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TNT
THGL
TNT - THG - Final Terms Of The Proposed Listing And Withdrawal Of
Cautionary Announcement
The Tongaat-Hulett Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1892/000610/06)
(Share code: TNT)
(ISIN: ZAE000007449)
("THG") or ("the Company")
FINAL TERMS OF THE PROPOSED LISTING ON THE JSE LIMITED OF HULAMIN LIMITED
("HULAMIN") AND UNBUNDLING OF THG`S 50% INTEREST IN HULAMIN, THE PRO RATA
SHARE REPURCHASE AND INTRODUCTION OF 25% BLACK ECONOMIC EMPOWERMENT
EQUITY PARTICIPATION IN THG AND 15% IN HULAMIN AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
1. Introduction
Further to the detailed cautionary announcement of 14 December 2006
("Detailed Cautionary"), THG is pleased to advise shareholders of
the final terms of the proposed listing on the JSE Limited ("JSE")
of Hulamin, followed by the unbundling of THG`s 50% interest in
Hulamin ("the unbundling"), the name change to Tongaat Hulett
Limited ("Tongaat Hulett" or "TH"), the pro rata share repurchase,
the Black Economic Empowerment ("BEE") transactions to be
implemented in TH ("TH BEE transaction") and Hulamin ("Hulamin BEE
transaction") ("collectively the "transactions"), including details
of the derived value split and financial effects of the
transactions.
2. Details of the transactions
The unbundling will result in the creation of two separately listed
entities:
a. Tongaat-Hulett, which will be an agri-processing business which
includes integrated components of land management, property
development and agriculture; and
b. Hulamin, which will be an independent producer of rolled,
extruded and other semi-fabricated and finished aluminium
products.
This will be accompanied by the simultaneous introduction of
broad based Black Economic Empowerment (BEE) equity
participation in both TH and Hulamin, amounting to 25% and 15%
participation respectively. The capital structure of both
businesses will be optimised, including facilitating the BEE
equity participation, a R500 million pro rata share repurchase
and retaining the balance sheet capacity to take advantage of
growth opportunities.
The salient terms of the respective transactions, which
transactions will be implemented consecutively, are set out
below:
2.1 Value split
As announced in the Detailed Cautionary, the transaction values will
be determined by applying a relative value split of 71.5% TH and
28.5% Hulamin (attributable to THG`s 50% interest in Hulamin) to the
enterprise value based on the 30-day volume weighted average price
("VWAP") of THG on the last practicable date prior to issuing the
THG circular and adjusting these values for the net debt in the
respective entities as well as certain other pre-agreed adjustments.
The 30-day VWAP of THG as at the last practicable date (19 April
2007) was R127.88 per share and, after having taken into account the
net debt in the respective businesses and the other pre-agreed
adjustments, the derived relative value split had been determined as
follows:
- Tongaat Hulett: R92.80 per share; and
- Hulamin (50%): R35.08 per share.
These derived values represent an equity value of R9.9bn for TH
(prior to the pro rata share repurchase as detailed in y2.3 below)
and R7.5bn for 100% of Hulamin.
2.2 Listing and unbundling of Hulamin and change of name
Hulamin will, subject to the fulfillment of the conditions precedent
contained in paragraph y5, be listed on the JSE on 25 June 2007,
after which THG will unbundle its 50% interest in Hulamin to all THG
shareholders recorded in the register on Friday, 29 June 2007.
Shareholders will receive one Hulamin ordinary share for every THG
ordinary share held prior to the unbundling.
THG will change its name to Tongaat Hulett Limited and be known as
Tongaat Hulett ("TH") after the unbundling.
2.3 Pro rata share repurchase
After the unbundling of Hulamin and prior to the implementation of
the TH BEE transaction, TH will undertake a pro rata repurchase of
4.5% of its issued ordinary share capital by way of a scheme of
arrangement in terms of section 311 of the Companies Act 61 of 1973,
as amended ("the Companies Act") ("the scheme").
TH will acquire 4.5 TH ordinary shares for every 100 TH ordinary
shares held by shareholders for R92.80 per TH ordinary share (being
the derived share price of the TH ordinary shares traded on the JSE
after the unbundling) which will equate to a total consideration of
R500.2 million (inclusive of STC to be incurred by TH) based on the
number of shares in issue at the last practicable date.
2.4 TH BEE transaction
The TH BEE transaction comprises two components, namely:
- The subscription for an effective 18% interest in TH by broad
based BEE groups; and
- The subscription for an effective 7% interest in TH by eligible
TH employees through the TH ESOP and the TH MSOP.
2.4.1 Participation by broad based BEE groups
Ayavuna Women`s Investments (Proprietary) Limited ("Ayavuna")
and Sangena Holdings (Proprietary) Limited ("Sangena")
(collectively "the TH BEE anchor partners"), together with the
Masithuthukisane Trust which benefits the small scale cane
grower communities surrounding the South African TH mills and
the Mphakathi Trust, which benefits the communities surrounding
the TH property developments will form the following investment
vehicles for the purpose of entering into the TH BEE
transaction:
i. Sangena will combine with the Masithuthukisane Trust to
form BEE yoMoba SPV which will subscribe for 11 157 767 TH
"A" preferred ordinary shares which will represent a fully
diluted 8% interest in TH; and
ii. Ayavuna SPV will combine with the Mphakathi Trust to form
BEE Infrastructure SPV to subscribe for 13 947 209 TH "A"
preferred ordinary shares which will represent a fully
diluted 10% interest in TH.
The subscription price per TH "A" preferred ordinary share shall be
equal to the R92.80 adjusted for the STC incurred on the pro rata
distribution to shareholders which reduces the subscription price
per share to R92.26. The "A" preferred ordinary shares will rank
pari passu with TH ordinary shares except for their entitlement to a
fixed annual dividend of R99.7m (in aggregate) and their automatic
conversion into TH ordinary shares after a period of seven years.
The TH "A" preferred ordinary shares will not be listed. As was
disclosed in the Detailed Cautionary, the subscription will be
funded through a combination of third party funding and notional
vendor funding. The notional vendor funding will be settled through
a repurchase of TH "A" preferred ordinary shares from each of BEE
yoMoba SPV and BEE Infrastructure SPV at R0.01 per share upon expiry
of the funding structure. The following table shows the breakdown of
the funding for the TH BEE yoMoba SPV and the BEE Infrastructure
SPV:
R`000 BEE yoMoba SPV BEE Total
Infrastructure
SPV
BEE equity and 6,037 7,547 13,584
shareholder loan
contribution (net of
projected costs)
Senior SPV preference 183,422 229,278 412,700
shares
Mezzanine SPV 183,422 229,278 412,700
preference shares
Notional vendor 656,559 820,699 1,477,259
funding
Total 1,029,441 1,286,802 2,316,243
The notional vendor funding will escalate at a rate of 11.9% per annum
and will be extinguished through the repurchase by TH of such number of
TH ordinary shares, at R0.01, as equates in value (calculated at the 30
VWAP at such a point in time) to the balance of the notional vendor
funding.
Each of BEE yoMoba SPV and BEE Infrastructure SPV will have the ability
to enhance their returns by delivering on certain pre-agreed value-add
criteria as follows:
i. BEE yoMoba SPV`s contribution towards enhanced capacity
utilisation in the South African sugar milling operations by
securing increased cane supply to the TH sugar mills through
the promotion of small scale cane growing initiatives in the
relevant communities surrounding the TH sugar mills; and
ii. BEE Infrastructure SPV`s ability to secure increased external
funding for the provision of bulk and link infrastructure
required to enable the achievement of the planned TH property
development initiatives in the short and medium term.
The amount of the earn-in will be formulaically determined every year and
is based on the principle that TH will share a proportion of the
incremental profits that are realised through these value-add
initiatives, with the relevant broad-based communities and BEE anchor
partners that have assisted in facilitating this value creation. If the
proposed earn-in mechanisms achieve their objectives of unlocking value
through enhanced sugar cane milling capacity utilisation at the TH mills
and by attracting significant incremental funding for infrastructure
developments, it is anticipated that the annual benefit to the BEE
parties could reach R10 million for each of the initiatives.
The proportion of the TH BEE anchor partners` earn-in is determined
according to their respective shareholding in BEE yoMoba SPV and BEE
Infrastructure SPV. The earn-in will take the form of predominantly a
cash distribution in respect of the Masithuthukisane Trust and the
Mphakathi Trust. While Ayavuna and Sangena will not receive a cash
distribution, they will benefit through a reduction in the number of
shares that can be repurchased from BEE Infrastructure SPV and BEE yoMoba
SPV respectively which will improve their vesting profile.
2.4.2 Employee participation
TH will establish the TH ESOP Share Trust and TH MSOP Share Trust for the
benefit of TH employees. TH and its subsidiaries will contribute a
projected amount of R212 million to the TH ESOP Share Trust and the TH
MSOP Share Trust. The exact amount will be determined based on the 22-day
VWAP of TH for 22 trading days after the date on which Hulamin is listed
on the JSE, being Monday, 25 June 2007.
On receipt of this amount, the TH ESOP Share Trust will subscribe for TH
B1 ordinary shares and the TH MSOP Share Trust will subscribe for TH B2
ordinary shares and B3 ordinary shares, which will represent a collective
interest of 7% in TH after the conclusion of the transactions.
The TH "B" ordinary shares will not be listed on the JSE. TH has been
granted dispensation from the JSE in order to allow holders of such TH
"B" ordinary shares to vote at general meetings. In terms of this
dispensation, the votes attaching to each class of shares in issue in TH
will be afforded equal rank and all votes are to be counted collectively.
The TH "B" ordinary shares will rank pari passu with the TH ordinary
shares in all respects with the following main exceptions:
i. TH retains the right to repurchase a number of each class of
the TH "B" ordinary shares in terms of pre-determined formulae
immediately prior to the conversion of these shares into TH
ordinary shares (see (ii) below); and
ii. On the fifth anniversary of the effective date, the remaining
TH "B" ordinary shares will be converted into an equal number
of TH ordinary shares, listed on the JSE and ranking pari passu
in all respects with the existing issued TH ordinary shares.
To facilitate the employee participation, TH will contribute an estimated
amount of R212 million to the TH MSOP Share Trust and the TH ESOP Share
Trust which amount will be used for the subscription of TH "B" ordinary
shares in TH.
In terms of this facilitation,
i. TH will be the nominated income beneficiary of both the TH ESOP
Share Trust and the TH MSOP Share Trust and accordingly for a period
of 5 years from the effective date:
a. the TH MSOP Share Trust beneficiaries will be attributed a notional
funding amount equal to the ordinary dividend declared in every
year. This notional funding charge will be discharged through the
payment of all dividends for a five year period to the company in
its capacity as a vested income beneficiary of the TH MSOP Share
Trust. The dividends not distributed to the TH MSOP Share Trust
beneficiaries will reduce the number of TH "B" ordinary shares that
TH will be entitled to repurchase at maturity in order to settle the
outstanding notional vendor finance amount. In accordance with the
terms of the TH B2 ordinary shares and TH B3 ordinary shares, the TH
MSOP Share Trust beneficiaries will receive some shares for no
consideration after five years (the TH B3 ordinary shares), while
other shares will be acquired at a 20% discount to the market value
on the date of allocation (the TH B2 ordinary shares); and
b. the TH ESOP Share Trust beneficiaries will similarly be charged a
notional funding amount equal to the ordinary dividend declared in
every year. This notional funding amount will be partly settled
through 50% of the dividends being paid to the company as a vested
beneficiary of the TH ESOP Share Trust, declared on the TH B1
ordinary shares with the remaining 50% of the dividends being paid
to the scheme beneficiaries. The dividends not distributed to the TH
ESOP Share Trust beneficiaries will reduce the number of TH B1
ordinary shares that TH will be entitled to repurchase at maturity
in order to settle the outstanding notional vendor finance amount.
In accordance with the terms of the TH B1 ordinary shares, the TH
ESOP Share Trust beneficiaries will have paid the 22 day VWAP at the
allocation date of the shares, adjusted for the cash dividends paid
to the beneficiaries over vesting period of the TH "B" ordinary
shares.
ii. TH and any of its subsidiaries will have the right to repurchase a
variable number of TH "B" ordinary shares on the fifth anniversary
of the effective date at R0.01, after which any remaining shares in
the TH ESOP Share Trust and the TH MSOP Trust will be converted into
ordinary shares ranking pari passu with the existing issued TH
ordinary shares with unrestricted rights.
The consideration payable by TH will be R0.01 per TH "B" ordinary share
multiplied by the number of TH "B" ordinary shares to be repurchased. The
consideration will be paid from available cash resources, subject to the
requirements of the Companies Act and the JSE.
2.4.3 Transaction diagram
The resultant TH BEE transaction structure is illustrated in the
published announcements contained in the Business Day, Beeld, Natal
Witness and Sowetan, dated 4 May 2007.
2.5 Hulamin BEE transaction
The Hulamin BEE transaction facilitates the acquisition of an effective
15% interest in Hulamin by the Hulamin BEE partners, as follows:
- The subscription, through a special purpose vehicle, Hulamin BEE
SPV, of an effective 10% interest in a wholly owned subsidiary of
Hulamin, Hulamin Operations (Proprietary) Limited ("Hulamin OpCo")
and 25 million Hulamin "A" ordinary shares which will entitle
Hulamin BEE SPV to approximately 10% of the voting rights in
Hulamin; and
- The subscription for an effective 5% of the issued share capital of
Hulamin by employees through the Hulamin ESOP and the Hulamin MSOP.
2.5.1 Participation by Hulamin SPV
Hulamin Opco
Hulamin OpCo
In anticipation of the listing and unbundling of Hulamin on the
JSE and in order to facilitate the participation of BEE
partners at an operational level. Hulamin will dispose of all
of its operations to a wholly owned subsidiary, Hulamin Opco
for R8 211 million as a going concern, in terms of section 228
of the Companies Act. Hulamin will apply the disposal proceeds
to:
i. subscribe for 241 Hulamin OpCo ordinary shares for a total
consideration of R337.5 million and 50 000 000 Hulamin
Opco preference shares for a total consideration of R6 520
million; and
ii. loan R1 354 million to Hulamin OpCo for the balance of the
disposal proceeds of which approximately R754 million will
be repaid at inception with money raised by Hulamin BEE
SPV (R566 million) and external bank funding for the
balance (R188 million).
2.5.1.1 Hulamin BEE SPV
Immediately after the listing of Hulamin and prior to the
unbundling, the following steps will be undertaken:
i. Imbewu Consortium SPV ("Imbewu") and Makana Investment
Consortium ("Makana") will subscribe for shares in Hulamin
BEE SPV as follows:
a. Imbewu will subscribe for 60% of Hulamin BEE SPV; and
b. Makana will subscribe for 40% of Hulamin BEE SPV.
ii. Hulamin BEE SPV will subscribe for 38 Hulamin OpCo shares
for a total cash consideration of R37.5 million which will
represent an effective 10% interest in Hulamin OpCo
iii. the Hulamin BEE transaction will be funded as follows:
a. total equity contributions by Imbewu and Makana of
R40 million into Hulamin BEE SPV of which R37.5
million will used to subscribe for the Hulamin OpCo
shares referred to in (ii) above and the remaining
R2.5 million will be used to subscribe for Hulamin
"A" ordinary shares; and
b. a partially amortising term bank loan facility of
R566 million to Hulamin BEE SPV, which will in turn
be advanced by Hulamin BEE SPV to Hulamin OpCo as a
shareholders loan.
2.5.1.2 Subscription for shares in Hulamin OpCo
i. Hulamin BEE SPV will subscribe for 38 Hulamin OpCo shares
which will constitute a 10% interest in Hulamin OpCo for a
total consideration of R37.5 million. In addition Hulamin
BEE SPV will advance R566 million to Hulamin OpCo in
shareholder loans on terms matching the bank loan referred
to in paragraph y2.5.1.2 above. The subscription
consideration is based on the valuation as set out in
paragraph y2.1 above;
ii. the Hulamin BEE SPV loan will first be applied to repay a
portion of the loans made by Hulamin to Hulamin OpCo of
approximately R1 354 million arising from the sale of
business referred to above;
iii. on the seventh anniversary of the effective date, unless
otherwise agreed by Hulamin and Hulamin BEE SPV, the
Hulamin OpCo shares will be exchanged, on an equivalent
value basis, for listed Hulamin ordinary shares in
Hulamin. The Hulamin BEE partners and Hulamin BEE SPV will
be subject to lock in provisions for a further period of
three years;
iv. Hulamin BEE SPV has agreed to a lock in for a period of 10
years in relation to the Hulamin OpCo shares and/or the
Hulamin ordinary shares following an exchange of shares as
recorded in sub paragraph (iii), as the case may be; and
v. the Hulamin ESOP Share Trust and Hulamin MSOP Share Trust
will each subscribe for Hulamin "B" ordinary shares
representing a collective interest of 5% in Hulamin. The
Hulamin "B" ordinary shares will not be listed on the JSE
but will rank pari passu with the Hulamin ordinary shares
other than for certain rights and obligations attaching to
these shares set out in paragraph y2.5.2 below.
2.5.1.3 Creation of the Hulamin "A" ordinary shares
Hulamin has increased its authorised ordinary share capital by
creating 34 000 000 Hulamin "A" ordinary shares. The Hulamin
"A" ordinary shares will not be transferable except with
Hulamin`s prior written consent and will not be listed on the
JSE.
Hulamin has been granted dispensation from the JSE in order to
allow the holder of the Hulamin "A" ordinary shares to vote. In
terms of this dispensation, the votes attaching to each class
of shares in issue in Hulamin will be afforded equal rank and
all votes are to be counted collectively. Holders of Hulamin
"A" ordinary shares shall not entitled to any additional votes
or veto rights.
The Hulamin "A" ordinary shares do not carry any dividend or
other economic rights, but will entitle the holder, Hulamin BEE
SPV, to exercise 10% of the voting rights attaching to the
Hulamin shares in issue at a Hulamin general meeting until
Hulamin BEE SPV ceases to hold shares in Hulamin OpCo at which
time the Hulamin "A" ordinary shares will be repurchased by
Hulamin at their par value of R0.10 per share.
2.5.2 Hulamin employee participation
Hulamin will establish the Hulamin ESOP Share Trust and Hulamin
MSOP Share Trust for the benefit of Hulamin employees. Hulamin
and its subsidiaries will contribute a projected amount of R113
million to the Hulamin MSOP Share Trust and the Hulamin ESOP
Share Trust. The exact amount will be determined based on the
22-day VWAP of Hulamin for 22 trading days after the date on
which Hulamin is listed on the JSE, being Monday, 25 June 2007.
On receipt of this contribution, the Hulamin ESOP Share Trust will
subscribe for Hulamin B1 ordinary shares and the Hulamin MSOP Share Trust
will subscribe for a Hulamin B2 ordinary shares and Hulamin B3 ordinary
shares. The total cash consideration for the Hulamin "B" ordinary shares
is projected to be an amount of R113 million and the number of shares
subscribed for will represent an effective 5% interest in Hulamin.
The Hulamin "B" ordinary shares will not be listed on the JSE.
Hulamin has applied for and has been granted dispensation from the JSE in
order to allow holders of such Hulamin "B" ordinary shares to vote. In
terms of this dispensation, the votes attaching to each class of shares
in issue in Hulamin will be afforded equal rank and all votes are to be
counted collectively. Holders of Hulamin "B" ordinary shares shall not be
entitled to any additional votes or veto rights.
The Hulamin "B" ordinary shares will rank pari passu with the Hulamin
ordinary shares in all material respects with the following exceptions:
i. Hulamin retains the right to repurchase a number of each class of
the Hulamin "B" ordinary shares in terms of pre-determined formulae
immediately prior to the conversion of these shares into Hulamin
ordinary shares (see (ii) below); and
ii. on the 5th anniversary of the effective date, the remaining Hulamin
"B" ordinary shares will be converted into an equal number of
ordinary shares, listed on the JSE and ranking pari passu in all
respects with the existing issued Hulamin ordinary shares.
To facilitate the employee participation, Hulamin will contribute a
projected amount of R113 million to the Hulamin MSOP Share Trust and the
Hulamin ESOP Share Trust as set out above which amount will be used for
the subscription of Hulamin "B" ordinary shares.
In terms of this facilitation,
i. Hulamin will be the nominated income beneficiary of both the Hulamin
ESOP Share Trust and the Hulamin MSOP Share Trust and accordingly
for a period of five years from the effective date:
a. the Hulamin MSOP Share Trust beneficiaries will be attributed a
notional funding amount equal to the ordinary dividend declared in
every year. This notional funding charge will be discharged through
the payment of all dividends for a five year period to the Company
in its capacity as a vested income beneficiary of the Hulamin MSOP
Share Trust. The dividends not distributed to the Hulamin MSOP Share
Trust beneficiaries will thus reduce the number of Hulamin "B"
ordinary shares that Hulamin will be entitled to repurchase at
maturity in order to settle the outstanding notional vendor finance
amount. In accordance with the terms of the Hulamin B2 ordinary
shares and the Hulamin B3 ordinary shares, the Hulamin MSOP
beneficiaries will receive some shares for no consideration after
five years (the Hulamin B3 ordinary shares), while other shares will
be acquired at a 20% discount to the market value on the date of
allocation (the Hulamin B2 ordinary shares); and
b. the Hulamin ESOP Share Trust beneficiaries similarly will be charged
a notional funding amount equal to the ordinary dividend declared in
every year. This notional funding amount will be partly settled
through the 50% of the dividends declared on the Hulamin B1 ordinary
shares being paid to the company as a vested income beneficiary of
the Hulamin ESOP Share Trust with the remaining 50% of the dividends
being paid to the scheme beneficiaries. The dividends not
distributed to the Hulamin ESOP Share Trust beneficiaries will thus
reduce the number of Hulamin B1 ordinary shares that Hulamin will be
entitled to repurchase at maturity in order to settle the
outstanding notional vendor finance amount. In accordance with the
terms of the Hulamin B1 ordinary shares the Hulamin ESOP
beneficiaries will have paid the 22 day VWAP at the allocation date
of the shares, adjusted for the cash dividends paid to the
beneficiaries over vesting period of the shares.
ii. Hulamin will have the right to repurchase a variable number of
Hulamin "B" ordinary shares on the 5th anniversary of the effective
date at R0.01 per share, after which any remaining shares in the
Hulamin ESOP Share Trust and the Hulamin MSOP Share Trust will be
converted into Hulamin ordinary shares ranking pari passu with the
existing issued Hulamin ordinary shares with unrestricted rights.
2.5.3 Transaction diagram
The resultant Hulamin BEE transaction structure and funding is
illustrated in the published announcements contained in the
Business Day, Beeld, Natal Witness and Sowetan, dated 4 May
2007.
3. Economic cost of the BEE equity transactions
The total estimated economic cost of the TH BEE transaction is
expected to be approximately 3.5% of the derived TH market
capitalisation and the estimated economic cost of the Hulamin BEE
transaction is expected to be approximately 3% of the derived
Hulamin market capitalisation. These costs, which will in terms of
IFRS be recognised, mostly on a once off basis and as illustrated in
paragraph y4 below, in the financial results of the respective
companies, are considered to be within market norms for such BEE
transactions.
4. Pro forma financial effects of the transactions
The table below sets out the unaudited pro forma financial effects
of the unbundling, the pro rata share repurchase and the TH BEE
transaction on THG`s audited earnings per TH ordinary share,
headline EPS, diluted headline EPS, NAV per TH ordinary share and
NTAV per TH ordinary share, based on the audited results of THG for
the financial year ended 31 December 2006. The unaudited pro forma
financial effects are the responsibility of the THG directors and
have been prepared for illustrative purposes only to provide
information about how the transactions may have affected the
financial position of the THG shareholders on the relevant reporting
date. Due to their nature, the unaudited pro forma financial effects
may not be a fair reflection of THG`s financial position after
implementation of the transactions.
Conso- Hulamin TH share TH BEE Transac TH %
lidated unbundling repurcha transac tion after
THG se tion costs transac
before tions
(1) (2) (3) (4) (5)
(cents) (cents) (cents) (cents) (cents) (cents) change
Earnings 685 3,101 97 -352 -22 3,509 412%
per
ordinary
share
Headline 666 -73 -55 -352 -22 164 -75%
earnings
per
ordinary
share
Fully 668 3,021 90 -420 -21 3,339 400%
diluted
earnings
per
ordinary
share
Fully 649 -71 -54 -347 -21 156 -76%
diluted
headline
earnings
per
ordinary
share
Net 4,650 -1,556 -346 -7 -43 2,698 -42%
asset
value
per
ordinary
share
Net 4,637 -1,545 -346 -7 -43 2,696 -42%
tangible
asset
value
per
ordinary
share
1. Audited consolidated financial results of THG as reported for the
year ended 31 December 2006. The financial impacts on the earnings
of THG are illustrated as if the transactions had been implemented
at the beginning of the year which ended on 31 December 2006, while
the impact on the net assets of THG is shown as if the transaction
had been implemented on 31 December 2006.
2. The unbundling of Hulamin will take the form of a payment in specie
by THG to its shareholders. This payment is recorded at market
value, in terms of the adopted practice as permitted by IFRS, and
thus a revaluation is required to bring the investment of 50% in
Hulamin to the derived market value of R3 842 million. The
revaluation required is R3 348 million and does not impact on
headline earnings per share. This column reflects the revaluation of
the investment in Hulamin upon unbundling, the impact of
deconsolidating THG`s share of Hulamin`s earnings and net assets
from the THG results as well as certain costs in respect of
accelerated amortisation of IFRS costs in respect of the THG share
schemes. Full details of the financial effects of these transactions
will be set out in the circular to shareholders.
3. The impact of the specific, pro-rata repurchase of shares from
shareholders, by way of a scheme, for an amount of R500.2 million
(inclusive of STC) and the consequent cancellation of the shares
repurchased and reduction in the issued share capital by 4.5 shares
for every 100 shares, currently in issue. The income statement
effect includes an incremental R28 million after tax net finance
costs.
4. Predominantly comprised of the IFRS 2 charge in respect of the TH
BEE transactions which was derived using option pricing methodology.
The IFRS cost is comprised of a once off R282 million in respect of
the transactions with the Infrastructure and yoMoba BEE SPVs and a
further projected total pre-tax cost of R212 million, which is
amortised over 5 years, in respect of the ESOP / MSOP. An after tax
amortisation charge of R16 million in respect of the ESOP / MSOP is
reflected in the financial effects above and this annual charge will
increase as the unallocated capacity in the employee schemes is
utilised.
It should be noted that the eventual IFRS 2 cost which is to be
recognised by TH will depend on the difference between the derived
VWAP and the derived spot price at the date of the shareholders`
general meeting. Should the derived spot price at that date be
greater than the derived VWAP, this will result in a greater IFRS 2
cost and, should the derived spot price be lower than the derived
VWAP, the IFRS 2 cost will be lower. This latter amount can
therefore not be definitively calculated prior to the date of the
shareholders` general meeting and is not included in the IFRS 2 cost
disclosed above. Based on derived VWAP and spot price on 19 April
2007 of R127.88 and R137.00 this incremental cost would be c.R58
million.
The BEE SPVs and ESOP / MSOP trusts will, in terms of IFRS, be
consolidated by TH which will result in TH recognising the external
funding and interest charges incurred on such external funding by
the BEE SPVs. This external funding and concomitant interest charges
are partially offset by the injection of this funding into TH as
subscription consideration and the interest earned by TH on these
funds.
5. The costs associated with the transaction, a breakdown of which will
be contained in the circular to be sent to shareholders, have been
charged to the income statement or share premium account as
appropriate.
Impact of the Hulamin BEE transaction on the Hulamin Income Statement and
Balance Sheet
The table below sets out the unaudited pro forma financial effects of the
Hulamin BEE transaction on Hulamin`s audited basic EPS, diluted basic
EPS, headline EPS, diluted headline EPS, NAV per Hulamin ordinary share
and NTAV per Hulamin ordinary share, based on the audited results of
Hulamin for the financial year ended 31 December 2006. The unaudited pro
forma financial effects are the responsibility of the Hulamin directors
and have been prepared for illustrative purposes only to provide
information about how the listed transactions may have affected the
financial position of the Hulamin shareholders on the relevant reporting
date. Due to their nature, the unaudited pro forma financial effects may
not be a fair reflection of Hulamin`s financial position after
implementation of the transactions.
Before Hulamin After %
Hulamin BEE BEE Hulamin BEE
transaction Transaction transaction
Note reference (1) (2) change
(cents) (cents) (cents)
Earnings per Hulamin 117 -79 38 -68%
ordinary share
Headline earnings 117 -79 38 -68%
per Hulamin
ordinary share
Fully diluted 116 -79 37 -68%
earnings per Hulamin
ordinary share
Fully diluted 116 -79 37 -68%
headline earnings
per Hulamin ordinary
share
Net asset value per 1 552 18 1 570 1%
Hulamin ordinary
share
Net tangible asset 1 541 18 1 559 1%
value per Hulamin
ordinary share
Notes:
1. Audited Hulamin financial statements for the year ended 31 December
2006, incorporating certain balance sheet restructuring steps and
associated charges as will be detailed in the pre-listing statement
of Hulamin which will accompany the circular to be sent to
shareholders. Hulamin will have approximately 213 million shares in
issue immediately prior to the implementation of the BEE
transactions. The financial impacts on the earnings of Hulamin are
illustrated as if the transactions had been implemented at the
beginning of the year which ended on 31 December 2006, while the
impact on the net assets of Hulamin is shown as if the transaction
had been implemented on 31 December 2006.
2. Predominantly comprised of the IFRS 2 charge in respect of the
Hulamin BEE transactions which was derived using option pricing
methodology. The IFRS cost consists of a once off R152 million in
respect of the transactions with the Hulamin BEE SPV and a further
projected total pre-tax cost of R113 million, which is amortised
over 5 years, in respect of the ESOP / MSOP. An after tax
amortisation charge of R9 million in respect of the ESOP / MSOP is
reflected in the financial effects above and this annual charge will
increase as the unallocated capacity in the employee schemes is
utilised.
It should be noted that the eventual IFRS 2 cost which is to be
recognised by Hulamin will depend on the difference between the
derived VWAP and the derived spot price at the date of the
shareholders` general meeting. Should the derived spot price at that
date be greater than the derived VWAP, this will result in a greater
IFRS 2 cost and, should the derived spot price be lower than the
derived VWAP, the IFRS 2 cost will be lower. This latter amount can
therefore not be definitively calculated prior to the date of the
shareholders` general meeting and is not included in the IFRS2 cost
disclosed above. Based on derived VWAP and spot price on 19 April
2007 of R127.88 and R137.00 this incremental amount would be c.R14
million.
5. Conditions precedent
The following are the key conditions precedent to the various
transaction steps.
5.1 Conditions precedent applying to all transaction steps
All the transactions are subject to the following main conditions
precedent which shall be fulfilled, or, where relevant, waived, on
or before 25 June 2007:
- all resolutions set out in the notice of general meeting in the
circular are approved by shareholders;
- obtaining all requisite regulatory approvals for the
transactions including, but not limited to, JSE approval;
- the unconditional written approval of HM Treasury in the United
Kingdom, under the provisions of section 765 of the United
Kingdom and Corporation Taxes Act 1988, to the Transactions;
- the section 311 scheme of arrangement in respect of the pro
rata repurchase is agreed to by a majority representing not
less than three-fourths of the votes exercisable by the scheme
members present and voting, either in person or by proxy, at
the scheme meeting; and
- the section 311 scheme in respect of the pro rata share
repurchase is sanctioned by the Court.
5.2 Additional conditions precedent applying to the unbundling of
Hulamin
- The listing of Hulamin on the JSE.
5.3 Additional conditions precedent applying to the TH BEE transaction
The TH BEE transaction is subject to the following conditions
precedent which shall be fulfilled, or, where relevant, waived, on
or before 31 July 2007:
- the listing and unbundling of Hulamin becoming unconditional in
accordance with the terms as will be set out in the circular;
- THG confirming in writing (after having consulted with each of
BEE Infrastructure SPV and BEE yoMoba SPV) that it is satisfied
that, through the implementation of the TH BEE Transaction, TH
will achieve the TH Minimum Rating as will be set out in the
circular;
- the TH share repurchase becoming unconditional in accordance
with its terms as will be set out in the circular;
- the memorandum and articles of association (in the case of a
company) and/or the trust deed (in the case of a trust) of each
of the TH BEE anchor partners being amended to take into
account the relevant provisions of the TH BEE transaction
agreements (in so far as it is applicable to it) and the
funding agreements in a form and substance acceptable to
Hulamin and/or Tongaat (as the case may be);
- the Completion Agreement becoming unconditional and taking
effect in accordance with its terms and conditions; and
- there being no breach of certain representations, warranties
and undertakings contained in the TH BEE transaction
agreements.
Additional conditions precedent applying to the Hulamin BEE transaction
The Hulamin BEE transaction is subject to the following conditions
precedent which shall be fulfilled, or, where relevant, waived, on or
before 31 July 2007:
- the listing and unbundling of Hulamin becoming unconditional in
accordance with the terms as will be set out in the circular;
- Hulamin confirming in writing (after having consulted with
Hulamin BEE SPV) that it is satisfied that, through the
implementation of the Hulamin BEE transaction, Hulamin will
achieve the Hulamin Minimum Rating;
- there being no breach of certain representations, warranties
and undertakings contained in the Hulamin BEE transaction
agreements; and
- the Completion Agreement becoming unconditional and taking
effect in accordance with its terms and conditions.
6. Fair and reasonable opinions
6.1 TH fair and reasonable opinion
- Confirmation from an independent professional expert acceptable
to the JSE is required in terms of the JSE Listings
Requirements to indicate whether or not the TH BEE transaction
is fair and reasonable to THG shareholders as:
- Ms Hixonia Nyasulu, who is the executive chairperson of Ayavuna
and is the largest individual shareholder in Ayavuna, through
the Nyasulu Family Trust, currently serves on the THG Board and
is therefore regarded as a related party to TH. Ms Nyasulu will
own an indirect effective interest in TH of less than 1%; and
- the TH BEE transaction involves the issue of unlisted voting
securities, the TH "A" preferred ordinary shares and the TH "B"
ordinary shares, in terms of a special dispensation granted by
the JSE to waive the restrictions outlined in paragraph 4.24 of
its JSE Listings Requirements, which dispensation is
conditional upon THG obtaining the appropriate fair and
reasonable opinion.
- Ernst & Young Advisory Services Limited has been appointed as
independent professional expert and has concluded that the
terms and conditions of the TH BEE transaction are fair and
reasonable to all disinterested shareholders. This opinion
will be set out in the circular to shareholders.
6.2 Hulamin fair and reasonable opinion
Confirmation from an independent professional expert acceptable to
the JSE is required in terms of the JSE Listings Requirements to
indicate whether or not the Hulamin BEE transaction is fair and
reasonable to THG and Hulamin shareholders as:
- Mr JB Magwaza, who is chairman of and a shareholder in Imbewu,
currently serves on the THG Board and is therefore regarded as
a related party to Hulamin. Mr Magwaza will own an indirect
effective interest in Hulamin of less than 1%; and
- the Hulamin BEE transaction involves the issue of unlisted
voting securities, the Hulamin "A" ordinary shares and the
Hulamin "B" ordinary shares, in terms of a special dispensation
granted by the JSE to waive the restrictions outlined in
paragraph 4.24 of the JSE Listings Requirements, which
dispensation is conditional upon THG obtaining the appropriate
fair and reasonable opinion in respect of the Hulamin BEE
transaction.
Ernst & Young Advisory Services Limited has been appointed as
independent professional expert and has concluded that the terms and
conditions of the Hulamin BEE transaction are fair and reasonable to
all disinterested shareholders. This opinion will be set out in the
circular to shareholders.
7. Salient dates and times
The salient dates relating to the transactions are set out below
Last day to trade to vote at the scheme meeting on Wednesday, 30 May
Record date to vote at the scheme meeting on Wednesday, 6 June
Last day for receipt of proxies for the general
meeting by 10:00 on Thursday, 7 June
Last day for receipt of proxies for the scheme
meeting by 10:30 on Thursday, 7 June
General meeting to be held at 10:00 on Monday, 11 June
Scheme meeting to be held at 10:30 (or 10 minutes
after the conclusion of the general meeting,
whichever is the later) on Monday, 11 June
Results of the scheme and general meetings
published on SENS on or about Monday, 11 June
Results of the scheme and general meetings
published in the press on or about Tuesday, 12 June
Court hearing to sanction the scheme on Tuesday, 19 June
Results of the court hearing published on SENS on Tuesday, 19 June
Results of the court hearing published in the Wednesday, 20 June
press on
Last day to trade in THG ordinary shares on the
JSE to participate in the Hulamin unbundling under Friday, 22 June
the JSE Code TNT, ISIN: ZAE000007449 on
THG ordinary shares trade ex the entitlement to
the unbundled Hulamin shares under the JSE Code
TON and under the new ISIN ZAE000096533 on Monday, 25 June
Listing of Hulamin ordinary shares under the JSE
Code of HLM, ISIN ZAE000096210 from the
commencement of business on Monday, 25 June
Announcement of the specified ratio in respect of
the apportionment of the costs/ base cost of
Hulamin for taxation/CGT purposes on Wednesday, 27 June
Record date to participate in the unbundling on Friday, 29 June
Last day to trade for TH shareholders to be
eligible to receive the scheme consideration on Friday, 29 June
TH dematerialised shareholders will have their
accounts at the CSDP or broker updated on Monday, 2 July
(Note: Share certificates in the name of TH, ex
the unbundling, will be posted to certificated TH
shareholders from Monday 6 July 2007)
Hulamin share certificates will be posted by
registered post, at the risk of the certificated
shareholder concerned, to certificated
shareholders and dematerialised shareholders will
have their accounts at the CSDP or broker updated Monday, 2 July
on
If the scheme is sanctioned and implemented:
TH shares trade "ex" the scheme under a new ISIN
ZAE000096541 on Monday, 2 July
Record date on which TH shareholders must be
recorded in the register of members of THG in
order to receive the scheme consideration by 17:00 Friday, 6 July
on
Operative date of the scheme at the commencement
of trading on Monday, 9 July
Scheme consideration and share certificates in the
name of TH posted to certificated TH shareholders
(if documents of title are received on or prior to
the consideration record date) on or about Monday, 9 July
or, failing receipt of documents of title on or
before the consideration record date, within five
business days of receipt thereof by the transfer
secretaries.
Dematerialised TH shareholders have their accounts
held at their CSDP or broker credited with the
scheme consideration and updated on Monday, 9 July
Notes:
1. These dates and times are subject to change. Any material change
will be published on SENS and in the press. Any reference to time is
a reference to South African time.
2. If a form of proxy for the scheme meeting is not received by the
time and date shown above, it may be handed to the chairperson of
the scheme meeting no later than 10 minutes before the commencement
of the scheme meeting.
3. Shareholders should note that as THG is settling on STRATE,
settlement for trade takes place 5 (five) business days after such
trade. Therefore shareholders who acquire shares after Wednesday,
30 May 2007 will not be eligible to vote at the scheme meeting.
4. No dematerialisation or rematerialisation of THG ordinary share
certificates may take place after Friday 22 June 2007.
8. Posting of the circular
A circular providing further information on the transactions and
containing a notice of general meeting and a form of proxy will be
posted to TH shareholders on or about 18 May 2007.
9 Withdrawal of cautionary
The cautionary announcement is hereby withdrawn and accordingly
caution is no longer required to be exercised by shareholders when
dealing in their THG ordinary shares.
Tongaat
3 May, 2007
www.tongaat.co.za
Merchant Bank and debt adviser: RAND MERCHANT BANK (A division of
FirstRand Bank Limited)
Attorneys: Bowman Gilfillan Inc.
Independent expert: Ernst & Young Advisory Services
Reporting accountants to THG: Deloitte & Touche
Reporting accountants to Hulamin: PricewaterhouseCoopers
Transaction sponsor: RAND MERCHANT BANK (A division of FirstRand Bank
Limited)
Sponsor: Investec Bank Limited
Date: 03/05/2007 14:55:09 Produced by the JSE SENS Department.
