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Disposal of short-term insurance business in South Africa
ALEXANDER FORBES GROUP HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2006/025226/06)
JSE Share Code: AFH
ISIN: ZAE000191516
(“Alexander Forbes” or “the Company” or “the Group”)
DISPOSAL OF SHORT-TERM INSURANCE BUSINESS IN SOUTH AFRICA
1. BACKGROUND AND RATIONALE
Shareholders are referred to the announcement released on the Stock Exchange News Service on 26 March 2019
in which they were advised of the Company’s revised strategy and the Board’s consequent decision to seek a
purchaser for Alexander Forbes’ short-term insurance business in South Africa, in line with its advice-led and capital-
light model.
The Alexander Forbes short-term insurance business in South Africa (“AFI” or “Business”) is a highly respected,
niche insurance business which has attracted significant interest from numerous potential purchasers, both locally
and internationally. The decision to dispose of the Business included an appreciation of the synergistic benefits
which a large insurer may gain from the acquisition of AFI.
The Board is pleased to announce that Alexander Forbes has entered into a binding agreement with Momentum
Metropolitan Strategic Investments Proprietary Limited (“MMSI”) for the sale and purchase of the Business as a
going concern, subject to certain conditions precedent (“Proposed Transaction”). MMSI is a wholly owned
subsidiary of Momentum Metropolitan Holdings Limited (“Momentum Metropolitan”).
The Board is confident that the Proposed Transaction not only benefits Alexander Forbes, through the realisation
of value for shareholders, but also balances appropriate solutions for clients and protects and values the employees
of the Business.
The disposal of AFI delivers on the implementation of the company’s strategy, which reaffirms Alexander Forbes’s
strength as a trusted adviser to our clients, with a renewed focus on the core businesses of consulting,
administration and investments.
2. PARTICULARS OF THE PROPOSED TRANSACTION
2.1 Overview of the Business
AFI targets the middle to high income market in South Africa, offering personal and commercial short-term insurance
products. AFI’s business model focuses on personalised sales and superior client service. This has resulted in an
in-force book that tilts towards high-net worth individuals and experiences better than industry average persistency.
2.2 Overview of the Proposed Transaction Terms
Alexander Forbes Limited (the direct holding company of the three legal entities comprising the Business) and/or
related Alexander Forbes companies, in respect of the information technology software and trademarks, will dispose
of:
• 100% of the shares in Alexander Forbes Administration Services Proprietary Limited, Alexander Forbes
Direct Proprietary Limited and Alexander Forbes Insurance Company Limited (“AF Insurance
Company”);
• The information technology software which supports the Business; and
• The trademarks specific to the Business
for a total Proposed Transaction consideration of R1 938 million (“Base Price”).
The rights, benefits and advantages of the Business will accrue to Momentum Metropolitan from 1 April 2019 in
terms of a ‘locked box structure’. In the event of any contractually non-permitted distributions post 1 April 2019, the
base price will be adjusted downwards (“Adjusted Price”). The Adjusted Price will in turn be escalated at a rate of
6% per annum, nominal annual compounded monthly in arrears, from 1 April 2019 up to the closing of the Proposed
Transaction (“Final Price”). The maximum Final Price, if closing only occurs on the last date for the conditions
precedent to be met (31 March 2020), would equate to R2 055 million. The Proposed Transaction is however
expected to be implemented towards the end of 2019, assuming the necessary approvals are obtained timeously.
The Proposed Transaction will close once all conditions precedent are fulfilled and the Final Price is determined in
accordance with the relevant Proposed Transaction agreements. The Final Price will be settled in cash and is
guaranteed by Momentum Metropolitan on behalf of its subsidiary which will conclude the Proposed Transaction.
Additional ancillary agreements include a brand licence agreement and transitional services agreement, applicable
for an interim period to ensure and enable a smooth transition for the Business, its clients and employees. The
Proposed Transaction agreements include contractual undertakings normal for a transaction of this nature, including
warranties, interim undertakings, non-compete undertakings and termination rights.
2.3 Conditions precedent
The Proposed Transaction is subject to the following outstanding conditions precedent:
• Approval from the Competition Authorities;
• Approval from the Prudential Authority; and
• Obtaining of either a compliance certificate or a written exemption from the Takeover Regulation Panel in
respect of the Proposed Transaction.
3. NET ASSET VALUE AND PROFITS ATTRIBUTABLE TO THE BUSINESS AS AT 31 MARCH 2019
The Business was classified as a discontinued operation in the Group financial statements for the year ended
31 March 2019. The net asset value of the Business, including the intangible assets, as well as inter-company
balances and investment in subsidiaries, held for the Business within the Group structure amounted to R728 million
as at 31 March 2019. The intangible assets relate to goodwill attributed to the Business that arose from the
Company’s private equity transaction in 2007.
The net tangible asset value of the underlying Business sold at that date amounts to R322 million. The reported
profit after taxation for the Business for the year ended 31 March 2019 amounted to R135 million.
The historical information for the Business was prepared in accordance with International Financial Reporting
Standards and the Companies Act 71 of 2008 and has been audited by the Group’s external auditors.
4. UTILISATION OF PROCEEDS
In relation to the planned utilisation of the cash proceeds, the Board intends to return excess capital to shareholders,
after taking cognisance of the investment needs of the Group, which is aligned with the Company’s revised strategy
to remain capital-light.
5. CATEGORISATION
The Proposed Transaction is categorised as a category 2 transaction in terms of the JSE Listings Requirements
and accordingly, no shareholder approval is required.
Carina Wessels
Executive: Governance, Legal and Compliance
Sandton
25 July 2019
Corporate Advisor: Deloitte Capital Proprietary Limited
Legal Advisor: Bowman Gilfillan
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 25/07/2019 03:00:00
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