| Thu 26 Mar 2009, 8:02 | | MVG / MVGP - Mvela Group - Batho Bonke Issues Notice to Exercise It`s Options |
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MVG / MVGP - Mvela Group - Batho Bonke Issues Notice to Exercise It`s Options
In ABSA Group
MVELAPHANDA GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1995/004153/06
Ordinary share code: MVG & Preference share code: MVGP
Ordinary share ISIN: ZAE000060737 & Preference share ISIN: ZAE000073540
("Mvela Group")
BATHO BONKE ISSUES NOTICE TO EXERCISE ITS OPTIONS IN ABSA GROUP
Shareholders are advised that Absa Group Limited ("Absa") today announced that
Batho Bonke Capital (Pty) Limited ("Batho Bonke") has issued a notice to
exercise its options in Absa ("the options") ahead of the last option exercise
date falling due on 1 June 2009 ("the Batho Bonke Option Exercise").
Mvela Group has a 44.7% effective interest in Batho Bonke. The final strike
price of the options will be determined with reference to the 30-day VWAP of
Absa ordinary shares on 1 June 2009. At the close of business on 17 March
2009, with the 30-day volume weighted average share price ("VWAP") of ABSA
ordinary shares being R88.74, the strike price of the options was R60.60 per
ABSA ordinary share and at this strike price the net value to Batho Bonke
translated to a pre-tax value of approximately R2.1 billion.
As part of the funding for the Batho Bonke Option Exercise, Batho Bonke will
sell 49.9% or 36.5 million option holding preference shares to Absa through a
specific repurchase of shares. Batho Bonke will retain the balance of 50.1% or
36.6 million shares, in line with the terms of the agreement reached in July
2004. Batho Bonke is in the final stages of agreeing the remaining funding.
The special resolutions pertaining to the proposed Batho Bonke Option Exercise
will be placed before Absa shareholders at Absa`s annual general meeting which
Absa proposes to convene on Tuesday, 21 April 2009 at 11h00.
Shareholders are referred to the Absa announcement released on SENS earlier
today. Pertinent extracts of this announcement are set out below:
"ABSA`S BLACK ECONOMIC EMPOWERMENT TRANSACTION WITH THE BATHO BONKE CONSORTIUM
1. INTRODUCTION
1.1. Following the implementation of Absa`s black economic empowerment (BEE)
transaction with Batho Bonke Capital (Proprietary) Limited (Batho Bonke)
in 2004, Absa shareholders are advised of the proposed partial
realisation and exercise by Batho Bonke of its options to subscribe for
73 152 300 ordinary shares in Absa in anticipation of the last option
exercise date falling due on 1 June 2009 (the Batho Bonke Option
Exercise).
1.2. This is to be achieved on 1 June 2009 by:
- a specific repurchase and cancellation by Absa of 49,9% (36 503 000)
of the Absa redeemable option-holding preference shares held by
Batho Bonke;
- an issue by Absa of 36 649 300 ordinary shares arising from the
exercise by Batho Bonke of 50,1% (36 649 300) of the options
attaching to the Absa redeemable option-holding preference shares
held by Batho Bonke; and
- a provision by Absa of a three-month back-up funding facility for
the Batho Bonke Option Exercise, should Batho Bonke require it.
2. BEE TRANSACTION BACKGROUND
2.1 In July 2004, with the aim of facilitating meaningful participation by
black South Africans, as envisaged by the Financial Sector Charter (FSC),
Absa became the first of the four major banks in South Africa to conclude
a significant BEE transaction when it sold 10,0% of its equity (being 73
152 300 Absa redeemable option-holding preference shares (Redeemable
Preference Shares)), with full voting rights, to Batho Bonke (the BEE
transaction).
2.2 The original objectives of the BEE transaction were to:
- re-align the existing shareholding and directorships of Absa to
include a meaningful proportion of black shareholders and directors;
and
- create economic value over the short and long term.
2.3 The Batho Bonke empowerment consortium consists of a broad base of
previously disadvantaged groups, including, at implementation, strategic
partners with a broad-based component (20,0%), broad-based small and
medium businesses, groupings and community trusts (29,4%), Absa
groupings, including black employees and directors/associates of Absa
(15,7%), women`s groups (4,0%), and the balance consisting of key
individuals, including regional co-ordinators (30,9%) across the
country`s nine provinces.
2.4 The BEE transaction entitled Batho Bonke to exercise the 73 152 300
options (Options) embedded in the Redeemable Preference Shares and to
subscribe for the corresponding 73 152 300 Absa ordinary shares (Absa
Subscription Shares) during the option period (being 2 July 2007 to 1
July 2009), on the option exercise dates being 1 March, 1 June, 1
September, 1 December (Option Exercise Dates) and at the applicable
option strike price (Option Strike Price). Any Options not exercised
before the last Option Exercise Date (1 June 2009) will lapse on 1 July
2009.
The Option Strike Price was agreed as being:
- R48,00, if the Absa 30-day volume-weighted average price (VWAP)
share price was less than or equal to R70,00;
- R48,00 plus 70 cents for each complete R1,00 over R70,00, if the
Absa 30-day VWAP share price was greater than R70,00 but less than
or equal to R100,00; or
- R69,00 if the Absa 30-day VWAP share price was greater than R100,00.
This would translate to an effective 30% discount to the prevailing Absa
share price with a maximum option strike price of R69,00 and a minimum of
R48,00.
2.5 At the time of structuring the BEE transaction in 2004 it was envisaged
that Batho Bonke would:
exercise, at its election, 73 152 300 Options and subscribe for the
corresponding 73 152 300 Absa Subscription Shares;
sell up to 49,9% (that is up to 36 503 000) of the Absa Subscription Shares to
assist with funding the exercise of all the Options; and
hold its remaining 50,1% (that is 36 649 300) Absa Subscription Shares until
(if not beyond) 31 March 2011 (the Final Date).
3. RATIONALE FOR THE PROPOSED BATHO BONKE OPTION EXERCISE
3.1 Guiding Principles - Absa`s BEE transaction provided for the realignment
of the existing Absa shareholding and directorships to include a
meaningful proportion of black shareholders and directors. To continue to
achieve Absa`s shareholder transformation objectives, with due regard to
the prevailing market conditions, Absa and Batho Bonke have agreed on an
option exercise strategy that:
- optimises the value realised to Batho Bonke`s consortium members;
and
- enables the funding of Batho Bonke`s exercise of Options and
continued stake in Absa.
3.2 Value realised - The Absa BEE transaction has delivered significant
immediate tangible and long-term value to black shareholders, despite the
recent economic downturn and depressed market conditions. Assuming a
current Absa share price of R88,74 per share (being the 30-day volume
weighted average share price as at the close of business on 17 March
2009) and an Option Strike Price of R60,60 per share, the net value
accretion to Batho Bonke on its 73,1 million shares translates to a pre-
tax value of approximately R2,0 billion.
3.3 Facilitation of funding - Given the imminent last Option Exercise Date of
1 June 2009, Absa has agreed to provide Batho Bonke, should Batho Bonke
require it, with a three-month back-up funding facility (on market-
related terms) from 1 June 2009 to 1 September 2009 to assist Batho Bonke
to exercise its options on 1 June 2009 and to grant Batho Bonke a further
period in which to successfully raise external third-party funding based
on recent indications from Batho Bonke of market appetite. Should Batho
Bonke not be able to raise third-party funding during this period, the
Absa funding facility will remain in place for a further period (which
together with the initial three month period will total three years) but
on terms that will effectively pass the economic return on a specified
number of Absa Subscription Shares to Absa such that Absa and Batho Bonke
will be placed in the same economic position as if Absa had repurchased
the Absa Subscription Shares under a share buy-back transaction on the
funding date of 1 June 2009.
3.4 Benefits to Batho Bonke - the proposed Batho Bonke Option Exercise
transactions will result in the following benefits to Batho Bonke:
- optimising the value realised by Batho Bonke by ensuring the sale of
a substantial portion of Absa shares at market related prices;
- reducing the quantum and potential cost of required funding and
level of encumberance - the significant reduction of financing
required to exercise 100% of the Options (of up to R5,0 billion
assuming a maximum Option Strike Price of R69,00 per Option)
compared with funding 50,1% of the Options (being R2,5 billion less
a substantial portion of the sale proceeds) makes the fund raising
for Batho Bonke easier to execute and does not result in high
gearing being required;
- reducing the time pressure on the raising of third-party funding -
Absa will create some flexibility to secure optimally priced and
structured third-party funding; and
- Batho Bonke maintaining a potentially meaningful economic
shareholding in Absa of up to 5,1% with voting rights and a seat on
the Absa board.
3.5 Benefits to Absa - Absa and Absa ordinary shareholders stand to benefit
from the proposed Batho Bonke Option Exercise transactions by:
- realising Absa`s ownership transformation strategy in line with the
original principles and in compliance with the FSC under which the
transaction was originally structured;
- mitigating the share price impact of a substantial Absa ordinary
share sale in a volatile market environment;
- managing the magnitude of earnings and return on equity dilution by
issuing a reduced number of Absa Subscription Shares; and
- any additional capital will further bolster the capital levels of
Absa which are currently above regulatory levels and Absa board
approved targets of 10% for Tier 1 capital and 13% for total
capital.
3.6 Ongoing Absa BEE strategy - As one of the largest financial services
groups in South Africa, the Absa Group recognises that a more equitable
distribution of wealth and income should accelerate South Africa`s socio-
economic development and is necessary to sustain the nation`s forward
momentum. From this perspective and given our strategic commitment to the
country, it is in the long-term interests of the Absa Group, its
employees and shareholders to take positive steps to create a more
participative and representative South Africa, including but not limited
to broad-based black economic empowerment transactions.
4. THE PROPOSED BATHO BONKE OPTION EXERCISE
4.1 Absa repurchases 49,9% of Batho Bonke`s Redeemable Preference Shares
- On the last Option Exercise Date, which will be 1 June 2009 unless 1
June 2009 falls within a "closed period" in which event the date
will be extended to after the closed period in terms of the articles
of association of Absa (Sale Date), and subject to the fulfilment of
the conditions precedent Absa will repurchase and cancel 49,9% (36
503 000) of the Redeemable Preference Shares from Batho Bonke in
terms of an agreement between Absa and Batho Bonke (the First
Repurchase Agreement) and in accordance with the following agreed
formula:
The purchase price (PP) per Redeemable Preference Share payable by Absa to
Batho Bonke will be calculated in accordance with the following formula:
PP = PAR + AD + P
Where:
PAR = R2,00, being the par value of one Redeemable Preference Share;
AD = an amount equal to the arrear and unpaid dividends (if any) on one
Redeemable Preference Share as at the Sale Date; and
P = (MV - OSP) * (1 - D);
Where:
MV = an amount in ZAR equal to the Market Value of an Ordinary Share (with
reference to the 30-day VWAP) (as defined in Article 178.1 of Absa`s articles
of association) as at the Sale Date;
OSP = an amount in ZAR equal to the Option Strike Price (as defined in
Article 178.1 of Absa`s articles of association) calculated as at the Sale
Date of an Absa Subscription Share; and
D = 14,0% - the purchase price of the 36 503 000 Redeemable Preference Shares
will be paid by Absa out of its revenue reserves, which payment will be deemed
to be a dividend for tax purposes and will attract secondary tax on companies
in terms of the Income Tax Act, 1962, as amended (STC) at 10,0%. Accordingly,
the discount of 14,0% (D in the formula) will compensate Absa in this regard.
- Batho Bonke will on the Sale Date use a portion of the sale proceeds
to repay 49,9% of its related funding from Sanlam Limited (Sanlam)
and other costs related to the Batho Bonke Option Exercise.
- Batho Bonke will on the Sale Date apply approximately 50,0% of the
sale proceeds to exercise additional Options (Designated Options).
- At the election of Absa, Batho Bonke may use the remaining 50,0%
balance of the sale proceeds for a cash dividend to Batho Bonke
shareholders (of up to 50,0% of the remaining 50,0% balance), the
dividend allocation being subject to the quantum (minimum R1
billion) and to the terms of any third-party funding that Batho
Bonke is able to raise to exercise some or all of the remaining 36
649 300 Options (TP Options), and the balance for the exercise of
further Options (Additional Designated Options) (minimum of 50,0% of
the remaining 50,0% balance).
4.2 Absa to issue 36 649 300 Absa Subscription Shares arising from the
exercise by Batho Bonke of its 50,1% (36 649 300) remaining Options
- Batho Bonke will exercise its remaining 50,1% (36 649 300) of the
Options and Absa will issue the corresponding 36 649 300 Absa
Subscription Shares on the Sale Date.
- The funding for the exercise by Batho Bonke of the remaining 50,1%
of the Options will be obtained by Batho Bonke:
- partially from the sales proceeds arising from the specific
repurchase by Absa of the 49,9% of the Redeemable Preference Shares
(to exercise the Designated Options and the Additional Designated
Options); and
- partially from third-party funding (to exercise TP Options); and/or
- partially from Absa providing a three-month back-up funding facility
(to exercise the remaining Options (Remaining Options).
4.3 Batho Bonke will raise third-party funding
- Batho Bonke is in the process of raising third-party funding from a
consortium of institutions, ideally to fund the entire subscription
price for the balance of 36 649 300 Options held by Batho Bonke.
4.4 Absa to provide back-up funding to Batho Bonke for the option exercise,
should it be required by Batho Bonke
- To the extent that third-party funding is not in place by the Sale
Date or there is a shortfall in the amount of third-party funding
raised by Batho Bonke to fund the subscription of the balance of the
remaining Options, Absa will assist with back-up funding by
subscribing on the Sale Date for Newco "C" Preference Shares to be
created in the capital of Batho Bonke (Newco "C" Preference Shares)
in terms of the subscription agreement between Absa (as subscriber)
and Batho Bonke (as issuer) (the Subscription Agreement).
- Batho Bonke will continue after the Sale Date to try to raise third-
party funding to refinance the Absa funding. If Batho Bonke is
successful in raising the necessary third party funding after the
Sale Date, Batho Bonke will be able to redeem the Newco "C"
Preference Shares subscribed for by Absa.
- Should Batho Bonke not redeem Absa`s funding by 1 September 2009,
the economic return on the outstanding Absa funding will convert,
from that date, to the full economic return on a specified number of
Absa Ordinary Shares such that Absa and Batho Bonke will be placed
in the same economic position had Absa repurchased that specified
number of Absa Subscription Shares under a share buy-back
transaction on the funding date of 1 June 2009, and Batho Bonke
applying the profit to subscribe for the balance of the Absa
Subscription Shares. These underlying Absa shares may be repurchased
by Absa in terms of a second repurchase agreement between Absa and
Batho Bonke (the Second Repurchase Agreement) at the time of
redemption of the Newco "C" Preference Shares at any time after 1
September 2009."
Johannesburg
26 March 2009
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
Date: 26/03/2009 08:02:01 Produced by the JSE SENS Department.
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