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Alexander Forbes publishes details of its listing following announcement to float shares on the exchange operated by JSE

10 July 2014 Alexander Forbes

• Alexander Forbes shares expected to be listed and start trading on the exchange operated by JSE on 24 July 2014 • Shares are only offered to institutional and other selected investors. The offer is not open to the public • Offer price range set at R6.90 – R8.05 per Alexander Forbes ordinary share • Alexander Forbes to raise R330 million primary capital through the issue of 44.1 million new shares (assuming an offer price at the mid-point of the offer price range) • Selling Shareholders to offer 387.8 million existing ordinary shares (assuming an offer price at the mid-point of the offer price range), excluding an over-allotment option of up to 15% of the offered shares • Mercer to acquire 14.9% of the ordinary shares of Alexander Forbes at listing and an additional 19.1% (both tranches subject to regulatory approvals and certain other conditions) from existing shareholders at the offer price if the offer prices within the range of R7.21 to R8.05 per share or at a price which will represent up to a 2% premium to the offer price if the offer prices within the range of R6.90 to R7.21 per share • Listing on 24 July 2014 enables continuity of both the Group’s business strategy and the Alexander Forbes brand

Alexander Forbes Group Holdings Limited (the “Group”, the “Company” or “Alexander Forbes”), a specialised financial services group headquartered in South Africa, announced today that it intends to offer 431,940,542 ordinary shares (assuming an offer price at the mid-point of the offer price range) at an offer price range of R6.90 to R8.05 per share (the “Offer Price Range”).

On 23 June 2014, Alexander Forbes confirmed its intention to list on the securities exchange operated by the JSE Limited (“JSE”), subject to obtaining requisite approvals from the JSE. The offer will comprise existing shares of Alexander Forbes owned by the selling shareholders of Alexander Forbes (“Selling Shareholders”) and an issue of new shares in the share capital of Alexander Forbes (the “Offer”, the shares sold in the Offer are being referred to as “Offer Shares” with all numbers of shares shown in this press release being determined at the mid-point of the Offer Price Range). The Offer will not be open to the public and will only be open to select institutional investors and, by invitation, to other selected investors in various jurisdictions (see - Further Offer details and timetable below).

The Offer Shares will be listed on the Main Board of the JSE and are expected to start trading on 24 July 2014 under the listing name “Alexander Forbes Group Holdings Limited” and the symbol “AFH”. The Offer is subject to a minimum subscription being realised by the Group which will enable it to meet the minimum free float and shareholder spread requirements, as prescribed by the Listings Requirements and acceptable to the JSE. There is no minimum capital requirement to be realised by the Offer.

Alexander Forbes continues to expand its business

Alexander Forbes continues its stated strategy of focusing on and growing its core institutional employee and risk benefits, retirement and investment services businesses. In addition, the Group continues to leverage its strong position in the institutional market in order to grow its penetration into the retail market (individual client financial wellbeing through advice and product) as well as the public sector space and further expand its core businesses into sub-Saharan Africa.

Strategic investment by Mercer Africa Limited

Mercer Africa Limited (“Mercer”), a wholly-owned subsidiary of Marsh & McLennan Companies Inc. (“MMC”) will become a key strategic shareholder in Alexander Forbes, and will acquire 34% of the ordinary shares of Alexander Forbes, subject to obtaining the requisite regulatory approvals.

The strategic investment is not included in the size of the Offer announced today. The acquisition of ordinary shares by Mercer will be structured in two tranches. Mercer’s obligations to purchase the ordinary shares in the first and second tranche are subject to obtaining requisite regulatory approvals and fulfilment of certain other conditions. The first tranche will comprise the acquisition of such number of ordinary shares owned by the Selling Shareholders that constitute, in aggregate, 14.9% of the ordinary shares of Alexander Forbes at listing and following any primary capital raise. The acquisition of the first tranche is expected to coincide with the listing date provided that the relevant regulatory approvals are obtained by that date. In order to acquire more than 15% of the ordinary shares of Alexander Forbes, Mercer will require further approval from the South African Financial Services Board (“FSB”).

The second tranche will comprise the acquisition by Mercer of such number of ordinary shares constituting, in aggregate, an additional 19.1% of the ordinary shares of Alexander Forbes at listing and following any primary capital raise. The acquisition of the second tranche is subject to the approval of the FSB and will be completed on the later of the 5th business day after the fulfilment of certain conditions precedent and 30 September 2014.

Edward Kieswetter, Group CE of Alexander Forbes, said:

“The listing, strengthened by the cornerstone investment in the Group by a respected global company such as Mercer, is a significant step forward for Alexander Forbes – and demonstrates a vote of confidence in our strategy, in our people and in our reach into sub-Saharan Africa. The listing also allows for optimum continuity of our business strategy, while protecting the autonomy, integrity and trust that vests in our existing brand.

It’s a huge step forward for the Group and demonstrates that the continent is open for business, while the investment by Mercer is also confirmation of its own confidence in the opportunities available in sub-Saharan Africa through Alexander Forbes. We look forward to working together with Mercer to deliver and enhance impactful service to all our clients throughout the world.”

Mercer will acquire both its tranches at the same price. Should the Offer price fall within the price range of R7.21 – R8.05 per Alexander Forbes share (“Mercer Acquisition Range”), Mercer will acquire its shares at the Offer price. Should the Offer price fall below the Mercer Acquisition Range then Mercer will acquire its shares at a premium to the Offer price being the average of the Offer price and R7.21.

Issue of new shares by the Group

Alexander Forbes will raise R330 million, corresponding to 44,117,647 new shares in the share capital of Alexander Forbes. The net proceeds from the Offer will be used to redeem the “B” preference shares currently held by a black economic empowerment consortium upon listing for a consideration of R179.6 million and to further strengthen the Group’s regulatory capital position in light of the anticipated Financial Services Board’s regulatory requirements for consolidated group supervision under the proposed Solvency and Asset Management framework.

Dividend policy

Alexander Forbes operates a strong cash generative business and intends to declare a dividend on at least an annual basis with the total annual dividend to be split between an interim dividend and final dividend and a target dividend range of 2.0x – 1.5x earnings cover, equivalent to a 50-67% dividend payout ratio.

In preparation for the implementation by the FSB of consolidated group supervision, the board of directors of Alexander Forbes (“Board”) does not anticipate that an interim dividend for the six-month period to 30 September 2014 will be declared. The Board will consider a final dividend payment for the year ended 31 March 2015, subject to the regulatory capital position on a consolidated basis.

Any regulatory capital shortfall is expected to be addressed through a combination of the proceeds from the issue of new shares by the Group and through positive operational cash flows generated by the Group. Consequently, the Group expects to be in full regulatory compliance when consolidated group supervision is implemented by the FSB (currently expected to take place on 1 January 2016).

The Board retains absolute discretion to determine actual dividend declarations and will take the following factors into consideration:

• the growth of the minimum capital requirements of the Group’s businesses;
• the capital requirements to support investments in the Group’s growth initiatives; and
• changes or prospective changes in the operating environment or operational performance of the Group.

It is the Group’s intention to return any excess reserves above its capital targets to shareholders in the form of dividends and share repurchases.

Broad-Based Black Economic Empowerment (‘B-BBEE’)

The Company is a Level 2 empowerment contributor as audited in May 2014 by Empowerdex, an accredited empowerment rating agency in South Africa.

Additional B-BBEE shareholding will be addressed as part of the Company’s continuing transformation and sustainability initiatives as a leading B-BBEE contributor.

Over-allotment option

Alexander Forbes has granted the Joint Global Coordinators and Joint Bookrunners (defined below), an over-allotment option to purchase 64,791,081 additional shares in the Group until 30 days after the listing date. The over-allotment option, if exercised in full, would represent approximately 15% of the shares offered and 5% of the total Alexander Forbes shares outstanding at settlement of the Offer.

Following the sale of shares in the Offer and assuming a full exercise of the over-allotment option and a successful completion of the sales of shares to Mercer, the Selling Shareholders will not hold any remaining share in Alexander Forbes.

Alexander Forbes Preference Share Investments Limited

Alexander Forbes Preference Share Investments (“AF Pref”) is listed on the JSE and currently holds 28.4% of the ordinary shares of the Group. As announced by AF Pref on 7 July 2014, holders of AF Pref preference shares (“Preference Shareholders”) are advised that the Board of Directors of AF Pref has resolved to propose to unbundle AF Pref’s entire shareholding in Alexander Forbes to its Preference Shareholders, subject to the listing of Alexander Forbes. For further details on the impact of the Offer on AF Pref, investors should refer to the 7 July 2014 AF Pref announcement on the Stock Exchange News Service operated by the JSE (“SENS”).

Further Offer details and timetable

The Offer consists of an offer of 387,822,895 existing Alexander Forbes shares currently owned by the Selling Shareholders and 44,117,647 new shares offered by Alexander Forbes, to institutional investors and, by invitation, other selected investors, in various jurisdictions. The Offer does not constitute an offer to the public for the sale of or subscription for, or the solicitation of an offer to buy or subscribe for, shares in Alexander Forbes and will be restricted in the United States to persons who are both qualified purchasers as defined in the U.S. Investment Company Act of 1940, as amended, (“QPs”) and qualified institutional buyers (“QIBs”) in reliance on Rule 144A and will be offered outside South Africa and the United States to selected institutional investors in reliance on Regulation S. The minimum acquisition cost of the Offer Shares for each investor, acting as principal, will be R1,000,000.

The Offer period, the roadshow and the book-building period all start at 09:00 on 7 July 2014 after the publication of the Pre-Listing Statement (“PLS”) and end on 17 July 2014 at 12:00 (subject to acceleration or extension of the timetable and the Offer). All times referred to in this press release are times in South Africa.

The Offer Price and the number of shares on offer will be determined post the Offer period and are expected to be announced on 18 July 2014. Alexander Forbes reserves the right to increase or decrease the number of shares on offer and / or change the Offer Price Range, prior to the allocation of the Alexander Forbes shares. Any such change will be published on SENS and through a press release. The first day of trading on an “if-and-when-delivered” basis is expected to commence on 24 July 2014. Settlement of, or delivery and payment for, the shares offered is expected to take place on the first day of trading, being 24 July 2014.

The Selling Shareholders have agreed certain lock-up arrangements, effective for a period of 180 days after the date of the settlement of the Offer. Shares held by the executive directors and members of senior management through Alexander Forbes Management Trust are also subject to these lock-up arrangements. Shares acquired by executive director and senior manager participants pursuant to the 2014 Exit Transaction Incentive (the “2014 ETI”) upon listing are subject to a lock-up period of 180 days for 40% of the shares issued under the 2014 ETI and 365 days for the remaining shares issued. These lock-up arrangements shall not apply to the shares unbundled by AF Pref to AF Pref shareholders, including any Selling Shareholders, executive directors or members of senior management who may be holding such shares in AF Pref. Mercer has also agreed to a lock-up period on the shares that it will acquire. The lock-up period for Mercer is effective for 365 days from the Listing Date where Mercer is able to complete the acquisition of 34% of the ordinary shares in Alexander Forbes or 180 days from the Listing Date where Mercer is only able to acquire 14.9% of the ordinary shares in Alexander Forbes.

Full information about the Offer is included in the PLS relating to the Offer. The PLS will be published and made available to prospective investors on 7 July 2014, subject to securities law restrictions in certain jurisdictions. Copies of the PLS and supplements to the PLS (if any) may be obtained at no cost from the Alexander Forbes head office situated at 115 West Street, Sandton, South Africa, during normal working hours during the Offer period. Alternatively the PLS can be downloaded from the Alexander Forbes website at www.alexanderforbes.co.za.

Alexander Forbes has appointed Deutsche Bank, Rand Merchant Bank, a division of FirstRand Limited, and Morgan Stanley, as joint global co-ordinators and joint bookrunners for the Offer (collectively “Joint Global Coordinators and Joint Bookrunners”).

Deutsche Bank and Rand Merchant Bank, a division of FirstRand Limited, acted as joint financial advisers to Alexander Forbes in respect of the 34% Mercer investment.

Alexander Forbes has appointed Bowman Gilfillan, Inc and Davis Polk & Wardwell London LLP as legal counsel to Alexander Forbes in respect of the Offer and Bowman Gilfillan acted as legal counsel to Alexander Forbes in respect of the 34% Mercer investment.

 

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