a corporate borrower in South Africa with a net asset value or

annual turnover of less than ZAR 1 million.

The National Credit Regulator takes various factors into account in deciding

whether a credit or loan agreement has an effect within South Africa. These

include whether or not the proceeds of a loan will be remitted to South

Africa; whether or not the credit facility will be used in South Africa, and

whether or not any security for the loan or credit is situated in South

Africa.

There are certain exemptions to the application of the NCA. If not exempted, a

foreign credit provider must have the approval of the National Credit

Regulator as a credit provider to lawfully extend or market loans or credit in

South Africa. When a lender should be, but is not, registered with the

National Credit Regulator, it will not be able to enforce a credit agreement

against a South African borrower as the agreement will be void in terms of the

NCA. In addition to exchange control and credit regulations, loan transactions

must also meet the financial assistance requirements of the Companies Act.

Lending equates to financial assistance

Financial assistance includes lending money and guaranteeing a loan or other

obligation, as well as the security of any debt or obligation.

In terms of s45 of the Companies Act, a company may not provide direct or

indirect financial assistance to a related or inter-related company or

corporation unless certain conditions are met.

One condition is that the financial assistance must relate to an employee

share scheme or a special shareholders' resolution adopted within the previous

two years. The other is that the board of the company providing the financial

assistance (typically in the form of security in favour of the lender) should

be satisfied on two counts. First, immediately after providing the financial

assistance, the company must be able to satisfy the solvency and liquidity

test stipulated by the Companies Act. Second, the terms proposed or the

financial assistance should be fair and reasonable to the company.

Under certain circumstances, a South African company providing security may

not be able to pass the solvency and liquidity test. This could happen when

the financial assistance sought from the South African security provider is

intended to support the entire indebtedness arising under a (multi-

jurisdictional) loan, but the balance sheet of the South African security

provider is less than the aggregate indebtedness.

For the success of the funding transaction, it is vital that the auditors of

the company providing the financial assistance adequately advise its

directors, who must satisfy themselves that the financial assistance sought is

adequate to cover the indebtedness arising under the loan.

Any financial assistance provided in contravention of s45 is void and can

attract personal liability for a director who votes for or fails to vote

against a financial assistance resolution, knowing that this is inconsistent

with this section.

Fair and reasonable financial assistance

The Companies Act provides no guidance on what constitutes fair and reasonable

terms to the company granting the financial assistance. Similarly, South

African case law is silent on this as the Act is still relatively new. It

seems, though, that the financial wellbeing of the South African company

providing the financial assistance should be the most important factor for the

directors. Conversely, they should not place paramount importance on the

financial health of the group to which the company belongs, to the detriment

of the company itself.

Also not to be overlooked is whether the company satisfies the solvency and

liquidity test immediately after providing the financial assistance, to the

board's satisfaction. This introduces subjectivity in the directors' analysis

and is something the board should carefully consider.

Lischa Gerstle is a Partner in the Finance practice area at Bowmans.

This article first appeared in without prejudice, DealMaker's sister

publication

DealMakers is SA's M &A publication.

www.dealmakers.co.za

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