| Thu 12 Apr 2007, 14:37 | | ADR - Adcorp - Revised financial effects of Broad |
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ADR
ADR
ADR - Adcorp - Revised financial effects of Broad Based Black Economic
Empowerment transaction ("proposed transaction")
ADCORP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1974/001804/06)
Share code: ADR & ISIN: ZAE000000139
("Adcorp" or "the company")
Revised financial effects of Broad Based Black Economic Empowerment
transaction ("proposed transaction")
1. INTRODUCTION
Adcorp shareholders are referred to the previous announcement dated 7
March 2007, which appeared on SENS and in the press on 7 March and 8
March 2007, respectively.
The financial effects of the proposed transaction in the circular,
which has today (12 April 2007) been posted to shareholders differ
from the financial effects contained in the announcement dated 7 March
2007. In that announcement it was mentioned that, on implementation of
the proposed transaction, the number of A shares issued in respect of
the proposed transaction as well as the market price data at the time
that the transaction is finalised will impact the valuation of the
option cost and will thus effect the expense to be recorded in terms
of IFRS2 (International Financial Reporting Standards): "Share based
payments".
Based on updated information, the financial effects have subsequently
been revised to reflect the expected option cost. The revised
financial effects and assumptions are detailed in notes 3 and 4 of
paragraph 2 below.
2. REVISED UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED BEE
TRANSACTION
The revised unaudited pro forma financial effects for which the board
of directors of Adcorp are responsible, are presented for illustrative
purposes only and, because of its nature, may not give a fair
reflection of the financial position, changes in equity and results of
operations or cash flows post the implementation of the proposed
transaction.
The table below sets out the revised unaudited pro forma financial
effects of the proposed BEE transaction based on the published
financial results of Adcorp for the twelve months ended 31 December
2006:
Per Adcorp share
(1) (2,3,4,5,6) Change
Before After the
(cents) proposed
transaction %
(cents)
EARNINGS 251.8 96,3 (61,8)
Headline earnings 236.5 80,8 (65,8)
Net asset value 716.4 703,0 (1,9)
Tangible net asset 518.7 505,4 (2,6)
value
Number of shares 43,382 43,382
in issue (`000)
Weighted issued 42,882 42,882
number of shares
(`000)
Notes:
1. Extracted from the published reviewed financial results of Adcorp
for the twelve months ended 31 December 2006.
2. For purposes of calculating the earnings per share and headline
earnings per share it was assumed that the proposed transaction
was effective on 1 January 2006. The number of A ordinary shares
issued as part of the proposed transaction was based on the
number of shares in issue on 31 December 2006.
3. The economic substance for accounting purposes is the granting of
a call option on Adcorp. On initial recognition, the derivative
liability needs to be measured at fair value using an option
pricing model. The company has applied the Black Scholes model to
value the option over 10 years, making certain assumptions
namely:
a. The starting price (spot price) is the closing price on 27
February 2007, being the date the terms and conditions of
the proposed transaction were agreed upon, which is R33.75.
This may not be the case on final implementation
b. The dividend is assumed to be fixed over the 10 year period,
based on current dividend payment levels. In view of the
importance of the dividend to the determination of the
notional threshold debt balance in year 10, this assumption
has a major impact on valuation of the option cost.
4. The option has been valued at R94.8 million. 60% of this is
attributable to the option issued to BEE Co 1 and BEE Co 2 (which
are effectively owned by Wiphold and Simeka respectively) and in
terms of AC503 - Accounting for Black Economic Empowerment
("BEE") transactions is expensed immediately. The balance of the
option cost, amounting to R37.9 million relates to the option
granted to Incentive Co (which is effectively owned by an
employee share trust held for the benefit of Adcorp employees)
and as there is a service condition attached, this cost would be
amortised over 10 years based on the assumption that the grant
date is 1 January 2006.
5. The resultant share based payment option expense through the
income statement is therefore R60.7 million on a pro-forma basis.
This represents the once off option expense relating to the BEE
parties ("Wiphold and Simeka") and the amortisation over ten
years of the employee service portion.
6. For purposes of calculating the net asset value per share and
tangible net asset value per share it was assumed that the
proposed transaction was effective on 31 December 2006.
7. Transaction costs of R6.048 million relating to the proposed BEE
transaction have been included.
8. Adcorp is not able to ascertain the extent of ultimate dilution
in 10 years time and therefore has not updated diluted earnings
or diluted headline earnings per share for the potential
dilution.
3. PUBLICATION OF CIRCULAR
A circular containing full details of the proposed BEE transaction and
incorporating a notice of general meeting has been posted to Adcorp
shareholders on 12 April 2007.
Bryanston
12 April 2007
Investment Bank to Adcorp Transactional Corporate legal
sponsor to adviser to
Adcorp Adcorp
(Investec Corporate (Investec Roodt
Finance Logo) Bank Limited)
Sponsor to Adcorp Reporting
accountants
(Deloitte & Touche (Deloitte &
Sponsor Services ) Touche)
Ernst & Young Corporate
Finance
(Independent Expert)
Transaction advisers to Attorneys to
WIPHOLD WIPHOLD
(Wipcapital) (Edward Nathan)
Date: 12/04/2007 14:37:14 Produced by the JSE SENS Department.
