| Thu 22 Sep 2011, 8:55 | | KIO - Kumba - Terms announcement |
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KIO
KIO
KIO - Kumba - Terms announcement
Kumba Iron Ore Limited
A member of the Anglo American plc group
(Incorporated in the Republic of South Africa)
(Registration number 2005/015852/06)
(ISIN: ZAE000085346)
(Share code: KIO)
("Kumba" or "the Company")
TERMS ANNOUNCEMENT RELATING TO THE SWAP OF SISHEN IRON ORE COMPANY
(PROPRIETARY) LIMITED ("SIOC") ORDINARY SHARES ("SIOC SHARES") FOR NEWLY
ISSUED KUMBA ORDINARY SHARES ("KUMBA SHARES") AND THE SPECIFIC REPURCHASE OF
KUMBA SHARES FOR PURPOSES OF A SPECIAL GENERAL MEETING TO BE HELD ON OR ABOUT
31 OCTOBER 2011
Highlights
- The first phase of Envision will end on 17 November 2011
- For illustrative purposes, an anticipated pre-tax monetary benefit of R2.5
billion will accrue to participants (based on a Kumba share price of R468.35
on 20 September 2011)
- The second phase of Envision will enable the future ownership of 3.09% of
SIOC by the SIOC ESPS Trust
- SIOC will make a substantial contribution to the second phase of Envision
to ensure a strong possibility of success
- Kumba shareholders` indirect shareholding in SIOC will remain largely
unaffected
1. Introduction
The first maturity date for the SIOC Employee Share Participation Scheme
("SIOC ESPS") or more commonly referred to as Envision, will take place on 17
November 2011, being the anniversary of the fifth year from the date of issue
of SIOC Shares to the SIOC ESPS. This first period of Envision is referred to
as the "First Capital Appreciation Period". Participating Employees, being
employees of SIOC, up to and including first line supervisors, who are
eligible to be beneficiaries of the SIOC ESPS and are permanently employed by
SIOC on 17 November 2011, will become beneficially entitled to a number of
SIOC Shares on the First Capital Appreciation Period.
The implementation of a swap of the SIOC Shares acquired by Participating
Employees in exchange for the issue by Kumba of new Kumba Shares ("Share
Swap") and the specific repurchase of Kumba Shares ("Kumba Specific
Repurchase") acquired by the Participating Employees in terms of the Share
Swap, will form part of a series of transactions required in order to give
full effect to the successful unwind of the first phase of Envision and to
implement the second phase of Envision (the unwind of the first phase and
implementation of the second phase, are collectively referred to as the
"Transaction").
2. Rationale
The Share Swap and Kumba Specific Repurchase are required to give effect to
the unwind of the first phase and implementation of the second phase of
Envision. As part of the unwind procedure, the terms of the SIOC ESPS Trust
Deed (being the Trust Deed that established and governs the trust ("SIOC ESPS
Trust") which facilitates the SIOC ESPS) makes provision for the Share Swap,
as well as the conclusion of a series of subsequent agreements to implement
the second phase of Envision. The Kumba Specific Repurchase, although not
prescribed in the SIOC ESPS Trust Deed, is required to give Participating
Employees, who have elected to receive cash, the ability to monetise their
shareholding.
The Share Swap will provide the Participating Employees with tradeable listed
Kumba Shares (to the extent that a beneficiary elects to retain their shares)
in respect of their entitlement and the Kumba Specific Repurchase will
provide Participating Employees with a cash equivalent (to the extent that a
beneficiary elects to receive cash) and to settle the outstanding tax
obligations of those employees who elect to receive Kumba Shares.
3. Overview of the Transaction
The Share Swap and Kumba Specific Repurchase will form part of the unwind of
the first phase. The unwind of the first phase will be implemented through
the following transaction steps:
- The SIOC ESPS Trust will subscribe for a further 3.09% of shares in SIOC
("Subsequent Subscription Shares"), at least five Business Days prior to the
end of the First Capital Appreciation Period and these Subsequent
Subscription Shares will be held by the SIOC ESPS Trust for the duration of
the Second Capital Appreciation Period;
- SIOC will repurchase ("SIOC First Repurchase"), at par value, so many SIOC
Shares as is determined on the application of the prescribed repurchase
formula ("SIOC Repurchase Formula") set out in the original subscription
agreement concluded between the SIOC ESPS Trust and SIOC on or about 11
September 2006 ("the Subscription Agreement") for the allotment and issue of
360 SIOC Shares, which shares were subsequently subdivided into 36 000 000
SIOC Shares on 29 November 2006 ("Subscription Shares");
- The SIOC Repurchase Formula will be used to determine the number of shares
that SIOC will be entitled to repurchase at par value in order to cancel the
notional vendor finance mechanism between the SIOC ESPS Trust and SIOC and to
acquire the shares remaining as unallocated in the SIOC ESPS Trust ("the SIOC
Unallocated Shares"). The repurchased SIOC Shares will be cancelled as issued
shares;
- The SIOC Shares remaining in the SIOC ESPS Trust post the SIOC First
Repurchase will be distributed ("SIOC Distributed Shares") to the
Participating Employees on the maturity date of the First Capital
Appreciation Period. The number of SIOC Distributed Shares to be distributed
to Participating Employees will be based on the number of units allocated to
the relevant Participating Employees;
- The SIOC Distributed Shares will be exchanged for Kumba Shares ("Kumba
Swapped Shares") in terms of the Share Swap. Kumba will issue new shares to
acquire the SIOC Distributed Shares in terms of the Share Swap. The Share
Swap ratio will be determined with reference to the five day volume weighted
average price per share of Kumba Shares to 17 November 2011 ("Transaction
Share Price");
- SIOC will subsequently repurchase from Kumba a number of SIOC Shares equal
to the SIOC Distributed Shares acquired by Kumba in terms of the Share Swap
in order to reinstate the SIOC shareholding to the approximate proportions
that prevailed prior to the Transaction ("SIOC Specific Repurchase"); and
- Finally, the Kumba Specific Repurchase will be executed to acquire Kumba
Shares from the Participating Employees who elected to receive cash (as well
as that portion of shares from Participating Employees who elected to receive
Kumba Shares as is required to settle their outstanding tax obligations) by
way of a specific repurchase at the Transaction Share Price.
The implementation of the second phase of Envision (committed to as part of
the suite of transactions undertaken in 2006 when Kumba Resources Limited was
demerged to form Kumba Iron Ore Limited and Exxaro Resources Limited
("Exxaro")) will be achieved through SIOC issuing a further 3.09% shares to
the SIOC ESPS Trust. The SIOC ESPS Trust Deed further prescribes that the
second phase of Envision will be on substantially similar terms and
conditions as the first phase of Envision. Consequently, the SIOC ESPS Trust
will allocate new units to qualifying employees pursuant to the
implementation of the second phase of Envision. The second phase of Envision
will mature on the fifth anniversary of the issue and allotment of the 3.09%
SIOC Shares ("Subsequent Subscription Shares") to the SIOC ESPS Trust ("the
Second Capital Appreciation Period"). The shareholding impact will be that
the implementation of the second phase of Envision will enable the future
ownership by the SIOC ESPS Trust of 3.09% in SIOC for a further 5 year period
and Kumba shareholders` indirect ownership into SIOC will remain largely
unaffected.
The mechanism adopted will therefore not result in a significant net change
in the issued share capital of Kumba following the Kumba Specific Repurchase.
4. Terms of the Transaction
4.1 Background
The shares in SIOC are currently held as follows:
- 74% by Kumba;
- 20% by Exxaro;
- 3% by the SIOC Community Development Trust SPV (Proprietary) Limited
("SIOC Community Development Trust"); and
- 3% by SIOC ESPS Trust.
4.2 The unwind of the First Capital Appreciation Period and Second Capital
Appreciation Period implementation
In terms of the SIOC ESPS Trust Deed, at least five Business Days prior to
the end of the First Capital Appreciation Period, the SIOC ESPS Trust will
subscribe for the Subsequent Subscription Shares. These shares must be held
by the SIOC ESPS Trust for the duration of the Second Capital Appreciation
Period, in accordance with the provisions of the SIOC ESPS Trust Deed.
The First Capital Appreciation Period will end on 17 November 2011. Pursuant
to this, SIOC will effect the SIOC First Repurchase, in terms of which a
sufficient number of Subscription Shares will be repurchased at par value to
settle the notional vendor finance and acquire the SIOC Unallocated Shares.
The SIOC ESPS Trust will make a distribution of the SIOC Distributed Shares
remaining in the SIOC ESPS Trust to each of the Participating Employees on a
pro rata basis based on the number of units allocated to each of them.
The difference between the par value and the market value of the repurchased
SIOC Unallocated Shares (as inferred from the Kumba share price and on the
assumption that the SIOC Unallocated Shares are not subject to the rights and
restrictions attaching to the Subscription Shares as set out in SIOC`s
memorandum of incorporation) will be applied to reduce the notional vendor
finance opening notional balance in respect of the Second Capital
Appreciation Period. This ensures the rollover of any value created in the
SIOC ESPS Trust into the Second Capital Appreciation Period, ultimately flows
to the Participating Employees
4.3 Implied Specific Issue of shares for cash
4.3.1 The Share Swap
Kumba will acquire all of the SIOC Distributed Shares from the Participating
Employees in exchange for the issue of Kumba Swapped Shares at Transaction
Share Price.
The number of Kumba Swapped Shares to be issued by Kumba in consideration for
the SIOC Distributed Shares shall be determined with reference to the
following formula:
K = (SIOC Distributed Shares x ST) / Transaction Share Price
where:
ST = the value of each SIOC Share on 17 November 2011, represented as a price
per share, determined by applying the Transaction Price Earnings Ratio (being
the Transaction Share Price divided by the audited diluted earnings per share
of Kumba for the year ended 31 December 2010, being R44.52) to the most
recent earnings per share of SIOC, being approximately R15.15.
For illustrative purposes, based on the Kumba Share price of R468.35 on 20
September 2011, the following number of SIOC Distributed Shares are expected
to be acquired and the following number of Kumba Swapped Shares are expected
to be issued:
Number of Shares
SIOC Distributed Shares to be acquired 15,396,665
Kumba Swapped Shares to be issued 5,238,418
Value of Kumba Swapped Shares (Rands) 2,453,413,070
4.3.2 The SIOC Specific Repurchase
Subsequent to the implementation of the Share Swap, it is proposed that SIOC
repurchases the same number of shares from Kumba, as Kumba would have
acquired from the Participating Employees. This will enable the SIOC
shareholding structure to revert substantially to its pre Transaction
position.
The Share Swap and the SIOC Specific Repurchase have the resultant effect of
an issue of shares for cash by Kumba, in terms of the JSE Listings
Requirements, with Kumba having a net cash injection from the SIOC Specific
Repurchase (the Share Swap and the SIOC Specific Repurchase are collectively
referred to as the "Implied Specific Issue").
4.4 The Kumba Specific Repurchase
To the extent that, following the Share Swap, the Participating Employees in
the SIOC ESPS have elected to receive cash instead of retaining the Kumba
Swapped Shares, Kumba will repurchase the Kumba Swapped Shares from the SIOC
ESPS Trustees (acting as an agent for and on behalf of the Participating
Employees in terms of the SIOC ESPS Trust Deed) at the Transaction Share
Price ("Kumba Repurchase Shares").
Furthermore, to the extent that the Participating Employees elect to retain
the Kumba Swapped Shares as opposed to the cash value, the SIOC ESPS Trustees
shall act in accordance with the election made by the Participating Employees
and dispose of a certain number of the Kumba Swapped Shares (as is required
to settle the Participating Employee`s tax and realisation costs) to Kumba in
terms of the Kumba Specific Repurchase and transfer the remaining Kumba
Swapped Shares to such Participating Employees.
For illustrative purposes, based on the Kumba Share price of R468.35 on 20
September 2011, the consideration to repurchase the Kumba Swapped Shares
(assuming all Participating Employees elect to receive cash) is expected to
be the following:
Number of Kumba Repurchase Shares 5,238,418
Repurchase consideration (Rands) 2,453,413,070
The Kumba Specific Repurchase and the delisting of the Kumba Repurchase
Shares is expected to be effected on 29 November 2011. The Kumba Specific
Repurchase is therefore not expected to have an impact on the number of Kumba
Shares held in treasury, as the Kumba Repurchase Shares will be delisted
immediately upon being repurchased.
Participating Employees were notified to submit their election between
retaining Kumba Swapped Shares and receiving the cash equivalent thereof by
no later than 31 August 2011. As at 20 September 2011, approximately 99.80%
of the Participating Employees had (or were deemed to have) elected to
receive the cash value of the Kumba Swapped Shares and approximately 0.20% of
the Participating Employees had elected to receive the actual Kumba Swapped
Shares.
4.5 SIOC shareholding structure
The diagram that depicts the SIOC shareholding structure before and after the
Transaction is available in the version of this announcement that appears on
Kumba`s website, www.kumba.co.za.
5. Subsequent Share Swap
At the end of the Second Capital Appreciation Period, SIOC will repurchase a
number of the Subsequent Subscription Shares from the SIOC ESPS Trust ("SIOC
Subsequent Repurchase"). Following the SIOC Subsequent Repurchase, the SIOC
ESPS Trust will distribute the remaining Subsequent Subscription Shares to
the Participating Employees ("Subsequent Distributed Shares"). Kumba will
then acquire all of the Subsequent Distributed Shares from the Participating
Employees in exchange for the issue of Kumba Shares at the end of the Second
Capital Appreciation Period.
6. Pro forma financial effects of the Transaction
The unaudited pro forma financial effects of the Transaction on Kumba are set
out below and are based on the most recently published results of Kumba for
the six months ended 30 June 2011, and were prepared in order to provide the
illustrative financial effects of the Transaction assuming that the
Transaction took place on 1 January 2011 for the purposes of the pro forma
income statement and on 30 June 2011 for the purposes of the pro forma
balance sheet. The unaudited pro forma financial information is based on the
assumptions set out below, which include assumptions on the Kumba Share
price.
The accounting policies of Kumba for the six months ended 30 June 2011, which
are consistent with the accounting policies for the year ended 31 December
2010, have been used in preparing the pro forma financial information.
There are no post balance sheet events which require adjustments to the pro
forma financial information.
The unaudited pro forma financial information is the responsibility of the
directors of Kumba and was prepared for illustrative purposes only and may
not, because of its nature, fairly present Kumba`s financial position,
changes in equity, results of its operations or cash flows as at the relevant
reporting date. It does not purport to be indicative of what the financial
results would have been, had the Transaction been implemented on a different
date.
Six Unwind and Before the Share
months Second Share Swap, Swap
ended Capital the SIOC
30 Appreciati Specific
June on Period Repurchase
2011 implementa and Kumba
tion Specific
Repurchase
Basic earnings per share (R) 28.20 -0.64 27.56 -0.44
Headline earnings per share (R) 28.23 -0.64 27.59 -0.44
Net asset value per share (R) 51.49 10.05 61.54 -0.14
Net tangible asset value per 51.49 10.05 61.54 -0.14
share (R)
Weighted average number of 321 321 321 326
shares in issue (millions)
Number of shares in issue 322 322 322 327
(millions)
SIOC Kumba Pro forma % change
Specif Specific after the after the
ic Repurchase Share Share Swap,
Repurc Swap, the the SIOC
hase SIOC Specific
Specific Repurchase
Repurchase and Kumba
and Kumba Specific
Specific Repurchase
Repurchase
Basic earnings per share (R) -0.01 0.32 27.43 -0.47
Headline earnings per share -0.01 0.31 27.45 -0.51
(R)
Net asset value per share (R) -0.19 -6.64 54.57 -11.33
Net tangible asset value per -0.19 -6.64 54.57 -11.33
share (R)
Weighted average number of 326 321 321 0.00
shares in issue (millions)
Number of shares in issue 327 322 322 0.00
(millions)
Notes and assumptions:
The unaudited pro forma information for the six months ended 30 June 2011
reflects the Kumba Group`s pro forma financial results after accounting for
the Transaction. The following assumptions have been applied:
1. Unwind and Second Capital Appreciation Period implementation
1.1. 37 080 000 SIOC shares (or 3.09% of the issued share capital of SIOC)
issued to the SIOC ESPS Trust for the extension of the SIOC ESPS for the
Second Capital Appreciation Period.
1.2. Earnings reduce by the indicative economic cost of the shares under
option (IFRS 2, Share Based Payment Expense) for the Second Capital
Appreciation Period of R3,463 million. This cost is recognised as an expense
over the 5 year capital appreciation period of the second phase of the
scheme. The adjustment is continuing in nature and the portion included in
the abovementioned earnings represents the estimated initial six months
expense.
1.3. There is a temporary increase in the non-controlling interest in SIOC
and a consequential reduction in share capital and reserves.
1.4. Key assumptions made in the economic cost (IFRS 2) valuation include the
following:
- Black-Scholes option valuation model has been utilised;
- Kumba reference share price of R468.35 on 20 September 2011;
- Share price volatility based on historic experience; and
- A dividend yield of 6.6% based on historic experience.
2. Share Swap
There is a temporary increase in Kumba`s interest in SIOC resulting from the
Share Swap.
3. SIOC Specific Repurchase
Securities Transfer Tax cost of R6 million arising from the repurchase of
SIOC Shares from Kumba is non-recurring in nature.
4. Kumba Specific Repurchase
4.1. Reduction of interest income earned at an assumed deposit rate of
approximately 5.3% per annum, for the 6 months ended 30 June 2011, resulting
from the estimated outflow of cash of R2,453 million subsequent to the Kumba
Specific Repurchase. This is continuing in nature.
4.2. Securities Transfer Tax cost of R6 million arising from the repurchase
of Kumba Shares by Kumba is non-recurring in nature.
5. Transaction costs of R16 million, relating to the implementation of the
Transaction, which are once off in nature are included in operating expenses
and current liabilities.
6. The above assumes that all the Participating Employees elect to receive
the cash value of the Kumba Swapped Shares as opposed to receiving the actual
Kumba Swapped Shares.
7. A Kumba Share price of R468.35 at 20 September 2011 has been assumed for
the Transaction.
7. Conditions precedent
7.1 Implied Specific Issue
7.1.1 Share Swap
The issue of the Kumba Swapped Shares to the SIOC ESPS Trustees (acting
collectively in their capacity as agents for and on behalf of Participating
Employees) is conditional upon:
(i) The Company obtaining the approval, by ordinary resolution of its
shareholders with a 75% majority of the votes cast in favour
thereof, in accordance with the JSE Listings Requirements and in
accordance with Article 3.2 of the memorandum of incorporation of
the Company, for the placing of sufficient authorised but unissued
ordinary shares in the Company under the control of its directors
in order to give effect to the Share Swap Agreement, being the
agreement concluded between the Company and the SIOC ESPS Trust
(acting as agent for and on behalf of the Participating Employees)
on 21 September 2011, containing the terms and conditions of the
Share Swap;
(ii) Obtaining the requisite JSE approvals, including confirmation in
writing that it will admit the Kumba Swapped Shares to listing.
7.1.2 SIOC Specific Repurchase
The SIOC Specific Repurchase is conditional upon the following:
(i) The Share Swap Agreement having been implemented; and
(ii) SIOC obtaining the approval, by special resolution of its shareholders,
for the repurchase of the SIOC Shares from Kumba in accordance with the terms
of the SIOC Specific Repurchase Agreement and the provisions of the
memorandum of incorporation of SIOC.
7.2 Kumba Specific Repurchase
The Kumba Specific Repurchase is conditional upon:
(i) The Share Swap Agreement having been implemented;
(ii) The Company obtaining the approval, by special resolution of its
shareholders, for the Kumba Specific Repurchase in accordance with the terms
of the Kumba Specific Repurchase Agreement;
(iii) The SIOC ESPS Trustees having notified Kumba of the number of Kumba
Shares offered for repurchase in terms of the Kumba Repurchase Agreement; and
(iv) Obtaining the requisite JSE approvals.
8. Documentation
Kumba shareholders are advised that in accordance with the JSE Listings
Requirements, a circular to shareholders, together with a notice of a general
meeting of Kumba shareholders, will be issued in due course containing
further details of the Transaction.
Centurion
22 September 2011
Merchant bank and sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal and tax advisor
Webber Wentzel attorneys
Independent reporting accountants and auditors
Deloitte & Touche
Tax advisors
KPMG Services (Proprietary) Limited
Date: 22/09/2011 08:55:10 Produced by the JSE SENS Department.
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