| Thu 29 Jul 2010, 14:59 | | AFR - AFGRI Limited - Black Economic Empowerment restructure and related party |
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AFR
AFR
AFR - AFGRI Limited - Black Economic Empowerment restructure and related party
transaction
AFGRI Limited
Registration Number: 1995/004030/06
(Incorporated in the Republic of South Africa)
ISIN: ZAE000040549
JSE share code: AFR
("AFGRI" or "the Company")
BLACK ECONOMIC EMPOWERMENT RESTRUCTURE AND RELATED PARTY TRANSACTION
INTRODUCTION
Shareholders are referred to the cautionary announcements released by the
Company on SENS on 13 May 2010 and 25 June 2010, wherein it was announced that
AFGRI was in discussions regarding a potential restructuring of its Black
Economic Empowerment interest.
Shareholders are advised that these discussions have now been concluded and that
Izitsalo Employee Investments (Proprietary) Limited, Registration number
2004/024831/07 ("Izitsalo"), one of the current beneficiaries of the Agri Sizwe
Empowerment Trust (Master`s Reference No. IT9911/04) ("Agri Sizwe Trust") with
an undivided interest of 19.9% in relation to distributions of capital and
interest by the Agri Sizwe Trust ("Agri Sizwe Trust Beneficiary Interests"),
will by agreement acquire the 80.1% Agri Sizwe Trust Beneficiary Interests of
all of the remaining beneficiaries of the Agri Sizwe Trust ("Exiting
Beneficiaries") ("the Izitsalo Acquisition"). While the Izitsalo Acquisition is
a transaction between Izitsalo and the Exiting Beneficiaries, the purchase price
payable by Izitsalo will be funded by way of a loan to Izitsalo from GRO Capital
Financial Services (Proprietary) Limited, Registration number 2003/014468/07
("GRO Capital"), a wholly-owned subsidiary of AFGRI Operations Limited,
Registration number 1995/005072/07 ("AOL"). AOL, in turn, is a wholly-owned
subsidiary of AFGRI.
Save for the acquisition by Izitsalo of the remaining 80.1% of the Agri Sizwe
Trust Beneficiary Interests not previously held by it and consequent amendments
to the Deed of Trust constituting the Agri Sizwe Trust ("Deed of Trust") and the
partnership agreement between AOL and Agri Sizwe Trust dated 23 November 2004
("Partnership Agreement"), the 2004 BEE Structure (as defined below) remains
unchanged.
The rationale for and terms of the Izitsalo Acquisition are set out below.
Background
Pursuant to the circular to its shareholders dated 20 December 2004, AFGRI
shareholders approved a BEE transaction in terms of which AFGRI disposed of a
26.77% undivided interest in the operations and net assets of AOL to the Agri
Sizwe Trust so that the Agri Sizwe Trust became a co-owner in respect of 26.77%
of such operations and net assets ("the 2004 BEE Structure").
The beneficiaries of the Agri Sizwe Trust, all of which are BEE Companies, were,
and currently are, as follows:
* Agri Sizwe (Proprietary) Limited, Registration number 2002/007704/07
("Agri Sizwe") as to 50.10% of the Agri Sizwe Trust Beneficiary
Interests;
* Izitsalo as to 19.90% of the Agri Sizwe Trust Beneficiary Interests;
* Basebenzi Investments (Proprietary) Limited, Registration number
1995/004276/07 as to 10.00% of the Agri Sizwe Trust Beneficiary
Interests;
* Bunang Sizwe Investments Holdings (Proprietary) Limited, Registration
number 2004/018005/07 as to 10.00% of the Agri Sizwe Trust Beneficiary
Interests;
* NERPO Investments Limited (Incorporated Association not for Gain),
Registration number 1998/013441/06 as to 5.00% of the Agri Sizwe Trust
Beneficiary Interests; and
* NAFU Investments Holdings (Proprietary) Limited, Registration number
2004/018121/07 as to 5.00% of the Agri Sizwe Trust Beneficiary
Interests.
Izitsalo is the investment vehicle for the AFGRI Operations Empowerment Scheme,
and the shares in Izitsalo are held as to:
* 40% by the AFGRI Employee Empowerment Trust (Master`s Reference No.
IT15104/06) for the benefit of historically disadvantaged South
African ("HDSA") employees;
* 60% by the AFGRI Charitable Trust (Master`s Reference No. IT15105/06)
for the benefit of HDSA employees and retired employees.
Rationale for the Izitsalo Acquisition
The AFGRI Board continues to believe that ownership of agricultural resources is
at the heart of land reform in South Africa and that it is in the best interests
of all South Africans that transformation in the agricultural industry be
concluded, maintained and enhanced. It is also incumbent on industry leaders,
such as AFGRI, to take the initiative in this regard.
Following the successful implementation of the 2004 BEE Structure, the AFGRI
Group has benefited in a number of ways from that structure, including:
* as a Black Empowered Enterprise, AOL has benefited from new business
opportunities, such as the ability to meet the BEE criteria for
government tenders and enabling its customers to count purchases or
services provided by AFGRI Operations toward their own BEE scorecards;
* the Agri Sizwe Trust has assisted AOL in developing new products and
services to be offered to Black People who form part of its target
market;
* the Agri Sizwe Trust has assisted the AFGRI Limited Group to recruit
skilled Black People and further its own transformation programme and
initiatives;
* AOL has been able to develop new, and enhance existing, relationships
with South African financial institutions such as the Land Bank and
other institutions that fall within the ambit of the Financial Sector
Charter; and
* AOL has been able to assist its customers in achieving their own BEE
objectives.
In turn, the Agri Sizwe Trust has benefited in the increased value of AOL
following implementation of the 2004 BEE Structure and the Exiting Beneficiaries
of the Agri Sizwe Trust want to realise such increased value.
From Izitsalo`s perspective, the Izitsalo Acquisition will provide continued
benefits to a broad based group of beneficiaries who are also employees of the
AFGRI Group and allow these beneficiaries to participate in the long term growth
of AFGRI.
From AFGRI`s perspective, the Izitsalo Acquisition will facilitate the
realisation of value for the Exiting Beneficiaries, while ensuring that AFGRI:
* retains and enhances its empowerment status;
* continues to meet its empowerment objectives;
* enhances employee ownership in the AFGRI Group;
* will simplify the composition of the AOL board; and
* provides a key stakeholder, AFGRI employees, with continued
empowerment benefits;
* will continue to partner with an empowerment shareholder whose long
term view is aligned with the long term vision and strategy of AFGRI,
which AFGRI believes is in the best interests of all shareholders.
Terms of the Izitsalo Acquisition
The Izitsalo Acquisition will be implemented by the acquisition by Izitsalo of
all of the Agri Sizwe Trust Beneficiary Interests which it does not already own
from the Exiting Beneficiaries. The total consideration payable by Izitsalo will
be R206 565 303.25 ("Purchase Consideration"). When the debt in Agri Sizwe Trust
of approximately R584 614 729 as at 31 May 2010, being the effective date of the
Izitsalo Acquisition is taken into account, the Purchase Consideration implies a
total value of the 26.77% undivided interest in AOL of R842 499 002.
As referred to above, the Purchase Consideration payable by Izitsalo is to be
funded by way of a loan of R211 485 303.25 from GRO Capital ("Izitsalo Loan"),
which will be utilised to settle the Purchase Consideration and the transaction
costs under the Izitsalo Acquisition. The Izitsalo Loan is secured by a cession
in securitatem debiti to GRO Capital of Izitsalo`s right, title, interest and
spes to all distributions of capital and interest by the Agri Sizwe Trust,
whether in cash or in specie or on loan account or otherwise.
The implementation of the Izitsalo Acquisition is subject to the fulfilment or
waiver of the following remaining suspensive conditions by not later than 30
September 2010:
* the obtaining of all relevant approvals contemplated in the Listings
Requirements of the JSE, including shareholder approval;
* the resignation by DM Sewela, MM Moloele, MI Mogari and M Mphahlele as
trustees of the Agri Sizwe Trust, the resignation by MM Moloele, MI
Mogari and KL Thoka as directors of AFGRI, the resignation of MM
Moloele and MI Mogari as directors of AOL and the resignation by MI
Mogari as an employee of AOL;
* the signing of a separate agreement between AOL, Agri Sizwe Trust, the
Agri Sizwe partnership (established by AOL and the trustees of the
Agri Sizwe Trust), Izitsalo and the Exiting Beneficiaries, giving
reciprocal waivers of any and all rights which each of them may have
against any of the other parties to that agreement, whether as
employers, employees, shareholders, directors, creditors, partners or
otherwise howsoever insofar as their rights and obligations in any of
the aforesaid capacities in relation to the Company, AOL, their
respective subsidiaries and the Agri Sizwe Trust are concerned;
* the passing of a resolution by the respective boards of directors of
Izitsalo, AOL, the Company and each of the Agri Sizwe Trust
Beneficiaries as well as the board of trustees of the Agri Sizwe
Trust, authorising signature of the Izitsalo Sale and Purchase
Agreement;
* the delivery by the controlling shareholders of Agri Sizwe to Izitsalo
of written special powers of attorney and/or written mandates from
each of the Agri Sizwe Trust Beneficiaries in a form acceptable to
Izitsalo, authorising MM Moloele to settle the terms of and sign the
Izitsalo Sale and Purchase Agreement on their behalf.
Related Party Transaction
The JSE has ruled that the Izitsalo Acquisition amounts to a related party
transaction, which requires approval of AFGRI Limited shareholders for the
following reasons:
* MM Moloele and KL Thoka, who are shareholders in Agri Sizwe, currently
serve as non-executive directors of AFGRI Limited and MI Mogari, who
is a shareholder in Agri Sizwe, currently serves as an executive
director of AFGRI Limited. It is intended on implementation of the
Izitsalo Acquisition that all three of these individuals will resign
as directors of AFGRI, that MM Moloele and MI Mogari will resign as
directors of AOL and that MI Mogari will resign as an employee of AOL;
* the exiting of a BEE partner is viewed by the JSE as an amendment to
the original terms of any BEE transaction;
* AFGRI is facilitating the Izitsalo Acquisition pursuant to the
Izitsalo Loan Agreement.
As the Transaction is a related party transaction, the board of directors of the
Company has appointed KPMG as its independent expert to provide a fairness
opinion.
A circular will be posted to shareholders in due course. The circular will set
out all the relevant information relating to the Izitsalo Acquisition, including
the independent expert`s opinion as to the fairness of the Izitsalo Acquisition
and will contain a notice convening an AFGRI General Meeting at which
resolutions required to give effect to the Izitsalo Acquisition and to approve
the amendments to the Deed of Trust and Partnership Agreement will be put to
shareholders for their approval.
Pro forma financial effects of the Izitsalo Acquisition on AFGRI
The unaudited pro forma financial effects of the Izitsalo Acquisition on the
earnings, headline earnings, net asset value and net tangible asset value per
share for AFGRI are set out below.
The unaudited pro forma financial effects are based on the published unaudited
consolidated interim financial results of AFGRI for the six months ended 31
December 2009 as released on SENS on 24 February 2010 and published in the South
African press on 25 February 2010.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only and because of their nature, may not fairly present AFGRI`s
financial position and results of operations after the Izitsalo Acquisition. The
unaudited pro forma financial effects are the responsibility of the Directors of
AFGRI.
Unaudited Percen
Before Pro Forma tage
After change
Earnings per share from all operations 48,3 48,3 0%
(cents)
Diluted earnings per share from all 43,7 43,7 0%
operations (cents)
Headline earnings per share from all 45,2 45,2 0%
operations (cents)
Diluted headline earnings per share from 40,9 40,9 0%
all operations (cents)
Net asset value per share attributable to 446 446 0%
equity shareholders (cents)
Net tangible asset value per share 390 390 0%
attributable to equity shareholders
(cents)
Weighted average number of ordinary 321 037 321 037
shares in issue 157 157
Diluted weighted average number of 354 794 354 794
ordinary shares in issue 254 254
Total number of ordinary shares in issue 354 794 354 794
254 254
Notes:
1 The "Before" column has been extracted from the published unaudited
consolidated interim financial results of AFGRI for the six months
ended 31 December 2009 as released on SENS on 24 February 2010 and
published in the South African press on 25 February 2010.
2 The unaudited pro forma financial effects have been calculated in a
manner consistent with International Financial Reporting Standards and
with the basis on which the historical financial information has been
prepared in terms of accounting policies.
3 For purposes of calculating the pro forma financial effects on
earnings and headline earnings it is assumed that the Izitsalo
Acquisition was implemented on 1 July 2009.
4 For purposes of calculating the pro forma financial effects on net
asset value and net tangible asset value it is assumed that the
Izitsalo Acquisition was implemented on 31 December 2009.
5 The "Unaudited Pro Forma After" column reflects the impact of the
following adjustments:
- An increase in trade receivables of R211 million as a result of
the loan granted to Izitsalo.
- An increase in bank borrowings of R211 million as a result of the
loan granted to Izitsalo.
- The difference between the interest received adjustment and the
finance cost adjustment is immaterial for the purpose of
calculating the pro forma financial effects.
- Estimated transaction costs of R 5 million, which are once-off in
nature, will be recovered from Izitsalo.
Centurion
29 July 2010
Financial Advisors to AFGRI
J.P.Morgan
Sponsor to AFGRI
Investec Bank Limited
Legal Advisors to AFGRI
Brink Cohen Le Roux
Independent expert
KPMG
Legal advisor to Izitsalo
Van der Merwe Attorneys
Legal advisor to the Agri Sizwe Empowerment Trust
Mokonyane Inc
Date: 29/07/2010 14:59:01 Produced by the JSE SENS Department.
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