| Tue 9 Dec 2003, 8:46 | | Imperial"s broad based black economic Empowerment |
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Imperial/ Ukhamba - Terms of Imperial"s broad based black economic Empowerment
("BEE") Transaction
Imperial Holdings Limited
Registration number: 1946/021048/06
Share code: IPL
ISIN: ZAE000003620
("Imperial" or "the group")
Ukhamba Holdings (Proprietary) Limited
Registration number: 1998/017702/07
("Ukhamba")
Terms of Imperial"s broad-based black economic empowerment ("BEE") transaction
1. OUTLINE OF THE TRANSACTION
Rand Merchant Bank, a division of FirstRand Bank Limited, is authorised to
announce that Imperial and Ukhamba ("the parties") have signed an agreement that
will result in Ukhamba acquiring a 10.1% interest in Imperial through a
shareholder-facilitated transaction ("the transaction"). The effective
underlying value of the transaction amounts to approximately R1.3 billion and
the transaction requires no debt funding.
Imperial is an integrated transportation and mobility group employing 28 000
people in 26 countries with a revenue of R32 billion, attributable profit of
R1.5 billion, total assets of R22 billion and a market capitalisation of about
R13 billion.
Imperial has committed itself to BEE transformation in its broadest sense.
Imperial"s BEE transformation encompasses the advancement of historically
disadvantaged individuals ("HDIs") over a wide front, including skills
development, employment equity, advancement in the workplace, procurement
practices which favour developing businesses and suppliers, enterprise creation
and equity ownership of business.
Ukhamba is a broad-based black-owned company whose ultimate beneficiaries
currently include approximately 2 200 HDI employees of Imperial. In terms of the
transaction, the representation of Ukhamba"s ultimate beneficiaries will
increase to include all of Imperial"s approximately 14 200 HDI employees and a
number of historically disadvantaged communities.
The transaction is the culmination of a long-term strategy and investment by
Imperial to effect true broad-based empowerment that began in 1998 when the
group established Ukhamba as a new black enterprise.
The transaction comprises:
the specific issue of deferred ordinary shares in Imperial to Ukhamba,
constituting the acquisition of a 10.1% interest in Imperial by Ukhamba;
the eventual conversion, over time, of these deferred ordinary shares into
ordinary shares; and
the conversion of all remaining deferred ordinary shares held by Ukhamba, if
any, into redeemable preference shares and the subsequent redemption of these
preference shares, in the event that the number of ordinary shares, which have
resulted from the conversion of deferred ordinary shares, reaches 10.1% of
Imperial"s issued shares.
2. INFORMATION ON UKHAMBA
2.1. Description
Ukhamba is an investment holding company, with investments in a wide range of
businesses. Ukhamba was formed by Imperial on 6 November 1998 as a venture
between Imperial and the Ukhamba Trust. The Ukhamba Trust gives HDI employees of
Imperial an opportunity to purchase an interest in Ukhamba through the purchase
of Ukhamba Trust units.
Ukhamba was formed to create a culture of savings, to generate wealth and to
facilitate the transfer of skills for Imperial"s HDI employees. Imperial
provided the seed capital of R15 million for the creation of Ukhamba. In the
five years since its establishment, Ukhamba has generated solid profits from its
various businesses and investments and currently has a turnover of R67 million,
profit after tax of R7.4 million, total assets of R55 million and has created
over 1 000 jobs. To date, approximately 2 200 employees of Imperial have
invested R7.6 million in Ukhamba through the Ukhamba Trust. The initial value of
the Ukhamba Trust units has increased from R50 to R160 per unit, representing a
growth of 220% over this period.
2.2. Beneficiaries
Since its creation, Ukhamba has been 50.1% owned by the HDI employees of
Imperial, participating voluntarily through the Ukhamba Trust, and 49.9% owned
by Imperial. In anticipation of the transaction, the shareholding of Ukhamba
will be reconstituted as depicted in the diagram below.
The beneficiaries of the Ukhamba Trust are to be reconstituted to include all of
Imperial"s approximately 14 200 HDI employees. The Imperial and Ukhamba
Community Development Trust ("Development Trust") will be created by Imperial to
provide financial support for specific educational and disability needs of a
number of historically disadvantaged communities.
3. IMPERIAL"S BEE SHAREHOLDING
The transaction will provide Ukhamba with 10.1% of the voting rights of Imperial
and Ukhamba will be entitled to appoint two representatives to Imperial"s board
of directors. Hence, Ukhamba"s acquisition of the deferred ordinary shares will
constitute a 10.1% direct black ownership of Imperial.
Besides the direct black ownership of 10.1%, independent studies indicate that
Imperial"s aggregate indirect effective BEE shareholding, held through a number
of institutional shareholders who manage and administer funds on behalf of HDIs,
is currently in excess of 15%.
Following the transaction, Imperial"s aggregate direct and indirect BEE
shareholdings will therefore exceed 25.1%, qualifying it as a "black empowered"
company.
4. RATIONALE
As a leading transportation and mobility group, it is Imperial"s intention to be
at the forefront of embracing the changes with regard to BEE in South Africa.
Imperial believes that empowerment initiatives should address the discrimination
and imbalances of the past, improve the lives of a wide range of historically
disadvantaged people and bring long-term economic benefits to the country.
The transaction has been designed to:
* preserve Imperial"s future business opportunities in the sectors of the
economy in which it operates;
* generate enhanced future business opportunities from the black-empowered
status that Imperial will achieve as a result of the transaction;
* share the wealth created as a result of the transaction with Imperial"s HDI
employees and a number of historically disadvantaged communities; and
* demonstrate Imperial"s commitment to BEE.
5. SALIENT TERMS OF THE TRANSACTION
* Upon the fulfilment of the conditions precedent in paragraph 10, Imperial will
issue deferred ordinary shares at a par value of 4 cents each (the "specific
issue") to Ukhamba for cash.
* The deferred ordinary shares issued to Ukhamba will constitute 10.1% of the
aggregate of Imperial"s issued ordinary shares (net of treasury shares) and such
deferred ordinary shares ("aggregate net issued shares").
* The deferred ordinary shares will be identical to Imperial"s ordinary shares
except that its holders will not be entitled to dividends or capital
distributions until certain predetermined conditions are met.
* As such conditions are met, a certain number of deferred ordinary shares will
convert into ordinary shares on a one-for-one basis, entitling their holders to
dividends and capital distributions ("the conversion"), and from there on rank
pari passu with Imperial"s ordinary shares.
* For the 7-year period commencing on 26 June 2004 ("the initial conversion
period") the deferred ordinary shares will convert into ordinary shares on an
annual basis in terms of a headline earnings-based formula (referred to in
paragraph 6.1).
* If by the end of the initial conversion period, deferred ordinary shares are
still outstanding, such shares will convert into ordinary shares on an annual
basis for a further 7-year period ("the extended conversion period") in terms of
a headline earnings per share ("HEPS") based formula (referred to in paragraph
6.2).
* If by the end of the extended conversion period, deferred ordinary shares are
still outstanding, 500 000 deferred ordinary shares will convert into ordinary
shares on an annual basis until such time as all the remaining deferred ordinary
shares have converted into ordinary shares.
* As soon as the number of ordinary shares, which have resulted from the
conversion of deferred ordinary shares, reaches 10.1% of the aggregate net
issued shares, those deferred ordinary shares which are outstanding at that
time, if any, will automatically convert into redeemable preference shares and
be subsequently redeemed by Imperial at their original par value.
6. THE CONVERSION
6.1. The initial conversion period (26 June 2004 - 25 June 2011)
Principles of conversion
To the extent that Imperial"s actual headline earnings exceed predetermined base
headline earnings hurdles, a portion of these excess earnings will be
attributable to Ukhamba. At the end of each financial year of the initial
conversion period, a certain number of deferred ordinary shares will convert
into ordinary shares. This number will be determined such that the earnings
attributable to Ukhamba over that financial period equates to the market value
of these ordinary shares based on a 5-month volume weighted average price for an
ordinary share in Imperial.
Initial headline earnings
Initial headline earnings of R1 634 million ("initial headline earnings") was
predetermined for the purposes of the transaction. A historical extrapolation
was performed to determine this number, taking into consideration:
* HEPS for the year ended 25 June 2003;
* the compound annual growth rate of 15.2% in HEPS from 2001 to 2003; and
* the current weighted average number of shares in issue.
Base headline earnings hurdles
Base headline earnings hurdles ("Base HE Hurdles") will be set for the seven
financial years of the initial conversion period. The Base HE Hurdles will be
based on an annual growth rate of 13% on the predetermined initial headline
earnings.
Headline earnings thresholds
Two headline earnings thresholds ("1st HE Threshold" and "2nd HE Threshold")
will be set for each of the seven financial years of the initial conversion
period, and will be determined as follows:
* the 1st HE Threshold for each financial year will be equal to 101.8% (being
115% divided by 113%) of the Base HE Hurdle for the applicable financial year;
and
* the 2nd HE Threshold for each financial year will be equal to 103.5% (being
117% divided by 113%) of the Base HE Hurdle for the applicable financial year.
Value attributable to Ukhamba
A portion of Imperial"s actual headline earnings ("Actual HE") above the Base HE
Hurdles will be deemed to be attributable to Ukhamba each financial year within
the initial conversion period, calculated as follows:
* 25% of the amount that Actual HE exceeds the Base HE Hurdle; plus
* 25% of the amount that Actual HE exceeds the 1st HE Threshold; plus
* 25% of the amount that Actual HE exceeds the 2nd HE Threshold.
In effect, Ukhamba will be attributed:
* a proportion of actual headline earnings in excess of the Base HE Hurdle;
* a greater proportion of actual headline earnings in excess of the 1st HE
Threshold, being the second-highest threshold; and
* an even greater proportion of actual headline earnings in excess of the 2nd HE
Threshold, being the highest threshold.
In this way Ukhamba will be incentivised to contribute to Imperial"s performance
as greater value is attributable to Ukhamba as Imperial achieves higher headline
earnings growth.
Calculation of converted shares
At the end of each financial year of the initial conversion period, the amount
calculated as value attributable to Ukhamba will be `translated" into a number
of ordinary shares based on a 5-month volume weighted average share price of
Imperial"s ordinary shares, as listed on the JSE Securities Exchange South
Africa ("JSE"). The same number of deferred ordinary shares will then convert
into ordinary shares, subject to predetermined annual minimum and maximum
limits.
6.2. The extended conversion period (26 June 2011 - 25 June 2018)
To the extent that there remain deferred ordinary shares that have not converted
into ordinary shares by the end of the initial conversion period, the
transaction will continue into the extended conversion period. The number of
deferred ordinary shares that will convert into ordinary shares on an annual
basis during the extended conversion period will be determined on a non-
cumulative basis as follows:
* if Imperial"s HEPS growth over the previous financial year equals or exceeds
10%, then 500 000 deferred ordinary shares will convert into ordinary shares;
* if Imperial"s HEPS growth over the previous financial year equals or exceeds
11%, then 750 000 deferred ordinary shares will convert into ordinary shares;
* if Imperial"s HEPS growth over the previous financial year equals or exceeds
12%, then 1 000 000 deferred ordinary shares will convert into ordinary shares;
and
* if Imperial"s HEPS growth over the previous financial year equals or exceeds
13%, then 1 250 000 deferred ordinary shares will convert into ordinary shares.
If Imperial"s HEPS growth over the previous financial year is lower than 10%,
there will be no conversion of deferred ordinary shares into ordinary shares.
7. UNDERTAKING BY UKHAMBA
It is envisaged by the parties that Ukhamba, through its participation as a
shareholder of Imperial, and by virtue of Imperial"s enhanced BEE status
consequent upon that shareholding, will:
* generate and enhance future business opportunities for Imperial;
* sustain and improve the empowerment status achieved by Imperial as a result of
the transaction; and
* assist Imperial with its transformation initiatives to facilitate the transfer
of skills for the benefit of Imperial"s HDI employees.
8. RESTRICTION ON TRANSFER
* Ukhamba will not be entitled at any time to transfer ownership of any of the
deferred ordinary shares.
* Ukhamba will not be entitled to transfer ownership of any of the ordinary
shares that have resulted from the conversion of the deferred ordinary shares
for the duration of the initial conversion period, unless Imperial agrees
otherwise.
* After the initial conversion period, Ukhamba will be entitled to unbundle or
dispose of any of the ordinary shares that have resulted from the conversion of
the deferred ordinary shares.
9. SHAREHOLDER APPROVAL AND OPINION OF AN INDEPENDENT EXPERT
In terms of the Listings Requirements of the JSE, the transaction will be
classified as a specific issue of a convertible security for cash. Accordingly,
the transaction requires:
* the approval of shareholders; and
* an opinion relating to the fairness and reasonableness of the transaction from
an independent expert.
The applicable shareholder resolutions, together with a fair and reasonable
statement, will be included in a circular to shareholders setting out the
details of the transaction.
10. CONDITIONS PRECEDENT
The transaction is subject to the fulfilment of the following conditions
precedent:
* the passing of all necessary resolutions by the requisite majority of
shareholders at the general meeting of Imperial to be convened on or about 23
February 2004;
* the passing of all necessary resolutions by Ukhamba"s shareholders to effect
the transaction; and
* the approval of the JSE.
11. EFFECTIVE DATE
The effective date of the transaction will be the second business day after the
date of fulfilment of the last of the conditions precedent.
12. FINANCIAL EFFECTS
The pro forma financial effects of the transaction set out below are based on
the following assumptions:
* the earnings, net asset value, headline earnings and tangible net asset value
per share reflected in the "before" column were extracted from the company"s
audited results for the year ended 25 June 2003;
* the effect on net asset value and tangible net asset value per share reflected
in the "after" column assumes that the transaction was effective on 25 June
2003;
* the effect on earnings and headline earnings per share reflected in the
"after" column assumes that the transaction was effected on 26 June 2002; and
* the number of deferred ordinary shares is indicative only and is based on the
ordinary shares in issue on 25 June 2002.
Actual Pro forma Increase/
before the after the Increase/ (Decrease)
Note transaction transaction (Decrease) (%)
Earnings 1 718.7 717.7 (1.0) (0.1)
per
ordinary
share
(cents)
Headline 1 700.2 699.2 (1.0) (0.1)
earnings
per
ordinary
share
(cents)
Fully 716.9 675.4 (41.5) (5.8)
diluted
earnings
per
ordinary
share
(cents)
Fully 698.4 658.0 (40.4) (5.8)
diluted
headline
earnings
per
ordinary
share
(cents)
Net asset 4 041.6 4 040.8 (0.8) 0.0
value per
ordinary
share
(cents)
Tangible 2 3 793.0 3 792.2 (0.8) 0.0
net asset
value per
ordinary
share
(cents)
Actual 202 865 202 865 - 0.0
number of
ordinary
shares in
issue
(000"s)
Actual 3 - 23 180 23 180 100.0
number of
deferred
ordinary
shares in
issue
(000"s)
Weighted 205 319 205 319 - 0.0
average
number of
ordinary
shares in
issue
(000"s)
Weighted 4 205 854 218 163 12 309 6.0
average
number of
fully
diluted
ordinary
shares in
issue
(000"s)
Notes:
1. The decrease in earnings and headline earnings is mainly as a result of a
donation of approximately R2.5 million made by Imperial to the Development
Trust. An interest rate of 10% pre-tax was assumed in respect of the cash
foregone in terms of this donation.
2. The tangible net asset value excludes intangible assets.
3. The number of deferred ordinary shares issued equates to 10.1% of the
aggregate net issued shares as at 25 June 2002.
4. The number of deferred ordinary shares, other than those held by Imperial
through Ukhamba, is treated as fully dilutive from the date of issue.
13. IMPORTANT NOTE
Attention is drawn to the fact that under no circumstances should any
information contained in this terms announcement be construed as a forecast of
the group"s profits.
14. DOCUMENTATION
A circular containing the full details of the transaction, including a notice of
general meeting and the opinion of an independent expert, will be posted to
Imperial shareholders on or about 30 January 2004.
Johannesburg
9 December 2003
Merchant Bank to Imperial and Transaction Adviser
RAND MERCHANT BANK
A division of FirstRand Bank Limited
CORPORATE FINANCE
Sponsor to Imperial
Merrill Lynch South Africa (Pty) Ltd
Global Markets & Investment Banking Group
Merrill Lynch South Africa (Pty) Ltd
Registration number 1995/001805/07
Registered Sponsor and Member of the JSE Securities Exchange South Africa
Legal Adviser to Imperial
MOSS-MORRIS
Reporting Accountant and Auditor
Deloitte & Touche
Independent Adviser to Imperial
KPMG
Corporate Adviser to Ukhamba
N M ROTHSCHILD & SONS
There will be a presentation in Johannesburg, today, 9 December at 11:00 for
11:30 in the Ballroom at the Inanda Club, Inanda, Sandton.
There will be a presentation in Cape Town, tomorrow, 10 December at 12:30 for
12:45 in Rooms 5 & 7 at The Pavilion Conference Centre, BMW Pavilion, V & A
Waterfront, Cape Town
Please contact Adri Ackerman at Brunswick for additional information on
(011) 268 5750.
Date: 09/12/2003 07:01:34 AM Produced by the JSE SENS Department
