RAND MERCHANT INVESTMENT HOLDINGS LIMITED – Strategic restructuring proposal of RMI – SENS
Proposed strategic restructure of RMI
Rand Merchant Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2010/005770/06)
Share code: RMI
(RMI or the Company)
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR ANY
OTHER STATE OR JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.
PLEASE SEE THE IMPORTANT DISCLAIMERS AT THE END OF THIS ANNOUNCEMENT.
PROPOSED STRATEGIC RESTRUCTURE OF RMI
Historically, RMI’s strategy has focused on being an active and influential shareholder invested in a portfolio of principally life and property and
casualty (P&C) insurance businesses which have an entrepreneurial and aspirational culture. More recently, RMI has deliberately focused on evolving
its geographic and earnings mix to become an international P&C-biased insurance investor. In line with the ongoing execution of this strategy, and
consistent with RMI’s objective of continuing to maximise shareholder value via optimal corporate structures, shareholders are advised that the board
of RMI (RMI Board) has resolved to restructure RMI’s portfolio (the Restructure).
The Restructure comprises the following indivisible elements:
– the distribution of all the shares held by RMI in its two listed, life insurance-focused assets, Discovery Limited (Discovery) and Momentum
Metropolitan Holdings Limited (Momentum Metropolitan), to RMI shareholders (the Unbundling); and
– an equity capital raise of up to R6.5 billion by way of a pro rata rights issue by RMI (Rights Issue), to optimise RMI’s capital structure.
The RMI Board believes that the Restructure:
– provides structural alignment to the evolved strategy by creating a focused P&C investment group with exposure to, and influence over, unlisted
insurers in South Africa, Australia, and the United Kingdom via OUTsurance Group Limited (OUTsurance), Youi Holdings Pty Ltd (Youi) and Hastings
Group Holdings (Hastings);
– will create an efficient and agile corporate structure with regulatory robustness which optimises the capital structure and enhances the dividend
– will unlock material shareholder value through a reduction in the discount at which RMI currently trades to its underlying intrinsic value.
RMI has received in-principle support for the Restructure from shareholders, together representing approximately 65% of the issued shares in RMI.
These shareholders comprise:
– RMI’s largest shareholders, Remgro Limited (Remgro) and Royal Bafokeng Holdings (Pty) Limited (RBH);
– the founders of the RMB group of companies, Messrs Laurie Dippenaar, Paul Harris, GT Ferreira and Pat Goss; and
– RMI’s large institutional shareholders, Coronation Asset Management (Pty) Ltd, Allan Gray (Pty) Limited and Abax Investments (Pty) Ltd (all on behalf
of various clients).
The indicative salient terms, potential mechanism, and conditions of the Restructure are set out herein. Further details (which may, where circumstances
dictate, be different to these indicative terms) will be provided to shareholders in subsequent announcements to be published on the Stock Exchange
News Service (SENS) of the JSE Limited (JSE) in due course. It is envisaged that the Restructure will be completed by the end of Q2 2022.
2. The Unbundling
RMI is currently the largest shareholder in both Discovery and Momentum Metropolitan and is classified as a significant owner in the businesses in terms
of the Financial Sector Regulation Act 9 of 2017.
RMI’s association with Discovery and Momentum Metropolitan (historically through its sister company RMH Holdings Limited (RMH) and prior to the
separate listing of the group’s insurance businesses in 2011, which created RMI) dates from the early 1990s. The group acquired a controlling interest
in Momentum Metropolitan in 1992 and also provided Adrian Gore and Barry Swartzberg with the seed funding and the life insurance licence to build
Discovery in 1993.
Throughout this journey, RMI has achieved significant success with Discovery and Momentum Metropolitan by acting as the cornerstone shareholder,
enjoying a close partnership with Adrian Gore, Barry Swartzberg, Hillie Meyer and their respective management teams and boards.
RMI believes that this approach has driven growth and innovation at Discovery and Momentum Metropolitan which has, in turn, created some of the
most iconic financial services brands and products in South Africa and delivered strong financial returns. Discovery and Momentum Metropolitan have
delivered c.308% and c.115% total return, respectively, since RMI’s listing in 2011.
Discovery and Momentum Metropolitan are well-established businesses under the stewardship of leading management teams and boards. Both
businesses have demonstrated the resilience of their underlying operations over many years, and particularly over the course of the devastating
Covid-19 pandemic. The Unbundling will have no impact on the respective solvency positions of these businesses.
RMI is working with its management partners in these businesses to ensure a co-ordinated and managed process to enable the businesses to continue
to focus on their core growth strategies, while providing more efficient ownership for RMI shareholders.
RMI will remain a committed and supportive strategic shareholder until the implementation of the Restructure. In this regard, shareholders are
referred to the Discovery financial results for the year ended 30 June 2021 published on 2 September 2021, wherein Discovery advised its shareholders
of a potential capital raise to fund its participation in a capital raise at Ping An Health Insurance. To the extent that Discovery funds this growth
opportunity through equity rather than debt, RMI will support and intends to participate in this capital raising.
RMI’s appointed non-executive directors will remain on the Discovery and Momentum Metropolitan boards respectively, until at least the implementation
of the Restructure.
The Unbundling is intended to be executed by way of a pro rata distribution in specie by RMI in terms of section 46(1)(a)(ii) of the Companies Act 71 of
2008, as amended and section 46 of the Income Tax Act, 1962, as amended.
3. The Rights Issue
A consequence of the Unbundling is that RMI will require an equity raise to optimise its capital structure. A rights issue is considered the most
equitable and efficient mechanism as it provides all shareholders with the opportunity to participate in the capital raise on a pro rata basis,
ensuring no nominal dilution.
RMI’s intention is to implement a fully committed and/or underwritten Rights Issue.
The gross proceeds of up to R6.5 billion will be used to:
– reduce RMI’s gross debt from R11.8 billion as at 30 June 2021 to a gross debt level more commensurate with the asset base and anticipated
dividend flow of the remaining assets, as RMI’s shareholdings in Discovery and Momentum Metropolitan have served as collateral for the current
– sustain a target leverage ratio (defined as gross debt/attributable earnings) of no more than 2.5x;
– maintain a contingency buffer to support portfolio companies, as required; and
– target a dividend pay-out ratio of 50% of free cash flow generated.
RMI’s primary lending banks, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and Standard Bank of South Africa Limited,
have indicated their support for the Restructure and the resultant capital structure and financial leverage position of RMI post implementation
of the Restructure.
4. RMI: post the Restructure
4.1 RMI: P&C portfolio composition post the Restructure
Following the Unbundling, RMI will reflect, predominantly, the attractive fundamentals of:
– OUTsurance (89.1%), including OUTsurance’s Australian business, Youi; and
– Hastings (30%), in partnership with the listed Nordic insurer, Sampo Group Plc (Sampo) that holds the remaining 70% interest.
Collectively, OUTsurance, Hastings and Youi provide access to c. 5.2 million customers, gross written premiums of more than US$2 billion and leading
positions in their respective geographies of South Africa (1 million policies, c. 18% market share in personal lines), Australia (1.1 million policies,
c. 4% market share) and the United Kingdom (3.1 million policies, c. 8.3% market share). The underlying businesses’ core financial metrics are robust
and competitive relative to a global peer set.
OUTsurance Hastings Youi
Gross written premium 6.0% 6.3% 8.4%
(2016 – 2021) (CAGR)
Combined ratio 76.0% 93.1%(1) 87.7%
OUTsurance and Youi: 30 June 2021
Hastings: 31 December 2020
Cash conversion >80% 66% >80%
OUTsurance and Youi (historic average)
Hastings: 31 December 2020
Solvency coverage ratio 1.8x 1.7x 3.0x
OUTsurance and Youi: 30 June 2021
Hastings: 31 December 2020
(1) Hastings tracks a combined operating ratio
Strong cash generation and resilient capital positions underpin an attractive dividend pay-out profile for RMI post the Restructure. Shareholders are
referred to the RMI results announcement for the year ended 30 June 2021 published on 20 September 2021 for detail of RMI’s financial performance.
The OUTsurance annual report for the year ended 30 June 2021 is available at www.outsurance.co.za.
OUTsurance, Youi and Hastings have at their core, sophisticated underwriting underpinned by operational excellence and digital enablement, which
continues to generate strong margins. They provide innovative products and offerings, enabled by newly built and agile next generation insurance
platforms, driving customer acquisition, retention and ultimately growth. Importantly, all the businesses are currently investing in future growth through
organic and new initiatives and partnerships that will expand market segmentation, drive premium growth and ultimately profitability as scale is achieved.
In addition to the organic growth initiatives at the P&C businesses, RMI will continue to pursue potential inorganic growth opportunities in attractive
An important tenet of the RMI investment approach is the ability of the RMI portfolio companies to form partnerships and, where possible, foster and
establish intra-group links between its non-competing P&C local champions in their respective markets:
– The four-way partnership between RMI, OUTsurance/Youi, Hastings and Sampo (through its subsidiary, If P&C Insurance) facilitates a collaboration
platform leveraging the ‘best of’ capabilities of each to create group effects and benefits;
– Examples include:
– Hastings leveraging OUTsurance’s call centre capabilities to outsource capacity to South Africa;
– ongoing exchange between the businesses of information and ideas across topics such as pricing, direct/digital marketing capabilities, brand
building, bodily injury insurance; and
– capital optimisation with the financial strength of the shareholders providing opportunities for Hastings to reduce reliance on reinsurance and
optimise pricing and structuring; and
– Hastings and If P&C have identified areas of knowledge sharing and capital optimisation actions.
4.2 Hastings option
RMI holds its Hastings interest through Main Street 1353 Proprietary Limited (Main Street), an entity jointly owned by RMI and OUTsurance. The
privatisation of Hastings in partnership with Sampo was completed in November 2020. Per the terms of a shareholders’ agreement entered between
Main Street and Sampo, RMI and OUTsurance have an option to increase their ownership in Hastings from 30% to up to 40% by May 2022 at the
original delisting offer price (Hastings Option). Any decision to exercise the Hastings Option, will be based on the financial merits of the potential
transaction at the time. If exercised, the post Restructure balance sheet allows for RMI to fund its portion of the Hastings Option.
4.3 RMI Investment Managers Group and AlphaCode
RMI has a portfolio with a net asset value of R1.6 billion (representing 2.4% of its reported net asset value as at 30 June 2021), in two emerging
businesses in its portfolio, being its fintech businesses held through AlphaCode, as well as RMI Investment Managers (RMI IMG). These businesses
comprise investee companies in various stages of growth and capital requirements.
The underlying portfolio has been resilient, with a positive growth outlook for the businesses:
– RMI IMG: despite the difficult operating environment, RMI IMG’s financial performance was better than expected due to both strong assets under
management (AUM) growth (24% year-on-year to a combined R168 billion AUM across the affiliate portfolio) and the generation of performance
– AlphaCode: the portfolio companies continue to meet and exceed key financial metrics, attract growth funding from blue chip investors and are
recognised as leaders in their chosen markets.
RMI remains committed to these businesses and its co-shareholders and management partners and will continue to support, drive scale, profitability,
relevance (in the context of the overall RMI portfolio) and liquidity.
4.4 RMI: strategic positioning post the Restructure
Post the Restructure, RMI will continue to position itself as a strategic, active and value adding specialised investor focused on the P&C insurance
segment. RMI will build on its track record of investing in dynamic companies with unique and disruptive business models and working with its
management partners on long-term strategy, capital allocation, incentive structures, orderly succession planning, facilitating M&A, investment in growth
opportunities and fostering collaboration, where appropriate.
RMI’s focus post the Unbundling, will exhibit a preference for unlisted businesses that are not otherwise accessible to investors which, over time, should
result in a market capitalisation more reflective of the underlying intrinsic value of the portfolio as its management partners are able to flexibly drive
long-term strategic opportunities outside of public market constraints and investment horizons.
Any future investment by RMI will be assessed against its strategy, undertaken within its capital management framework and in line with its financial
return requirements. Further detail on RMI’s future growth strategy will be provided prior to the completion of the Restructuring.
5. Approvals required and timetable
Implementation of the Restructure will be subject to conditions precedent customary for transactions of this nature, including obtaining the necessary
regulatory (including the Prudential Authority) and shareholder approvals. The RMI shareholder authorisations required to implement the Rights Issue
are expected to be obtained on or about the date of the Company’s annual general meeting, which is anticipated to be held on or about 24 November 2021.
The Rights Issue is intended to be implemented prior to the Unbundling and completion of the Restructure.
A detailed announcement relating to the terms of the Unbundling and the Rights Issue, including the related timetable, will be made following receipt of
the requisite regulatory approvals which is expected in the first quarter of the 2022 calendar year.
The RMI Board reserves the right, in its discretion, to decide not to proceed with the Restructure and/or to change any aspects thereof.
6. Investor presentation and results for the year ended 30 June 2021
RMI’s results presentation is expected to take place virtually at 12pm SAST on Monday, 20 September 2021 and can be accessed by qualified investors
via the following link: https://event.webinarjam.com/channel/RMIH or via an invitation on RMI’s website at: www.rmih.co.za.
An investor presentation on the Restructure, the results for the financial year ended 30 June 2021 and a recording of the presentation will also be
available on RMI’s website: www.rmih.co.za.
The financial information contained in this announcement has not been reviewed or reported on by RMI’s auditors or reporting accountants.
20 September 2021
Sole financial adviser and JSE transaction sponsor:
Merrill Lynch South Africa (Pty) Ltd t/a BofA Securities
Shareholders should note that the RMI Board reserves the right, in its discretion, to decide not to proceed with the Restructure and, as such, the
Restructure may or may not proceed.
The release, publication or distribution of this announcement in jurisdictions other than South Africa may be restricted by law and therefore persons into
whose possession this announcement may come should inform themselves about, and observe, any such applicable restrictions or requirements. Any
failure to comply with such restrictions or requirements may constitute a violation of the securities laws and regulations of any such jurisdiction. To the
fullest extent permitted by applicable law, the Company disclaims any responsibility or liability for the violation of such restrictions or requirements by any
This announcement is for information purposes only and is not, and should not be construed as to constitute, an offer to sell or the solicitation of an offer
to buy securities and neither this document nor anything herein nor any copy thereof may be taken into or distributed, directly or indirectly, in or into any
jurisdiction in which to do so would be prohibited by applicable law.
These materials are not for distribution, directly or indirectly, in or into the United States (including its territories and possessions, any State of the United
States and the District of Columbia) Canada, Australia or Japan. These materials do not constitute or form a part of any offer or solicitation to purchase
or subscribe for, or otherwise invest in, securities in the United States. The securities mentioned herein have not been, and will not be, registered under
the United States Securities Act of 1933 (the ‘Securities Act’).
The securities may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act. There will be no public offer of any securities in the United States.
In the United Kingdom, this announcement is being distributed only to, and is directed only at, persons who: (A) (i) are ‘investment professionals’
specified in Article 19(5) of the Financial Services and Markets Act (Financial Promotion) Order 2005 (the ‘Order’) or (ii) high net worth entities falling
within Article 49(2)(a) to (d) of the Order or (iii) are other persons to whom it may otherwise lawfully be communicated; and (B) are ‘qualified investors’
within the meaning of Article 2(e) of the Prospectus Regulation (Regulation (EU) 2017/1129) as it forms part of retained EU law as defined in the
European Union (Withdrawal) Act 2018 (all such persons together being referred to as ‘Relevant Persons’). In the European Economic Area (the ‘EEA’),
this announcement is addressed only to and directed only at, persons in member states who are ‘qualified investors’ within the meaning of Article
2(e) of the Prospectus Regulation (Regulation ((EU) 2017/1129) (‘Qualified Investors’). This announcement must not be acted on or relied on (i) in the
United Kingdom, by persons who are not Relevant Persons, and (ii) in any member state of the EEA, by persons who are not Qualified Investors. Any
investment or investment activity to which this announcement relates is available only to: (i) in the United Kingdom, Relevant Persons; and (ii) in any
member state of the EEA, Qualified Investors, and will be engaged in only with such persons.
In South Africa, the information contained in this announcement does not constitute or form a part of any offer to the public for the sale of, or
subscription for, or an invitation, advertisement or the solicitation of an offer to purchase and/or subscribe for, securities as defined in and/or
contemplated by the Companies Act. Accordingly, this announcement does not, nor does it intend to, constitute a ‘registered prospectus’ or an
advertisement relating to an offer to the public, as contemplated by the Companies Act and no prospectus has been, or will be, filed with the South
African Companies and Intellectual Property Commission in respect of this announcement.
The information contained in this announcement constitutes factual information as contemplated in Section 1(3)(a) of the Financial Advisory and
Intermediary Services Act, 37 of 2002, as amended (‘FAIS Act’) and should not be construed as an express or implied recommendation, guide or
proposal that any particular transaction in respect of the RMI shares or in relation to the business or future investments of RMI, is appropriate to the
particular investment objectives, financial situations or needs of a prospective investor, and nothing contained in this announcement should be construed
as constituting the canvassing for, or marketing or advertising of, financial services in South Africa. RMI is not a financial services provider licensed as
such under the FAIS Act.
Merrill Lynch South Africa (Pty) Ltd t/a BofA Securities, which is regulated by the Johannesburg Stock Exchange, which exchange is regulated by the
Financial Sector Conduct Authority, is providing strategic financial advice and is acting as JSE transaction sponsor to RMI and no one else in connection
with the Restructure and will not be responsible to anyone other than RMI for providing the protections afforded to its clients, nor for providing advice in
relation to the Restructure or any other matter or arrangement referred to in this announcement.
No representation or warranty, express or implied, is made or given, and no responsibility is accepted, by or on behalf of the financial adviser or any of
its affiliates or any of its directors, officers or employees or any other person, as to the accuracy, completeness, fairness or verification of the information
or opinions contained this announcement and nothing contained in this announcement is, or shall be relied upon as, a promise or representation by the
financial adviser or any of its affiliates as to the past or future. Accordingly, the financial adviser and its affiliates and directors, officers and employees
disclaim, to the fullest extent permitted by applicable law, all and any liability, whether arising in tort or contract or that they might otherwise be found to
have in respect of this announcement and/or any such statement.
Nothing contained in this announcement constitutes, or is intended to constitute, investment, tax, legal, accounting, or other professional advice.
This announcement contains statements about the RMI and the RMI group of companies (the ‘Group’) that are, or may be, forward-looking statements.
All statements (other than statements of historical fact) are, or may be deemed to be, forward-looking statements, including, without limitation, those
concerning: strategy; the economic outlook for the industries in which RMI and the Group operates or invests as well as markets generally; production;
cash costs and other operating results; growth prospects and outlook for operations and/or investments, individually or in the aggregate; liquidity,
capital resources and expenditure, statements in relation to Restructure, its implementation and the benefits of the Restructure. These forward-looking
statements are not based on historical facts, but rather reflect current expectations concerning future results and events and generally may be identified
by the use of forward-looking words or phrases such as ‘believe’, ‘aim’, ‘expect’, ‘anticipate’, ‘intend’, ‘foresee’, ‘forecast’, ‘likely’, ‘should’,
‘planned’, ‘may’, ‘estimated’, ‘potential’ or similar words and phrases. Examples of forward-looking statements include statements regarding a future
By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. The Company cautions that forward-looking statements are not guarantees of future
performance. Actual results, financial and operating conditions, returns and the developments within the industries and markets in which the Company
and/or the Group operates and/or invests may differ materially from those made in, or suggested by, the forward-looking statements contained in this
announcement. All these forward-looking statements are based on estimates, predictions and assumptions, as regards the Company and the Group,
all of which estimates, predictions and assumptions, although the Company believes them to be reasonable, are inherently uncertain and may not
eventuate or eventuate in the manner the Company expects. Factors which may cause the actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied in those statements or assumptions include matters not yet known
to the Company or not currently considered material by the Company.
Investors should keep in mind that any forward-looking statement made in this announcement or elsewhere is applicable only at the date on which such
forward-looking statement is made. New factors that could cause the business of the Company and the Group not to develop as expected may emerge
from time to time and it is not possible to predict all of them. Further, the extent to which any factor or combination of factors may cause actual results,
performance, or achievement to differ materially from those contained in any forward-looking statement is not known. The Company has no duty to, and
does not intend to, update, or revise the forward-looking statements contained in this announcement or any other information herein, except as may be
required by law. Any forward-looking statement has not been reviewed nor reported on by the Company’s external auditor or any other expert.
Date: 20-09-2021 08:00:00
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