JSE - JSE Limited / BESA - Joint Announcement By BESA And The JSE Relating To A

December 10, 2008 at 5:23 AM EST
JSE - JSE Limited / BESA - Joint Announcement By BESA And The JSE Relating To A 
         Revised And Increased Offer And Withdrawal Of Cautionary Announcements 
BOND EXCHANGE OF SOUTH AFRICA LIMITED                                           
(Incorporated in the Republic of South Africa)                                  
(Registration number: 2007/034441/06)                                           
JSE LIMITED                                                                     
(Incorporated in the Republic of South Africa)                                  
(Registration number: 2005/022939/06)                                           
Share Code: JSE                                                                 
ISIN: ZAE000079711                                                              
CAUTIONARY ANNOUNCEMENTS                                                        
1.   Introduction                                                               
The JSE announced on SENS on Monday, 27 October 2008, its firm intention to make
an offer for all the BESA ordinary shares in issue ("BESA Shares") ("the Firm   
Intention"). Further announcements by BESA and the JSE were released on SENS in 
which shareholders were advised that BESA and the JSE had entered into          
discussions in relation to the Firm Intention.                                  
BESA shareholders are now advised that:                                         
-    the JSE has agreed to increase its original offer consideration from R90   
per BESA Share to R125 per BESA Share ("the Offer Consideration"), reflecting a 
39% upward adjustment;                                                          
-    after discussions with the BESA Board and the provision of certain         
information by the BESA Board to the JSE, the JSE has further agreed to amend   
the terms of such offer by making the Offer Consideration free from any downward
price adjustment and subject only to the conditions precedent set out below.    
BESA and the JSE have in addition agreed to:                                    
-    the rationale and benefits of the merger; and                              
-    the importance of initiating a broad ranging fixed income growth strategy  
to be led (once the merger is implemented) by the current chief executive       
officer of BESA ("CEO") to understand and respond to the needs of market        
participants, including a comprehensive review of the needs of market           
participants; and                                                               
BESA has noted:                                                                 
-    the JSE's commitment to retain BESA's fee structure without increase for   
two years; and                                                                  
-    the JSE's undertaking to retain all BESA staff.                            
2.   JSE offer to BESA shareholders to acquire all their BESA Shares ("the      
In the opinion of the JSE and BESA, the most effective way to implement the     
Offer is by way of a scheme of arrangement in terms of Section 311 of the       
Companies Act No 61, 1973, as amended ("the Companies Act") ("the Scheme"). The 
Scheme will be proposed by the JSE, between BESA and its shareholders ("the BESA
Shareholders"), at a meeting ("Scheme Meeting") to be convened in terms of an   
order of the High Court of South Africa ("the Court") for which order BESA will 
shortly make application.                                                       
Should the Scheme be implemented, BESA will become a wholly-owned subsidiary of 
the JSE and, insofar as required, the BESA articles will be amended to comply   
with the JSE Listings Requirements.                                             
In the event that the Scheme does not become operative, the JSE will be obliged 
forthwith to make an irrevocable substitute offer to BESA Shareholders to       
purchase all their BESA Shares for the Offer Consideration ("Substitute Offer").
3.   Rationale and benefits                                                     
Background to the Offer                                                         
Both the JSE and BESA have made significant advances in their respective        
markets, deepening liquidity and product lines and strengthening market         
structure for the benefit of various market participants. There have been       
occasions where the JSE and BESA have considered whether there were             
opportunities for a closer relationship which would extend the offering for     
market users in South Africa.                                                   
BESA's recent demutualisation, successful rights issue, the injection of fresh  
capital and the support for BESA's expansionary strategies have continued to    
strengthen BESA's established platform in its market.                           
Following discussions with various shareholders to explore their views on a     
closer relationship between the JSE and BESA, a number of shareholders indicated
that the JSE and BESA should explore a merger for the benefit of South African  
financial markets.                                                              
In light of the above, the JSE informed the chairperson and the BESA CEO on     
Friday 24 October 2008 of its firm intention to make an offer to the BESA       
Shareholders to acquire the entire issued ordinary share capital of BESA.       
Since the release of the announcement of the Firm Intention, and following      
extensive discussions between the JSE and BESA, the BESA Board has agreed to    
support the JSE's proposed merger of the two exchanges on the basis of the      
envisaged benefits for the market, feedback and support received from           
shareholders, and the now revised and increased Offer Consideration.            
Vision and benefits                                                             
The world of capital markets is fast changing. In response, exchanges need to   
innovate continually to ensure they remain relevant to issuers and investors    
alike.  In order to have a well-performing modern economy it is a prerequisite  
to have a sound and strong financial system.  Strong capital markets are an     
essential part of such a financial system, to allow participants to mobilise    
savings, allocate capital and manage risk. It is therefore extremely important  
from a national interest and market participant perspective that there are deep 
markets in debt and equity products and that, as far as possible, the trading,  
clearing and settlement of South African financial instruments happens in a     
globally competitive manner.  This enables participants and the local economy to
derive the benefits of a vibrant financial market.                              
Exchanges such as the JSE and BESA face strong competition for the trade in     
South African financial instruments from both international exchanges and the   
over-the-counter ("OTC") market (local and international). Being a global       
market, a large proportion of trade in spot instruments takes place offshore,   
and the on-exchange trade in derivative interest rate instruments in South      
Africa is low in comparison to international exchanges. Certain strategic       
initiatives of BESA address this and in combination with the JSE, will ensure   
that a globally competitive offering is created as a result of the formation of 
the combined JSE/BESA group.                                                    
As part of continuing to offer leading-edge products, BESA has recently         
successfully completed a capital raising exercise confirming BESA's strategy and
prospects. At that time BESA confirmed its current (and continued) vision to:   
-    improve the profitability of BESA's existing bond business through the     
upgrading of BESA's BTB matching platform, restructuring BESA's transaction     
processing fees, and growing data revenue across BESA's markets;                
-    develop an interest rate derivatives market by establishing BondClear      
Limited as a central counterparty to clear interest rate derivatives; and       
-    develop alternative trading systems to support additional products such as 
binary options (Justrade.com).                                                  
Like BESA, the JSE also supports the need to grow South Africa's interest rate  
market significantly and to promote the development of the interest rate        
derivatives market.                                                             
BESA and the JSE are of the view that South Africa's interest rate market will  
be well served through the merger of the two exchanges, which will enable the   
merged group to leverage the best of what each has to offer, while at the same  
time better utilising infrastructure to achieve economies of scale. This will   
enable the JSE/BESA group to realise the following benefits for issuers,        
investors and market participants:                                              
-    variety of products and increased liquidity: the combination of spot and   
derivative products in a single venue where users can access both types of      
products is expected to increase the liquidity in both spot and derivative      
markets and drive increased volumes of on-exchange interest rate derivatives to 
a level more commensurate with international norms;                             
-    improved, common risk-management processes: risk management and            
transparency are critical to ensuring confidence in any capital market. The     
merged group will work together to introduce holistic risk management, clearing 
and settlement mechanisms for all products traded on-exchange in South Africa   
and therefore enable best of breed mechanisms to be introduced into the South   
African market. An integrated entity will be able to achieve this more quickly  
than one acting independently;                                                  
-    enhanced market model funded from existing capital:  the merged group will 
be strongly positioned to fund the development of strategies for the enhancement
of the local interest rate market from existing capital using the existing      
expertise from both BESA and the JSE to develop such strategies in collaboration
with market participants; and                                                   
-    reduction in costs through economies of scale: the integration of BESA and 
the JSE will allow for the consolidation of the JSE's and BESA's infrastructure 
as well as enabling the more efficient use of the JSE's and BESA's overheads    
resulting in expected cost savings for users and the market as a whole.         
4.   Terms of the Offer                                                         
4.1  The Offer Consideration under the Scheme                                   
If the Scheme becomes unconditional and is implemented, each BESA Shareholder   
will, within five business days of the fulfilment of the conditions precedent,  
receive the Offer Consideration in cash for every BESA Share held on the        
consideration record date of the Scheme.                                        
The Offer Consideration:                                                        
-    is a 31% premium to the consolidated net asset value of BESA of  R183 675  
404 (including the BESA Guarantee Fund) at 31 December 2007 taking into account 
the recent capital raising of R80.8m, reflecting the fact that the JSE, through 
the Scheme, will gain control of BESA in its entirety;                          
-    reflects an increase of 39% on the initial conditional JSE offer of R90 per
BESA Share; and                                                                 
-    is not subject to any downward adjustment.                                 
4.2  Conditions precedent under the Scheme                                      
The Scheme is subject to the fulfilment of the following conditions precedent   
(the deadlines for all or any of which may be extended before the relevant      
fulfilment date by written agreement between the JSE and BESA):                 
-    the Scheme being approved at the Scheme Meeting, or any adjournment        
thereof, by a majority representing not less than three fourths of the votes    
exercisable by the BESA Shareholders present and voting, either in person or by 
-    by no later than 30 June 2009, the Court sanctioning the Scheme;           
-    by no later than 30 June 2009, a certified copy of the Order of Court      
sanctioning the Scheme being lodged with, and registered by, the Registrar of   
Companies; and                                                                  
-    by no later than 30 June 2009, all necessary regulatory approvals or       
consents to effect the Scheme having been granted, including but not limited to,
approvals and consents from the Financial Services Board, the Securities        
Regulation Panel ("the SRP"), the South African Reserve Bank and the South      
African competition authorities, provided that if any such approval is          
materially qualified or subject to material conditions, then the condition in   
this paragraph would only be deemed to be fulfilled if prior to 30 June 2009 the
JSE agrees in writing to such qualification or condition.                       
4.3  Substitute Offer                                                           
Should the Court for any reason refuse or fail to convene a Scheme Meeting or   
should the Scheme not become operative, the JSE will be obliged forthwith to    
make the Substitute Offer for a cash consideration of R125 per BESA Share. The  
Substitute Offer will be conditional on it being accepted by BESA Shareholders  
in respect of at least 50% plus one of all the BESA Shares in issue, and all    
necessary regulatory approvals or consents as relate to the Scheme will apply   
mutatis mutandis to the Substitute Offer. If the Substitute Offer is made,      
shareholders will be advised accordingly on SENS and in the press, to the extent
5.   Support for the Offer by BESA Shareholders                                 
BESA Shareholders representing approximately 63% of the voting rights of all    
BESA Shares have irrevocably undertaken to vote in favour of the Scheme and to  
accept the Substitute Offer, if made.                                           
6.   JSE holdings of shares in BESA                                             
The JSE has confirmed that neither the JSE nor any of its directors directly    
hold or control any BESA Shares.                                                
7.   Confirmation of financial resources                                        
First National Bank of South Africa Limited has furnished confirmation to the   
satisfaction of the SRP that the JSE has sufficient cash resources available to 
satisfy full acceptance of the Offer.                                           
8.   Financial effects of the Scheme                                            
The unaudited pro forma financial effects of the Scheme set out below are based 
on the audited annual financial statements for the JSE Limited for the twelve   
months ended 31 December 2007 and the last published results of BESA for the    
year ended 31 December 2007, adjusted where necessary for the BESA capital-     
raising subsequent to its 2007 year end. The latest interim results of the JSE  
have not been used, as the BESA interim results are not publicly available. If  
the BESA interim results become available, the pro forma effects will be        
calculated and released on SENS if materially different from the numbers        
disclosed below.                                                                
The unaudited pro forma financial effects of the JSE are the responsibility of  
the JSE Board, and have been prepared for illustrative purposes only to assist  
shareholders of the JSE in assessing the effects of the Scheme on earnings,     
headline earnings, net asset value and tangible net asset value per share. Due  
to their nature, the unaudited pro forma financial effects may not give a true  
reflection of the financial effects of the Scheme.                              
8.1  Financial effects on JSE shareholders                                      
                         Before the        After the           Change           
                         acquisition (1)   acquisition (2,5)   (%)              
                         (cents)           (cents)                              
  Earnings per share     321.3             293.3(3,4)          (8.7%)           
  Headline earnings per  292.1             264.1(4)            (9.6%)           
  Net asset value per    1 302.2           1 296.3             (0.5%)           
  Tangible net asset     1 102.8           1 029.3             (6.7%)           
  value per share                                                               
  Number of shares in    85 140 050        85 140 050          -                
  Weighted average       85 038 891        85 038 891          -                
  number of shares in                                                           
Extracted from the audited annual financial statements for the JSE Limited for  
the twelve months ended 31 December 2007.  It should be noted that net asset    
value per share and net tangible asset value per share do not form part of the  
audited financial statements.   Balance sheet adjustments have been determined  
assuming that the acquisition occurred on 31 December 2007, while income        
statement adjustments were made assuming that the acquisition occurred on 1     
January 2007.                                                                   
Income Statement Adjustments                                                    
Includes 100% of the audited results of BESA for the twelve months ended 31     
December 2007.  It should be noted that BESA incurred an attributable loss of   
-R1,498,849 during this period.                                                 
Goodwill is computed as the excess between the purchase consideration           
transferred and the net asset value of BESA. Due to the nature of this          
transaction, we are unable to quantify at this stage a formal purchase price    
allocation as required by IFRS 3, Business Combinations. Shareholders must be   
advised that some of the Goodwill might be allocated to an intangible asset     
which would be amortised over a five to ten year period which could have a      
negative income statement effect.                                               
Accounting for interest foregone, at a rate of 10%, on the cash utilised to fund
the acquisition and the resultant tax impact.                                   
Balance Sheet Adjustments                                                       
The information in BESA's Rights Issue Circular has been used to compute the    
JSE's pro-forma Balance Sheet as at 31 December 2007.                           
9.   BESA Board and employees                                                   
Following the implementation of the Offer a member of the BESA Board will be    
offered a position on the JSE's Board in order to immediately facilitate the    
process of a closer strategic alignment between BESA and the JSE.               
The JSE acknowledges that BESA staff are critical to its operations and that    
they have important and growing roles within the combined JSE/BESA group. The   
JSE will retain all BESA staff in the integrated entity on terms and conditions 
no less favourable than they currently enjoy. The JSE has further confirmed that
it is critical to retain the BESA operations team, with their unique skill set, 
so as to ensure that the market operations perform as stakeholders expect and   
thereby reduce any potential integration risk.                                  
The BESA Board has noted the long standing intention of its CEO, Garth Greubel, 
to emigrate. However, he has confirmed his availability and desire to assist    
with the integration of BESA into the merged JSE/BESA group until June 2009.    
BESA and the JSE recognise that he has an important role to play in ensuring    
that the collective views of market participants are reflected in the interest  
rate market strategy of the combined JSE/BESA group. As a result, upon the      
implementation of the transaction, he will be invited to join the JSE's         
executive committee, as head of the Interest Rate Division, and will chair the  
Interest Rate Advisory Committee ("Interest Rate Advisory Committee") that will 
be formed (see paragraph 11 below).  The BESA Board thanks him for his          
leadership and vision in building BESA to its current position, and in so doing,
making a valuable contribution to the market.  The combined JSE/BESA group looks
forward to his continued input.                                                 
10.  Growing the fixed income market                                            
While the Offer is progressing through the various legal and regulatory steps   
necessary for implementation, BESA and the JSE will continue to operate as      
separate entities and fully pursue their usual business in the ordinary course. 
Once the necessary approvals have been obtained and the Offer is being          
implemented, the JSE will continue to provide the full range of BESA products   
and services in the merged group while the head of the Interest Rate Division of
the combined entity (the current BESA CEO) leads the fixed income growth        
strategy, including a comprehensive review of the needs of market participants, 
referred to in paragraph 12 below together with the Head of Derivatives Trading 
of the JSE.                                                                     
11.  Interest Rate Advisory Committee                                           
Once the Offer has been implemented, the JSE will create an Interest Rate       
Advisory Committee to advise the combined JSE/BESA group on the development of  
the interest rate market.  Advisory committees have well established roles      
within the JSE and the JSE relies heavily on them for guidance when facing      
difficult strategic decisions.  The Interest Rate Advisory Committee will be    
broadly representative of the participants and stakeholders in the interest rate
market.  It will be chaired by the current BESA CEO and will have senior        
executive representatives from both the JSE and BESA to ensure that, as an      
integrated group, it finds solutions for growing South Africa's interest rate   
markets that best leverage the capabilities of both the JSE and BESA.           
12.  Fixed income growth strategy                                               
The JSE and BESA recognise that markets are evolving extremely quickly in the   
current economic environment. The JSE is therefore committed to continuing to   
operate the current BESA products and services while developing a fixed income  
growth strategy with full and proper market consultation.                       
The following key focus areas will, once the Offer has been implemented, drive  
the development of this fixed income growth strategy:                           
-    product and services review: involving a broad-ranging and open-minded     
review of all the interest rate products and services either currently provided 
by BESA and Yield-X or which either of them are currently investigating.  It is 
key that the merits of all of these products be discussed with market           
participants so that the combined entity can determine which products and       
services clients want;                                                          
-    market model review: BESA and the JSE, through Yield-X, currently deploy   
different trading and clearing models. The fixed income growth strategy will    
entail a full assessment of the current market models for trading, clearing and 
settlement with the identification of pressure points in the current models and 
with input from all market participants. This will allow an integrated JSE and  
BESA, to develop a superior, customised market model; and                       
-    infrastructure review: on completion of the market model review and the    
formulation of the overall fixed income strategy, a review of all the technology
solutions available in the integrated group will be undertaken to determine the 
optimal technology infrastructure. As indicated, one of the key objectives of   
the proposed consolidation of the exchanges is to keep costs to users as low as 
13.  BESA rules and membership                                                  
13.1 Initially, the existing BESA rules will not be affected (apart from        
possibly minor amendments necessitated by the integration (where applicable)).  
13.2 Once the fixed income growth strategy discussed above has been agreed, it  
may, however, necessitate a complete - and again collaborative - review of all  
relevant rules relating to interest rate membership, trading, clearing and      
settlement to ensure that the rules are aligned to that strategy.               
13.3 As part of the implementation of the fixed income growth strategy, the     
JSE/BESA group would start consolidating all interest rate members (BESA and    
Yield-X members) into one class over time.  This would not necessarily mean that
such members would automatically be granted rights to execute trades on any of  
the JSE's other markets because membership requirements of those markets are    
different due to the different risk management principles applied. Neither does 
it mean that the same capital adequacy requirements applied in one of the JSE's 
markets would automatically be applied to the others.  Input from BESA and from 
the JSE's Director: Derivatives Trading would be required as to the best way to 
proceed with this process, particularly as to the best manner in which to       
promote greater access to and trade on all the markets.                         
14.  JSE's undertaking as to costs                                              
The JSE commits, once the Offer has been implemented, to retain BESA's fee      
structure without increase for two years. The JSE will also investigate means of
lowering those fees wherever possible.                                          
15.  Opinions and recommendations                                               
15.1 Independent expert                                                         
Ernst & Young Transaction Advisory Services Limited ("EY") has been appointed by
the BESA Board as the independent expert to provide advice to the BESA Board on 
how the terms and conditions of the Offer affect all BESA Shareholders. EY has  
completed its review of the Offer and has advised that the terms and conditions 
are fair to shareholders of BESA. Their final opinion, after submission to the  
BESA Board, will be set out in the Scheme circular to BESA shareholders referred
to below.                                                                       
15.2 Board of directors of BESA                                                 
The BESA Board has considered the terms and conditions of the Offer and the     
advice of EY and, in addition, has given extensive consideration to the views of
BESA Shareholders, market participants and key stakeholders.                    
The BESA Board is of the view that the Offer can be considered as fair          
consideration to BESA Shareholders for their BESA Shares and notes that it is   
within the value range indicated by EY.                                         
The BESA Board is also of the view that any support for the Offer must be       
considered in light of the requirements for efficient capital markets in South  
Africa. The BESA Board has confirmed with the JSE that, as reflected in this    
announcement, the intention is that key elements of the BESA businesses and     
structure will remain intact and that the views and considerations of all market
participants will be canvassed in order to finalise the fixed income growth     
strategy for the combined entity.                                               
Taking into account, inter alia:-                                               
-    the increase in the Offer Consideration the EY opinion;                    
-    the views of, and the level of support shown by, BESA Shareholders for the 
-    the BESA Board's firm view on market structures; and                       
-    the commitment of the JSE to consider and implement key structural issues  
as set out above,                                                               
the BESA Board recommends that BESA Shareholders vote in favour of the Scheme or
accept the Substitute Offer, if made.                                           
BESA Shareholders should note that the Scheme and the Substitute Offer both     
require regulatory and competition authority approval prior to the Offer being  
implemented, which approval may or may not be received in accordance with the   
relevant legislation.                                                           
16.  Further announcements, circular and withdrawal of cautionary announcements 
The Scheme will be proposed at the Scheme Meeting and a circular regarding the  
Scheme and incorporating the Substitute Offer, will be posted to BESA           
Shareholders.  Upon the request of the JSE and BESA, the SRP has extended the   
period within which the circular has to be posted to BESA Shareholders to on or 
about 20 January 2009.  This extension was necessitated by practical            
difficulties caused by the approaching holiday season.  A further joint         
announcement containing the salient dates will be released on SENS and published
in the press at the appropriate time, to the extent necessary.                  
Shareholders of the JSE and BESA are advised that their respective cautionary   
announcements have been withdrawn.                                              
10 December 2008                                                                
Advisor to BESA                                                                 
Absa Capital                                                                    
Legal advisor to BESA                                                           
Edward Nathan Sonnenbergs Inc.                                                  
Independent advisor to BESA                                                     
Ernst and Young                                                                 
Communications advisor to BESA                                                  
Arcay Communications                                                            
Legal advisor to JSE                                                            
Webber Wentzel                                                                  
Sponsor to JSE                                                                  
RAND MERCHANT BANK (A division of FirstRand Bank Limited)                       
Communications advisor to JSE                                                   
FD Beachhead                                                                    
Date: 10/12/2008 07:30:02 Produced by the JSE SENS Department.