| Thu 26 Mar 2009, 8:49 | | ASA / ABSP - ABSA GROUP / ABSA BANK - ABSA`S Black |
|
JSE ASA ABSP
ABSP AMAGB
ASA / ABSP - ABSA GROUP / ABSA BANK - ABSA`S Black Economic Empowerment
transaction with The Batho Bonke Consortium
ABSA GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1986/003934/06)
ISIN: ZAE000067237
JSE share code: ASA
(Absa or Absa Group)
ABSA BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1986/004794/06)
ISIN: ZAE000079810
JSE share code: ABSP
Issuer code: AMAGB
(Absa Bank)
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.
5. PRO FORMA FINANCIAL INFORMATION
5.1. The unaudited pro forma financial information has been prepared for
illustrative purposes only to show the effect of the proposed Batho
Bonke Option Exercise on earnings per share (EPS), headline earnings per
share (HEPS), net asset value per share (NAVPS), tangible net asset
value per share (TNAVPS), diluted earnings per share (DEPS) and diluted
headline earnings per share (DHEPS) and is set out in the tables below.
5.2. Due to the nature of the unaudited pro forma financial information,
it may not give a fair reflection of Absa`s financial position, changes
in equity and results of operations or cash flows after implementation
of the scenarios related to the Batho Bonke Option Exercise. The
unaudited pro forma financial information has been prepared by and is
the responsibility of the directors of Absa and has been reviewed and
reported on by Absa`s auditors and reporting accountants, Ernst & Young
Inc. and PricewaterhouseCoopers Inc. The unaudited pro forma financial
information does not necessarily represent or indicate earnings or
future financial positions.
5.3. Scenario 1 shows the unaudited pro forma financial information in
relation to the (i) specific repurchase and cancellation by Absa of 36
503 000 of its Redeemable Preference Shares (49,9%) held by Batho Bonke
and (ii) issue by Absa of 36 649 300 ordinary shares arising from the
exercise by Batho Bonke of its Options attaching to the Redeemable
Preference Shares (50,1%) and such funding being provided by third-
parties.
Unadjusted Adjustments Pro forma Percentage
financial (unaudited) financial change
information information (unaudited)
(1) (unaudited)
(audited)
EPS (cents) 1 567,5 (79,8) 1 487,7 (5,1)
DEPS (cents) 1 509,5 (31,5) 1 478,0 (2,1)
HEPS (cents) 1 466,2 (74,5) 1 391,7 (5,1)
DHEPS 1 412,1 (29,5) 1 382,6 (2,1)
(cents)
NAVPS 6 949,9 (181,0) 6 768,9 (2,6)
(cents)
TNAVPS 6 809,2 (173,8) 6 635,4 (2,6)
(cents)
Shares in 680,3 36,6 716,9 5,4
issue
(million)
Weighted 675,7 36,6 712,3 5,4
average
number of
shares in
issue
(million)
Diluted 702,8 14,2 717,0 2,0
weighted
average
number of
shares in
issue
(million)
Notes
1."Unadjusted financial information" has been extracted from the
published audited results of Absa for the year ended 31 December
2008.
2.The financial effects have been determined based on the following
key assumptions:
* Scenario 1 was effective from 1 January 2008 for calculation of
earnings and headline earnings per Absa ordinary share. Net asset
value and tangible net asset value per Absa ordinary share have
been calculated as if Scenario 1 was effective as at 31 December
2008;
* the specific repurchase of 36 503 000 Redeemable Preference
Shares amounts to R958,6 million after applying the purchase
price formula (and using the 30-day volume weighted share price
of R88,74 as at the close of business on 17 March 2009 and an
Option Strike Price of R60,60 per share). The premium on
redemption is effected by Absa out of its revenue reserves and
will be deemed to be a dividend for tax purposes and will attract
secondary tax on companies at the prevailing rate of 10%;
* the issue by Absa of 36 649 300 new Absa ordinary shares
amounts to R2,2 billion, funding being provided by external
third-parties R1,6 billion and the remainder by Batho Bonke by
reinvesting 75,0% of the proceeds (after costs) arising on the
redemption of the Redeemable Preference Shares; and
* the overall net effect on earnings amounts to an increase of
R4,8 million after providing for a 3-month JIBAR (7,0%) post tax
yield on the net surplus cash inflow from third-party finance,
after the payment of STC and interest saving on the redeemed
Redeemable Preference Shares.
Scenario 2 shows the unaudited pro forma financial information in
relation to the (i) specific repurchase and cancellation by Absa of
36 503 000 of its Redeemable Preference Shares (49,9%) held by Batho
Bonke and (ii) issue by Absa of 36 649 300 ordinary shares arising
from the exercise by Batho Bonke of its Options attaching to the
Redeemable Preference Shares (50,1%) and such remaining funding
being provided by Absa by subscribing for the same number of
preference shares (Newco "C" Preference Shares) in the capital of
Batho Bonke.
cents Unadjusted Pro forma Pro forma Percentage
financial adjustment financial change
information(1) (unaudited) information (unaudited)
(audited) (unaudited)
EPS (cents) 1 567,5 (60,8) 1 506,7 (3,9)
DEPS (cents) 1 509,5 (12,8) 1 496,7 (0,8)
HEPS (cents) 1 466,2 (57,6) 1 408,6 (3,9)
DHEPS 1 412,1 (12,9) 1 399,2 (0,9)
(cents)
NAVPS 6 949,9 (227,2) 6 722,7 (3,3)
(cents)
TNAVPS 6 809,2 (223,0) 6 586,2 (3,3)
(cents)
Shares in 680,3 21,2 701,5 3,1
issue
(million)
(cents)
Weighted 675,7 21,2 696,9 3,1
average
number of
shares in
issue
(million)
Diluted 702,8 (1,2) 701,6 0,2
weighted
average
number of
shares in
issue
(million)
Notes:
1."Unadjusted financial information" has been extracted from the
published audited results of Absa for the year ended 31 December
2008.
2.The financial effects have been determined based on the following
key assumptions:
* Scenario 2 was effective from 1 January 2008 for calculation of
earnings and headline earnings per Absa ordinary share. Net asset
value and tangible net asset value per Absa ordinary share have
been calculated as if Scenario 2 was effective as at 31 December
2008;
* the specific repurchase of 36 503 000 Redeemable Preference
Shares amounts to R958,6 million after applying the purchase
price formula (and using the 30-day volume weighted share price
of R88,74 as at the close of business on 17 March 2009 and an
Option Strike Price of R60,60 per share). The premium on
redemption is effected by Absa out of its revenue reserves and
will be deemed to be a dividend for tax purposes and will attract
secondary tax on companies at 10,0%;
* the issue by Absa of 36 649 300 new Absa ordinary shares will
amount to R2,2 billion. Assuming Batho Bonke is unable to raise
external funding and net settles the Absa funding on the
effective date, a net 21 238 433 Absa Ordinary Shares will be
issued;
* the overall net effect on earnings amounts to a decrease of
R90,9 million after providing for a 3- month JIBAR (7%) post tax
yield on the net surplus cash outflow, STC and net interest
saving on the redeemed Redeemable Preference Shares; and
* the Absa funding arrangement results in a modification of the
original call option in terms of IFRS 2, but such modification
will not increase the fair value of the initial call option, and
accordingly there will be no IFRS 2-Share-based payment expense.
6. CONDITIONS PRECEDENT
The funding to be provided by Absa to Batho Bonke on the Sale Date
(1 June 2009) in terms of the First Repurchase Agreement (in the
form of the abovementioned sales proceeds), the Subscription
Agreement (in the form of the investment for Newco "C" Preference
Shares in the capital of Batho Bonke) and the Second Repurchase
Agreement (in respect of the repurchase of Absa ordinary shares) are
subject to the fulfilment before the Sale Date of certain suspensive
conditions, including, among others, obtaining the necessary
shareholder approvals:
* in terms of section 85 of the Companies Act, 1973, to
repurchase 36 503 000 Redeemable Preference Shares in terms of
the First Repurchase Agreement;
* in terms of section 38(2A) of the Companies Act, 1973, to
provide Batho Bonke with the financial assistance necessary to
enable Batho Bonke to exercise up to 50,1% (that is, 36 649 300)
Options and subscribe for the corresponding number of Absa
Subscription Shares in the capital of Absa; and
* in terms of section 85 of the Companies Act, 1973, to
repurchase from Batho Bonke on the redemption by Batho Bonke of
the Newco "C" Preference Shares in the capital of Batho Bonke, a
certain number of the Absa Subscription Shares in terms of the
Second Repurchase Agreement.
7. ANNUAL GENERAL MEETING
A notice of annual general meeting, to be approved by the JSE
Limited, will be posted to Absa shareholders on or about 30 March
2009, which will include the special resolutions pertaining to the
proposed Batho Bonke Option Exercise which are to be placed before
the shareholders of Absa at the annual general meeting, to take
place in the P W Sceales Auditorium, Absa Towers, 160 Main Street,
Johannesburg, on Tuesday, 21 April 2009 at 11h00.
Johannesburg
26 March 2009
Financial adviser:
Absa Capital
Attorneys:
Webber Wentzel
Sponsor:
Merrill Lynch South Africa (Proprietary) Limited
Enquiries:
Jacques Schindeh?tte
Group Financial Director
Tel: +27 11 350 4850
Fax: +27 11 350 8433
Email: jacquessc@absa.co.za
Conference Call
A conference call on the Batho Bonke transaction is to be hosted by Absa
Group Chief Executive, Maria Ramos and Group Financial Director, Jacques
Schindeh?tte at 10:00 a.m. on Thursday, the 26 March 2009.
Conference call details
Interested parties can join the announcement via the audio bridge.
Instructions to join the conference via telephone
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on the number that relates to your country (listed below). The operator
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operator will then transfer you into the conference and you will hear
music on hold until the presentation starts. Should you have any
problems or need assistance during the presentation please dial *0 for
the operator.
Live Call
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Playback - code: 2131#
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Date: 26/03/2009 08:00:05 Produced by the JSE SENS Department.
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