Clientèle’s Game-Changing Acquisition: Reshaping South Africa’s Financial Landscape

  • Clientèle Limited acquires 1Life Insurance Limited in a strategic deal, enhancing its position in South Africa's financial services sector.
  • The R1.914 billion purchase consideration will be settled with Clientèle shares, strengthening the company's offerings to the mass market.
  • Major shareholders' voluntary decision not to vote on the acquisition resolution highlights the significance of this Category 1 transaction

In a significant move within South Africa’s financial services sector, Clientèle Limited has announced the acquisition of 1Life Insurance Limited. This strategic acquisition comes as a result of a Share Exchange Agreement between Clientèle and Telesure Investment Holdings Proprietary Limited (TIH), marking a pivotal moment in the industry landscape.

Introduction

Shareholders of Clientèle Limited, a well-established South African financial services group, have been following a series of cautionary announcements regarding a potential acquisition. These cautious whispers have now materialized into a concrete plan. Clientèle has unveiled its intention to acquire 1Life Insurance Limited in a landmark deal, cementing its place as one of South Africa’s leading direct distributors of financial services products.

The Rationale Behind the Acquisition

The motivation behind this acquisition is clear. Clientèle, with a history spanning 30 years, has been serving the entry-level mass market with financial products that are not only convenient but also easy to understand. On the other hand, 1Life Insurance Limited has carved its niche in the market, specializing in funeral and underwritten life insurance products. When it started in 2006, 1Life was the country’s first truly direct life insurer, making waves in the insurance sector.

With the acquisition of 1Life, Clientèle is bringing under its umbrella a company that complements its services, focusing on the mass market and mass affluent market. The synergy between these two market players is evident. The combination of their expertise in the mass market segment, combined with a shared commitment to “Treating Clients Well,” promises to bring enhanced value creation for customers, employees, shareholders, and other stakeholders.

The Financial Transaction

The purchase consideration for the acquisition is set at R1,914 billion, equivalent to the Embedded Value of 1Life as of June 30, 2023, adjusted to align with Clientèle’s Embedded Value calculation. Additionally, a control premium of 6.23% is added to the consideration. This significant transaction will be settled through the issuance of 117,815,756 ordinary shares in Clientèle, which is equivalent to 26% of the total issued share capital.

It’s worth noting that while the purchase price for the acquisition represents a substantial premium compared to the prevailing market price of Clientèle shares, it is closely aligned with Clientèle’s Embedded Value per share, ensuring a fair and equitable transaction for all parties involved.

The Effective Date

The effective date of the acquisition is anticipated to be the 3rd business day after the fulfillment or waiver of certain conditions precedent, with a target date set for June 30, 2024. These conditions precedent are crucial for the smooth transition and integration of the two entities, ensuring that all legal and regulatory requirements are met.

Conditions Precedent

Several material conditions precedent must be fulfilled or waived for the acquisition to proceed smoothly:

ConditionDeadline
Shareholder ApprovalMarch 31, 2024
Material Contracts ConsentSeptember 30, 2024
TGS Outsource AgreementMarch 31, 2024
Software Code Rights AgreementMarch 31, 2024
Cost AgreementMarch 31, 2024
Key Employee Lock-In AgreementsMarch 31, 2024
Leads AgreementMarch 31, 2024
Competition Authority ApprovalSeptember 30, 2024
Prudential Authority ApprovalSeptember 30, 2024
JSE ApprovalSeptember 30, 2024

These conditions are paramount to the successful execution of the acquisition, ensuring that all regulatory and legal requirements are met.

Significant Terms of the Share Exchange Agreement

The Share Exchange Agreement contains several significant terms that underpin this acquisition:

Distributions

The shares in 1Life are being acquired excluding specific dividends specified in the Share Exchange Agreement. Clientèle is not permitted to declare or pay dividends prior to the Closing Date, which could disrupt the normal course of business or constitute a distribution in specie or a capitalization issue. The Consideration Shares are being issued to TIH, excluding any dividends declared by Clientèle with a record date before the Closing Date.

Restraint

TIH has agreed, both on its own behalf and on behalf of its group companies, to a restraint clause. This agreement stipulates that for a period of five years from the Closing Date, TIH and its related parties will not directly or indirectly offer, distribute, or underwrite insurance products that compete with 1Life’s existing insurance products as of the Closing Date, without prior written consent from Clientèle.

Warranties and Indemnities

The Share Exchange Agreement contains warranties and indemnities, which are typical for transactions of this nature. These provisions provide assurances and protections to the parties involved, reinforcing the integrity of the transaction.

Financial Information

In terms of the latest audited annual financial statements of 1Life for the financial year ended June 30, 2023, the net asset value of 1Life amounted to R1,705,425,000, while the profit after taxation for the same period was R152,756,000. These figures reflect the financial health of 1Life as of the end of the financial year.

The Classification of the 1Life Acquisition

The 1Life Acquisition is categorized as a Category 1 transaction under the JSE Listings Requirements. As such, it necessitates shareholder approval, underscoring the significance of the acquisition. However, it’s worth noting that in this particular case, the major shareholders of Clientèle, including Newshelf 702 (Pty) Limited, River Lily Investments (Pty) Limited, and the Hollard Group, have voluntarily decided not to vote on the resolution for approval. These major shareholders collectively hold approximately 80% of the issued share capital of Clientèle.

Withdrawal of Cautionary Announcement

With the publication of this comprehensive terms announcement, Clientèle has withdrawn the cautionary announcement that was first issued on June 15, 2023. This decision signifies a major step forward in the acquisition process and marks the culmination of a series of cautious statements.

The Road Ahead

The acquisition of 1Life Insurance Limited by Clientèle Limited is a substantial move in South Africa’s financial services landscape. The merger of these two entities with a shared commitment to serving the mass market and “Treating Clients Well” promises to deliver enhanced value and service to clients and stakeholders alike.

As the transaction moves forward, the focus will shift to the fulfillment of the conditions precedent, regulatory approvals, and the ultimate integration of the two companies. This acquisition is set to shape the future of the South African insurance and financial services industry, and all eyes will be on the developments that follow.

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