| Fri 28 Mar 2008, 15:30 | | NED - Nedbank Group - Amendments to the following schemes in Nedbank Group`s |
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NED
NED
NED - Nedbank Group - Amendments to the following schemes in Nedbank Group`s
South African ("SA") Black Economic Empowerment ("BEE") transaction ("SA
BEE transaction") ("amendments to the SA BEE transaction"):
Nedbank Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1966/010630/06)
Share code JSE: NED NSX: NBK
ISIN: ZAE000004875
("Nedbank Group" or the "Company")
Announcement regarding:
Amendments to the following schemes in Nedbank Group`s South African ("SA")
Black Economic Empowerment ("BEE") transaction ("SA BEE transaction")
("amendments to the SA BEE transaction"):
- SA Black Business Partners Schemes;
- SA Corporate Scheme;
- SA Non-executive Directors Scheme; and
- SA Retail Scheme,
collectively the "SA BEE Schemes";
- amendments to the following schemes in Nedbank Group`s Namibian BEE
transaction ("Nambian BEE transaction") ("amendments to the Namibian BEE
transaction"):
- Nambian Discretionary Trust Scheme;
- Nambian Education Trust Scheme;
- Nambian Strategic Business Partners Schemes; and
- Nambian Strategic Community Partners Schemes,
collectively the "Namibian BEE Schemes";
- the reallocation of Nedbank Group ordinary shares ("Ordinary Shares") from
the SA Retail Scheme to the SA Black Management Scheme; and
- amendments to the Nedbank Group (2005) Share Option, Matched Share and
Restricted Share Scheme ("2005 Share Incentive Scheme").
1. Introduction
Nedbank Group seeks members` approval in order to effect the following
changes:
1.1 Amendments to the SA BEE transaction and the Namibian BEE transaction
The amendments envisaged intend replacing Nedbank Group`s current obligation
of issuing:
- capitalisation dividends with a cash dividend alternative; and
- Ordinary Shares in terms of various BEE performance agreements
("Reinvestment Shares")
to their BEE partners to one where the Company may issue cash dividends, the
proceeds of which must be used by the BEE partners to either:
- acquire Ordinary Shares on the open market; or
- if so instructed by the Company, subscribe for Ordinary Shares.
Further details on these amendments can be found in paragraph 2.1 below.
1.2 Reallocation of Ordinary Shares from the SA Retail Scheme to the SA Black
Management Scheme
Nedbank Group`s success in attracting and retaining significant numbers of
black middle and senior management has meant that the Ordinary Shares allocated
in terms of the SA Black Management Scheme have been depleted more quickly than
anticipated. The SA Black Management Scheme is therefore in need of further
Ordinary Shares in order to appropriately incentivise current black middle and
senior management.
There are currently excess unallocated Ordinary Shares in the SA Retail Scheme.
It is proposed the Company accelerate its call option over the excess
unallocated Ordinary Shares forming part of the SA Retail Scheme and reallocate
these Ordinary Shares to the SA Black Management Scheme. Further details on
this reallocation are set out in paragraph 2.2 below.
1.3 Amendments to the 2005 Share Incentive Scheme
The proposed amendments to the 2005 Share Incentive Scheme allow for the
introduction of the Matched Investment Plan, an enhancement to the Matched
Share Scheme that formed part of the original 2005 Share Incentive Scheme. A
further amendment to the 2005 Share Incentive Scheme allows for the
introduction of a wider selection of matched investment choices from which
employees may select in terms of their participation in the matched investment
plans. Further details on these amendments can be found in paragraph 2.3 below.
2. Rationale and mechanics
2.1 Amendments to the SA BEE transaction and the Namibian BEE transaction
2.1.1 Rationale
The SA BEE transaction and the Namibian BEE transaction were structured such
that they complied with Section 38 of the South African Companies Act, No. 61
of 1973, as amended ("Companies Act") ("Section 38") at that time, which
prohibited a company from providing financial assistance for the purpose of, or
in connection with, the purchase of, or subscription for, its own shares or the
shares of its holding company.
In order to conform with the requirements of Section 38, the SA BEE transaction
and the Namibian BEE transaction were structured such that the Company would,
if it resolved to declare dividends during the existence of the respective
schemes forming part of the SA BEE transaction and the Namibian BEE
transaction, undertake semi-annual awards of capitalisation dividends, with a
cash dividend alternative. In turn, the SA BEE Schemes are obliged to elect the
capitalisation dividend alternative in respect of all or some of the dividend
accruing to them and forfeit some or the entire cash dividend alternative.
Similarly, with regard to the Namibian BEE transaction, the Namibian BEE
Schemes are obliged to elect to receive a capitalisation dividend, should the
Company declare a capitalisation dividend with a cash dividend alternative. In
the absence of such capitalisation dividend, and subject to complying with
relevant legislation, the Namibian BEE Schemes are obliged to utilise the cash
dividend receipt to subscribe for additional Ordinary Shares or acquire
additional Ordinary Shares on the open market.
Failure by the participants in the SA BEE Schemes and the Namibian BEE Schemes
to elect the capitalisation dividend alternative could have been construed as
providing financial assistance in contravention of Section 38.
The continuing obligation on Nedbank Group to issue capitalisation dividends
with a cash dividend alternative has ma de it difficult for the Company to
manage its capital.
In addition, the Company is obliged to issue Reinvestment Shares to the
following BEE partners: the SA Black Business Partners Schemes, the Namibian
Discretionary Trust Scheme, the Namibian Strategic Business Partners Schemes
and the Namibian Strategic Community Partners Schemes, in terms of the
performance agreements relating to the SA BEE transaction and the Namibian BEE
transaction. The performance agreements govern the setting of the performance
criteria for the BEE partners, the evaluation thereof and the payment of the
performance fee arising therefrom. The BEE partners are obliged to utilise a
portion ("Reinvestment Portion") of their performance fee to subscribe for
Reinvestment Shares, with the balance of the cash retained for their working
capital requirements.
With effect from Friday, 14 December 2007, Section 38 was amended in terms of
the Corporate Laws Amendment Act, No. 24 of 2006, to extend the circumstances
in which a company may provide financial assistance for the purchase of its own
shares or those of its holding company.
The amendment to Section 38 of the Companies Act has made it possible for
Nedbank Group to simplify its capital management by removing its obligation to
continuously:
- declare capitalisation dividends with a cash dividend alternative; and
- issue Reinvestment Shares in terms of the performance agreements relating
to
the SA BEE transaction and the Namibian BEE transaction.
In line with the aforementioned amendments to Section 38, Nedbank Group
proposes amending the SA BEE transaction and the Namibian BEE transaction
accordingly.
2.1.2 Mechanics
Nedbank Group proposes amending the SA BEE transaction and the Namibian BEE
transaction in order to replace the current obligation of declaring a
capitalisation dividend with a cash dividend alternative, to one where the
Company may elect to declare:
- a capitalisation dividend with a cash alternative in which case the
participants in the SA BEE Schemes and Namibian BEE Schemes will have the
right to elect to receive either the capitalisation dividend or the cash
alternative. If they elect to receive the cash alternative, they are obliged to
utilise the cash dividend receipts to either:
- acquire additional Ordinary Shares on the open market; or
- if so instructed by Nedbank Group, subscribe for additional Ordinary Shares;
- a cash dividend, in which case the participants in the SA BEE Schemes and
Namibian BEE Schemes will be obliged to utilise the cash dividend receipts to
either:
- acquire additional Ordinary Shares on the open market; or
- if so instructed by Nedbank Group, subscribe for additional Ordinary Shares.
Further amendments proposed will replace the Company`s obligation of issuing
Reinvestment Shares to one where the SA Black Business Partners Schemes, the
Namibian Strategic Business Partners Schemes, the Namibian Strategic Community
Partners Schemes and the Namibian Discretionary Trust Scheme effectively
utilise the Reinvestment Portion of the performance fees, awarded in terms of
the performance agreements between the business partners and Nedbank Group, to
either:
- acquire additional Ordinary Shares on the open market; or
- if so instructed by Nedbank Group, subscribe for additional Ordinary
Shares.
To the extent that the proposed amendments to the SA BEE transaction and the
Namibian BEE transaction provide that the declaration of a cash dividend to
members with a requirement that the proceeds of such cash dividend be used to
either acquire Ordinary Shares on the open market or to subscribe for Ordinary
Shares in Nedbank Group constitutes the providing of financial assistance, the
Company requires the approval of its members in terms of Section 38 to approve,
by way of a special resolution, the providing of such financial assistance.
2.2 Allocation of further Ordinary Shares to the SA Black Management Scheme
2.2.1 Rationale
Nedbank Group has been highly successful in attracting and retaining
significant numbers of black middle and senior management. This success has
resulted in the number of Ordinary Shares available to incentivise such black
middle and senior management, as allocated in terms of the SA Black Management
Scheme, being depleted more quickly than anticipated.
In order to appropriately retain and incentivise Nedbank Group`s black middle
and senior management, the Company requires a further 2,400,000 Ordinary Shares
to be issued to the SA Black Management Scheme.
2.2.2 Mechanics
The SA Retail Scheme currently has excess unallocated Ordinary Shares within
the scheme. As subscription to the SA Retail Scheme is closed these additional
Ordinary Shares are in excess to what is required by the SA Retail Scheme in
order to meet its future obligations to its participants.
The excess unallocated Ordinary Shares in the SA Retail Scheme are subject to a
call option entitling Nedbank Group to purchase at the issue price (R1.00) and
cancel, at the end of the lock-in period, that number of Ordinary Shares held
by the SA Retail Scheme as at their then market value, equates to the
outstanding notional funding relating to those Ordinary Shares.
The Company proposes that its call option over the excess unallocated Ordinary
Shares in the SA Retail Scheme be accelerated and in so doing 2,400,000 of
these excess Ordinary Shares be repurchased. Such repurchase will be effected
at the par value of R1.00 per ordinary share. The Ordinary Shares repurchased
will subsequently be cancelled and Nedbank Group will issue 2,400,000 new
Ordinary Shares to the SA Black Management Scheme at a value equal to the 10-
day volume weighted average price per Ordinary Share for the period leading up
to the date of issue. The financial effects of this reallocation are detailed
in paragraph 3 below.
2.3 Amendments to the 2005 Share Incentive Scheme
2.3.1 Rationale
In line with Nedbank Group`s commitment to encourage the Company`s employees to
remain in the employ of the Company for the long-term, the Board wishes to
introduce additional retention measures and has accordingly approved certain
enhancements to the 2005 Share Incentive Scheme in the form of the addition of
the Matched Investment Plan, effective from 2009.
2.3.2 Mechanics
The Matched Investment Plan will allow eligible employees to use a percentage
of their pre-tax bonus, as awarded from the short-term incentive bonus pool
which is driven by the Company`s performance, towards buying Ordinary Shares
which can be matched by the Company on a maximum of a 2 for 1 basis on the
vesting date, subject to the fulfilment of certain conditions. Such conditions
will include remaining in the employ of the Company for the duration of the
vesting period, as well as the Company attaining certain performance and
stretch targets during this period.
Should the employee leave the employ of the Company prior to the vesting date,
he/she will forfeit his/her total investment, constituting the initial
investment in Ordinary Shares as well as the matching award, made in terms of
the Matched Investment Plan. The investment forming part of the Matched
Investment Plan and made with a percentage of an eligible employee`s pre-tax
bonus will be in Ordinary Shares while the matched award may be in either
Ordinary Shares, Old Mutual plc ordinary shares (listed on the JSE) or an
investment made in terms of the Galaxy Portfolio Services Platform. The higher
matching ratio with a maximum of 2 for 1, as compared to the current Matched
Share Scheme forming part of the 2005 Share Incentive Scheme which can be
matched on a maximum of a 1 for 1 basis, is as a result of the increased risk
faced by the employee in that their total investment, constituting the initial
investment in Ordinary Shares as well as the matching award, could be
forfeited.
The current Matched Share Scheme has also been expanded to allow for the
matched award to be made into Nedbank Group Ordinary Shares, Old Mutual plc
ordinary shares (listed on the JSE) or an investment made in terms of the
Galaxy Portfolio Services Platform.
3. Unaudited pro forma financial effects
Based on the IFRS reviewed consolidated historical results of the Company for
the year ended 31 December 2007, the unaudited pro forma financial effects of
the repurchase of Ordinary Shares from the SA Retail Scheme and the further
allocation of Ordinary Shares to the SA Black Management Scheme ("Proposed
Transactions") on the Company`s earnings per share ("EPS"), fully diluted EPS,
headline earnings per share ("HEPS"), fully diluted HEPS, net asset value
("NAV") and tangible net asset value ("TNAV") are set out below. These
unaudited pro forma financial effects have been prepared for illustrative
purposes only and because of their nature may not fairly present the Company`s
financial position and results of operations, nor the effect and impact of
Proposed Transactions. The unaudited pro forma financial effects are the
responsibility of the Company`s directors.
Before the
Proposed Pro forma
Transactions adjustments Notes
(cents) (cents)
EPS 1 511 (0.2) 3,4,6
Fully diluted EPS 1 454 (0.2) 3,4,6
HEPS 1 485 (0.2) 3,4,6
Fully diluted HEPS 1 429 (0.2) 3,4,6
Ordinary shareholders`
equity (R`million) 35 125 6.5 2,5
NAV per share 7 513 1.2 2,5
TNAV per share 6 207 1.2 2,5
Weighted average number
of shares in issue (`million) 399 0.0
Number of shares in issue
at year end (`million) 402 0.0
After the
Proposed Change
Transactions %
(cents)
EPS 1 511 (0.02)
Fully diluted EPS 1 454 (0.02)
HEPS 1 485 (0.02)
Fully diluted HEPS 1 429 (0.02)
Ordinary shareholders`
equity (R`million) 35 131 0.02
NAV per share 7 514 0.02
TNAV per share 62 08 0.02
Weighted average number
of shares in issue (`million) 399 0.00
Number of shares in issue
at year end (`million) 402 0.00
Notes:
1. Based on the IFRS reviewed consolidated historical results of the Company
for the year ended 31 December 2007.
2. In calculating the unaudited pro forma financial effects on EPS, fully
diluted EPS, HEPS, fully diluted HEPS, NAV and TNAV it was assumed that the
Proposed Transactions were implemented on 31 December 2007 for balance sheet
purposes and 1 January 2007 for income statement purposes.
3. The Nedbank Group share price used to quantify the cost of the allocation to
the SA Black Management Scheme was R109.50, being the closing price of the
Ordinary Shares on Friday, 14 March 2008, being the last practicable date for
the finalisation of these unaudited pro forma financial effects.
4. The share based payment expense relates to the issue of Ordinary Shares to
the SA Black Management Scheme. The charge will only pertain to those Ordinary
Shares actually allocated to employees of Nedbank. It is expected that 400,000
shares will be allocated in the financial year ended 31 December 2008 and the
balance of 2 million shares from 2009 to 2011. The first year accounting cost
is estimated to be R1.8 million. The total expense per allocation will be
amortised on a straight - line basis over the vesting period implicit in the
scheme, this being 4, 5 and 6 years. An estimate is also made as to the number
of employees expected to remain in Nedbank`s employ until all the vesting
conditions attaching to those Ordinary Shares have been fulfilled.
5. The increase in equity is as a result of the grant portion of the issue of
ordinary shares to the SA Black Management Scheme being deductible for tax
purposes and the resultant benefit being recognised directly in equity.
6. The only costs incurred directly associated with the Proposed Transactions
are accounting costs of R80,000.
4. Conditions precedent and circular
The implementation of the amendments to the SA BEE transaction and the Namibian
BEE transaction, the reallocation of Ordinary Shares from the SA Retail Scheme
to the SA Black Management Scheme and the amendments to the 2005 Share
Incentive Scheme are subject to:
- the passing of the relevant special and ordinary resolutions by the
requisite majority of members at the general meeting to be held on Tuesday, 13
May 2008, immediately after the AGM which is scheduled to begin at 9:00 at the
Company`s registered office at 135 Rivonia Road, Sandown, Sandton. The
resolutions are set out in the notice of general meeting contained in the
circular to members posted on Friday, 28 March 2008; and
- the registration of those resolutions which are special resolutions by the
Registrar of Companies.
Sandton
28 March 2008
Investment bank, corporate advisor and joint sponsor
NEDBANK CAPITAL
Attorneys
Edward Nathan Sonnenberg
Joint reporting accountants and auditors
Deloitte & Touche
Registered Auditors
KPMG
Lead sponsor in South Africa
Merrill Lynch
Global Markets & Investments Banking Group
Merrill Lynch South Africa (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the
JSE Limited
Sponsor in Namibia
OLD MUTUAL
Investment group
Date: 28/03/2008 15:30:24 Produced by the JSE SENS Department.
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