| Wed 5 Oct 2011, 13:07 | | AEG - Aveng Limited - Announcement relating to the proposed amendments to the |
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AEG
AEG
AEG - Aveng Limited - Announcement relating to the proposed amendments to the
BEE transaction entered into in 2004, in terms of which BEE Partners were
introduced into Aveng (Africa) Ltd and Trident Steel Holdings (Pty) Ltd
Aveng Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1944/018119/06)
Share code: AEG ISIN: ZAE000111829
("Aveng" or the "Company")
THE ANNOUNCEMENT ("ANNOUNCEMENT") RELATING TO THE PROPOSED AMENDMENTS TO THE
BLACK ECONOMIC EMPOWERMENT ("BEE") TRANSACTION ENTERED INTO IN 2004, IN TERMS
OF WHICH BEE PARTNERS WERE INTRODUCED INTO AVENG (AFRICA) LIMITED ("AVENG
(AFRICA)") AND TRIDENT STEEL HOLDINGS (PROPRIETARY) LIMITED ("TRIDENT STEEL")
1. INTRODUCTION AND RATIONALE
Aveng supports the South African Government`s BEE initiatives and over
the years has been successful in introducing black shareholders into many
of its operating companies. In line with its commitment to
transformation, Aveng concluded an empowerment transaction in 2004,
involving the introduction of BEE partners ("BEE Consortium") into
Aveng`s African operations namely Aveng (Africa) and Trident Steel
("Original BEE Transaction").
Kagiso Tiso Holdings Proprietary Limited (RF) ("KTH"), the merged entity
of Tiso Group (Proprietary) Limited ("Tiso") and Kagiso Trust Investments
(Proprietary) Limited, was introduced as part of the BEE Consortium and
has established a seven year partnership with Aveng during which time it
supported the management of Aveng in realising the Company`s growth
objectives. The board of directors of Aveng ("Board") has recognised its
valuable contribution and the need for this relationship to be
maintained. The continuation of the current structure will also ensure
that Aveng`s favourable BEE status is preserved, reinforcing Aveng`s
stated commitment to transformation and its reputation as a good
corporate citizen.
As the Original BEE Transaction is approaching its maturity date, Aveng
and the BEE Consortium have indicated their preference to lock in the
value created of R941,841,908 in terms of the Original BEE Transaction,
equivalent to 26,833,103 Aveng shares utilising an agreed 30 day volume
weighted average price ("VWAP") per Aveng share ("Gross Agreed Aveng
Shares"), together with an extension to the existing BEE structure. The
Board therefore proposes to make certain amendments ("Proposed
Restructuring") to the terms of the Original BEE Transaction to ensure
the continuation of the existing BEE structure, while simultaneously
achieving the objectives of the Original BEE Transaction as was
previously intended. The Proposed Restructuring will provide the BEE
Consortium with a structure that links its commercial value, upside and
downside, to ordinary Aveng shares ("Aveng Shares") for the duration of
the Proposed Restructuring.
2. THE ORIGINAL BEE TRANSACTION
Qakazana Investment Holdings (Proprietary) Limited ("Qakazana") was
established by Aveng in 2004 in order to facilitate the introduction of a
BEE Consortium into Aveng (Africa) and Trident Steel.
In terms of the Original BEE Transaction, Aveng disposed of a 25%
interest in each of Aveng (Africa) and Trident Steel to Qakazana at the
independently determined aggregate price of R496 million. The purchase
consideration was funded through the issue to Aveng of preference shares
in respect of Qakazana ("Qakazana Preference Shares"), with the BEE
Consortium being awarded ordinary shares in Qakazana ("Qakazana Ordinary
Shares").
In terms of the Original BEE Transaction, the shareholders in Qakazana
("Qakazana Shareholders") were granted, inter alia, a put option ("Put
Option") to require Aveng to purchase all the Qakazana Ordinary Shares
from the Qakazana Shareholders. The Put Option can be exercised by KTH,
on behalf of the BEE Consortium, within 30 days after the distribution of
the Aveng annual report for the financial years ended on 30 June 2011 or
30 June 2012. Aveng, at its election, can settle the Put Option either in
cash, or the issue of Aveng Shares, or a combination thereof.
The Qakazana Shareholders also granted Aveng a call option ("Call
Option") to ensure that Aveng could re-acquire the minority interests in
Aveng (Africa) and Trident Steel (via Qakazana) should it so wish to.
Aveng may exercise the Call Option within 30 days after the distribution
of the Aveng annual report for the 2013 financial year.
Qakazana`s ordinary share capital is currently held by Four Arrows
Investments 39 (Proprietary) Limited ("Four Arrows") (36%), the Aveng
Empowerment Trust ("Empowerment Trust") (32%) and the Aveng Community
Investment Trust ("Community Trust") (32%). Aveng continues to hold all
of the issued Qakazana Preference Shares.
3. BACKGROUND TO THE PROPOSED RESTRUCTURING
In anticipation of the approach of the first exercise window of the Put
Option approaching ("Put Expiry Date"), Four Arrows and the Community
Trust have indicated that they would prefer to receive Aveng Shares upon
exercise of the Put Option. Alternatively, they would be willing to
remain in the existing BEE structure for an extended period, provided
their upside, downside and dividend flows are linked to Aveng Shares
performance going forward. The Empowerment Trust will also remain as a
shareholder in the existing BEE structure, but will through a sale and
repurchase of Qakazana shares realise an amount representing the present
value of its investment which will be transferred to the Aveng employees
("Employees"). The Board therefore, proposes to make certain amendments
to the terms of the Original BEE Transaction to ensure the continuation
of the existing BEE structure, whilst simultaneously facilitating the
objectives of the various stakeholders.
Following the Proposed Restructuring, Four Arrows, the Community Trust
and the Empowerment Trust will continue to hold an effective 36%, 32% and
32% interest in Qakazana respectively.
4. THE PROPOSED RESTRUCTURING
4.1 Value of Qakazana attributable to Qakazana Shareholders
Aveng and the Qakazana Shareholders have agreed to an implied value
of Qakazana and the resultant number of Aveng Shares to be issued
being the Gross Agreed Aveng Shares in respect of the settlement
consideration as determined by the principles contained in the
Original BEE Transaction.
4.2 Deferral of Final Shares
KTH, on behalf of the BEE Consortium, will exercise the Put Option
and the Qakazana Shareholders will dispose of their Qakazana
Ordinary Shares to Aveng in accordance with the terms of the
Original BEE Transaction, subject to the conditions precedent as set
out in paragraph 6 below ("Conditions Precedent") not being
fulfilled. If the Conditions Precedent are fulfilled, KTH will
exercise the amended put option as per the Proposed Restructuring
("Revised Put Option"), on behalf of the BEE Consortium within the
revised period, commencing on 01 December 2011, in which period the
Revised Put Option can be exercised ("Revised Put Option Period")
In terms of the Proposed Restructuring, whilst disposal of the
Qakazana Ordinary Shares will take place after the Conditions
Precedent have been met, transfer of the Qakazana Ordinary Shares
and the issue of 26,832,834 Aveng Shares ("Final Shares")
respectively will be deferred to take place at the end of an
extended period after June 2014 ("Deferral Period"). However, 269
Aveng Shares ("Initial Shares") will be issued immediately upon the
exercise of the Revised Put Option and the fulfilment of the
Conditions Precedent.
4.3 Empowerment Trust cash distribution
The Empowerment Trust has indicated its intention to realise an
amount representing the present value created. The value of its
stake in Qakazana equates to 8,586,593 Aveng Shares, representing a
32% interest in Qakazana. To enable the Empowerment Trust to achieve
this objective it will enter into and implement a prior transaction
designed to generate the cash required to enable the Empowerment
Trust to provide a cash distribution to Employees ("the Prior
Transaction").
Part of the Prior Transaction will involve the Empowerment Trust
entering into funding agreements in order to obtain loan funding
from a debt provider ("Debt Provider") against its Qakazana
Ordinary Shares, based on the value as calculated after the
Conditions Precedent are fulfilled. The Empowerment Trust will
obtain loan funding from the Debt Provider, in an amount
representing the present value of its investment in Qakazana which
will be transferred to the Employees. Employees will pay income tax
at their marginal income tax rates on the cash proceeds received.
The balance of the Qakazana Ordinary Shares will remain restricted
until the end of the Deferral Period, following which point a
further distribution may be made, dependent on the performance of
the Aveng share price over the Deferral Period.
The Employees will receive no dividends or other distributions for
the duration of the Deferral Period. As part of the financing
structure implemented, the Debt Provider will enter into a series of
scrip lending agreements with a wholly owned subsidiary of Aveng
("Subco") as to secure the necessary funding for the Empowerment
Trust ("Scrip Lending Agreement").
4.4 Amendment to Qakazana Preference Share structure
It is the parties` intention to amend the cash flow profile of the
Qakazana Preference Shares such that dividends received from Aveng
(Africa) and Trident Steel by Qakazana will not initially be used to
service the Qakazana Preference Shares as previously envisaged in
the Original BEE Transaction, but will instead be paid to the
Qakazana Shareholders as a dividend.
The total dividends payable on the Qakazana Ordinary Shares will
equate to the dividend per share paid to Aveng shareholders, by
Aveng, multiplied by the Final Shares, such that the Qakazana
Shareholders receive dividends as though they actually held the
Final Shares.
The redemption date of the Qakazana Preference Shares will be
extended to coincide with the ultimate acquisition by Aveng of the
Qakazana Ordinary Shares at the end of the Deferral Period, and they
will continue to accrue dividends.
4.5 Issuance of additional treasury shares to an Aveng subsidiary
It is the intention of Aveng to issue additional treasury shares to
Subco to facilitate the Scrip Lending Agreement with the Debt
Provider. This is to ensure the availability of an adequate number
of Aveng treasury shares which the Debt Provider may require for
hedging and debt financing purposes in order to fund the Empowerment
Trust.
4.6 Indemnities by Aveng to the Qakazana Shareholders
In terms of the Proposed Restructuring Aveng will ensure that the
after tax position of the Qakazana Shareholders will be no worse
than if they had acquired the Aveng Shares in terms of the Original
BEE Transaction. The financial consequences, if any, for Aveng
flowing from this indemnity are not envisaged to be material.
Qakazana Shareholders will be entitled to participate and fully
benefit in any corporate action ("Corporate Action") and/or rights
offers of Aveng as defined in the circular to be dated on or about 5
October 2011 ("Circular") affecting Aveng during the Deferral
Period.
4.7 Conditions Precedent not fulfilled
In the event that the Conditions Precedent are not fulfilled, it has
been agreed that the Proposed Restructuring shall not be
implemented. The transaction shall continue on the terms agreed to
in the Original BEE Transaction, whereby KTH will be entitled to
exercise the Put Option. The purchase consideration will be settled
based upon the Gross Agreed Aveng Shares.
5. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED RESTRUCTURING
5.1 Unaudited Pro forma financial effects of the Proposed Restructuring
The existing BEE structure has been accounted for in the financial
statements on Aveng over the periods of the initial BEE structure
through the diluted number of shares.
If the Original BEE Transaction or the Proposed Restructuring were
to be implemented, there would be financial effects on the net asset
value, net tangible asset value, earnings and headline earnings per
share. However, the Proposed Restructuring will have only a minimal
incremental financial effect in Aveng when compared to the financial
effects of the Original BEE Transaction.
The unaudited pro forma financial effects have been prepared using
accounting policies that comply with International Financial
Reporting Standards and that are consistent with those applied in
the audited group results for the twelve months ended 30 June 2011.
The unaudited pro forma financial effects are provided for
illustrative purposes only and, because of their pro forma nature,
may not fairly present Aveng`s financial position, changes in
equity, results of operations or cash flow.
The effects relate mainly to the transaction costs associated with
the Proposed Restructuring as well as the potential tax consequences
on the dividends received from the Debt Provider, on the borrowed
shares in terms of the Scrip Lending Agreement. As the amount and
likelihood of these dividends and associated tax is not certain at
this stage, the maximum potential taxation per annum, based on the
current dividend levels, has been reflected in the pro-forma
financial effects.
For the year Before After Change Proposed Change
ended 30 June (1) Original (%) Restructuring (4)
2011 (cents) BEE (3)(cents) (%)
Transaction
(2)
(cents)
Net asset value 3286.5 3076.7 -6.4% 3074.5 -0.1%
per share
Net tangible 2909.6 2723.9 -6.4% 2721.7 -0.1%
asset value per
share
Earnings per 283.3 -6.5% 281.1 -0.8%
share 302.9
Headline 286.6 -6.4% 284.4 -0.8%
earnings per 306.4
share
Diluted 283.3 0.0% 281.1 -0.8%
earnings per 283.3
share
Diluted 286.6 0.0% 284.4 -0.8%
headline 286.6
earnings per
share
Weighted 415.5 6.9% 415.5
average number 388.7 0.0%
of Aveng
shares in issue
(million`s)
Weighted 415.5 415.5 0.0% 415.5 0.0%
average diluted
number of Aveng
shares in issue
(million`s)
Number of 393.0 419.8 6.8% 419.8 0.0%
shares in issue
Notes and assumptions:
1. The Aveng financial information reflected in the "Before" column has
been extracted from the published audited group results of Aveng for
the twelve months ended 30 June 2011.
2. The Aveng financial information reflected in the "After" column has
been calculated on the basis that the Original BEE Transaction would
be implemented based on the published audited group results of Aveng
for the twelve months ended 30 June 2011.
3. The Aveng financial information reflected in the "Proposed
Restructuring" column has been calculated on the basis that the
Proposed Restructuring would be implemented based on the published
audited group results of Aveng for the twelve months ended 30 June
2011.
4. The change reflects the difference between the Original BEE
Transaction and the Proposed Restructuring on a percentage basis.
6. CONDITIONS PRECEDENT OF THE PROPOSED RESTRUCTURING
The Proposed Restructuring is conditional on the fulfilment of, inter
alia, the following Conditions Precedent:
- the passing, and to the extent required lodgement, of the
resolutions as set out per the notice of general meeting in the
Circular ("Notice of General Meeting") by the requisite majority of
Aveng shareholders at the general meeting per the Circular ("General
Meeting") in respect of the following issues:
- the issue of shares for cash to implement the Proposed
Restructuring;
- the approval to issue new Aveng Shares to create treasury
shares for Aveng in order to implement the Scrip Lending
Agreement with the Debt Provider for the funding of the
Empowerment Trust;
- the approval of the Scrip Lending Agreement as proposed in the
Circular as an issue of shares for cash;
- the passing and lodgement of a special resolution replacing the
current memorandum and articles of association of Qakazana with a
memorandum of incorporation embodying inter alia relevant terms of
the amended Qakazana shareholders agreement and the revised terms of
the ordinary shares and preference shares of Qakazana as per the
Proposed Restructuring; and
- the trustees of the Empowerment Trust delivering a letter to the
remaining parties confirming that all agreements and other documents
to be entered into by the Empowerment Trust which are required in
order to record and implement the Prior Transaction have become
unconditional in accordance with their terms, save for any condition
requiring the addendum to the Qakazana shareholders` agreement
concluded by the parties in anticipation of the Proposed
Restructuring to become unconditional.
7. JSE APPROVAL
The final JSE Limited ("JSE") approval is conditional as one director`s
approval is currently outstanding and they require the sign off from all
the members of the Board. A SENS announcement will be released to update
the market regarding the aforementioned.
8. OPINIONS AND RECOMMENDATIONS
Rand Merchant Bank, a division of FirstRand Bank Limited, was appointed
by the Board ("Independent Adviser") to furnish an independent opinion on
the value of Qakazana and has indicated that the value of R941,841,908
for Qakazana is a fair value.
9. DIRECTORS` RECOMMENDATION AND RESPONSIBILITY STATEMENT
Taking into account the background information, the Board, with the
advice of the Independent Adviser on the fairness of the value of
Qakazana, is of the opinion that the Proposed Restructuring will benefit
Aveng shareholders and, accordingly, recommends that Aveng shareholders
vote in favour of the Proposed Restructuring.
With respect to the information provided in the Announcement, the Board:
- have considered all statements of fact and opinion in this
Announcement;
- collectively and individually accept full responsibility for the
accuracy of the information provided;
- certify that, to the best of their knowledge and belief, there are
no other facts or omissions which would make any statement in this
Announcement false or misleading;
- confirm that they made all reasonable enquiries in this regard; and
- confirm that this Announcement contains all the necessary
information required in terms of the Listings Requirements of the
JSE.
10. SALIENT DATES AND TIMES
A circular containing full details of the Proposed Restructuring and
incorporating a notice of general meeting, which is subject to the
approval of the JSE, will be posted to Aveng shareholders on or about 5
October 2011.
The General Meeting will take place at the registered office of Aveng,
204 Rivonia Road, Morningside, Sandton, 2196 at 11:00 on Thursday, 03
November 2011 or so soon thereafter as the annual general meeting of
Aveng convened for 10:00 on the same day and at the same venue, shall
have been concluded or adjourned.
2011
Circular and notice of General Meeting posted to Wednesday, 5 October
Shareholders
Last day to trade in order to be eligible to vote at Friday, 21 October
the General Meeting
Record date in order to vote at the General Meeting Friday, 28 October
Form of proxy for the General Meeting to be lodged by Tuesday, 1 November
no later
than 11:00
Annual general meeting held at 10:00 Thursday, 3 November
General Meeting to be held at 11:00 Thursday, 3 November
Results of General Meeting to be announced on SENS Thursday, 3 November
Results of General Meeting to be published in the Friday, 4 November
press
Notes:
a) All dates and times may be changed by Aveng. Any change will be
published on SENS and in the press.
b) All times given in this document are local times in South Africa.
c) If the General Meeting is adjourned or postponed, forms of proxy
submitted for the initial General Meeting will remain valid in
respect of any adjournment or postponement of the General Meeting.
d) Should Aveng ordinary shareholders wish to lodge a form of proxy
with the transfer secretaries, the form of proxy will need to be
received by the transfer secretaries, Computershare Investor
Services (Proprietary) Limited, Ground Floor, 70 Marshall Street,
Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), by no later
than 11:00 on Tuesday, 1 November 2011, so that arrangements can be
made for the lodgment thereof with the Company by 11:00 on Thursday,
3 November 2011.
Sandton
5 October 2011
Investment Bank and Transaction Sponsor: Investec Corporate Finance
Corporate Law and Tax advisers to Aveng: Webber Wentzel
Sponsor: JP Morgan
Reporting accountants: Ernst & Young
Independent adviser: Rand Merchant Bank
Corporate Law adviser to Debt Provider: Bowman Gilfillan
Corporate Law adviser to KTH: DLA Cliffe Dekker Hofmeyr
Date: 05/10/2011 13:07:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
