| Thu 16 Jul 2009, 13:48 | | SPP - The Spar Group Limited - The introduction of the spar employees and the |
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SPP
SPP
SPP - The Spar Group Limited - The introduction of the spar employees and the
retailer employees as New BBBEE Partners in Spar Holding an effective 10% of the
total issued share capital of Spar
The Spar Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1967/001572/06)
Share code: SPP ISIN: ZAE000058517
("Spar")
THE INTRODUCTION OF THE SPAR EMPLOYEES AND THE RETAILER EMPLOYEES AS NEW BBBEE
PARTNERS IN SPAR HOLDING AN EFFECTIVE 10% OF THE TOTAL ISSUED SHARE CAPITAL OF
SPAR
1 INTRODUCTION
Spar is pleased to announce its proposed broad-based black economic
empowerment ("BBBEE") scheme ("the Scheme"). The Scheme will result in
certain full-time employees of Spar ("the Spar Employees") and its member
retailers` employees ("the Retailer Employees") holding an effective 10% of
the total issued share capital of Spar.
2 RATIONALE
Spar recognises the fact that the Spar Employees and the Retailer Employees
(collectively "the Employees") have played an important role in the growth
of Spar and has therefore proposed the Scheme in order to empower the
Employees by providing them with an opportunity to acquire ordinary shares
in Spar and to participate in the capital appreciation of such shares.
Furthermore, South African business practice requires that transformation
must progress employment equity and black economic empowerment to create a
new and sustainable business platform. The principles of BBBEE are embraced
by Spar and transformation is a Spar imperative. Non-ownership elements of
the DTI Codes have already been adopted by Spar, which is a level 7
contributor with a 50% recognition level. Through Spar`s Enterprise
Development programme, Spar has assisted the development of black
enterprises as member retailers and at the end of September 2008, Spar had
132 black-owned member retailers.
3 SALIENT TERMS OF THE SCHEME
3.1 Specific issue of shares
For purposes of the Scheme, Spar has created two trusts for each of the
Spar Employees and the Retailer Employees, being The Spar BBBEE Employee
Trust and The Spar BBBEE Retailer Employee Trust ("the Trusts").
On the fifth business day after the fulfilment of the conditions precedent
as set out in paragraph 7 below ("Subscription Date") the Trusts will
subscribe for, and Spar will issue to them, a total of 18 911 349
convertible, redeemable preference shares ("Scheme Shares") at a par value
of 0.06 cents per share in order to implement the Scheme. At the
Subscription Date the Scheme Shares will represent 10% of the issued share
capital of Spar after the implementation of the Scheme.
On the Subscription Date, a notional loan ("Notional Loan") will be deemed
to attach to each Scheme Share, the amount of which shall be equal to the
30 day volume weighted average price ("VWAP") of a Spar ordinary share as
traded on the JSE ("Entry Market Price").
On the 7th anniversary of the Subscription Date ("Vesting Date"), the
Notional Loan attached to each Scheme Share shall be deemed to have been
increased by notional interest deemed to have accrued on the Notional Loan
for the duration of the Scheme (calculated at a rate of 80% of the prime
interest rate) and decreased by notional dividends deemed to have been
earned on the Scheme Shares (being the aggregate of all dividends actually
declared and paid by Spar per Spar ordinary share to its shareholders for
the duration of the Scheme).
On the Vesting Date the difference between the 30 day VWAP of a Spar
ordinary share as traded on the JSE on that date ("Exit Market Price") and
the adjusted value of the Notional Loan shall determine the number of
Scheme Shares that shall be converted into fully paid-up listed Spar
ordinary shares in terms of the formula set out in paragraph 3.3 below.
3.2 Participation in the Scheme
The Spar BBBEE Employee Trust
The Spar BBBEE Employee Trust has been established for the benefit of
qualifying Spar Employees and will subscribe for 7 564 540 Scheme Shares,
comprising 4% of the total issued share capital of Spar after the
implementation of the Scheme.
All Spar Employees, irrespective of race, who are not management graded
employees, and who are selected by the Board to receive an allocation of
Scheme Shares, shall qualify for participation in the Scheme. The initial
allocation of Scheme Shares shall be made on an equitable basis which
recognises the number of years of continuous employment with Spar. As at
the date of implementation the Scheme, it is expected that in excess of 75%
of the total numbers of Spar Employees will be black people.
Spar Employees are required to remain employed by Spar in order to receive
their benefits under the Scheme on the Vesting Date. Spar Employees who
terminate their employment with Spar could forfeit all or part of their
entitlement depending on their reasons for terminating their employment.
Forfeited Scheme Shares shall be reallocated to new or existing Spar
Employees on a fair and equitable basis at the discretion of the Spar board
of directors ("Board").
The Spar BBBEE Retailer Employee Trust
Prior to the implementation of the Scheme, Spar invited retailers who were
members of the Spar Guild of Southern Africa or the Build It Guild of
Southern Africa ("Member Retailers") to elect for their employees to
participate in the Scheme. Only employees of those Member Retailers who
took up such election are entitled to participate in the Scheme. However,
any Member Retailer who is or becomes a Member Retailer during the term of
the Scheme may advise Spar at any time that it wishes for its employees to
participate in the Scheme, whereafter the Board may allow for available
Scheme Shares to be allocated to the employees of such Member Retailers.
The Spar BBBEE Retailer Employee Trust has been established for the benefit
of qualifying Retailer Employees and will subscribe for 11 346 809 Scheme
Shares, comprising 6% in the total issued share capital of Spar after the
implementation of the Scheme.
Retailer Employees who, as at Subscriptions Date, have been in the employ
of the same Member Retailer for such minimum period as may be determined by
the Board, and who are selected by the Board to receive an allocation of
Scheme Shares, shall qualify for participation in the Scheme. As at the
date of implementation the Scheme, it is expected that in excess of 85% of
the total numbers of Retailer Employees will be black people.
Retailer Employees are required to remain employed by the same Member
Retailer in order to receive their benefits under the Scheme on the Vesting
Date. Retailer Employees who terminate their employment with the applicable
Member Retailer could forfeit all or part of their entitlement depending on
their reasons for terminating their employment. Forfeited Scheme Shares
shall be reallocated to new or existing Retailer Employees on a fair and
equitable basis at the discretion of the Board.
3.3 Vesting and conversion
Scheme Shares will vest in those Spar Employees and Retailer Employees who
remain participants in the Scheme on the Vesting Date ("Participants"). On
the Vesting Date, the number of the Scheme Shares which vest in each
Participant, and will subsequently be converted into fully paid-up listed
Spar ordinary shares ("Converted Ordinary Shares"), will be calculated
using the following formulae provided that any fractions arising from the
calculation shall be excluded:
E = A / C
And
A = (Y * C) - U
Where:
"E" is the number of Scheme Shares which will vest in the Participant and
will subsequently be converted into fully paid-up listed Spar ordinary
shares;
"A" is the value calculated to accrue to the Participant for the purposes
only of the calculation of the vested number of Scheme Shares, subject to
"A" having a minimum value of zero;
"Y" is the total number of Scheme Shares allocated to the Participant;
"C" is the Exit Market Price; and
"U" is the Notional Loan (adjusted to take into account Notional interest
and notional dividends, as dealt with in paragraph 3.1 above).
As soon as practical after the Vesting Date ("Conversion Date") the
Trustees will notify the Participant in writing of the number of Scheme
Shares which vest in the Participant and have been converted into listed
Spar ordinary shares and the amount of the Participant`s PAYE liability.
The Participant shall thereupon have an election to either discharge the
PAYE liability in cash or to irrevocably mandate the Trustees to dispose of
such portion of the Converted Ordinary Shares, as shall be sufficient to
discharge the Participant`s PAYE liability in full.
If a Participant elects or is deemed to have elected to dispose of a
portion of his Converted Ordinary Shares in order to discharge the PAYE
liability, Spar or its subsidiaries shall have a right and option, for a
period of 15 (fifteen) days thereafter, to buy back the Converted Ordinary
Shares at the Exit Market Price. Should Spar fail to buy back all or any of
the Converted Ordinary Shares timeously, all or the remaining Converted
Ordinary Shares shall be sold on the JSE as soon as reasonably possible.
The Trustees will appoint Spar to manage/ administer such sale.
The balance of the Participant`s Converted Ordinary Shares remaining after
the disposal shall be registered in the name of the Participant and issued
as certificated shares to Participants.
Any Scheme Shares which do not vest in a Participant or which are not
allocated to a Participant will not be converted into Spar ordinary shares
and will be redeemed by Spar and cancelled.
Any Converted Ordinary Shares, which remain in the Trusts as a result of
its failure to locate or distribute the applicable share certificates to a
Participant will be held by the Trusts for a period of 2 years from the
Conversion Date and thereafter if such share certificates remain unclaimed,
the applicable Converted Ordinary Shares will be disposed of by the
Trustees, mutatis mutandis, in accordance with the provisions of the
applicable Trust deed, and the proceeds, after taxation if any, which
result from such disposal will be donated to a new trust, which shall be
formed by the Board, in consultation with the Trustees, to be used
specifically for the education (including any expenditure related thereto)
of the Spar Group`s employees or the dependants of such employees or such
other purpose for the benefit of the Spar Group`s employees or the
dependants of such employees as may be approved by the trustees of the new
trust at the time.
4 RIGHTS ATTACHING TO THE SCHEME SHARES
4.1 Voting
The Trustees shall have the right and power to exercise any voting rights
or to abstain from exercising any voting rights, as the case may be,
attaching to the Scheme Shares, in such manner as the Trustees determine,
in their sole and absolute discretion, to be in the best interests of the
Participants.
The Scheme Shares shall, on the basis of the provisions set out in section
195(4)(b) of the Companies Act, have that proportion of the total votes in
Spar which the aggregate amount of the nominal value of the Scheme Shares
bears to the aggregate amount of the nominal value of all shares issued by
Spar; provided that if, at a general meeting, the aggregate votes
exercisable by the Trustees in respect of the Scheme Shares, present or
represented at the meeting, exceed 25% less 1 vote of the total votes
exercisable by all members present or represented at that meeting, the
Scheme Shares shall have the aforesaid proportion of the total votes at
that meeting in respect of one quarter only of the Scheme Shares and, in
respect of the other three quarters, such lower proportion as will result
in the total number of votes exercisable by the Trustees in respect of the
Scheme Shares being reduced to 25% less 1 vote of the aggregate votes
exercisable at the meeting concerned.
4.2 Variation of equity share capital
If a variation in the ordinary share capital of Spar occurs, including a
variation pursuant to a capitalisation or rights issue, sub-division,
consolidation or share buy-back, or if any merger, restructure,
reorganisation, dividend in specie, or other transaction which, in the
opinion of the Trustees taken in consultation with the Board, would
materially affect the value of the Scheme Shares, occurs, the Trustees
acting fairly, reasonably and objectively and in consultation with the
Board, may in their discretion adjust the value of the allocations made to
Participants, so that such value is materially similar to the value
applicable prior to the variation; provided that any such adjustments must
first be confirmed by the auditors of the Trusts as having been calculated
on a reasonable basis.
4.3 Take-Over
If a take-over occurs, the Vesting Date will be brought forward so as to
coincide with the date upon which the take-over is implemented, and vesting
shall take place as of such date; provided that if the persons who obtain
control of Spar offer to exchange the Scheme Shares for a new award, which
complies with certain provisions, then at the election of the Board, the
Vesting Date shall not be brought forward and the allocation of the Scheme
Shares to Participants in terms of the Scheme shall be exchanged for such
new award.
4.4 Winding-up
If Spar is wound-up, for any reason whatsoever, the Vesting Date shall be
brought forward to the date of winding-up and vesting shall take place as
of such date.
5 TRUSTEES
There shall always be 5 Trustees in office for each of the Trusts, of whom
such number as shall be required in terms of the DTI Codes to ensure that
the maximum number of points for broad-based equity ownership are scored by
the Company, shall be black persons. The Trustees may not be Participants
and the majority of the Trustees will be independent.
In respect of each of the Trusts, 3 Trustees shall be appointed from
persons nominated by the Participants, and 2 Trustees shall be appointed by
Spar.
6 PROFORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects of the Scheme, for which the
Board are responsible, are presented for illustrative purposes only and,
because of its nature, may not fairly present the financial position,
changes in equity and results of operations or cash flows post the
implementation of the Scheme.
The economic substance for accounting purposes is the granting of a call
option on Spar. On initial recognition, the derivative liability needs to
be measured at fair value using an option pricing model. Spar has applied
the Black Scholes model to value the option over 7 years, making certain
assumptions namely:
- The starting price (spot price) on 1 June 2009 was R57.05. This may
not be the case on final implementation of the Scheme.
- The strike price on 1 June 2009, taking into account the value of the
Notional Loan, the notional interest rate and the notional dividend
yield, was set at R59.80. This may not be the case on final
implementation of the Scheme.
- The dividend is assumed to be fixed percentage of earnings over the 7
year period, based on current dividend payment levels. In view of the
importance of the dividend to the determination of the notional
threshold debt balance in year 7, this assumption has a major impact
on valuation of the option cost.
The option has been valued at R252.9 million. R152.0 million of the cost of
the option is attributable to the option issued to the Retailer Employees
and in terms of AC503 is expensed immediately. The balance of the option
cost, amounting to R100.9 million relates to the option granted to Spar
Employees and as there is a service condition attached, this cost would be
amortised over 7 years based on the assumption that the grant date is 1
October 2008.
The resultant share based payment option expense through the income
statement is therefore R159.2 million on a pro-forma basis. This represents
the once off option expense relating to the Retailer Employees and the
amortisation over 7 years of the Employees service portion.
Per Spar share (1) (2) Change
Before After %
the
Scheme
Earnings (cents) 278.2 180.5 (35.1)
Headline earnings 242.5 144.8 (40.3)
(cents)
Net asset value 1 011.8 1 007.7 (0.4)
(cents)
Tangible net asset 866.7 863.2 (0.4)
value (cents)
Number of shares in 170 011 170 011 0
issue (`000)
Weighted issued 168 950 168 950 0
number of shares
(`000)
Notes:
1 Extracted from the published unaudited financial results of Spar for
the six months ended 31 March 2009.
2 For purposes of calculating the earnings per share and headline
earnings per share it was assumed that the Scheme was effective on 1
October 2008. The number of Scheme Shares issued as part of the Scheme
was based on the number of shares in issue on 31 March 2009.
3 For purposes of calculating the net asset value per share and tangible
net asset value per share it was assumed that the Scheme was effective
at 31 March 2009.
4 Transaction costs of R5.9 million relating to the Scheme have been
included in the determination of these pro-forma financial effects.
5 Spar is not able to ascertain the extent of ultimate dilution in 7
years time and therefore has not updated diluted earnings or diluted
headline earnings per share for the potential Scheme Shares dilution.
The independent reporting accountants` report on the pro forma financial
effects of the Scheme will be included in the circular to shareholders.
7 CONDITIONS PRECEDENT
The Scheme is conditional on the fulfilment, inter alia, of the following
conditions precedent:
- the requisite approval by the Spar shareholders of all the necessary
special and ordinary resolutions tabled at the general meeting of Spar
shareholders; and
- the registration of the special resolution tabled at the general
meeting of Spar shareholders.
8 SALIENT DATES AND TIMES
A circular containing full details of the Scheme and incorporating a notice of
general meeting, will be posted to Spar shareholders tomorrow:
2009
Circular and notice of general Friday, 17 July
meeting posted to Shareholders on
Forms of proxy for the general Friday, 7 August
meeting to be lodged by no later
than 09h00 on
General meeting to be held at Wednesday, 12
09h00 on August
Results of general meeting to be Wednesday, 12
announced on SENS on August
Results of general meeting to be Thursday, 13
published in the press on August
Forms of proxy for the General Meeting may also be handed to the chairperson 10
minutes before the commencement of the general meeting.
Pinetown
16 July 2009
Investment bank and transaction Attorneys to Spar
sponsor to Spar
(Investec Corporate Finance (Eversheds. logo)
Logo)
Reporting accountants Sponsor to Spar
(Deloitte logo) (BJM Logo)
Date: 16/07/2009 13:48:01 Produced by the JSE SENS Department.
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