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SFE and Austraclear announce that they have entered into a definitive agreement to merge whereby Austraclear shareholders will receive up to 19.5% of the expanded SFE capital base (the "Merger").
Terms
Under the terms of the agreement, Austraclear will propose a scheme of arrangement ("Scheme") to its shareholders.
Consideration
Under the terms of the Scheme ("Scheme Terms"), all of the ordinary shares in Austraclear will be transferred to SFE, and Austraclear shareholders will be entitled to receive up to 19.5% of SFE's expanded capital base, apportioned as follows: 2.55 SFE shares for each Austraclear share, representing 16.2% of SFE's expanded capital base, immediately upon the Scheme becoming effective in consideration for Austraclear's existing business; plus Up to 0.66 SFE shares for each Austraclear share should Austraclear enter into certain transactions which it is currently negotiating with external parties.
The Scheme Terms value each Austraclear share at $3.78 for the existing business of Austraclear. If the potential additional transactions are completed, Austraclear shareholders could realise up to an additional $0.98 per Austraclear share based on current valuations.
SFE undertakings in relation to Austraclear’s current business and employees
Under the Scheme Terms, SFE agrees that all Austraclear's transaction fees for existing products will be capped at current levels for three years from implementation of the Scheme.
Austraclear staff will continue to be employed by SFE on the same terms and conditions, with any redundancy arrangements to be not less favourable than those currently offered by Austraclear.
Conditions
Conditions to implementation of the Scheme include, amongst other things: No objection from the Australian Competition and Consumer Commission; No court order or other legal restraint preventing the Merger; The constitution of Austraclear being amended to permit, amongst other things, SFE to acquire up to 100% of Austraclear shares; No adverse change to the financial position of Austraclear as at 30 June 2000 having occurred; No adverse change in the financial position of SFE as at the date of the Independent Expert's Report included in SFE's recent demutualisation documents having occurred.
Austraclear shareholders will have an opportunity to vote on the Scheme at a general meeting, and under Australian law, the Scheme will only be implemented if it is approved by at least 75% of Austraclear shareholders by value and 50% of Austraclear shareholders by number, and also by the Court.
Rights attaching to SFE shares to be issued to Austraclear shareholders
The new SFE ordinary shares issued to Austraclear shareholders on implementation of the Scheme will, as from the date of issue, rank equally with all other SFE shares on issue and will participate in any future SFE dividend payments once issued. Austraclear shareholders will receive the final Austraclear dividend for the year ended 30 June 2000 of 20 cents per share as already declared.
Rationale for the merger
Following the Merger the combined entity will have full clearing capacity for all futures, over-the-counter debt, derivatives and commodities products. The combined entity will offer multiple services, including delivery versus payment clearing (Austraclear's current clearing model), a depository function and central counterparty/novation clearing (SFE's current clearing model).
The Merger will provide benefits for all users of the services of both SFE and Austraclear, both in terms of the types of products and services offered. SFE and Austraclear expect significant operational synergies from the Merger over the medium term, through the rationalisation of capital, operating and technology costs. Initially, all Austraclear's current transaction costs will be capped at current levels.
Current users of Austraclear clearing services will also experience lower capital costs and cash liquidity requirements through the implementation of cross product margining and central counterparty novation clearing. Users of both SFE and Austraclear services will ultimately benefit from a single electronic gateway to access these services, resulting in lower user operational support costs.
In the medium term, the combined entity will have the capability to deliver initiatives in the areas of new services, new products and new technologies, enabling it to compete more effectively in the increasingly competitive global derivatives and cash clearing market.
Board of SFE
Following implementation of the Scheme, three representatives of Austraclear and its shareholders, including its current Chairman, Mr Jim Watt, will be invited to join the SFE board as non-executive directors.
Mr John Hall, the current Managing Director and Chief Executive Officer of Austraclear, will be appointed non-executive Deputy Chairman of the clearing house operations.
Timing and Scheme implementation
The Scheme documents, that will set out full details of the Scheme and the Merger, will be despatched to Austraclear shareholders as soon as practicable. While no guarantee can be given as to timing, it is expected that the Scheme documents will be posted at the beginning of November 2000, with the Austraclear shareholder meeting to be held in late November. The Merger is expected to be effective at the end of November subject to all necessary conditions being satisfied.
SFE is being advised by UBS Warburg and Austraclear is being advised by KPMG Corporate Finance.
