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PROPOSED SPECIFIC REPURCHASE OF HCI SHARES

1. INTRODUCTION

HCI has concluded agreements (“Repurchase Agreements”) with entities related and/or associated to certain directors of HCI and its subsidiary companies, and the Southern African Clothing and Textile Workers’ Union (“SACTWU”) (“the Parties”) in terms of which HCI (and, in relation to the shares held by SACTWU, HCI’s wholly-owned subsidiary, Squirewood Investments 64 Proprietary Limited (“Squirewood”)) will acquire in aggregate up to 16,140,000 HCI ordinary shares (“HCI Shares”), subject to the terms and conditions referred to below, at a price of R105.00 per HCI Share (the “Repurchase Transactions”). Each of the Repurchase Transactions are  separate and divisible, as more fully described below.

2. TERMS OF THE REPURCHASE TRANSACTIONS

HCI and Squirewood have agreed to acquire the following HCI Shares at a price of R105.00 per HCI Share subject to the conditions precedent set out in paragraph 2 below:

Party                                                                                                                   Number of shares
Geomer Investments Pty Ltd (the “Geomer Repurchases”)                               6,500,000
Rivetprops 47 Pty Ltd (the “Rivetprops Repurchases”)                                      5,240,000
Majorshelf 183 Pty Ltd (the “Majorshelf Repurchase”)                                        400,000
SACTWU (the “SACTWU Repurchase”)                                                            4,000,000
TOTAL                                                                                                               16,140,000

The repurchase price of R105.00 per HCI Share represents a discount of:
– 13.9% to the closing price on Friday, 22 April 2016; and – 6.4% to the 30 day weighted average trading price (“WATP”) up to and including Friday, 22 April 2016.

2.1. THE GEOMER REPURCHASES

2.1.1.Terms of the Geomer Repurchases

Pursuant to Marcel Golding’s resignation as a director of HCI, HCI has agreed to repurchase 6,500,000 HCI Shares at R105.00 per HCI Share from Geomer Investments Proprietary Limited (“Geomer”), an associated entity of Marcel Golding, in two separate and divisible transactions.
In respect of the first transaction, HCI shall repurchase 3,500,000 HCI Shares at R105.00 per share. The aggregate consideration, being R367,500,000, shall be settled in cash.

In respect of the second transaction, HCI shall repurchase 3,000,000 HCI Shares at R105.00 per share and an aggregate consideration of R315,000,000. In terms of this transaction, HCI’s subsidiary, Tsogo Investment Holding Company Proprietary Limited (“TIH”) has agreed to issue 3.03% of the issued ordinary shares of TIH to Geomer, at an aggregate issue price of R315,000,000 (being an amount equal to the repurchase price payable by HCI). Geomer shall cede its entitlement to receive the repurchase price payable by HCI to TIH in settlement of the subscription consideration payable by it to TIH,thereafter HCI shall make payment in settlement of its obligation to pay the repurchase price directly to TIH.

TIH is currently 99.56% indirectly owned by HCI and is the entity that owns HCI’s 48%
stake in Tsogo Sun Holdings Limited.

2.1.2.Conditions Precedent

The Geomer Repurchases are subject, inter alia, to the fulfilment or waiver of the following conditions precedent:

– the shareholders of HCI (excluding Geomer and its associates) approving the necessary resolutions, by way of a specific authority, required to implement the applicable Geomer Repurchases and the issue and allotment of the shares by TIH;
– the receipt of the necessary approvals from the JSE;
– the board of directors of HCI approving the Geomer Repurchases in terms of the applicable Repurchase Agreements and adopting the requisite resolutions in accordance with sections 46 and 48 of the Companies Act, 71 of 2008, as amended (“Companies Act”);
– the board of directors and shareholders of TIH adopting the requisite resolutions authorising the issue of shares to Geomer in terms of the Geomer Repurchases;
– the board of directors and shareholders of TIH adopting the requisite resolutions required to effect the subdivision of the existing TIH issued and authorised ordinary share capital at a ratio of 1:1,000, and such special resolutions and the requisite amendments to the TIH memorandum of incorporation being filed with the Companies and Intellectual Property Commission;
– the Takeover Regulation Panel (“TRP”), to the extent required, either issuing a compliance certificate or exempting the Company from the requirement to obtain a compliance certificate in accordance with the provisions of the Companies Act;
– to the extent that the Geomer Repurchases result in SACTWU being required to make a mandatory offer to the remaining HCI shareholders in terms of section 123 of the Companies Act, either:
– the TRP exempts SACTWU from the requirement to make such a mandatory
offer; or
– the SACTWU Repurchase Agreement referred to in 2.4 becomes unconditional in accordance with its terms; and
– the Company’s funders unconditionally approving the Geomer Repurchases, the issue of TIH shares to Geomer and the subdivision of the TIH shares, in accordance with the relevant funding documents, or approving thereof subject to such conditions as are acceptable to HCI.
2.1.3.Effective date of Geomer Repurchases

The Geomer Repurchases will take place on the 10th business day after the fulfilment or waiver of the last of the conditions precedent. If such effective date falls within a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements, the repurchases will take place on the 10th business day after the end of the prohibited period.

2.2. THE RIVETPROPS REPURCHASES

2.2.1.Terms of the Rivetprops Repurchases

HCI has agreed to repurchase 5,240,000 HCI Shares at R105.00 per HCI Share from Rivetprops 47 Proprietary Limited (“Rivetprops”), and its subsidiaries, Circumference Investments Proprietary Limited (“Circumference”) and Chearsley Investments Proprietary Limited (“Chearsley”), all of which are related entities of John Copelyn, in two separate but indivisible transactions.

In terms of the first transaction (“HCIA Sale Transaction”), HCI shall repurchase 3,095,875 HCI Shares at R105.00 per share and an aggregate consideration of R325,066,875 (“Rivetprops/HCIA Buy-back Price”). Simultaneously therewith, HCI shall sell all of the shares in HCI Investments Australia Proprietary Limited (“HCI Australia”) at a sale price equal to R325,066,875 (“HCIA Sale Consideration”). The Parties’ respective obligations to make payment of the HCIA Sale Consideration and the Rivetprops/HCIA Buy-back Price shall be discharged by set-off, which shall occur automatically without the need for further actions by the Parties. HCI Australia is the holding company which owns HCI’s 67,7% stake in Oceania Capital Partners Limited (“OCP”), as well as certain other ASX-listed shares.

In terms of the second transaction (“Rivetprops/TIH Subscription Transaction”), HCI shall repurchase in aggregate 2,144,125 HCI Shares at R105.00 per share and an aggregate consideration of R225,133,125 (“Rivetprops/TIH Buy-back Price”). HCI’s subsidiary, TIH has furthermore agreed to issue in aggregate 2.17% of the issued ordinary shares of TIH to Rivetprops, Chearlsey and Circumference (“Rivetprops Entities”) at an aggregate issue price of R225,133,125 (“Rivetprops/TIH Subscription Price”) (being an amount equal to the Rivetprops/TIH Buy-back Price payable by HCI). The Rivetprops Entities have agreed to cede their entitlements to receive the Rivetprops/TIH Buy-back Price to TIH in settlement of the subscription consideration payable by them to TIH, whereafter HCI shall settle the Rivetprops/TIH Buy-back Price in settlement of its obligation to make payment thereof directly to TIH.

2.2.2.Conditions Precedent

The Rivetprops Repurchases are subject, inter alia, to the fulfilment or waiver of the
following conditions precedent:

– the two Rivetprops Repurchase agreements being concluded and becoming unconditional;
– the agreement concluded or to be concluded between HCI, HCI’s wholly-owned subsidiaries, Deepkloof Limited (“Deepkloof”) and HCI Invest14 Holdco Proprietary Limited (“HCI Invest14”), and HCI Australia (“Capitalisation and Distribution Agreement”), in terms of which inter alia:
– Deepkloof Limited’s loan claims against HCI Australia (excluding a claim of AUS$6 million) is capitalised;
– Deepkloof distributes its shares in HCI Australia to HCI Invest14; and
– HCI Invest14 distributes its shares in HCI Australia to HCI, is concluded and becomes unconditional in accordance with its terms;
– the shareholders of HCI (excluding the Rivetprops Entities and their associates) approving the necessary resolutions required to:
– implement the Rivetprops Repurchases;
– sell the shares in HCI Australia to Rivetprops;
– issue TIH shares to the Rivetprops Entities;
– the receipt of the necessary approvals from the JSE;
– the board of directors of HCI approving the Rivetprops Repurchases in terms of the applicable Repurchase Agreements and adopting the requisite resolutions in accordance with sections 46 and 48 of the Companies Act, 71 of 2008, as amended;
– the unconditional approval (or if such approval is conditional, such conditions being acceptable to the Parties) of the HCIA Sale Transaction, the implementation of the Capitalisation and Distribution Agreement and any documentation required for the implementation of such transactions, to the extent required by applicable laws, by each of:
– the Financial Surveillance Department of the South African Reserve Bank;
– the Foreign Investment Review Board of Australia;
– the Australian Communication and Media Authority;
– the Australian Securities and Investment Commission; and
– the ASX;
– the board of directors of OCP adopts a resolution to seek the approval of OCP’s shareholders for the HCIA Sale Transaction, to the extent required by Australian law;
– the shareholders of OCP adopt such resolutions as may be required to approve the HCIA Sale Transaction and, to the extent legally required, the implementation of the Capitalisation and Distribution, in accordance with the provisions of item 7 of section 611 of the Corporations Act, 2001 (of Australia) and the listing rules of the ASX, to the extent required by Australian law;
– the board of directors and shareholders of TIH adopting the requisite resolutions authorising the issue of shares to the Rivetprops Entities in terms of the Rivetprops Repurchase Agreements;
– the adoption of the requisite board and/or shareholder resolutions by each of HCI Australia, Deepkloof and HCI Invest14 as may be required in terms of the applicable laws to approve the Capitalisation and Distribution Agreement, and obtaining such approvals as may be required in order to effect the transactions contemplated in the Capitalisation and Distribution Agreement;
– the board of directors and shareholders of TIH adopting the requisite resolutions required to effect the subdivision of the existing TIH issued and authorised ordinary share capital at a ratio of 1:1,000, and such special resolutions and the requisite amendments to the TIH memorandum of incorporation being filed with the Companies and Intellectual Property Commission;
– the TRP, to the extent required, either issuing a compliance certificate or exempting HCI from the requirement to obtain a compliance certificate in accordance with the provisions of the Companies Act;
– to the extent that the Rivetprops Repurchases results in SACTWU being required to make a mandatory offer to the remaining HCI shareholders in terms of section 123 of the Companies Act, either:
– the TRP exempts SACTWU from the requirement to make such a mandatory offer; or
– the SACTWU Repurchase Agreement referred to in 2.4 becomes unconditional in accordance with its terms; and
– the Company’s funders unconditionally approving the Rivetprops Repurchases in accordance with the relevant funding documents, or approving thereof subject to such conditions as are acceptable to HCI.

2.2.3.Effective date of Rivetprops Repurchases

The Rivetprops Repurchases will take place on the 3rd business day after the fulfilment or waiver of the last of the conditions precedent. If such effective date falls within a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements, the repurchases will take place on the 3rd business day after the end of the prohibited period.

2.3. THE MAJORSHELF REPURCHASE

2.3.1.Terms of the Majorshelf Repurchase

HCI has agreed to repurchase 400,000 HCI Shares at R105.00 per HCI Share from Majorshelf 183 Proprietary Limited (“Majorshelf”), an associated entity of Kevin Govender, to be settled in cash for a total repurchase consideration of R42,000,000.

2.3.2.Conditions Precedent

The Majorshelf Repurchase is subject, inter alia, to the fulfilment or waiver of the following conditions precedent:

– the shareholders of HCI (excluding Majorshelf and its associates) approving the necessary resolutions, by way of a specific authority, required to implement the Majorshelf Repurchase;
– the receipt of the necessary approvals from the JSE;
– the board of directors of HCI approving the Majorshelf Repurchase in terms of the Majorshelf Repurchase agreement and adopting the requisite resolutions in accordance with sections 46 and 48 of the Companies Act, 71 of 2008, as amended;
– the TRP, to the extent required, either issuing a compliance certificate or exempting the Company from the requirement to obtain a compliance certificate in accordance with the provisions of the Companies Act;
– the Company’s funders unconditionally approving the Majorshelf Repurchase in accordance with the relevant funding documents, or approving thereof subject to such conditions as are acceptable to HCI.

2.3.3.Effective date of Majorshelf Repurchase

The Majorshelf Repurchase will take place on the 3rd business day after the fulfilment or waiver of the last of the conditions precedent. If such effective date falls within a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements, the repurchases will take place on the 3rd business day after the end of the prohibited period.

2.4. THE SACTWU REPURCHASE

2.4.1.Terms of the SACTWU Repurchase

Should the Geomer Repurchases, the Rivetprops Repurchases and the Majorshelf Repurchase be fully and finally implemented, SACTWU’s shareholding in HCI may exceed 35%, which may result in SACTWU being required to make a mandatory offer to the remainder of HCI’s shareholders or obtain a waiver from the Takeover Regulation Panel from such requirement.

HCI, through its wholly-owned subsidiary, Squirewood, has therefore agreed to purchase 4,000,000 HCI Shares at R105.00 per HCI Share from SACTWU and an aggregate purchase consideration of R420,000,000. HCI’s subsidiary, TIH has furthermore agreed to issue 4.05% of the issued ordinary shares of TIH to SACTWU, at an aggregate subscription price of R420,000,000 (being an amount equal to the repurchase price payable by HCI). SACTWU shall cede its entitlement to receive the purchase price payable by Squirewood to TIH in settlement of the subscription consideration payable by it to TIH, whereafter Squirewood shall make payment of such purchase price directly to  TIH in settlement of its obligation to make payment thereof.

2.4.2.Conditions Precedent

The SACTWU Repurchase Agreements are subject, inter alia, to the fulfilment or waiver of the following conditions precedent:

– the shareholders of HCI (excluding SACTWU and its associates) approving the necessary resolutions, by way of a specific authority, required to implement theapplicable SACTWU Repurchase and the issue and allotment of the shares by TIH;
– the receipt of the necessary approvals from the JSE;
– the board of directors of HCI approving the SACTWU Repurchase in terms of the SACTWU Repurchase Agreement and adopting the requisite resolutions in  accordance with sections 46 and 48 of the Companies Act, 71 of 2008, as amended;
– the board of directors and shareholders of TIH adopting the requisite resolutions authorising the issue of shares to SACTWU in terms of the SACTWU Repurchase;
– the board of directors and shareholders of TIH adopting the requisite resolutions required to effect the subdivision of the existing TIH issued and authorised ordinary share capital at a ratio of 1:1,000, and such special resolutions and the requisite amendments to the TIH memorandum of incorporation being filed with the Companies  and Intellectual Property Commission;
– the National Executive Committee and/or the National Office Bearers of SACTWU adopting such resolutions as may be required in terms of SACTWU’s constitution to  approve the SACTWU Repurchase;
– the TRP, to the extent required, either issuing a compliance certificate or exempting  the Company from the requirement to obtain a compliance certificate, in accordance  with the provisions of the Companies Act;
– the Company’s funders unconditionally approving the SACTWU Repurchase, the issue of TIH shares to SACTWU and the subdivision of the TIH shares, in accordance  with the relevant funding documents, or approving thereof subject to such conditions  as are acceptable to HCI.

2.4.3.Effective date of SACTWU Repurchase

The SACTWU Repurchase will take place on the 10th business day after the fulfilment or  waiver of the last of the conditions precedent. If such effective date falls within a prohibited  period as defined in paragraph 3.67 of the JSE Listings Requirements, the repurchases  will take place on the 10th business day after the end of the prohibited period.

3. GENERAL

Each of the Geomer Repurchases, Rivetprops Repurchases, Majorshelf Repurchase and the  SACTWU Repurchase are independent transactions and are not conditional on one another.

In relation to each of John Copelyn, Kevin Govender and SACTWU (either in their own capacities  or their related or associated entities) the Repurchase Transactions do not affect the major portion  of their holdings in HCI.

The shares acquired by Squirewood in terms of the SACTWU Repurchase shall be held by  Squirewood as treasury stock. All of the shares repurchased by HCI will be cancelled and will revert  to the authorised but unissued share capital of HCI.

4. CATEGORISATION

In terms of the JSE Listings Requirements, Rivetprops and its subsidairies, Majorshelf and  SACTWU are related parties to HCI as:
– Rivetprops is an associated entity of John Copelyn, the Chief Executive Officer and a director  of HCI;
– Majorshelf is an associated entity of Kevin Govender, the Financial Director of HCI; and
– SACTWU is a material shareholder of HCI.

Geomer is not considered a related party in terms of the JSE Listings Requirements as Marcel Golding, the former Executive Chairman of HCI, resigned as a director of HCI more than 12 months  ago.

Consequently in terms of the JSE Listings Requirements, in order to implement the Repurchase  Transactions, special resolutions of the Company must be passed by securities holders excluding  the relevant related party and their associates. As the purchase price of R105.00 per HCI Share is  at a discount to the 30 day WATP, a fairness opinion is not required in terms of section 5.69 of the  JSE Listings Requirements.

In terms of JSE Listings Requirements, each of the Rivetprops/TIH Subscription Transaction, the  HCIA Sale Transaction and the SACTWU Repurchase are considered small related party  transactions, requiring the preparation of a fairness opinion by an independent expert.

In terms of the JSE Listings Requirements, the votes of the relevant Parties will be taken into  account in determining whether a quorum of shareholders is present at the general meeting, but  such votes will not be taken into account in determining the results of the voting at the general  meeting in respect of the transaction in which the relevant Party is a related party.

An independent expert acceptable to the JSE will be appointed to prepare the fairness opinions in  respect of the small related party transactions. The fairness opinions will be available for inspection  at HCI’s registered office for the required period once the reports have been finalised.

An independent expert acceptable to the Takeover Regulation Panel will be appointed to prepare  the independent expert report required in terms of sections 48(8) read together with sections 114  and 115 of the Companies Act, in respect of the Repurchase Transactions.

5. IMPACT ON THE FINANCIAL INFORMATION OF HCI

The cash component of the Repurchase Transactions will be funded from HCI’s existing cash  and/or debt facilities.

Amounts attributable to HCI in HCI Australia and which are being disposed of as part of the  Repurchase Transactions include net asset value of R560,779,000, tangible net asset value of  R203,874,000 and net profit after tax of R19,909,000.

Amounts attributable to HCI in TIH and which are being disposed of as part of the Repurchase  Transactions include net asset value of R1,113,174,000 and net profit after tax of R33,066,000.

6. CIRCULAR TO SHAREHOLDERS

A circular, including a notice of general meeting, detailing the terms of the Repurchase  Transactions and actions required by shareholders will be posted to shareholders in due course.

Cape Town
28 April 2016

Investment Bank and Sponsor
Investec Bank Limited

Legal advisers
ENSafrica