| Tue 29 Jul 2008, 7:05 | | TKG - Telkom SA Limited - Vodacom`s broad-based BEE transaction |
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TKG
TKG
TKG - Telkom SA Limited - Vodacom`s broad-based BEE transaction
Telkom SA Limited
(Registration Number 1991/005476/06)
ISIN ZAE000044897
JSE and NYSE Share Code TKG
("Telkom")
Vodacom`s broad-based BEE transaction
Shareholders are referred to the announcement below issued by Vodacom Group
(Pty) Limited ("Vodacom").
"1.Introduction
In an announcement dated 10 March 2008, Vodacom, a joint venture in which Telkom
SA Limited holds a 50% interest, announced its intention to implement a R7.5
billion broad-based BEE ownership transaction.
Vodacom and its shareholders, Vodafone Group plc and Telkom SA Limited, are
committed to meaningful participation by historically disadvantaged South
Africans at all levels of the South African economy. In furthering this
commitment Vodacom has concluded agreements that will facilitate the acquisition
of an effective 6.25% interest in the issued ordinary share capital of Vodacom
(Proprietary) Limited ("Vodacom SA" or "the Company") by broad-based BEE groups
("the BEE Transaction"). The BEE Transaction will be funded through a
combination of equity raised from BEE investors and notional vendor funding.
The BEE Transaction is one of the largest broad-based BEE transactions in the
South African information and communications technology industry and includes a
significant public offer to the broad-based black South African public through
YeboYethu Limited ("YeboYethu") (the "YeboYethu Offer").
The BEE Transaction underscores Vodacom`s commitment to achieving sustainable,
broad-based BEE ownership of Vodacom SA in line with the Codes of Good Practice
on Broad-Based BEE ("the Codes").
2. Overall BEE Transaction
2.1 Transaction structure
The BEE transaction will be structured as follows: Vodacom SA will be owned by
Vodacom Group (93.75%), YeboYethu (3.44%), Thebe (0.84%) and Royal Bafokeng
(1.97%). YeboYethu is owned by the Black Public (55%) and ESOP (45%).
The following BEE groupings will participate in the BEE Transaction and acquire
an indirect/direct interest in Vodacom SA through the following entities:
- Black people (as defined in the Codes), black controlled groups and Vodacom
SA`s black business partners (collectively the "Black Public") will
participate indirectly through YeboYethu, as set out in paragraph 3 below;
- Royal Bafokeng Holdings (Proprietary) Limited ("Royal Bafokeng") and Thebe
Investment Corporation (Proprietary) Limited ("Thebe") (collectively
referred to as "Strategic Partners") will participate through wholly-owned
subsidiaries directly in Vodacom SA, as set out in paragraph 4 below; and
- all Vodacom South African staff will participate through the YeboYethu
Employee Participation Trust ("ESOP"), which will hold a direct interest in
YeboYethu as set out in paragraph 5 below;
(collectively the "BEE Participants")
After the implementation of the BEE Transaction the effective participation in
Vodacom SA and the approximate value of such shares on 30 July 2008 will be as
follows:
Number % of % of the Current
of Vodacom SA BEE market
Vodacom post the Transaction value
SA BEE
shares Transaction (R`m)
(m)
Black Public 90.0 1.89 30.00 2 250.0
Royal 94.5 1.97 31.50 2 362.5
Bafokeng
Thebe 40.5 0.84 13.50 1 012.5
ESOP 75.0 1.55 25.00 1 875.0
Vodacom Group 4 500.0 93.75 - 112
500.0
Total 4 800.0 100.00 100.00 120
000.0
2.2 BEE Transaction mechanics
Vodacom SA will facilitate the BEE Transaction through a 10% upfront discount of
R750 million and by providing the BEE Participants with notional vendor finance
of R5.85 billion for a period of 7 years ("Facilitation Period").
Assuming full subscription by YeboYethu, the BEE Participants will invest R900
million of unencumbered equity in the BEE Transaction, which will be used to
subscribe for Vodacom SA ordinary shares and Vodacom SA A shares ("A shares")
(Vodacom SA ordinary shares and A shares are collectively referred to as
"Vodacom SA shares") as follows:
- Royal Bafokeng and Thebe will contribute equity of R540 million, which will
be utilised to subscribe for 10.8 million Vodacom SA ordinary shares and
124.2 million A shares;
- YeboYethu will subscribe for 7.2 million Vodacom SA ordinary shares and
82.8 million A shares on behalf of the Black Public; and
- YeboYethu will also subscribe for 75 million A shares at par value for the
benefit of ESOP.
The A shares will constitute a separate class of shares in the share capital of
Vodacom SA and will:
- have equal voting rights to Vodacom SA ordinary shares;
- be entitled to dividends only once the notional vendor finance outstandings
("Notional Outstandings") are nil, or when the Vodacom SA Call Option as
described in paragraph 2.3 below is exercised;
- the Notional Outstandings for each A share at the implementation date is
R20.1087 (other than in respect of the A shares pertaining to the ESOP,
where the Notional Outstandings will be R22.50 per A share);
- the Notional Outstandings will increase at 10% per annum, compounded semi-
annually in arrears ("Notional Rate"); and
- the Notional Outstandings will be reduced by the notional dividends that
each A share would have received if it was a Vodacom SA ordinary share. The
notional dividends will be increased and compounded at the Notional Rate.
2.3 Vodacom SA Call Option
Vodacom SA has the option to purchase, at the end of the Facilitation
Period, such number of A shares (and Vodacom SA ordinary shares, if
required) at par value, which will result in the Notional Outstandings
being realised ("Vodacom SA Call Option").
The number of A shares (and Vodacom SA ordinary shares, if required) in
respect of which Vodacom SA will have the Vodacom SA Call Option will be
determined using an independent fair market valuation of Vodacom SA.
After the exercise of the Vodacom SA Call Option, the BEE Participants will
be left with such number of Vodacom SA shares having a market value based
on the growth in value plus dividends in excess of the Notional Rate.
2.4 BEE Participants call option
To allow the BEE Participants to retain their original shareholding
immediately before the exercise of the Vodacom SA Call Option, BEE
Participants will have the right to subscribe for Vodacom SA ordinary
shares at fair market value.
2.5 BEE Transaction funding
The BEE Transaction will be funded as follows:
Equity Upfront Notional Value of
contribution discount vendor Vodacom SA
(R`m) (R`m) finance shares
(R`m) acquired
(R`m)
Royal 378 236.25 1 748.25 2 362.50
Bafokeng
Thebe 162 101.25 749.25 1 012.50
YeboYethu 360 225.00 1 665.00 2 250.00
Offer
ESOP - 187.50 1 687.50 1 875.00
Total 900 750.00 5 850.00 7 500.00
2.6 BEE Transaction facilitation cost
The estimated facilitation cost of the BEE Transaction is approximately 2%
of Vodacom SA`s value, and nearly 30% of the BEE Transaction value, and is
in line with comparable recent BEE transactions.
2.7 BEE Transaction term
The BEE Transaction will have a 10 year term ("the Transaction Term").
2.8 Dividend rights
Vodacom SA is expected to declare at least 50% of Vodacom SA`s consolidated
annual after tax profits as a dividend to ordinary shareholders, subject to
legal requirements and good business practice.
2.9 Governance of Vodacom SA
Royal Bafokeng, Thebe and YeboYethu will each be entitled to appoint a
board member to the board of Vodacom SA, which currently has 13 members.
3. Participation by the Black Public in the YeboYethu Offer
The YeboYethu Offer will result in the Black Public acquiring ordinary
shares in the issued share capital of YeboYethu, which will hold shares
directly in Vodacom SA.
3.1 Subscription in terms of the YeboYethu Offer
14.4 million YeboYethu ordinary shares ("YeboYethu shares") will be
available for subscription by the Black Public. Of this, 3.6 million
YeboYethu shares will be reserved for allocation to Vodacom`s black
business partners.
The actual number of YeboYethu shares allotted will be dependent on the
subscriptions received. If the YeboYethu Offer is under-subscribed, Royal
Bafokeng and Thebe will have the right to subscribe for the shortfall.
3.2 Terms for participation by the Black Public in the YeboYethu Offer
The public offer closes at 15h00 on Thursday, 11 September 2008. A
prospectus setting out detailed terms of the YeboYethu Offer will be made
available at most South African Post Office branches from 09h00 on 30 July
2008.
3.3 Governance of YeboYethu
The following directors have been appointed to the YeboYethu board:
Independent directors Non-independent
directors
Zarina Bassa Shameel Joosub
Deenadayalen Konar Peter Matlare
Thoko Mokgosi-Mwantembe Tlhabeli C Ralebitso
4. Participation by Strategic Partners in the BEE Transaction
Vodacom has selected Royal Bafokeng and Thebe as its Strategic Partners.
Paragraph 2.1 sets out how Royal Bafokeng and Thebe will participate in the BEE
Transaction.
4.1 Royal Bafokeng
Royal Bafokeng is the primary investment vehicle of the Royal Bafokeng
Nation, a 300 000 strong broad-based black community with its roots in an
ancient kingdom in the North West Province. The Royal Bafokeng nation owns
substantial platinum resources and has wisely reinvested the income
received into education and health of the Royal Bafokeng Nation. Over the
past 10 years, the Royal Bafokeng Nation has spent R2 billion on building
schools and clinics, as well as infrastructure such as roads and sanitation
in their community. Royal Bafokeng is responsible for the management and
development of the commercial assets of the Royal Bafokeng Nation, for the
sustainable benefit of the community.
4.2 Thebe
Thebe is one of the pioneers of broad-based BEE in South Africa. Its main
shareholder, the Batho Batho Trust, is a community based organisation
established to promote the social and economic development of black people
and women. Thebe`s business successes have been channeled into millions of
rands that have been invested through the Batho Batho Trust in numerous
community projects that directly transform and develop communities. Thebe`s
goal is to be a model of empowerment wherever it does business and it has
forged many local partnerships that have contributed to the development of
entrepreneurs, institutions and communities. Thebe`s philosophy of Umuntu
Umuntu Ngabantu ("we are what we are because of you and you are what you
are, because of us") also precisely defines one of Vodacom`s most important
values.
4.3 Terms for participation by Strategic Partners
Trading in No trading of Vodacom SA shares during the
Vodacom SA Facilitation Period.
shares After the Facilitation Period until the end
of the Transaction Term disposals of Vodacom
SA shares will only be allowed to Vodacom
approved BEE parties with at least the same
or higher BEE status.
Composition The Strategic Partners need to comply with a
number of BEE principles including those
that regulate the identity and composition
of the Strategic Partners together with any
changes to shareholdings in their corporate
group structures.
Breach To the extent that the Strategic Partners
breach their obligations in terms of the BEE
principles, they will be allowed to remedy
the breach within a grace period. If the
breach is not remedied and was caused by
facts or circumstances in their control, the
defaulting party will be deemed to have
offered its shareholding in Vodacom SA to
Vodacom at a discount to fair market value.
5. Participation by ESOP in the BEE Transaction
25% of the BEE Transaction has been set aside for Vodacom`s South African staff.
All permanent employees of Vodacom, Vodacom SA and their wholly-owned South
African subsidiaries, including employees who are on secondment outside of South
Africa will be eligible to participate in the BEE Transaction through the
allocation of units in the ESOP ("ESOP Participants").
The ESOP will participate in the BEE Transaction through YeboYethu. The ESOP
will own 12 000 000 compulsorily convertible class "N" shares in YeboYethu ("N
shares") until the N shares convert into YeboYethu shares on the earlier of the
exercise of the Vodacom SA Call Option or when the Notional Outstandings are
nil.
Key terms of the ESOP
Term The ESOP will have a term of 7 years ("ESOP
Term").
Vesting 20% of the ESOP units will vest annually from
inception.
ESOP participants will only receive the value
at the end of the Transaction Term.
Conversion N shares will automatically convert into a
formula determined number of YeboYethu shares
at the end of the ESOP Term.
The YeboYethu shares will be distributed to
ESOP Participants after the notional vendor
finance and taxes have been settled.
Trading No trading in ESOP units during the ESOP
Term.
6. Further announcement
A further announcement will be made once the YeboYethu Offer has closed."
Pro forma financial effects on Telkom
The table below sets out the pro forma financial effects of the Vodacom BEE
transaction on Telkom`s basic earnings per share, headline earnings per share,
net asset value and tangible net asset value per share, based on the published
reviewed provisional results for the year ended 31 March 2008. The pro forma
financial effects have been prepared for illustrative purposes only and,
because of their nature, may not give a true reflection of Telkom`s financial
position, changes in equity, and results of operations or cash flows. The pro
forma financial effects are the responsibility of the directors of Telkom.
Before the After the % change
implementation implementation
black of the change in
ownership black ownership
initiative initiative
(cents) (cents)
EPS 1565 1415 (9.59)
HEPS 1635 1485 (9.18)
NAV per 6570 6660 1.37
share
TNAV per 4875 4965 1.85
share
Notes:
1. The "Before" financial information has been extracted without adjustment
from the published reviewed provisional annual financial results of Telkom
for the financial year ended 31 March 2008.
2. The basic and headline earnings per share calculations have been based on
the assumptions that the Vodacom BEE transaction was implemented on 1 April
2007 and that it was effective for the full financial year ended 31 March
2008. The "Before" and "After" calculation is based on 509,595,092 weighted
number of shares in issue for the financial year ended 31 March 2008. The
"Before" and "After calculation is based on the following adjustments:
- An IFRS2 charge of R809 million (being 50% of the Vodacom Group
charge) based on a valuation prepared at the end of April 2008.
- Interest income of R62 million earned on 50% of the R900 million cash
received by Vodacom Group from the BEE shareholders from the issue of
shares, less the related tax effect of R18 million. Interest has been
calculated at an average nominal rate of 13.8%.
3. The net asset value and net tangible asset value per share calculations
have been based on the assumption that the transaction was implemented on
31 March 2008. The "Before" and "After" net asset value and net tangible
asset value per share has been calculated as the shareholder`s equity
divided by the number of Telkom shares in issue as at 31 March 2008. The
"Before" and "After" calculation is based on the following adjustment:
- Cash received from the BEE shareholders of R450 million on the issue
of shares, being 50% of the cash received by Vodacom Group from BEE
shareholders.
Pretoria
29 July 2008
Sponsor: UBS
Special note regarding forward-looking statements
Many of the statements included in this announcement, as well as oral statements
that may be made by us or by officers, directors or employees acting on behalf
of us, constitute or are based on forward looking statements within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995, specifically
Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of
the U.S. Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, including, among others, statements regarding
our mobile and other strategies, future financial position and plans,
objectives, capital expenditures, projected costs and anticipated cost savings
and financing plans, as well as projected levels of growth in the communications
market, are forward looking statements. These forward looking statements involve
a number of known and unknown risks, uncertainties and other factors that could
cause our actual results and outcomes to be materially different from historical
results or from any future results expressed or implied by such forward looking
statements. Among the factors that could cause our actual results or outcomes to
differ materially from our expectations are those risks identified in Item 3.
"Key Information - Risk Factors", of Telkom`s most recent Annual Report on Form
20-F filed with the US Securities and Exchange Commission (SEC) and its other
filings and submissions with the SEC which are available on Telkom`s website at
www.telkom.co.za/ir.
We caution you not to place undue reliance on these forward looking statements.
All written and oral forward looking statements attributable to us, or persons
acting on our behalf, are qualified in their entirety by these cautionary
statements. Moreover, unless we are required by law to update these statements,
we will not necessarily update any of these statements after the date hereof,
either to conform them to actual results or to changes in our expectations.
Date: 29/07/2008 07:05:15 Produced by the JSE SENS Department.
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