| Wed 20 Feb 2008, 17:00 | | RBW - Rainbow - Announcement Regarding A Black Economic Empowerment Transaction |
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RBW
RBW
RBW - Rainbow - Announcement Regarding A Black Economic Empowerment Transaction
And Withdrawal Of Cautionary
RAINBOW CHICKEN LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1966/004972/06)
Share code JSE: RBW ISIN: ZAE000019063
("Rainbow" or "the company")
ANNOUNCEMENT REGARDING A BLACK ECONOMIC EMPOWERMENT TRANSACTION AND WITHDRAWAL
OF CAUTIONARY
1. INTRODUCTION
Shareholders are advised that, as part of Rainbow`s broad-based black economic
empowerment ("BEE") initiative, the company is pleased to announce that it
proposes introducing a strategic BEE shareholding into Rainbow ("the BEE
transaction").
The participants in the proposed BEE transaction will comprise the Imbewu
Consortium ("Imbewu"), Ikamva Labantu (a Corporate and Social Investment
Community Trust), the Rainbow employee trust and Mrs M Nhlanhla, a non-executive
director of Rainbow (collectively referred to as "the BEE partners").
The BEE transaction will result in 15% of Rainbow`s entire issued share capital
being owned by the BEE partners, equivalent to R915.6 million. The accounting
impact of the BEE transaction will result in a charge to the income statement,
estimated to be R95.7 million, or 2.0% of Rainbow`s market capitalisation of R4
727.1 million at 18 February 2008.
2. THE BEE TRANSACTION
2.1 Principles underlying the BEE transaction
2.1.1 Rainbow is committed to BEE and the BEE transaction is being implemented
in the context of Rainbow`s overall BEE strategy. The BEE transaction will
result in 15% of the entire issued ordinary share capital of Rainbow being owned
by Eagle Creek Investments 620 (Proprietary) Limited ("BEECo") the issued share
capital of which will be held by the BEE partners.
2.1.2 The BEE transaction has been structured to give effect to the following
principles:
2.1.2.1 BEE as contemplated in the Broad-Based Black Economic Empowerment Act,
No 53 of 2003 ("the BEE Act"), together with the "Codes of Good Practice" issued
by the Minister of Trade and Industry in terms of the BEE Act; and
2.1.2.2 The inclusion of the BEE partners in Rainbow`s shareholder base will
contribute to Rainbow`s growth and the achievement of its transformation goals.
2.2 Terms of the BEE transaction
2.2.1 The BEE transaction initially requires the establishment of
BEECo and the Rainbow employee trust.
2.2.2 The entire issued ordinary share capital of BEECo will be held as
follows:
- as to 40.00% by Imbewu;
- as to 16.67% by Ikamva Labantu;
- as to 42.66% by the Rainbow employee trust; and
- as to 0.67% by Mrs M Nhlanhla.
2.2.3 The relationship of the BEE partners is regulated by a shareholders
agreement in terms of which, inter alia, Imbewu will be entitled to appoint 3
directors to the board of BEECo, and Ikamva Labantu and the Rainbow employee
trust one director each. Voting rights of the BEE partners will be
proportionate to the ordinary shares held as per paragraph 2.2.2. Material
decisions, whether at a shareholder or director level, will require the
affirmative vote of 75% of ordinary shareholders as well as the approval of
Rainbow as the holder of the BEECo preference shares referred to below. Subject
to restrictions on alienations stipulated in paragraph 2.2.6, Rainbow has been
given pre-emptive rights should any BEE party wish to sell its shares in BEECo.
2.2.4 Rainbow will, subject to shareholder approval, issue 51 177 217 Rainbow
ordinary shares ("the BEE shares") to BEECo, which shares will represent 15% of
the entire issued ordinary share capital of Rainbow, after the issue of BEE
shares. The issue of the BEE shares will take place after the payment of any
dividends to Rainbow shareholders for the financial year ended 31 March 2008.
BEECo will accordingly not participate in any such dividends.
2.2.5 The BEE shares will be issued for a consideration of R17.89 per share.
This represents the 30-day volume-weighted average price of Rainbow ordinary
shares for the 30 trading days preceding 19 February 2008, being the date of
conclusion of the agreements relating to the BEE transaction.
2.2.6 The BEE shares will be subject to restrictions on alienation and
encumbrance for a period of 10 years commencing on the subscription date of the
BEECo preference shares referred to in paragraph 2.3.2. Similarly the ordinary
share capital of BEECo will be subject to restrictions on alienation and
encumbrance for a 10-year period.
2.2.7 Following implementation of the BEE transaction, Imbewu will be entitled
to appoint 2 directors to the Rainbow board. Their appointments will be Mr JB
Magwaza an existing non-executive director of Rainbow and Mr Gcina Zondi, the
Chief Executive of Imbewu Capital Partners.
2.3 Funding of BEECo
2.3.1 In order to raise the funds necessary to subscribe for the BEE shares,
BEECo will obtain a bridging loan from ABSA Bank in the amount of R915 560 412.
2.3.2 Immediately upon the issue of the BEE shares to BEECo, Rainbow will
subscribe for preference shares in BEECo upon the following terms:
2.3.2.1 Rainbow will subscribe for a total of 51 177 217 BEECo preference shares
("the BEECo preference shares") for a total subscription price of R915 560 412,
which is equivalent to R17.89 per BEECo preference share;
2.3.2.2 BEECo preference shares will yield an annual cumulative dividend equal
to a rate based on the Consumer Price Index (excluding interest on mortgage
bonds) ("CPIX") plus 6%; and
2.3.2.3 BEECo preference shares will be redeemed by no later than the 10th
anniversary of the subscription date. However they may be redeemed, at the
election of BEECo, at any time after date of subscription or, at the election of
Rainbow, at any time after the 8th anniversary of the date of subscription.
2.3.3 BEECo is obliged to apply the entire issue price of the BEECo preference
shares to settle the bridging loan referred to in paragraph 2.3.1.
2.3.4 Should BEECo be unable to pay the full redemption amount which is payable
on the date of redemption of the BEECo preference shares ("the redemption
date"), Rainbow is entitled to effect a buy-back in terms of Section 85 of the
Companies Act No 61 of 1973 as amended ("specific repurchase") of such number of
the BEE shares which, at a price per share equal to the volume-weighted average
price of Rainbow ordinary shares as traded on the JSE Limited ("JSE") over the
30 trading days ending on the redemption date, is equal to the outstanding
redemption amount, on the basis that the consideration owing by Rainbow to BEECo
in terms of the buy-back will be set-off against and be in full and final
settlement of the outstanding redemption amount.
2.4 Approval required
2.4.1 In order to afford the company the requisite authority, the board of
Rainbow proposes that, in accordance with the company`s articles of association
and subject to the company satisfying the requirements stipulated in the
Companies Act No 61 of 1973 as amended and (where applicable) the JSE Listings
Requirements:
2.4.1.1 Rainbow shareholders vote in favour of a special resolution approving
the provision of financial assistance to BEECo through the subscription of BEECo
preference shares as provided in paragraph 2.3.2; and
2.4.1.2 at the time of the specific repurchase (including in respect of the
working capital requirements of the Rainbow group of companies), Rainbow
shareholders approve by special resolution the specific repurchase by Rainbow
(utilising cash resources available to it at the time) at the price set in
paragraph 2.3.4.
2.4.2 Under the JSE Listings Requirements:
2.4.2.1 the proposed issue of the BEE shares by Rainbow constitutes a specific
issue of shares for cash;
2.4.2.2 as a consequence of the participation in the BEE transaction by:
2.4.2.2.1 Mrs M Nhlanhla, a non-executive director of Rainbow, who will have an
indirect shareholding in Rainbow of 0.1% via her 0.67% shareholding in BEECo;
and
2.4.2.2.2 Mr J.B. Magwaza, a non-executive director of Rainbow, who will have an
indirect shareholding in Rainbow of 0.75% via his 12.5% shareholding in Imbewu
Consortium, the issue of the BEE shares to BEECo will constitute a specific
issue of shares to related parties; and
2.4.2.3 if Rainbow ever exercises its right to buy-back some or all of the BEE
shares and/or to acquire any shares in the issued share capital of BEECo as
provided above, such buy-back or acquisition would be a specific repurchase of
shares.
2.4.3 Accordingly, the issue of the BEE shares, the subscription of the BEECo
preference shares, the specific repurchase and any acquisition of shares in
BEECo by Rainbow, require the prior approval by way of resolutions to be passed
by 75% of Rainbow shareholders present or represented by proxy at a general
meeting of Rainbow shareholders, excluding any party and its associates
participating in such issue of shares.
3. BEE PARTIES
Details of the BEE parties are provided below:
3.1 Imbewu
Imbewu is a broad-based consortium led by Imbewu Capital Partners and comprises
the following key parties:
Imbewu Capital Partners
Imbewu Capital Partners is an established black owned and controlled private
equity and investment holding company based in KwaZulu-Natal ("KZN"). Mr Gcina
Zondi is the Chief Executive of Imbewu Capital Partners and has extensive
private equity and investment banking experience. Mr Zondi also serves on the
boards of Imbewu Capital Partners` investee companies.
Strategic partners
The strategic partners are Mr JB Magwaza, who currently serves on the board of
Rainbow, as well as Mr Patrick September who held an executive management
position at Rainbow, from 1995 to his retirement on 31 December 2006.
Mr Magwaza has an interest of 12.5% in Imbewu, which in turn will have an
indirect interest of 6% in the issued share capital of Rainbow. Mr Magwaza`s
effective interest in Rainbow after the BEE transaction will be 0.75% and
accordingly, he will not be entitled to vote on the resolutions relating to the
BEE transaction.
Women`s groupings
The women`s groupings comprise high profiled black professional women and Omame
Investments, a group of black multi-skilled women with strong entrepreneurial
experience.
Broad-based groupings
The broad-based groupings` participants comprise non-profit organisations,
trusts and Section 21 companies whose objectives are to contribute to the
upliftment of the communities in KZN and include the following organisations:
- The Siyazisiza Trust;
- Ekukhanyeni Training Centre;
- Thandanani Children Foundation;
- The Mehlesizwe Trust; and
- KZN based Co-operatives.
3.2 Ikamva Labantu
Ikamva Labantu (meaning "the future of our nation") is a non-profit, non-
government organisation.
Ikamva Labantu functions as a development catalyst for community-based social
service programmes in South Africa. Working in partnership with the community,
the multi-cultural staff strive to improve the quality of life in South Africa`s
underprivileged communities. They provide a holistic approach to capacity
building, social development and other services. Each project that is initiated
by the organisation is the brainchild of the community, which is what makes
Ikamva Labantu unique.
Ikamva Labantu works with and assists programmes serving various sectors of the
population - children, youth, families, seniors and the disabled. The four core
services are health, education and capacity-building, poverty alleviation and
food security, and land and buildings.
3.3 The Rainbow employee trust
The Rainbow employee trust will be established by Rainbow to benefit all Rainbow
employees on a non-discriminatory basis (excluding senior management who
participate in the existing Rainbow share incentive trust). The Rainbow employee
trust will hold 42.66% of the issued share capital of BEECo and will issue units
to such Rainbow employees that are reflective of 42.66% of the BEE shares held
by BEECo.
Rainbow has a total of 7 611 employees, 90.6% of whom are black and 41.2% are
women. As such it is appropriate that all employees participate on a non-
discriminatory basis in the Rainbow employee trust.
3.4 Mrs M Nhlanhla, a non-executive director of Rainbow, who will have an
indirect shareholding in Rainbow of 0.1% via her 0.67% shareholding in BEECo and
accordingly, will not be entitled to vote on the resolutions relating to the BEE
transaction.
4. UNAUDITED PRO FORMA FINANCIAL EFFECTS
4.1 The unaudited pro forma financial effects of the BEE transaction are set out
below. The unaudited pro forma financial effects have been prepared for
illustrative purposes only to provide information on how the proposed BEE
transaction might have affected the reported historical financial information of
Rainbow. The unaudited pro forma financial effects are presented in a manner
consistent with the basis on which the historical information has been prepared
in terms of accounting policies. Because of its nature, the unaudited pro forma
financial effects may not fairly present Rainbow`s financial position, changes
in equity, results of operations or cash flows after the BEE transaction. The
directors of Rainbow are responsible for the preparation of the unaudited pro
forma financial effects.
4.2 The tables below set out the unaudited pro forma financial effects on
Rainbow of the BEE transaction based on the published financial results of
Rainbow for the six-month period ended 30 September 2007 and the financial year
ended 31 March 2007. The pro forma earnings "After the BEE Transaction" include
an up front IFRS 2 (Share based payments) charge and fees in respect of the BEE
transaction which are non recurring. The IFRS 2 charge and fees, being up
front, have a more significant impact on the pro forma results for the six-month
period ended 30 September 2007 compared to the impact on the pro forma results
for the year ended 31 March 2007.
Six-month period ended 30 September 2007
Before the BEE After the BEE Percentage
transaction transaction change
Earnings per share
(cents) 73.1 52.0 (28.9)
Headline earnings
per share (cents) 72.4 51.2 (29.3)
Net asset value per
share (cents) 699.3 698.0 (0.2)
Net tangible asset
value per share
(cents) 600.2 598.9 (0.2)
Notes
1. Earnings per share ("EPS"), headline earnings per share ("HEPS"), net asset
value per share("NAV") and net tangible asset value per share ("NTAV") "Before
the BEE transaction" are based on the published financial results of Rainbow for
the six-month period ended 30 September 2007.
2. The consolidated weighted average number of Rainbow ordinary shares in issue
for the period ended 30 September 2007 and the actual number of Rainbow ordinary
shares in issue at 30 September 2007 "Before the BEE transaction" are 287 898
137 and 290 004 228 respectively.
3. EPS and HEPS "After the BEE transaction" are based on the assumption that the
BEE transaction was implemented on 1 April 2007.
4. NAV and NTAV "After the BEE transaction" are based on the assumption that the
BEE transaction was implemented on 30 September 2007.
5. Earnings "After the BEE transaction" have been reduced by charges in respect
of IFRS 2 (refer to paragraph 4.3 below).
6. The consolidated weighted average number of Rainbow ordinary shares in issue
(net of treasury shares) for the period ended 30 September 2007 and the actual
number of Rainbow ordinary shares in issue (net of treasury shares) at 30
September 2007 "After the BEE transaction" are assumed to be 287 898 137 and 290
004 228 respectively (refer to paragraph 4.3 below).
7. Transaction and other administrative fees of R3.9 million are assumed.
8. The impact on interest income or expense of the transaction costs has not
been disclosed as it is assumed to be immaterial.
Financial year ended 31 March 2007
Before the BEE After the BEE Percentage
transaction transaction change
Earnings per share
(cents) 168.5 146.2 (13.2)
Headline earnings
per share (cents) 169.5 147.2 (13.2)
Net asset value per
share (cents) 679.5 678.1 (0.2)
Net tangible asset
value per share
(cents) 577.8 576.4 (0.2)
Notes
1. EPS, HEPS, NAV and NTAV "Before the BEE transaction" are based on the
published financial results of Rainbow for the financial year ended 31 March
2007.
2. The consolidated weighted average number of Rainbow ordinary shares in issue
for the year ended 31 March 2007 and the actual number of Rainbow ordinary
shares in issue at 31 March 2007 "Before the BEE transaction" are 281 393 342
and 282 712 022 respectively.
3. EPS and HEPS "After the BEE transaction" are based on the assumption that the
BEE transaction was implemented on 1 April 2006.
4. NAV and NTAV "After the BEE transaction" are based on the assumption that the
BEE transaction was implemented on 31 March 2007.
5. Earnings "After the BEE transaction" have been reduced by charges in respect
of IFRS 2 (refer to paragraph 4.3 below).
6. The consolidated weighted average number of Rainbow ordinary shares in issue
(net of treasury shares) for the year ended 31 March 2007 and the actual number
of Rainbow ordinary shares in issue (net of treasury shares) at 31 March 2007
"After the BEE transaction" are assumed to be 281 393 342 and 282 712 022
respectively (refer to paragraph 4.3 below).
7. Transaction and other administrative fees of R3.9 million are assumed.
8. The impact on interest income or expense of the transaction costs has not
been disclosed as it is assumed to be immaterial.
4.3 Accounting principles and assumptions relating to adjustments
4.3.1 The terms of issuance of the BEE shares and funding thereof are deemed for
accounting purposes to constitute the issuance of an option in Rainbow shares
granted to BEECo. Accordingly, the issuance of the BEE shares, and the
subscription by Rainbow of the BEECo preference shares, are not recognised for
accounting purposes.
4.3.2 In terms of IFRS 2, the fair value of the deemed option is an expense
which will be charged through the income statement of Rainbow. For the purposes
of preparation of the pro forma financial effects, the fair value of the deemed
option is assumed to be R95.7 million (2.0% of market capitalisation of R4 727.1
million on 18 February 2008). The option valuation is based on the Monte Carlo
call option valuation technique. Various assumptions, including the price at
which Rainbow`s shares traded on the JSE, are taken into consideration.
4.3.3 The deemed option value is assumed to be charged at the date of the BEE
transaction. The portion of the deemed option value attributable to the BEE
partners other than the Rainbow employee trust is expensed up front. The portion
of the deemed
option value attributable to the Rainbow employee trust is amortised equally
over the assumed vesting period of 10 years.
4.3.4 The portion of the deemed option value attributable to the BEE partners,
which is charged up front through headline earnings, is assumed to be R54.9
million. The balance of the deemed option value of R40.8 million attributable to
the Rainbow employee trust is assumed to be expensed through headline earnings
over 10 years.
4.3.5 The deemed option value relating to the BEE partners other than the
Rainbow employee trust recognised at the date of the BEE transaction is carried
in the balance sheet as a share based payment reserve as part of capital and
reserves. The interest of beneficiaries in the Rainbow employee trust is assumed
to be equity settled. Under these circumstances the deemed option value
attributable to the Rainbow employee trust will also be carried in the balance
sheet as a share based payment reserve.
4.3.6 The actual deemed option value will be finally determined based on
assumptions applying on the date that there is a shared understanding of the
terms and conditions of the transaction between Rainbow and the BEE
participants, subsequent to approval by the Rainbow shareholders and the date on
which the BEE transaction becomes unconditional. Accordingly, the actual deemed
option value charged to the income statement of Rainbow will differ from the pro
forma calculation.
4.3.7 The effect of the specific repurchase by Rainbow has not been included in
the pro forma financial effects as it is a future event of which the financial
effects are uncertain.
5. CONDITIONS PRECEDENT
The implementation of the BEE transaction is subject to fulfilment of the
condition precedent that the requisite majority of Rainbow shareholders vote in
favour of all the resolutions necessary to implement the BEE transaction.
6. IRREVOCABLE UNDERTAKINGS
The board of Rainbow has received irrevocable undertakings from Industrial
Partnerships Investments Limited and certain directors of Rainbow, holding 74.1%
and 0.43% of the issued share capital of Rainbow respectively, in terms of which
such shareholders have undertaken to vote in favour of the resolutions necessary
to implement the BEE transaction.
7. GOVERNMENT ENDORSEMENT
Rainbow has consulted various government departments, namely KwaZulu-Natal`s
Department of Finance and Economic Development and on a national basis the
Department of Agriculture and Department of Trade and Industry.
The Department of Trade and Industry in principle believes that the proposed BEE
transaction is broadly in line with the "Codes of Good Practice".
8. PROSPECTS,OPINIONS AND RECOMMENDATIONS
8.1. As per Rainbow interim results announcement on SENS on 21 November 2007 and
in the press on 22 November 2007, the board expects that:
"Consumer spending is expected to soften over the next six months as a
consequence of the higher inflation and interest rate environment, although the
impact on chicken consumption is likely to be limited.
Maize and soya prices are likely to remain at the current higher levels,
translating into higher feed input costs for the balance of the financial year.
Earnings growth for the full year on a pre- and post-IAS39 basis is expected to
be lower than the first six months."
8.2 The board of Rainbow has considered both the terms and conditions of the BEE
transaction, and is of the opinion that the BEE transaction is in the best
interests of all of Rainbow`s stakeholders. Accordingly, the board recommends
that shareholders vote in favour of the resolutions required to approve and
implement the BEE transaction.
8.3 The directors of Rainbow who, directly or indirectly, beneficially own
Rainbow shares, intend to vote in favour of the resolutions to implement the BEE
transaction.
9. FURTHER DOCUMENTATION AND IMPLEMENTATION
A circular, containing full details of the BEE transaction, will be posted to
Rainbow shareholders on 25 February 2008.
The general meeting will be held at 16:00 on 18 March 2008 and the proposed BEE
transaction will be implemented after the payment of any dividends to Rainbow
shareholders for the financial year ended 31 March 2008.
10. SALIENT DATES AND TIMES
The salient dates and times are:
Circular posted to Rainbow shareholders Monday, 25 February 2008
Last day to lodge forms of proxy (in
respect of general meeting of Rainbow
Shareholders) by 16:00 on Friday, 14 March 2008
General meeting of Rainbow shareholders
to be held at 16:00 on Tuesday, 18 March 2008
Results of general meeting published
on SENS Tuesday, 18 March 2008
Results of general meeting published
in the press Wednesday, 19 March 2008
The above dates and times are subject to change. Any change will be notified in
the press in English and Afrikaans and on SENS.
Dematerialised shareholders are required to notify their CSDP or broker as to
the manner in which they wish to vote their Rainbow shares at the general
meeting in the manner and time stipulated in the agreement governing the
relationship between the shareholder and their CSDP or broker. All times
indicated are South African times.
11. WITHDRAWAL OF CAUTIONARY
Given that full details of the proposed BEE transaction have now been provided
to the market, caution is no longer required to be exercised by shareholders
when dealing in their Rainbow securities.
Durban
20 February 2008
Corporate advisor
AMB Capital
Attorneys to Rainbow
Routledge Modise Attorneys
Independent reporting accountants and auditors
PricewaterhouseCoopers Inc
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Attorneys to Imbewu
Deneys Reitz
Date: 20/02/2008 17:00:01 Produced by the JSE SENS Department.
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