Salient terms of the Offer
Scheme consideration
If the Scheme becomes unconditional, the consideration payable by Wescoal to Keaton Energy Shareholders in terms of the Scheme will be R1.80 per Keaton Energy Share, representing approximately R525.59 million in total (“Scheme Consideration” or “Offer Consideration”). The Scheme Consideration will be settled partly in cash (R1.20 per Keaton Energy Share) (“Cash Component”), representing approximately R350.39 million and the remainder will be settled in Wescoal ordinary shares (“Wescoal Shares”) (“Share Component”). The Share Component will be settled by Wescoal in the ratio of 0.30 Wescoal Shares for every 1.00 Keaton Energy Share held (“Switch Ratio”), resulting in 87 598 277 new Wescoal Shares (“Consideration Shares”) being issued to Keaton Energy Shareholders at an issue price of R2.00 per Consideration Share.
Wescoal has sufficient authorised but unissued Wescoal Shares to settle the Share Component. On completion of the Scheme, Keaton Energy will become a wholly- owned subsidiary of Wescoal and be delisted from the JSE.
The Scheme Consideration is determined on the basis that Keaton Energy will not issue any further shares, options or rights, other than those granted under the ESOPS (defined in paragraph 2.2 below) between the Signature Date and the Effective Date (defined in paragraph 7 below), or make any distributions after the date of this Firm Intention Announcement. Should Keaton Energy implement any such issue or make any distribution, the Scheme Consideration will be adjusted pro rata per Keaton Energy Share.
Comparable offer
A comparable offer is also being made to all participants of the Keaton Energy Holdings Long-Term Performance Incentive Scheme (2007) and the Keaton Energy Holdings Ltd. 2013 Share Plan (“ESOPs”), subject to the successful completion of the Proposed Transaction (“Comparable Offer”).
Reciprocal break fee
Each of Wescoal and Keaton Energy has undertaken to the other to pay a break fee equal to 1% of the Scheme Consideration if it breaches any material provision or material undertaking of the Offer and, if capable of remedy, fails to remedy that breach within the time period contemplated in the Offer Letter.
Source of funds
The Cash Component of the Scheme Consideration and the Comparable Offer, as well as other expenses related to the Offer, will be funded by Wescoal through a combination of internal cash resources, debt facilities and the cash raised by Wescoal through its BEE transaction implemented in December 2016.
Conditions to the posting of the circular to Keaton Energy Shareholders (“Scheme Circular”)
The posting of the Scheme Circular to Keaton Energy Shareholders will be subject to the fulfilment, or waiver, as the case may be, of the following conditions by not later than 23:59 on the 60th day after the Signature Date (or, to the extent applicable, such earlier date stated below):
- by not later than 23:59 on the 30th business day after the Signature Date, the severance arrangements relating to specified Keaton Energy executives (being limited to Mandi Glad and Jacques Rossouw) have been entered into by all of the parties thereto, providing for the severance of such executives with effect from the Effective Date (defined in paragraph 7 below) and otherwise strictly in accordance with the terms of their respective current employment contracts;
- by not later than 23:59 on the 30th business day after the Signature Date, the participants of the ESOPs have agreed in writing to waive all their rights (including such future rights as they may be granted prior to the Effective Date, defined in paragraph 7 below) (whether in the form of options, share appreciation rights, restricted shares, performance shares or bonus awards) under the ESOPs in return for a payment by Wescoal in respect of the waiver of each right, equal to the difference between the strike price of each option or other right and R1.80;
- the Independent Expert, as defined in paragraph 13 below, has delivered a report to the Keaton Energy Independent Board (“Independent Expert Report”);
- the Scheme Circular has been approved by the JSE and the TRP;
- the circular to Wescoal Shareholders (“Wescoal Circular”) has been approved by the JSE; and
- any exchange control approval which might be required in relation to the Proposed Transaction, has/have been duly obtained in writing.
Scheme Conditions
In terms of the Offer Letter, the Scheme will be subject to the fulfilment or waiver, as the case may be, of the following conditions by not later than 23:59 on the date which is 180 days after the Signature Date (“Long Stop Date”) (or such later date as may be agreed between Wescoal and Keaton Energy and notified to all Keaton Energy Shareholders and Wescoal Shareholders):
- as required in terms of the Listings Requirements of the JSE (“JSE Listings Requirements”), the Wescoal Shareholders have approved the Proposed Transaction;
- the JSE has approved the listing of the Consideration Shares;
- a special resolution (“Scheme Special Resolution”) has been passed at the meeting convened by Keaton Energy (“Scheme Meeting”), by the requisite majority of Keaton Energy Shareholders and (i) to the extent required in terms of section 115(3) of the Companies Act, the implementation of the Scheme Special Resolution is approved by the Court, and (ii) if applicable, Keaton Energy has not elected to treat the Scheme Special Resolution as a nullity;
- if the Scheme Special Resolution has been passed at the Scheme Meeting by the requisite majority of Keaton Energy Shareholders and any person who voted against the Scheme Special Resolution applies to the Court within 10 business days after the vote for a review of the Proposed Transaction in accordance with the requirements of section 115(3)(b) of the Companies Act, (i) no leave is granted by the Court to such person to apply to the Court for a review of the Proposed Transaction in accordance with the requirements of section 115(7) of the Companies Act, or (ii) if leave is granted by the Court to apply to the Court for a review of the Proposed Transaction in accordance with the requirements of section 115(6) of the Companies Act, the Court has not set aside the Scheme Special Resolution;
- within the time period prescribed in section 164(7) of the Companies Act, Keaton Energy Shareholders have not exercised the rights afforded to shareholders in respect of more than 10% of all the Offer Shares;
- the disposal by Keaton Energy of the entire issued share capital of Leeuw Mining and Exploration (Pty) Ltd. (provided that the entire issued share capital of Leeuw Braakfontein Colliery (Pty) Ltd. is unbundled by way of a distribution prior to the disposal) and Amalahle Exploration (Pty) Ltd. have been implemented by Keaton Energy in accordance with their terms;
- if the proposed amendments to section 11 of the Minerals and Petroleum Resources Development Act 28 of 2002 (“MPRDA”) come into force and effect prior to the date on which all of the Scheme Conditions (other than this Scheme Condition) are fulfilled or waived, as the case may be, and to the extent necessary, any confirmation or approval which might be required in terms of the MPRDA from the Minister of Mineral Resources has been obtained;
- the Proposed Transaction has been unconditionally approved by the relevant competition authorities, or conditionally approved on terms and conditions acceptable to the affected party; and
- the TRP has issued a compliance certificate in respect of the Proposed Transaction.
The effective date of the Scheme will be the 3rd business day after the last of the Scheme Conditions set out above is fulfilled or waived (“Effective Date”) and the Scheme will be implemented at the earliest date after the Effective Date.
Category 1 acquisition for Wescoal
The Proposed Transaction is classified as a Category 1 transaction for Wescoal and accordingly requires Wescoal Shareholder approval. The net asset value of Keaton Energy as at 30 September 2016 was R515.9 million and the net profit after tax attributable to Keaton Energy Shareholders for the six months ended 30 September 2016 was R20.8 million.
Guarantees and confirmations to the TRP
Wescoal has delivered to the TRP an irrevocable, unconditional bank guarantee issued by Investec Bank Ltd., for the maximum possible Cash Component of the Scheme Consideration.
Standby Offer
Wescoal will (if it so elects), as a Standby Offer, if the Scheme Circular is not posted or the Scheme is not implemented, at any time prior to the Long Stop Date offer to purchase the Offer Shares held by the Keaton Energy Shareholders on the same terms and conditions as would have been applicable to the Scheme.
The Standby Offer is subject to the same conditions detailed in paragraph 7 above which, as at the date of failure of the posting of the Scheme Circular or implementation (save for the Scheme Conditions in paragraphs 7.3, 7.4 and 7.5 above), have yet to be fulfilled or waived, as the case may be.
The Standby Offer shall, unless Wescoal determines otherwise, only become operative if Keaton Energy Shareholders (i) holding at least 50.1% of the Offer Shares have delivered written acceptances of the Standby Offer, and (ii) have approved, by a resolution passed by a simple majority, the delisting of Keaton Energy from the JSE.
Termination of the Keaton Energy listing
Following implementation of the Proposed Transaction, application will be made to the JSE to terminate the listing of the Keaton Energy Shares on the JSE.
Documentation
Details of the Proposed Transaction will be included in the Wescoal Circular, which will contain, inter alia, a notice of the Wescoal General Meeting and a form of proxy. The Wescoal Circular is expected to be posted to Wescoal Shareholders in due course.
Details of the Scheme and the Standby Offer will be included in the Scheme Circular, which will contain, inter alia, details of the Proposed Transaction, a notice of the Scheme Meeting, a form of proxy, a form of surrender and transfer and Standby Offer form. The Scheme Circular is expected to be posted to Keaton Energy Shareholders in due course.
The salient dates and times pertaining to the Proposed Transaction will be released on SENS and published in the press at the time of posting of the abovementioned circulars.
Cautionary announcements
As the pro forma financial effects of (i) the Proposed Transaction on Wescoal, and (ii) the Scheme on Keaton Energy Shareholders, have not yet been published:
- Wescoal Shareholders are advised to exercise caution when dealing in their shares; and
- Keaton Energy Shareholders are advised to continue to exercise caution when dealing in their shares,
until such time as the aforementioned pro forma financial effects are published.
Click here for original article
