The JSE Ltd (JSE) and the Bond Exchange of South Africa (BESA) issued a joint announcement today detailing a revised offer consideration and structure for the JSE to acquire BESA following receipt by the JSE of irrevocable letters of commitment from approximately 63% of BESA’s shareholders.
The letters indicate a high level of support in the market for the integration of the two exchanges to work together to build a better interest rate market for South Africa.As such, and in line with its original intention to increase the offer price should the JSE be able to acquire the company in its entirety, the improved terms of the all-cash purchase consideration will be R125 a share. This values the BESA business at R240.5 million, representing a control premium of 31% to the NAV including the Guarantee Fund.
The JSE had also proposed certain price adjustment mechanisms for its shareholders’ protection. These now fall away following clarity on points of concern provided by the BESA Board.
Deputy CEO Nicky Newton-King said the Boards had agreed that the new offer price recognised the value of the combined entities and the control premium was sufficiently attractive to ensure the required BESA shareholder support.
Ernst & Young, appointed by the BESA Board, has confirmed that the price was fair and reasonable to BESA shareholders.
The offer will be structured as a scheme of arrangement governed by Section 311 of the Companies Act.
Under this acquisition mechanism BESA will file an application to the High Court for permission to convene a scheme meeting of shareholders on 8 January 2009; the application will be heard on 13 January 2009.
The arrangement must be approved by 75% of shareholders present and voting (in person or by proxy) at the meeting. On or around 20 January BESA shareholders will receive a circular explaining the details of the scheme and the scheme meeting will be held on or around 11 February 2009.
If approved and conditions precedent are met, the scheme would then be binding on all shareholders, requiring a second court application to sanction the scheme. Once sanctioned, the scheme is then filed with the Registrar and the JSE will then own all the shares in BESA and the scheme becomes operative.
Should the scheme not become effective, the JSE proposes a substitute offer at the revised price consideration since the irrevocable support from BESA shareholders will guarantee the change of control sought by the JSE to achieve the benefits the two businesses together can offer the market.
Newton-King said this was important to encourage execution of a larger percentage of trades in South African interest rate instruments through local infrastructure.
“We’ve listened to the market and done our homework: On-exchange trade in derivative interest rate instruments is low by international standards, which are concerning developments for participants in South African financial markets. Research shows that off-shore trade in South African bonds accounted for approximately 40% of turnover and OTC trade accounts for almost all of the trade in interest-rate derivatives.
“We have said all along that by leveraging the best of what BESA and the JSE together have to offer will help us better compete internationally, improve risk management, liquidity and economies of scale to benefit the end user. We’re pleased to be working with the Board of BESA to achieve these aims.”
