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Unbundling of Imperial’s Automotive Business and separate listing on the JSE, and cautionary announcement
Imperial Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1946/021048/06
Ordinary share code: IPL
ISIN: ZAE000067211
Preference share code: IPLP
ISIN: ZAE000088076
(“Imperial” or “Group”)
Imperial Group Limited
Incorporated in the Republic of South Africa
Registration number: 1983/009088/06
Company code: IMG
Unbundling of Imperial’s Automotive Business (known as Motus) and
separate listing on the JSE, and cautionary announcement
1. Introduction
Shareholders of Imperial (“Shareholders”) are referred to the
pre-closed period briefing announcement dated 10 May 2018 and
prior communication relating to the restructuring of Imperial’s
operations into two large independent, self-sufficient
businesses, namely the logistics business known as Imperial
Logistics (“Imperial Logistics”) and the automotive business
known as Motus (“Motus”); and progress with the plans relating to
Imperial’s potential unbundling of Motus (“Unbundling”).
Imperial is pleased to advise that at a Board of Directors
(“Board”) meeting on 21 June 2018, the Board resolved to proceed
with the steps required to implement the Unbundling. This
strategic decision to separate the business operations and
management of Imperial will provide shareholders with the
opportunity to participate directly in Imperial Logistics and/or
Motus.
The Unbundling will be implemented through: the transfer by
Imperial of all of its automotive related interests to Motus
Holdings Limited (“Motus Holdings”), a wholly-owned subsidiary of
Imperial, in terms of an asset-for-share transaction; a
distribution in specie of the shares in Motus Holdings to
Shareholders in terms of Section 46 of the South African
Companies Act, 71 of 2008, as amended (the “Companies Act”) and
Section 46 of the Income Tax Act, 58 of 1962; and the
simultaneous listing of Motus Holdings (the “Listing”) on the
main board of the JSE Limited (“JSE”)(collectively, the “Proposed
Transaction”).
The Proposed Transaction is subject to the fulfilment of
conditions precedent, including, inter alia, approval by
Shareholders and the requisite regulatory authorities.
2. Background to and rationale for the Proposed Transaction
The transformation and development of Imperial in recent years
has been directed at value creation through strategic clarity,
managerial focus and shareholder insight. The first has been
achieved through portfolio rationalisation, the second through
organisation structure and the third through disclosure. This
approach has exposed the absence of operational synergies and
resulted in the rapid establishment of Imperial Logistics and
Motus as two large independent divisions. Both are now managed
and currently reported on separately, with separate Chief
Executive Officers (“CEO”), Boards and Executive Committees, and
have self-sufficient balance sheets with decreasing functional
support from the holding company.
After considering whether the long-term prospects of Imperial
Logistics and Motus will be enhanced by them being separately
listed, the Board believes that the separation of the two
divisions will enable the component parts of Imperial’s
businesses to operate in a more focused and efficient manner,
thereby allowing each of the businesses to achieve their
respective strategic goals and unlocking value for Shareholders
over the long term. The Proposed Transaction will be underpinned
by the following:
a. Strategic focus and independence:
providing the platform to pursue independent strategic
initiatives, with enhanced flexibility and efficiency;
enhancing the ability to mitigate and manage specific
risks and challenges faced by each business unit and
proactively react to changes within the specific market
segments and economic landscapes in which they operate;
and
enabling management teams to express entrepreneurial
flair, including the identification and execution of
acquisition opportunities, locally and abroad, with direct
responsibility and accountability for performance and
growth.
b. Improved operational efficiency mainly through the reduction
in complexity and costs over time:
managing separate operating entities, completely
independent of one another, which enhances streamlined
activities and operations; and
in-depth asset focus.
c. Focused capital and funding structures:
provide respective management teams with direct access and
accountability to the equity and debt capital markets,
each with the appropriate capital structure to support
their strategies on a long term sustainable basis, and the
ability to raise funding independently; and
on implementation of the Proposed Transaction, Imperial
Logistics and Motus will have self-sufficient capital
structures, with an optimal mix of debt and equity on a
standalone basis and within the industries in which they
operate (net debt to equity of between 55% and 65% in the
short term), to facilitate growth, provide flexibility and
maintain sufficient liquidity and headroom.
In this context, Imperial has secured sufficient commitments
from funders with respect to the debt restructure required
for Imperial Logistics and Motus to operate on a standalone
basis, post the Unbundling.
d. Enhanced investor understanding and insight of each business
and its sub-divisions:
Provide greater insight to investors with regard to the
nature of the activities and geographies within which
Imperial Logistics and Motus operate, and the potential
value of each business, and facilitating discretionary
investment in independent and dedicated business units
with greater comparability to focused peers.
3. Overview of Imperial Logistics
Imperial Logistics is an integrated outsourced logistics service
provider with a diversified presence across Africa and Europe.
With its strong regional growth platforms, specialist
capabilities customised to serve multi-national clients in
attractive industry verticals, and “asset-right” business model,
Imperial Logistics is expected to deliver sustainable revenue
growth, enhanced profitability and a stable dividend.
Improvements in asset mix and cash flow, and plans to achieve
targeted returns on capital in excess of weighted average cost of
capital (“WACC”), will support this expectation.
Ranked in the top 25 global third-party logistics (3PL) providers
as published by Armstrong & Associates Inc (#15 for land-based
revenue in 2017), with a presence in 33 countries on five
continents and over 30 000 employees, Imperial Logistics’ key
investment highlights include:
• Track record for consistent growth: proven ability to acquire,
develop and leverage specialist capabilities to establish
growth platforms in emerging and advanced markets;
• Leading positions in regional markets provide platforms for
sustainable growth: market leader in South Africa, a leader in
selected verticals in the African Regions and in certain
specialised capabilities in Europe;
• Competitive differentiation centred on agility and
customisation: specialised capabilities across the value chain
enable customised and integrated solutions, with service
offerings and operating models tailored to client requirements
and market maturity;
• Trusted partner to multinational clients: quality contract
portfolio in high-growth and defensive verticals, with
partnerships demonstrating reach, capabilities, assets,
innovation and legitimacy;
• Vision to unlock benefits of ‘one Imperial Logistics’:
strategy focused on sustainable revenue growth, enhanced
returns and improved competitiveness, with initiatives to
drive substantial organic growth enabled by differentiated
approach to digitalisation and innovation, and enhanced
financial flexibility supporting selective acquisitive growth;
• “Asset-right” business model underpins financial profile: more
optimal asset mix and targeted returns on capital, support
prospects for sustainable revenue growth and enhanced
profitability; and
• Strong and committed leadership: highly experienced, long-
serving management team and a strong independent Board.
4. Overview of Motus
Motus is a diversified (non-manufacturing) service provider to
the automotive sector with unrivalled scale and scope in South
Africa, and a selected international presence in the United
Kingdom and Australia. Motus’ unique business model is fully
integrated across the motor value chain - Import and
Distribution, Retail and Rental, Motor Related Financial Services
and Aftermarket Parts. This business model provides diversified
service offerings, maximises revenue and income opportunities,
and provides returns in excess of WACC, enabling Motus to
maintain sustainable free cash flow and pay an attractive
dividend.
Supported by over 18 600 employees and as Southern Africa’s
largest vehicle group, Motus’ key investment highlights include:
• Diversified (non-manufacturing) service provider in the
automotive sector with a leading position in South Africa and
selected international presence (UK and Australia);
• Fully integrated business model across the vehicle value
chain: Import and Distribution, Retail and Rental, Motor
Related Financial Services and Aftermarket Parts;
• Unrivalled scale in South Africa underpins a differentiated
value proposition to Original Equipment Manufacturers (OEM’s),
customers and business partners, providing multiple customer
touch points supporting resilience and customer loyalty
through the entire vehicle ownership cycle;
• Exposure to annuity income streams, sustainable free cash flow
generation with best-in-class earnings, return on invested
capital exceeding WACC, providing a platform for an attractive
dividend yield;
• Defined organic growth trajectory through portfolio
optimisation, continuous operational enhancements and
innovation, with a selective acquisition strategy outside
South Africa leveraging best-in-class expertise; and
• Highly experienced management team with deep industry
knowledge of regional and global markets, and a proven track
record with years of collective experience.
Motus will be reported as a discontinued operation in the
financial year ended 30 June 2018.
5. Salient dates and stakeholder engagement
The Unbundling is presumed to constitute a section 112 disposal
in terms of the Companies Act, and as such Imperial is required
to consider the provisions of the Companies Act and Takeover
Regulations in implementing the Unbundling. The Unbundling will
result in Shareholders holding a direct interest in Motus through
Motus Holdings rather than holding that interest through
Imperial.
It is anticipated that the Proposed Transaction will be
implemented during the fourth quarter of calendar 2018. In this
regard, a general meeting for Shareholder approval of the
Proposed Transaction will be convened on or about 30 October
2018. An Imperial circular and Motus pre-listing statement,
setting out the key dates of the Proposed Transaction will be
circulated to Shareholders on or about 30 September 2018.
A formal debt syndication process, engagement with Imperial’s
preference shareholders (noting, however, that holders of the
preference shares do not vote on or participate in the
Unbundling, and that such shares are not redeemable), and the
bond holder engagement process will commence in July 2018.
Post the Unbundling, the existing structure of the Ukhamba broad-
based black economic empowerment scheme will be replicated to
ensure that all shareholders in Ukhamba Holdings Proprietary
Limited (“Ukhamba Holdings”) retain the same economic rights that
they presently enjoy. Approval relating to a scheme of
arrangement in this regard will be sought at a general meeting of
the “A” shareholders and a combined general meeting of the
shareholders of Ukhamba Holdings, which is anticipated to take
place on or about the end of October 2018.
6. Cautionary announcement
If successfully concluded, the Proposed Transaction may have an
effect on the price of Imperial’s securities. Accordingly,
Shareholders, preference shareholders and bond holders of
Imperial Group Limited are advised to exercise caution when
trading in their Imperial securities until a further announcement
in this regard is made.
7. Executive management changes
In line with succession planning, on conclusion of the Proposed
Transaction:
• Mr Osman Arbee will relinquish his role as CEO of Imperial and
will remain the CEO of Motus;
• Mr Marius Swanepoel will undertake the role of CEO of
Imperial, which will be renamed Imperial Logistics. Mr
Swanepoel will retire as CEO in June 2019 and will remain as
director to 31 December 2019. Mr Mohammed Akoojee, currently
Chief Financial Officer (“CFO”) of Imperial, will succeed Mr
Swanepoel as CEO with effect from 1 July 2019;
• Mr Akoojee will be appointed as CEO Designate of Imperial
Logistics to facilitate an orderly transition and handover;
• Mr George de Beer will undertake the role of CFO of Imperial
Logistics; and
• Mr Ockert Janse van Rensburg will remain as CFO of Motus.
8. CONFERENCE CALL
Imperial management will be hosting a conference call for the
investment community on 21 June at 14h00 CAT to further discuss
this announcement.
PARTICIPANT TELEPHONE NUMBERS
Johannesburg (Telkom) 010 201 6800
Johannesburg (Neotel) 011 535 3600
Other Countries (Neotel) +27 11 535 3600
Other Countries (Telkom) +27 10 201 6800
USA and Canada 1 508 924 4326
UK 0 333 300 1418
Sponsor:
Merrill Lynch SA (Pty) Limited
Transaction Sponsor:
Standard Bank
Joint Financial Advisors:
Standard Bank
J.P. Morgan
Joint Debt Advisors
Standard Bank
J.P. Morgan
Mandated Lead Arrangers
Standard Bank
J.P. Morgan
Nedbank
Commerzbank
Legal advisors
Bowmans
Tugendhaft Wapnick Banchetti and Partners
Date: 21 June 2018
Date: 21/06/2018 11:14:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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