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RAND MERCHANT INVESTMENT HOLDINGS LIMITED - Disposal by RMI of its 30% interest in Hastings Group (Consolidated) Limited to Sampo plc

Release Date: 08/12/2021 09:45
Code(s): RMI     PDF:  
Wrap Text
Disposal by RMI of its 30% interest in Hastings Group (Consolidated) Limited to Sampo plc

Rand Merchant Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2010/005770/06)
ISIN: ZAE000210688
Share code: RMI
(RMI or the Company)


 DISPOSAL BY RMI OF ITS 30% INTEREST IN HASTINGS GROUP (CONSOLIDATED) LIMITED TO SAMPO PLC


1.   INTRODUCTION

     Shareholders of RMI (Shareholders) are advised that RMI and Sampo plc (Sampo) have
     concluded a sale and purchase agreement in terms of which Sampo will acquire the 199,939,120
     shares in Hastings Group (Consolidated) Limited (Hastings), constituting 30% of the issued shares
     in Hastings (Sale Shares), held indirectly by RMI (the Sale).

     RMI holds the Sale Shares through Main Street 1353 Proprietary Limited (Main Street), an entity
     jointly owned by RMI (as to 51%) and OUTsurance Holdings Limited (OUTsurance) (as to 49%).
     Sampo holds the balance of the 70% shareholding in Hastings prior to implementation of the Sale.

     The Sale was concluded on terms and conditions customary for transactions of this nature, is not
     subject to conditions precedent and is expected to become effective on receipt of the purchase
     consideration by Main Street and completion of the formal transfer processes by the parties, both
     expected to occur on 8 December 2021 (Completion Date).

     Per the terms of a shareholders agreement entered between Main Street and Sampo at the time
     of the privatisation of Hastings in November 2020 (the Privatisation) (which agreement will
     terminate with effect from completion of the Sale), RMI and OUTsurance have an option to increase
     their ownership in Hastings from 30% to up to 40% (the Main Street Option). The Main Street
     Option is capable of being exercised, in whole or in part, within a period of 18 months from the
     completion of the Privatisation, being 16 May 2022, at a price equal to the price at which the
     Privatisation was concluded being, 250 pence per Hastings share (the Privatisation Price). The
     Main Street Option will not be exercised as a consequence of the Sale.

2.   TERMS OF THE TRANSACTION

     Under the terms of the Sale, Main Street will on the Completion Date, receive 342.6 pence in cash
     for each Sale Share held (Sale Price). The Sale Price considers the rights attaching to the Sale
     Shares as well as the fact that the Main Street Option will not be exercised.

     Main Street will sell 199,939,120 Hastings shares, implying gross proceeds of £685.0 million or
     R14.6 billion (based on a ZAR/GBP exchange rate of R21.28) (Sale Consideration).



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     The Sale Price represents a:
         -   premium of 37.0% to the Privatisation Price; and
         -   transaction internal rate of return for RMI’s investment in Hastings of 18.4% in ZAR terms
             and 12.5% in GBP terms (adjusted for dividends received, the further investment at the
             time of the Privatisation and an allocation of the funding costs in relation to the debt
             incurred by RMI for its Hastings shares). Both metrics are in excess of RMI’s return
             requirements.

     Herman Bosman (Chief Executive Officer of RMI) and Jan Hofmeyr (Group Chief Financial Officer
     of OUTsurance), the appointed directors for Main Street on the Hastings board, have tendered
     their resignations from the Hastings board and board committees with effect from the Completion
     Date.

     The requisite notifications to the regulatory authorities in South Africa, the United Kingdom and
     Gibraltar have been, or will be made and there are no conditions precedent to the Sale, which will
     become effective on the Completion Date.

3.   RATIONALE FOR THE TRANSACTION
     The rationale for RMI’s original investment in Hastings in March 2017 was consistent with RMI’s
     strategy to diversify its portfolio through partnering with a high quality and entrepreneurial
     management team to gain exposure to the United Kingdom’s property and casualty (P&C) market
     through a dynamic and growing business with an underwriting and pricing system designed for the
     highly competitive price comparison websites. In line with RMI's strategy to have exposure to
     unlisted and geographically-diversified P&C businesses, the Privatisation of Hastings was
     undertaken in 2020 in partnership with Sampo.

     Hastings has delivered a sound operational performance and good financial metrics despite an
     extended soft pricing cycle and changing market and regulatory dynamics.

     RMI and OUTsurance have enjoyed a successful partnership with Hastings and Sampo, resulting
     in strategic and financial collaboration benefits in the form of operational (branding and retention)
     best practice, intellectual property and market knowledge sharing (eg bodily injury). An ongoing
     relationship, through the continuation of the existing arms-length outsourcing agreement between
     Hastings Insurance Services Limited (HISL) and OUTsurance Shared Services Proprietary Limited
     (OSSP), in terms of which OSSP provides management of local and offshore call centres to HISL,
     will see the retention of c.650 permanent jobs in South Africa.

     RMI’s investment activities are assessed within a framework that balances (i) strategic focus; (ii)
     attractive financial returns; and (iii) consistency with its capital structure policy. The balance is
     found in an ethos of being an efficient and disciplined allocator of capital and being committed to
     maximising value creation for Shareholders should opportunities to do so arise, notwithstanding
     our position as a long-term shareholder or the strategic significance of any particular investment.
     With this in mind, RMI has assessed the approach from Sampo to acquire the Sale Shares and

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     considering all relevant qualitative and quantitative factors, concluded that the Sale represented
     an opportunity to monetise the investment in Hastings at an attractive valuation.

4.   IMPACT OF THE SALE ON THE ANNOUNCED RMI RESTRUCTURE
     Shareholders are referred to the announcement (Restructure Announcement) released by RMI on
     the Stock Exchange News Service of the JSE Limited (SENS) on 20 September 2021 in which
     RMI announced:

         -   the distribution of all the shares held by RMI in its two listed, life insurance focused assets,
             Discovery Limited (Discovery) and Momentum Metropolitan Holdings Limited (Momentum
             Metropolitan), to Shareholders (the Unbundling); and
         -   an indivisible equity capital raise of up to R6.5 billion by way of a pro rata rights issue by
             RMI (Rights Issue) to Shareholders, to optimise RMI’s capital structure (together the
             Restructure.

4.1 Impact on the Unbundling

     Shareholders are advised that the Sale will have no impact on the Unbundling.

     As previously advised, the Unbundling is intended to be executed by way of a pro rata distribution
     in specie in terms of section 46(1)(a)(ii) of the Companies Act, 2008 (as amended) and section 46
     of the Income Tax Act, 1962 (as amended) (Income Tax Act), and it is anticipated that the
     Unbundling will proceed post receipt of the requisite regulatory approvals, which are well
     progressed and is expected to occur in Q1 2022.

4.2 Impact on the Rights Issue

     Shareholders are advised that the proceeds from the Sale will negate the requirement for the Rights
     Issue by RMI as originally contemplated.

     Further details on the use of proceeds and RMI’s capital structure post the Sale and the Unbundling
     are set out in paragraph 5 below.

5.   USE OF SALE PROCEEDS
     Main Street will receive a Sale Consideration of R14.6 billion from Sampo. Based on the operation
     of the applicable provisions in the Income Tax Act, RMI does not envisage any tax (capital gains
     tax or otherwise) consequences to arise for Main Street in relation to the Sale.

     The Sale Consideration will in the first instance be utilised to settle the funding of R3.1 billion in
     Main Street in relation to the Hastings interest (Main Street Funding), resulting in net proceeds of
     R11.5 billion (the Net Consideration).

     The Net Consideration will then be paid out in the form of a dividend to RMI Asset Holdings
     Proprietary Limited (RMI AssetCo) (a wholly owned subsidiary of RMI) and OUTsurance, being the
     shareholders of Main Street, in proportion to their shareholding of 51% (R5.9 billion) and 49%
     (R5.7 billion), respectively. This distribution is exempt from dividend tax and income tax in terms
     of section 10B read with section 64E of the Income Tax Act.

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     After having considered its own capital requirements, OUTsurance will declare a dividend to RMI
     AssetCo (as its 89.1% shareholder) of R2.8 billion, resulting in total proceeds to RMI pursuant to
     the Sale of R8.7 billion (RMI Proceeds), after the settlement of the Main Street Funding.


     Below is a table summarising the above flow of funds to RMI:

                                                                                           Flow of funds
      Sale Consideration                                                                   R14.6 billion
      Settlement of Main Street Funding and other debt related items                       (R3.1 billion)
      Net Consideration                                                                    R11.5 billion

         RMI AssetCo portion of Net Consideration (51%)                                      R5.9 billion
         OUTsurance portion of Net Consideration (49%)                                       R5.7 billion
                 OUTsurance dividend                                                         R3.1 billion
                        RMI portion of OUTsurance dividend (89.1%)                           R2.8 billion
      RMI Proceeds                                                                          R8.7 billion

     The RMI Proceeds will be used to pay down all RMI debt (which includes Main Street Funding)
     such that RMI will be debt free post implementation of the Sale and the Unbundling.

     RMI is focused on optimising its capital structure and dividend policy, seeking to:
         -   maintain a contingency cash buffer of approximately R1 billion; and
         -   target a dividend pay-out ratio of 100% of free cash flow generated (net of funding costs).
             The target pay-out ratio is a dynamic statement of strategic intent and will change to reflect
             any changes in RMI’s capital structure or future investment portfolio.

     Below is the pro forma capital structure of RMI post the receipt of the RMI Proceeds and the
     Unbundling:

                                                                                       Pro forma post the
                                                                                             Sale and the
                                                        As at 30 June 2021                    Unbundling
      Gross debt                                              R11.8 billion                                 -
      Cash                                                    (R2.3 billion)                 (R3.1 billion)
      Net debt / (Net cash)                                    R9.5 billion                  (R3.1 billion)

6.   CATEGORISATION IN TERMS OF THE JSE LISTINGS REQUIREMENTS
     The Sale is categorised as a category 2 transaction for RMI in terms of section 9.5(a) of the JSE
     Listings Requirements (Listings Requirements) and is accordingly not subject to Shareholders’
     approval.




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7.   FINANCIAL INFORMATION
     The carrying value of RMI’s investment in Hastings’ net assets as at 30 June 2021 was R9.8 billion.
     Hastings’ normalised earnings attributable to RMI for the year ended 30 June 2021 was R0.6
     billion.

     The values attributed to the carrying value of RMI’s investment in Hastings and the normalised
     earnings above represent Main Street’s 30% shareholding in Hastings and were extracted from
     Hastings’ financial statements for the year ended 30 June 2021, which were prepared in
     accordance with the International Financial Reporting Standards.

8.   INFORMATION ON SAMPO AND HASTINGS PURSUANT TO THE LISTINGS
     REQUIREMENTS

     Sampo is a leading Nordic insurance group listed on Nasdaq Helsinki and which is made up of the
     parent company Sampo plc and its subsidiaries If P&C, Topdanmark, Hastings and Mandatum.
     The group companies have insurance operations in Finland, Sweden, Norway, Denmark, Estonia,
     Lithuania, Latvia, and the United Kingdom.

     Hastings is a technology-led, multi-award-winning, challenger to traditional insurers in the United
     Kingdom car, van, bike, and home insurance market. It is an expert in digital and price comparison
     website distribution and relies on high digitisation of the customer experience to drive client
     retention.

9.   IMPACT OF THE TRANSACTION ON RMI’S FUTURE FOCUS AND STRATEGY

     Post the implementation of the Sale, RMI will remain a JSE listed investment holding company. As
     detailed in the Restructure Announcement as well as in RMI’s integrated report for the year ended
     30 June 2021 (available on RMI’s website at: https://www.rmih.co.za/investor-relations), RMI’s core
     strategy remains unchanged which is to provide stakeholders with the opportunity to access
     unique, predominantly unlisted geographically diversified and non-competing P&C businesses.

10. RMI VOLUNTARY TRADING UPDATE

     Shareholders are referred to the operating updates provided by Discovery and Momentum
     Metropolitan for an update on their financial performance for the three months to 30 September
     2021, available on their respective websites.

     Shareholders are advised that for the five months to 30 November 2021, Australia has experienced
     various large natural events resulting in material claims for Youi Holdings Proprietary Limited
     (Youi). As guided in the financial results for the year ended 30 June 2021, Youi’s catastrophe
     reinsurance retention increased materially from AU$10 million for the 2021 financial year to AU$30
     million in the 2022 financial year. The higher catastrophe reinsurance retention is buffered by a
     natural perils aggregate treaty which provides AU$70 million of cover once aggregated retained
     events losses exceed AU$60 million. As at 30 November 2021, estimated aggregated losses stood
     at AU$50 million. These circumstances point to a low earnings result experience by Youi for the
     first six months of the 2022 financial year, with the expectation of a significantly more profitable



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second half enabled by the benefit of the aggregate cover to absorb a large component of potential
future natural perils event losses.

The financial information contained in this announcement has not been reviewed or reported on by
RMI’s auditors or reporting accountants.


8 December 2021
Rosebank




Financial adviser and JSE transaction sponsor:

Merrill Lynch South Africa (Pty) Ltd t/a BofA Securities

Legal advisers:

Webber Wentzel

Linklaters LLP




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Disclaimers

Shareholders should note that the RMI board reserves the right, in its discretion, to decide not to
proceed with the Unbundling and, as such, the Unbundling may or may not proceed.

The release, publication or distribution of this announcement in jurisdictions other than South Africa
may be restricted by law and therefore persons into whose possession this announcement may
come should inform themselves about, and observe, any such applicable restrictions or
requirements. Any failure to comply with such restrictions or requirements may constitute a
violation of the securities laws and regulations of any such jurisdiction. To the fullest extent
permitted by applicable law, the Company disclaims any responsibility or liability for the violation
of such restrictions or requirements by any person.

This announcement is for information purposes only and is not, and should not be construed as to
constitute, an offer to sell or the solicitation of an offer to buy securities and neither this document
nor anything herein nor any copy thereof may be taken into or distributed, directly or indirectly, in
or into any jurisdiction in which to do so would be prohibited by applicable law.

These materials are not for distribution, directly or indirectly, in or into the United States (including
its territories and possessions, any State of the United States and the District of Columbia) Canada,
Australia or Japan. These materials do not constitute or form a part of any offer or solicitation to
purchase or subscribe for, or otherwise invest in, securities in the United States. The securities
mentioned herein have not been, and will not be, registered under the United States Securities Act
of 1933 (the "Securities Act").

The securities may not be offered or sold in the United States except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the Securities Act. There
will be no public offer of any securities in the United States.

In the United Kingdom, this announcement is being distributed only to, and is directed only at,
persons who: (A) (i) are "investment professionals" specified in Article 19(5) of the Financial
Services and Markets Act (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth
entities falling within Article 49(2)(a) to (d) of the Order or (iii) are other persons to whom it may
otherwise lawfully be communicated; and (B) are "qualified investors" within the meaning of Article
2(e) of the Prospectus Regulation (Regulation (EU) 2017/1129) as it forms part of retained EU law
as defined in the European Union (Withdrawal) Act 2018 (all such persons together being referred
to as "Relevant Persons"). In the European Economic Area (the "EEA"), this announcement is
addressed only to and directed only at, persons in member states who are "qualified investors"
within the meaning of Article 2(e) of the Prospectus Regulation (Regulation ((EU) 2017/1129)
("Qualified Investors"). This announcement must not be acted on or relied on (i) in the United
Kingdom, by persons who are not Relevant Persons, and (ii) in any member state of the EEA, by
persons who are not Qualified Investors. Any investment or investment activity to which this
announcement relates is available only to: (i) in the United Kingdom, Relevant Persons; and (ii) in
any member state of the EEA, Qualified Investors, and will be engaged in only with such persons.

In South Africa, the information contained in this announcement does not constitute or form a part
of any offer to the public for the sale of, or subscription for, or an invitation, advertisement or the

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solicitation of an offer to purchase and/or subscribe for, securities as defined in and/or
contemplated by the Companies Act. Accordingly, this announcement does not, nor does it intend
to, constitute a "registered prospectus" or an advertisement relating to an offer to the public, as
contemplated by the Companies Act and no prospectus has been, or will be, filed with the South
African Companies and Intellectual Property Commission in respect of this announcement.

The information contained in this announcement constitutes factual information as contemplated
in Section 1(3)(a) of the Financial Advisory and Intermediary Services Act, 37 of 2002, as amended
("FAIS Act") and should not be construed as an express or implied recommendation, guide or
proposal that any particular transaction in respect of the RMI shares or in relation to the business
or future investments of RMI, is appropriate to the particular investment objectives, financial
situations or needs of a prospective investor, and nothing contained in this announcement should
be construed as constituting the canvassing for, or marketing or advertising of, financial services
in South Africa. RMI is not a financial services provider licensed as such under the FAIS Act.

Merrill Lynch South Africa (Pty) Ltd t/a BofA Securities, which is regulated by the Johannesburg
Stock Exchange, which exchange is regulated by the Financial Sector Conduct Authority, is
providing financial advice and is acting as JSE transaction sponsor to RMI and no one else in
connection with the Sale and will not be responsible to anyone other than RMI for providing the
protections afforded to its clients, nor for providing advice in relation to the Sale or any other matter
or arrangement referred to in this announcement.

No representation or warranty, express or implied, is made or given, and no responsibility is
accepted, by or on behalf of the financial adviser or any of its affiliates or any of its directors, officers
or employees or any other person, as to the accuracy, completeness, fairness or verification of the
information or opinions contained this announcement and nothing contained in this announcement
is, or shall be relied upon as, a promise or representation by the financial adviser or any of its
affiliates as to the past or future. Accordingly, the financial adviser and its affiliates and directors,
officers and employees disclaim, to the fullest extent permitted by applicable law, all, and any
liability, whether arising in tort or contract or that they might otherwise be found to have in respect
of this announcement and/or any such statement.

Nothing contained in this announcement constitutes, or is intended to constitute, investment, tax,
legal, accounting, or other professional advice.

Forward-looking statements

This announcement contains statements about the RMI and the RMI group of companies (the
"Group") that are, or may be, forward-looking statements.

All statements (other than statements of historical fact) are, or may be deemed to be, forward-
looking statements, including, without limitation, those concerning: strategy; the economic outlook
for the industries in which RMI and the Group operates or invests as well as markets generally;
production; cash costs and other operating results; growth prospects and outlook for operations
and/or investments, individually or in the aggregate; liquidity, capital resources and expenditure,
statements in relation to Sale and/or the Unbundling, their respective implementation and benefits.
These forward-looking statements are not based on historical facts, but rather reflect current

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expectations concerning future results and events and generally may be identified using forward-
looking words or phrases such as "believe", "aim", "expect", "anticipate", "intend", "foresee",
"forecast", "likely", "should", "planned", "may", "estimated", "potential" or similar words and
phrases. Examples of forward-looking statements include statements regarding a future financial
position.

By their nature, forward-looking statements involve known and unknown risks and uncertainties
because they relate to events and depend on circumstances that may or may not occur in the
future. The Company cautions that forward-looking statements are not guarantees of future
performance. Actual results, financial and operating conditions, returns and the developments
within the industries and markets in which the Company and/or the Group operates and/or invests
may differ materially from those made in, or suggested by, the forward-looking statements
contained in this announcement. All these forward-looking statements are based on estimates,
predictions and assumptions, as regards the Company and the Group, all of which estimates,
predictions and assumptions, although the Company believes them to be reasonable, are
inherently uncertain and may not eventuate or eventuate in the manner the Company expects.
Factors which may cause the actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied in those statements or
assumptions include matters not yet known to the Company or not currently considered material
by the Company.

Investors should keep in mind that any forward-looking statement made in this announcement or
elsewhere is applicable only at the date on which such forward-looking statement is made. New
factors that could cause the business of the Company and the Group not to develop as expected
may emerge from time to time and it is not possible to predict all of them. Further, the extent to
which any factor or combination of factors may cause actual results, performance, or achievement
to differ materially from those contained in any forward-looking statement is not known. The
Company has no duty to, and does not intend to, update, or revise the forward-looking statements
contained in this announcement or any other information herein, except as may be required by
law. Any forward-looking statement has not been reviewed nor reported on by the Company's
external auditor or any other expert.




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Date: 08-12-2021 09:45:00
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