| Thu 21 Oct 2010, 10:19 | | CLS - Clicks Group Limited - The Introduction of The Clicks Group employees as |
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CLS
CLS
CLS - Clicks Group Limited - The Introduction of The Clicks Group employees as
New BBBEE partners in Clicks Group, Holding an effective 10% of the total issued
share capital of the company
Clicks Group Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1996/000645/06)
Share code: CLS ISIN: ZAE000134854
("the Company")
THE INTRODUCTION OF THE CLICKS GROUP EMPLOYEES AS NEW BBBEE PARTNERS IN CLICKS
GROUP, HOLDING AN EFFECTIVE 10% OF THE TOTAL ISSUED SHARE CAPITAL OF THE COMPANY
1 INTRODUCTION AND RATIONALE
The Company and its subsidiaries ("Clicks Group" or "the Group") is pleased
to announce its proposed broad-based black economic empowerment ("BBBEE")
transaction ("the Scheme"). Clicks Group recognises the importance of
positive transformation as a key element of the future prosperity of the
country and of the Clicks Group. Extending equity ownership to employees
will accelerate transformation and build on the progress that has been made
across all other areas of BBBEE within the Clicks Group. In addition, the
Company`s board of directors (the "Board") is of the view that the Scheme
will enable the Group to attract and retain scarce and specialist skills
whilst providing the employees with an opportunity to share in the growth
and capital appreciation of the Group.
The Scheme will result in qualifying Clicks Group employees principally
holding an effective 10% of the total issued share capital of the Company,
through the Clicks Group Employee Share Ownership Trust ("Trust"). The
transaction is valued at R1.2 billion based on the Group`s market
capitalisation at the close of business on Wednesday, 20 October 2010.
2 SALIENT TERMS OF THE SCHEME
2.1 Specific issue of shares
In terms of the Trust Deed, the Company will create and issue such number
of unlisted "A" ordinary shares (""A" Shares"), as will equal 10% of the
issued share capital of the Company, net of treasury shares, and after the
issue of the "A" Shares, to the Trust at par being R0.01 per "A" Share
("Subscription Price"). The Company will loan and advance the Subscription
Price to the Trust on an interest free basis ("Subscription Loan") to be
settled at the end of the Scheme, being 7 and 8 years from the effective
date, expected to be on or about 2 February 2011 ("Effective Date"), via
the repurchase of the "A" Shares by the Company. The beneficiaries of the
Trust, detailed in paragraph 3 below, will be notionally allocated "A"
Shares ("Allocated "A" Shares"), from time to time, in accordance with the
provisions of the Trust Deed governing the Scheme.
The "A" Shares will rank pari passu with the Company`s ordinary shares
("Ordinary Shares"), save that each "A" Share will entitle the holder to a
partial distribution equal to 10% of all distributions declared in respect
of each Ordinary Share, which distribution will be payable once a year on a
date determined to coincide with the final distribution in respect of the
relevant financial year paid in respect of the Ordinary Shares ("Trickle
Distribution").
The "A" Shares will have the same voting rights as the Ordinary Shares and
will carry full voting rights on items requiring shareholder approval in
terms of the Companies Act No. 61 of 1973, as amended, and the Listings
Requirements of the JSE Limited ("JSE"). Authorisation has been received
from the JSE in this regard. The trustees will 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 "A" Shares, in such manner as they
believe is in the best interests of the beneficiaries.
2.2 Notional Loan
A notional loan ("Notional Loan") will be linked to each "A" Share. The
initial amount will be equal to the 30 day volume weighted average price
("VWAP") ("Market Value") of an Ordinary Share, ending on the Effective
Date, less the Subscription Price. The Notional Loan will, for the duration
of the Scheme, accrue notional interest, being 80% of the prime interest
rate ("Notional Interest") compounded monthly and will be reduced by
notional distributions being the amount equal to distributions per Ordinary
Shares declared and paid by the Company , net of the Trickle Distribution
("Notional Distributions").
At the end of the term, the benefit created for the beneficiaries being the
difference between the value of the "A" Shares based on the 30 day VWAP of
the Ordinary Shares at such date and the outstanding balance of the
Notional Loan, will be deliverable to the beneficiaries in the form of
Ordinary Shares ("New Ordinary Shares"), in accordance with paragraph 2.3
below.
2.3 Delivery Dates
The beneficiaries will realise 50% of their Allocated "A" Shares in year 7
("First Delivery Date") and 50% in year 8 ("Second Delivery Date")
(collectively "the Delivery Dates") post the Effective Date.
In addition, on each Delivery Date beneficiaries will be entitled and
obliged to subscribe for such number of New Ordinary Shares as is equal to
"A" in the formula set out below:
A =
Where:
"A" is the number of New Ordinary Shares which each
beneficiary will be entitled and obliged to subscribe
for on the First and Second Delivery Dates, provided
that where "A" is a fraction, it will be rounded down to
the nearest integer;
"B" is the number of Allocated "A" Shares in respect of the
relevant beneficiary, 50% on the First Delivery Date and
50% on the Second Delivery Date;
"C" is the Market Value per Ordinary Share at the relevant
Delivery Date; and
"D" is the outstanding balance of the Notional Loan per "A"
share as at the relevant Delivery Date.
As soon as is reasonably possible after the First and Second Delivery
Dates, the Company will buy back 50% and 50% of the "A" Shares
respectively, held by the Trust at a purchase price of R0.01 per "A" Share,
which purchase price will be set-off against the Subscription Loan.
3 BENEFICIARIES OF THE SCHEME
The beneficiaries of the Scheme will be as follows:
- all current full-time permanent employees and future, full-time
permanent employees, joining the Scheme within the first 4 years,
irrespective of race, not on the Group`s long term incentive scheme
("Employees"); and
- the Clicks Foundation (entitled to the benefits of the residual "A"
Shares that are not notionally allocated to the Employees at the end
of the term due to forfeitures).
As at the date of this announcement in excess of 70% of the Allocated "A"
Shares will accrue to black people.
3.1 Allocated "A" Shares
The Allocated "A" Shares will determine the beneficiaries` financial
rights and benefits relating to the underlying "A" Shares held by the
Trust and their conditional rights and obligations to subscribe for
the New Ordinary Shares determined in accordance with the formula in
paragraph 2.3 above.
The initial allocation will be weighted towards seniority according to
each employment band based on a factor. Employees in each band will
receive an equal initial allocation. The following Employees will
qualify for an enhanced initial allocation of 15% over and above the
initial allocation:
- Employees employed by the Clicks Group for more than 5 years at
the Effective Date;
- pharmacists; and
- senior black managers.
An Employee who falls under more than 2 categories in the list above
will be entitled to an enhanced initial allocation of a maximum of 30%
over and above his / her initial allocation.
Subsequent allocations will be made from forfeited "A" Shares that
were notionally allocated during the term of the Scheme, and 5% of the
issued "A" Shares which were not notionally allocated upfront, to:
- Employees promoted during the term of the Scheme; and
- new Employees joining within the first 4 years of the Scheme.
The number of Allocated "A" Shares to be allocated will be formula
driven, based on the number of years remaining in the Scheme from the
date of promotion or joining the Scheme.
Employees will be required to remain employed by the Clicks Group at
all times from the date of joining the Scheme until the First Delivery
Date in order to receive the full benefit of their allocation.
Employees who terminate their employment with the Clicks Group before
the First Delivery Date will forfeit all or part of their entitlement
depending on the reasons for terminating their employment.
4 TRUSTEES
The Trust will always have six trustees, the majority of whom will be black
people and in accordance with the Listings Requirements of the JSE,
independent, comprising of:
- two appointed by the Board, comprising:
- one executive director; and
- one independent non-executive director.
- four Employees, appointed by the beneficiaries from a list of
candidates in accordance with criteria approved by the Board.
5 PRO FORMA 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 their 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 of the Scheme for accounting purposes is the
granting of a call option on the Company and therefore the Scheme falls
within the scope of IFRS 2 - Share-based Payment. Accordingly, on initial
recognition, the derivative liability needs to be measured at fair value
using an option pricing model. The Company has applied a risk neutral
option pricing methodology to value the option over the term of the Scheme,
making certain assumptions, which may not be the case on the Effective
Date, namely:
- the starting price (spot price) on 8 October 2010 was R40.90;
- the strike price on 8 October 2010, taking into account the value of -
the Notional Loan, the Notional Interest and the Notional
Distributions, was set at an average price of R61.34; and
- the Notional Distributions are assumed to be a fixed percentage of
earnings over the 7 and 8 year period, based on the Company`s current
distribution payment levels.
Taking into account the above, the option has been valued at R221.2 million
and given there is a service condition attached, this cost would be
amortised over the vesting period, being 7 years. The resultant share based
payment option expense per annum through the income statement is therefore
R31.6 million on a pro forma basis.
Per ordinary share Before After Change
the the (%)
Scheme Scheme
Earnings (cents) 208.6 199.0 (4.6)
Headline earnings (cents) 212.3 202.8 (4.5)
Net asset value (cents) 429.0 430.7 0.4
Tangible net asset value (cents) 271.0 273.1 0.8
Number of shares in issue net of 266 283 266 283 -
treasury shares (`000)
Weighted average issued number of
shares (`000) 271 073 271 073 -
Notes:
1 Extracted from the reviewed financial results of the Clicks Group for
the 12 months ended 31 August 2010.
2 For purposes of calculating the earnings per share and headline
earnings per share it was assumed that the Scheme was effective on 1
September 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 August 2010.
4 Transaction costs of R4.4 million (R3.2 million net of tax) relating
to the Scheme have been included in the determination of these pro
forma financial effects.
5 The Company is not able to ascertain the extent of ultimate dilution
in 7 and 8 years time and therefore has not updated diluted earnings
or diluted headline earnings per share for the potential New Ordinary
Shares dilution.
5.1 Independent reporting accountants` report
The independent reporting accountants` report on the pro forma
financial effects of the Scheme will be included in the circular to
shareholders.
6 CONDITIONS PRECEDENT
The Scheme is conditional on the fulfillment of the following conditions
precedent:
- the requisite approval by the Company`s shareholders of all the
necessary special and ordinary resolutions tabled at the general
meeting to be held to approve the Scheme;
- the registration of the special resolutions tabled at the general
meeting by the Companies and Intellectual Property Registration
Office (CIPRO); and
- the requisite approval from the South African Reserve Bank
(SARB).
7. FAIRNESS OPINION
The JSE requires a fairness opinion by an independent expert acceptable to
the JSE for the Scheme, as it involves the issue of unlisted shares
carrying voting rights. The Board has appointed KPMG Corporate Finance as
an independent expert ("Independent Expert") to provide an independent
opinion on the fairness of the Scheme. The Independent Expert`s opinion on
the Scheme will be contained in the circular to shareholders referred to in
paragraph 9 below.
8 GENERAL MEETING
A general meeting of the Company`s shareholders will be held at the later
of 11:00 or 30 minutes after the conclusion of the Company`s annual general
meeting, scheduled to commence at 10:00 on Tuesday, 18 January 2011 at the
Company`s` registered office, being corner Searle and Pontac Streets, Cape
Town, 8001, to consider and, if deemed fit, pass the resolutions required
to approve the Scheme.
9 SALIENT DATES AND TIMES
A circular, containing full details of the Scheme and incorporating a
notice of general meeting, which is subject to the approval of the JSE,
will be posted to Company`s shareholders in due course. The salient dates
and times are as follows:
2010
Circular and notice of general meeting
posted to shareholders on Friday, 26 November
2011
Forms of proxy for the general meeting to be
lodged by no later than 11:00 on Monday, 17 January
General meeting to be held at the later of
11:00 or 30 minutes after the conclusion of
the annual general meeting, scheduled to Tuesday, 18 January
commence at 10:00 on
Results of general meeting to be announced
on SENS on Tuesday, 18 January
Results of general meeting to be published
in the press on Wednesday, 19 January
Cape Town
21 October 2010
Investment Bank and Sponsor
Investec Bank Limited
South African Attorneys and Tax Advisors
Edward Nathan Sonnenbergs Incorporated
Date: 21/10/2010 10:19:01 Produced by the JSE SENS Department.
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