ITALTILE LIMITED - Declaration Announcement in respect of the Italtile Partially Underwritten Rights Offer

Declaration Announcement in respect of the Italtile Partially Underwritten Rights Offer

ITALTILE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1955/000558/06)
Share code: ITE ISIN: ZAE000099123
(“Italtile” or “the Company”)
_______________________________________________________________________________________

 DECLARATION ANNOUNCEMENT IN RESPECT OF THE ITALTILE PARTIALLY UNDERWRITTEN RIGHTS OFFER
_______________________________________________________________________________________

1. INTRODUCTION
   Italtile is pleased to announce that it intends to raise up to R1.59 billion by way of a partially underwritten
   renounceable rights offer (“Rights Offer”), in terms of which Italtile will offer a total of 260 539 178 new
   ordinary shares of no par value (“Rights Offer Shares”) at a subscription price of R11.57 per Rights
   Offer Share (“Subscription Price”) in the ratio of 22 Rights Offer Shares for every 100 Italtile shares
   (“Ratio”) held at the close of business on the record date for the Rights Offer, being Friday,
   10 November 2017 (“Record Date”).

2. PURPOSE OF THE RIGHTS OFFER
   Further to the announcements published on SENS on 26 April 2016 and 9 June 2016, Italtile
   Shareholders (“Shareholders”) were advised on 20 July 2016 that Italtile, through its wholly-owned
   subsidiary, Italtile Ceramics Proprietary Limited, had submitted a binding offer to Ceramic Industries
   Proprietary Limited (“Ceramic”), (the “Ceramic Acquisition”), and had entered into a written
   implementation agreement with Ceramic in terms of which the Ceramic Acquisition was to be governed.
   In terms of the Ceramic Acquisition, full details of which are set out in the circular to Shareholders dated
   23 August 2016 (the “Ceramic Acquisition Circular”), the purchase consideration, which ultimately
   equated to R3.49 billion, was to be settled 50% in cash and 50% by the issue of Italtile shares (“Italtile
   Shares" or "Shares”) at an issue price of R11.57 per Share. The purchase consideration of R3.49
   billion, which was to be paid in terms of the Ceramic Acquisition, was higher than the purchase
   consideration of R3.4 billion in the Ceramic Acquisition Circular as a result of a greater number of
   Ceramic shares participating in the scheme (as contained in the Ceramic Acquisition Circular) following
   the vesting of share awards in Ceramic post August 2016 and prior to the implementation of the scheme,
   resulting in the issue of Ceramic shares to qualifying Ceramic employees.

   Shareholders were further advised that in order to ensure the equitable treatment of all Shareholders
   and to afford minority Shareholders the opportunity to avoid dilution of their Shareholding as a result of
   the Ceramic Acquisition, Italtile intended to undertake a renounceable rights offer.

   In terms of the Rights Offer, Shareholders recorded in the Italtile securities register on the Record Date
   will be entitled to subscribe for the Rights Offer Shares in the Ratio, at a subscription price of R11.57 per
   Rights Offer Share.

   The Ratio was determined based on the number of Italtile Shares that Rallen Proprietary Limited
   (“Rallen”), the majority shareholder of Ceramic (65.10%) and the majority Shareholder of Italtile
   (55.96%) prior to the Ceramic Acquisition, would receive as part of the Ceramic Acquisition purchase
   consideration compared to the number of Italtile Shares held by Rallen prior thereto.

   Given the rationale and motivation for the Rights Offer, Rallen has undertaken not to follow, renounce or
   sell its rights in terms of the Rights Offer in respect of the 578 259 185 Italtile Shares (which, on
   application of the Ratio, equates to 127 217 021 Rights Offer Shares) held prior to the Ceramic
   Acquisition. Rallen intends however, to follow its rights in terms of the 131 802 110 Italtile Shares (which,
   on application of the Ratio, equates to 28 996 464 Rights Offer Shares) received by Rallen as part of the
   Ceramic Acquisition purchase consideration so as to limit the dilution of its pre-Ceramic Acquisition
   shareholding of 55.96%. The Italtile Share Incentive Trust has undertaken to renounce, and not follow or
   sell, its rights in terms of the Rights Offer in respect of 2 625 810 Rights Offer Shares to the Ceramic
   Foundation Trust and has undertaken not to follow, renounce or sell its remaining 80 462 Rights Offer
   Shares. The Italtile Empowerment Trust has undertaken not to follow, renounce or sell its rights in terms
   of the Rights Offer in respect of all of its 4 411 443 Rights Offer Shares.
   On 22 August 2017 and on 6 September 2017 respectively, Shareholders were advised that the
   approval of the Ceramic Acquisition by the relevant competition authorities had been obtained and that
   the last outstanding condition precedent to the Ceramic Acquisition, being the granting by the JSE of the
   listing of the Italtile Shares to be issued as part consideration for the Ceramic Acquisition, had been
   fulfilled. Given the amount of time that has passed from inception of the Ceramic Acquisition to its
   conclusion, the board of directors of Italtile ("Board") has revised its initial intention to use the proceeds
   of the Rights Offer to solely satisfy future working capital requirements and to fund further capital
   expenditure in terms of Italtile and its subsidiaries ("Group") future strategy. The Board has taken into
   consideration Italtile’s increased cash reserves and has decided to settle the balance of the R1.22 billion
   cash portion owing to Rallen in terms of the Ceramic Acquisition as soon as reasonably possible after
   the Rights Offer has closed. Early settlement of the R1.22 billion cash portion, which was to have been
   settled in four-monthly payments, could save Italtile in excess of R80 million in finance costs. Any
   remaining balance of the Rights Offer proceeds will be used to satisfy future working capital
   requirements and to fund further capital expenditure in terms of the Group’s future strategy as initially
   planned.

   The Rights Offer will be partially underwritten by Dzana Investments Proprietary Limited (“Dzana
   Investments”) and AKA Capital Holdings Proprietary Limited (“AKA Capital”). The introduction of
   Dzana Investments and AKA Capital (which are black-owned investment holding companies) as
   Shareholders in Italtile, will enhance the Company’s B-BBEE ownership credentials. As set out in the
   Underwriting Agreements, the 8 643 044 Rights Offer Shares that are to be underwritten will be subject
   to a lock-in period of three years commencing on the second business day immediately after the Rights
   Offer closes.

3. NATURE OF THE BUSINESS OF ITALTILE
   Italtile, which is listed on the main board of the JSE, is a franchisor and retailer of local and imported
   tiles, sanitaryware, bathware, laminated and vinyl flooring and other related home-finishing products.
   The Group’s retail brands, comprising CTM, Italtile Retail and TopT, are represented through a total
   network of 166 stores, 19 of which are located in the rest of Africa.
   The Group’s retail operation is strategically supported by a vertically integrated Supply Chain,
   investments in key suppliers, and an extensive property portfolio.
   Historically, traditionally house-proud South Africans have invested relatively freely in upgrading or
   replacing their homes. However, with intensified pressure on disposable incomes, homeowners
   increasingly view property spend as a luxury indulgence and are significantly more discerning in their
   purchases, which are now less frequent than in prior years, and more selective in their choice of
   retailers.
   Real disposable income is likely to decline further in the context of poor economic growth, limited job
   creation and significant increases in personal income taxes for middle and high-income earners.
   Country-specific risk also remains a factor and Italtile’s management anticipates a weakening trend of
   the local currency.
   Despite this contextual outlook, the Board is of the opinion that Italtile, with its strong brands, and robust
   and resilient business model, should be able to capitalise on growth opportunities in the market,
   particularly given the relatively low per capita consumption of tiles in South Africa compared to peer
   economies.
   While advancement of the store roll-out programme will be determined by market demand and
   availability of suitable sites and operators, Italtile’s goal is to open a total of 20 new stores during
   financial year ending June 2018, including at least one Italtile Retail store and three CTM stores. In
   addition, capacity in the supply chain will also continue to be developed to support anticipated growth
   over the long-term.

4. SALIENT TERMS OF THE RIGHTS OFFER
   In terms of the Rights Offer, Italtile will offer a total of 260 539 178 Rights Offer Shares at a subscription
   price of R11.57 per Rights Offer Share in the ratio of 22 Rights Offer Shares for every 100 Shares held
   in Italtile on the close of business on the Record Date.

   The allocation of Rights Offer Shares will be such that Shareholders will not be allocated a fraction of a
   Rights Offer Share and as such any entitlement to receive a fraction of a Rights Offer Share which:
    -   is less than one-half of a Rights Offer Share, will be rounded down to the nearest whole number;
        and
    -   is equal to or greater than one-half of a Rights Offer Share but less than a whole Rights Offer
         Share, will be rounded up to the nearest whole number.
     Upon their issue, the Rights Offer Shares will rank pari passu in all respects with the existing Italtile
     Shares.
     Shareholders may not apply for any excess Rights Offer Shares.

5.   UNDERWRITING
     Italtile has entered into partial underwriting agreements with Dzana Investments and AKA Capital in
     respect of the Rights Offer, for a maximum value of R100 000 019 (“Underwriting Agreements”).

     Dzana Investments and AKA Capital are black-owned investment holding companies incorporated in
     accordance with the laws of South Africa.

     Further details of the Underwriting Agreements will be set out in the Rights Offer circular to be dated on
     or about 6 November 2017 and distributed to Shareholders as set out in paragraph 9 below.

6.   CONDITIONS PRECEDENT
     The implementation of the Rights Offer is subject to approval being obtained from the JSE of the Rights
     Offer circular and for the listing of the Letters of Allocation and the Rights Offer Shares.

7.   SALIENT DATES AND TIMES
     The proposed salient dates and times in respect of the Rights Offer are set out below:
                                                                                                        2017
     Rights Offer Declaration Data announcement released on SENS                           Monday, 23 October
     Rights Offer Finalisation announcement released on SENS                             Thursday, 2 November
     Circular and Form of Instruction distributed to Certificated Shareholders             Monday, 6 November
     Last day to trade in Italtile Shares in order to participate in the Rights           Tuesday, 7 November
     Offer (cum entitlement) on
     Listing of and trading in the Letters of Allocation on the JSE under JSE           Wednesday, 8 November
                6
     code ITEN commences at 09:00 on
     Italtile Shares commence trading ex-rights on the JSE at 09:00 on                  Wednesday, 8 November
     Record date for the Rights Offer for purposes of determining the Italtile            Friday, 10 November
     Shareholders entitled to participate in the Rights Offer at the close of
     business on
     Rights Offer opens at 09:00 on                                                       Monday, 13 November
     Holders of Dematerialised Italtile Shares will have their accounts at their          Monday, 13 November
     CSDP or broker automatically credited with their Letters of Allocation at
     09:00 on
     Holders of Certificated Italtile Shares will have their Letters of Allocation        Monday, 13 November
     credited to an electronic register at the Transfer Secretaries at 09:00 on
     Circular distributed to Dematerialised Shareholders, where applicable               Tuesday, 14 November
     Last day to trade in Letters of Allocation on the JSE                               Tuesday, 21 November
     Last day for Form of Instruction to be lodged with the Transfer                     Tuesday, 21 November
     Secretaries by holders of Certificated Italtile Shares wishing to sell all or
     part of their Rights Offer Entitlement by 12:00 on
     Listing and trading of Rights Offer Shares commences on the JSE at                Wednesday, 22 November
     09:00 on
     Last day for Form of Instruction to be lodged with the Transfer                      Friday, 24 November
     Secretaries by holders of Certificated Italtile Shares wishing to subscribe
     for or renounce all or part of their Rights Offer Entitlement by 12:00 on
     (see note 2)
     Record date for Letters of Allocation                                                Friday, 24 November
     Rights Offer closes at 12:00 and payment to be made on                               Friday, 24 November
     CSDP/broker accounts credited with Rights Offer Shares and debited                   Monday, 27 November
     with the payments due in respect of holders of Dematerialised Italtile
     Shares on
     Rights Offer Share certificates in terms of the Rights Offer posted to               Monday, 27 November
     holders of Certificated Italtile Shares via registered post on or about
     Results of Rights Offer announced on SENS on                                         Monday, 27 November

    Notes:
    1. Holders of dematerialised Italtile Shares are required to notify their CSDP or broker of the action they wish to
       take in respect of the Rights Offer in the manner and by the time stipulated in the agreement governing the
       relationship between the dematerialised Shareholder and his CSDP or broker.
    2. Italtile share certificates may not be dematerialised or rematerialised between Wednesday, 8 November 2017
       and Friday, 10 November 2017, both days inclusive.
    3. CSDPs effect payment in respect of holders of dematerialised Rights Offer Shares on a delivery versus
       payment basis.
    4. To the extent that the rights are accepted, dematerialised Shareholders will have their accounts at their CSDP
       automatically credited with their rights and certificated Shareholders will have their rights credited to an account
       at Computershare Investor Services.
    5. Rights Offer share certificates to be issued in terms of the Rights Offer will be posted to persons entitled thereto,
       by registered post, at the risk of the certificated Shareholders concerned.
    6. ISIN to be announced in due course.

8. RESTRICTIONS ON THE RIGHTS OFFER
   Any Shareholder resident outside the Common Monetary Area, being the Republics of South Africa and
   Namibia and the Kingdoms of Lesotho and Swaziland, who receives the Rights Offer circular and
   accompanying Form of Instruction, should obtain advice as to whether any governmental and/or any
   other legal consent is required and/or any other formality must be observed to enable such a
   subscription to be made in terms of such Form of Instruction.
   The Rights Offer does not constitute an offer in any jurisdiction in which it is illegal to make such an offer
   and the Rights Offer circular and accompanying Form of Instruction should not be forwarded or
   transmitted to any person in any territory other than where it is lawful to make such an offer.
   The Rights Offer Shares have not been and will not be registered under the United States Securities Act
   of 1933, as amended ("Securities Act"). Accordingly, the Rights Offer Shares may not be offered, sold,
   resold, delivered or transferred, directly or indirectly, in or into the United States of America ("USA") or
   to, or for the account or benefit of, USA persons, except pursuant to exemptions from the Securities Act.
   The Rights Offer circular and the accompanying documents are not being, and must not be, mailed or
   otherwise distributed or sent in, into or from the USA. The Rights Offer circular does not constitute an
   offer of any securities for sale in the USA or to USA persons.
   The Rights Offer contained in the Rights Offer circular does not constitute an offer in the District of
   Columbia, the USA, the Dominion of Canada, the Commonwealth of Australia, Japan or in any other
   jurisdiction in which, or to any person to whom, it would not be lawful to make such an offer (“Non-
   qualifying shareholder”). Non-qualifying shareholders should consult their professional advisers to
   determine whether any governmental or other consents are required or other formalities need to be
   observed to allow them to take up the Rights Offer, or to trade their entitlement. To the extent that Non-
   qualifying shareholders are not entitled to participate in the Rights Offer, such Non-qualifying
   shareholders should not take up their Rights Offer entitlement or trade in their Rights Offer entitlement
   and should allow their rights in terms of the Rights Offer to lapse.

9. FURTHER ANNOUNCEMENT AND RIGHTS OFFER CIRCULAR
   The Rights Offer Finalisation announcement is expected to be released on SENS on or about
   2 November 2017.
   The Rights Offer circular, and accompanying Form of Instruction for use by certificated shareholders
   only, containing full particulars of the Rights Offer will be posted to certificated shareholders on or about
   6 November 2017.
   The Rights Offer circular containing full particulars of the Rights Offer will be distributed to dematerialised
   Shareholders who have elected to receive documents on or about 14 November 2017.


Johannesburg
23 October 2017

Sponsor and Corporate Advisor
Merchantec Capital

Legal Advisor
Hogan Lovells (SA) Inc.
Disclaimer:

All transactions arising from the provisions of the Rights Offer circular and the Form of Instruction shall be governed by
and be subject to the laws of South Africa. The Rights Offer may be affected by the laws of the relevant jurisdictions of
foreign Shareholders. Such foreign Shareholders should inform themselves about and observe any applicable legal
requirements of such jurisdictions in relation to all aspects of the Rights Offer circular that may affect them, including the
Rights Offer. It is the responsibility of any foreign Shareholder to satisfy himself as to the full observation of the laws and
regulatory requirements of the relevant jurisdiction in connection with the Rights Offer, including obtaining any
governmental, exchange control or other consent or the making of any filings which may be required, the compliance
with other necessary formalities, the payment of any issue, transfer or other taxes or requisite payments due in such
jurisdiction. The Rights Offer is further subject to any other applicable laws and regulations, including the Exchange
Control Regulations. Any foreign Shareholder who is in doubt as to his position, including without limitation his tax status,
should consult an appropriate independent professional adviser in the relevant jurisdiction without delay.

Date: 23/10/2017 04:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.