| Thu 15 Jul 2004, 14:43 | | The Proposed Introduction Of Direct Black Share |
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Standard Bank Group Limited - The Proposed Introduction Of Direct Black Share
Ownership In Standard Bank
Standard Bank Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1969/017128/06)
Share code: SBK Namibian share code: SNB
ISIN: ZAE000038873
(`Standard Bank` or `the Company`)
THE PROPOSED INTRODUCTION OF DIRECT BLACK SHARE OWNERSHIP IN
STANDARD BANK
1. INTRODUCTION
Further to the cautionary announcement released earlier today, Standard Bank is
pleased to announce that, subject to the fulfillment of the conditions precedent
set out in paragraph 4.3 below, which includes the approval of Standard Bank
ordinary shareholders, it has concluded agreements whereby it proposes to
facilitate the acquisition of an effective 10% interest in its South African
banking operations by a broad-based grouping of black entities (`the black
ownership initiative`). The black ownership initiative participants comprise the
following:
- black strategic partners, being Safika Holdings (Proprietary) Limited
(`Safika`) and Millennium Consolidated Investments (Proprietary) Limited (`MCI`)
(`the Tutuwa Consortium`), which will together acquire approximately 40.2
million shares in the issued ordinary share capital of Standard Bank (`Standard
Bank ordinary shares`);
- trusts to be formed for the benefit of current, as well as future, black
employees of Standard Bank as defined in the Financial Sector Charter (`the
Charter`) (`the black employees`), which will collectively acquire approximately
40.2 million Standard Bank ordinary shares; and
- a trust to be formed for the benefit of regional business and community
groupings, which will acquire approximately 20.1 million
Standard Bank ordinary shares.
The above black ownership initiative participants are, collectively, referred to
as `the black partners`.
The black employees under the black ownership initiative will comprise two
categories, being some 2 500 managerial black employees (`black managers`) who
will be the beneficiaries of trusts that acquire approximately 38.9 million
Standard Bank ordinary shares and the non-managerial black employees who will be
awarded a total of approximately 1.3 million Standard Bank ordinary shares at no
cost to such employees.
In addition, Standard Bank proposes that every employee of Standard Bank`s
subsidiaries worldwide who does not qualify under the proposed black ownership
initiative or is not a participant in Standard Bank`s share incentive scheme
(`other employees`) will be awarded 100 Standard Bank ordinary shares at no cost
to such employee, which awards will, in aggregate, amount to approximately 1.8
million Standard Bank ordinary shares.
The award of Standard Bank ordinary shares at no cost to the non-managerial
black employees and to the other employees in Standard Bank is, collectively,
referred to in this announcement as `the general staff scheme`. The participants
in the general staff scheme will receive a total of approximately 3.1 million
Standard Bank ordinary shares, including the approximate 1.3 million Standard
Bank ordinary shares received by the non-managerial black employees.
PLEASE REFER TO THE PRESS ANNOUNCEMENT TO BE PUBLISHED TOMORROW (Friday,
16 July 2004) for the diagram which illustrates the participation, including the
number of Standard Bank ordinary shares thereof, in the black ownership
initiative and the general staff scheme.
The board of directors of Standard Bank (`the board`) has taken a decision to
facilitate the black ownership initiative through the acquisition of Standard
Bank ordinary shares from shareholders (as detailed in paragraph 4.1 below). The
proposal is that each Standard Bank ordinary shareholder disposes of 76 ordinary
shares for every 1 000 ordinary shares held in Standard Bank, at an ex-dividend
consideration of R40.50 per Standard Bank ordinary share. This represents a
discount of 4.71% to the Standard Bank closing share price on Friday, 9 July
2004 of R42.50. The board considers such a discount, amounting to an effective
cost of 15 cents per share to the Standard Bank ordinary shareholders, important
for the sustainability of the black ownership initiative. In this regard it
should be noted that Standard Bank ordinary shareholders will retain the right
to receive any interim dividend to be paid by Standard Bank in the 2004
financial year in respect of the ordinary shares disposed of to facilitate the
black ownership initiative. In addition, it is proposed that the black
ownership initiative be facilitated through fixed rate redeemable preference
shares with a 20-year term. The redemption profile of such preference shares is
dependent on the future dividend stream of Standard Bank, thus further enhancing
the sustainability of the black ownership initiative as it is not linked to the
performance of the Standard Bank share price.
At present, 10% of Standard Bank`s South African banking operations is valued at
approximately R4.3 billion and is equivalent to approximately 7.54% of the
issued ordinary share capital of Standard Bank and, deducting the value of the
Andisa Capital (Proprietary) Limited (`Andisa Capital`) empowerment transaction
previously concluded and referred to in paragraph 3 below, is equivalent to
7.47% of the issued ordinary share capital of Standard Bank. On implementation
of the black ownership initiative, the black partners will together effectively
hold approximately 100.5 million Standard Bank ordinary shares whose value,
together with the value of the Andisa Capital empowerment transaction, is
equivalent to 10% of Standard Bank`s South African banking operations.
Liberty Group Limited (`Liberty Life`) has also concluded agreements whereby it
proposes to facilitate the acquisition of an effective 10% interest in its South
African operations to a broad-based grouping of black entities, details of which
are separately published on the Securities Exchange News Service of the JSE
Securities Exchange South Africa (`JSE`) (`SENS`) today.
2. RATIONALE
2.1 Standard Bank`s commitment to black economic empowerment
Standard Bank is firmly committed to black economic empowerment in South Africa.
The Company accepts that meaningful participation by black people in the
mainstream economy is essential to sustaining South Africa`s successful economic
and democratic structures.
Standard Bank has for many years followed a black economic empowerment strategy
aimed at achieving:
- a meaningful number of black directors and executives in Standard Bank and its
subsidiaries, joint ventures and associates (`Group`);
- a Group staff complement that reflects South Africa`s diverse demographic
profile;
- participation in financing of a large number of black economic empowerment
transactions;
- Group procurement policies that recognise black empowerment;
- a growing and economically active customer base drawn from previously
economically deprived communities; and
- Group social development programmes that are primarily directed at developing
and empowering previously disadvantaged communities.
Standard Bank is a large South-African based institution that is part of the
fabric of South Africa. Accordingly, the board believes that Standard Bank needs
to facilitate an empowerment transaction that seeks to embrace the spirit as
well as the requirements of the Charter.
2.2 The Charter
On 17 October 2003, all participants in the financial sector adopted the
Charter. The six key areas of black economic empowerment embraced by the
Charter are:
- business ownership and control;
- recruitment and development of human resources;
- procurement and enterprise development;
- access to financial services;
- empowerment financing; and
- corporate social investment.
The scorecard set out in paragraph 16 of the Charter (`the scorecard`) provides
an objective and broad-based set of indicators for measuring a financial
institution`s success in meeting the objectives of the Charter.
It is intended that the scorecard be used by:
- financial institutions to assess their own black economic empowerment
initiatives;
- the Charter Council (to be established in terms of paragraph 15.1 of the
Charter) in evaluating adherence to the Charter and its scorecard; and
- the Government and the private sector when awarding contracts to financial
institutions.
One of the terms of the Charter is that, in order for a financial institution to
earn the full 12 points allocated in the scorecard to direct ownership, 10% of
the equity in its South African operations, together with control over all of
the voting rights attaching to that equity interest, must be held by black
people by 2010. In addition, 33% of the members of the board of directors of the
financial institution must be black.
In terms of the Charter, ownership may be implemented at operational, subsidiary
or holding company level. Standard Bank considers it more favourable to
introduce black ownership at the holding company level as:
- it allows for the black partners to participate in the success of Standard
Bank`s African and international businesses while at the same time meeting the
Charter ownership targets for the South African operations;
- it does not interfere with or constrain the operational and business
requirements at the subsidiary level;
- the value of the investment of the black partners is readily determinable as
the Standard Bank ordinary shares are listed on the JSE; and
- it allows for liquidity on exit.
2.3 The black partners
The broad-based nature of the black partners is designed to mirror the spread of
Standard Bank`s South African banking network and maximise the business case for
black economic empowerment by aligning the interests of Standard Bank with those
of the black partners, many of whom are already stakeholders in Standard Bank.
2.3.1 The Tutuwa Consortium
Standard Bank considers it imperative to have, among its empowerment partners,
leading black business groups who will provide leadership in assisting Standard
Bank management in meeting its strategic business objectives in a rapidly
transforming South African banking market.
Both Safika and MCI are black companies founded by black individuals who were
influential in the unfolding of the democratic process in the early 1990s. These
individuals have since established themselves as prominent businessmen with
proven track records.
The black ownership initiative provides a unique opportunity to strengthen and
entrench relationships with Safika and MCI as value-adding strategic partners to
the South African banking operations of the Group.
The approximate 40.2 million Standard Bank ordinary shares to be effectively
acquired by the Tutuwa Consortium will be held 60% by Safika and 40% by MCI.
Safika will therefore effectively hold approximately 24.1 million and MCI
approximately 16.1 million Standard Bank ordinary shares.
Safika
Safika is an empowerment investment holding company with investments in the
fields of, inter alia, communication, information technology, human capital,
natural resources and financial services.
Safika currently partners Standard Bank in STANLIB Limited (`STANLIB`) and
Andisa Capital where it holds effective interests of 12.75% and 14.79%,
respectively. Safika has successfully assisted STANLIB and Andisa Capital in
generating meaningful additional business since becoming a shareholder in these
companies.
The effective direct and indirect shareholders of Safika are Moss Ngoasheng
(20%), Vuli Cuba (20%), Saki Macozoma (20%), Marc Ber (10%), Soto Ndukwana (5%)
and Richard Chauke (5%). In addition, 20% of the shares in Safika are reserved
for future strategic shareholders.
Saki Macozoma is currently a member of the board of Standard Bank.
Standard Bank and Liberty Life are in advanced discussions to acquire in total a
20% strategic shareholding in Safika. Such acquisition is not linked to the
black ownership initiative.
MCI
MCI is a black-owned and managed investment holding company founded by Cyril
Ramaphosa, James Motlatsi and several black professionals. MCI has investments
in the resources, property, industrial and financial sectors. MCI`s principals
have been active participants in the black economic empowerment landscape in
South Africa since 1996.
The shareholders of MCI are the Ramaphosa family (30%), management and staff
(25%), James Motlatsi and other individuals (10%), Standard Bank (15%), Investec
Limited (15%) and community trusts (5%).
It is the intention to invite Cyril Ramaphosa to join the Standard Bank board
after the implementation of the black ownership initiative.
2.3.2 The black managers
Standard Bank believes that the most effective way to achieve broad-based black
ownership is to empower its black staff. It is proposed that the trusts to be
established for the benefit of current and future black managers (`the Managers
Trusts`), will effectively purchase approximately 38.9 million Standard Bank
ordinary shares in aggregate.
Standard Bank currently has approximately 2 500 black South African managers who
will participate in the black ownership initiative. An internal committee (`the
allocation committee`) has been established and tasked with formulating the
criteria to determine the level of participation of black managers in the
Managers Trusts on an equitable basis. The allocation committee will submit
proposals to a sub-committee of the board and thereafter the final allocations
will be confirmed. It is anticipated that the initial participants in the
Managers Trusts will be finalised at the beginning of the fourth quarter of
2004.
The focus on empowerment of black managers is a sensitive matter that needs to
be managed and communicated properly. To this end, the Group has developed a
comprehensive communication and education strategy that will be aimed at
addressing the concerns of white employees.
2.3.3 The regional business and community groupings
Standard Bank believes in empowering broad-based regional business and community
groupings. It is proposed that a trust be established for the benefit of
regional business and community groupings that will acquire approximately 20.1
million Standard Bank ordinary shares.
Safika and MCI have committed to assist Standard Bank in the identification and
selection of and negotiation with such groupings. It is currently envisaged that
the selection of such regional business and community groupings will be
completed by 31 December 2004.
2.4 The general staff scheme
In proposing the general staff scheme, Standard Bank`s objective is to promote
an inclusive, equitable and diversity-friendly working environment where share
ownership by employees is encouraged at all levels and in all countries in which
the Group operates. Accordingly, the board believes it is important for all
employees of the Group worldwide to receive Standard Bank ordinary shares at the
time of implementing the black ownership initiative.
3. VALUE OF THE SOUTH AFRICAN BANKING OPERATIONS OF STANDARD BANK
The board appointed JPMorgan Chase Bank (`JPMorgan`) to perform a valuation of
the Group including a valuation of Standard Bank`s South African banking
operations. Based on the value derived from the mid-point of the fair range of
values, JPMorgan is of the view that the South African banking operations
account for 75.4% of the total value of the Group.
Having regard to this, the board is of the view that the requisite black
shareholding in Standard Bank that would satisfy the direct ownership
requirements of the Charter is as calculated and set out in the table below. In
arriving at this calculation, the board has taken into account the value of the
black economic empowerment transaction in respect of Andisa Capital in 2003.
R million
Value of Standard Bank`s South African banking operations 43 034
10% of the value of Standard Bank`s South African banking operations 4 303
Less:
Andisa Capital empowerment value 1 42
Net empowerment value 4 261
Net empowerment value as a percentage of Standard Bank`s
market capitalisation 2 7.47%
Notes:
1 The ratio of the value of Andisa Capital in relation to Standard Bank
determined at the time of its empowerment transaction on 3 April 2004 was
applied to the current market capitalisation of Standard Bank to derive the
purported value of the Andisa Capital empowerment transaction at current market
values.
2 As at the close of business on 9 July 2004.
3 STANLIB is not a banking operation of the Group and has also previously
concluded an empowerment transaction. The value of STANLIB is accordingly not
included above.
4. MECHANICS OF THE BLACK OWNERSHIP INITIATIVE
4.1 The scheme
Standard Bank proposes to establish six wholly-owned subsidiaries (collectively
referred to as `the SBG subsidiaries`) whose sole purpose will be to acquire and
own Standard Bank ordinary shares in terms of the black ownership initiative.
Standard Bank will subscribe for preference shares with a 20-year term in the
capital of these SBG subsidiaries at a total subscription of R4.02 billion. The
relevant details of these preference shares are set out in paragraph 4.5 below.
In addition, companies who employ the beneficiaries under the general staff
scheme (being subsidiaries of Standard Bank) will provide capital of
approximately R127 million to the trust to be formed for the benefit of such
general staff scheme beneficiaries (`the General Staff Trust`).
The SBG subsidiaries and the trustees of the General Staff Trust will together
propose a scheme of arrangement in terms of section 311 of the Companies Act,
1973 (Act 61 of 1973), as amended (`Companies Act`), between Standard Bank and
its ordinary shareholders (`the scheme`) for the acquisition by the SBG
subsidiaries, in terms of section 89 of the Companies Act, and the General Staff
Trust, of a total of approximately 102.3 million Standard Bank ordinary shares
on a pro rata basis from ordinary shareholders of Standard Bank for a cash price
of R40.50 per share. The aggregate consideration will be approximately R4.14
billion. If the scheme is implemented, the SBG subsidiaries will acquire
approximately 99.2 million Standard Bank ordinary shares and the General Staff
Trust will acquire approximately 3.1 million Standard Bank ordinary shares.
Immediately following the implementation of the scheme, the value of the
Standard Bank ordinary shares acquired by the SBG subsidiaries in terms of the
scheme will be matched by a corresponding preference share obligation to
Standard Bank, resulting in the effective net asset value of the ordinary shares
of each SBG subsidiary being insubstantial. It is proposed that Standard Bank
will then sell the ordinary shares in these SBG subsidiaries to the Tutuwa
Consortium, the Managers Trusts and a trust created for the benefit of the
regional business and community groupings (`the Community Trust) at their
respective effective net asset values (`the disposal`), subject to the
fulfillment of the conditions precedent set out in paragraph 4.3 below.
After the above transactions have been concluded:
- the Tutuwa Consortium will own the ordinary shares in two of the SBG
subsidiaries (`Strat Co 1` and `Strat Co 2`), which, in turn, will collectively
own approximately 40.2 million Standard Bank ordinary shares (valued at
approximately R1.71 billion based on the closing Standard Bank share price on 9
July 2004);
- the Managers Trusts will own the ordinary shares in three of the SBG
subsidiaries (`Staff Co 1`, `Staff Co 2` and `Staff Co 3`) which, in turn, will
collectively own approximately 38.9 million Standard Bank ordinary shares
(valued at approximately R1.65 billion based on the closing Standard Bank share
price on 9 July 2004);
- the Community Trust will own the ordinary shares in one of the SBG
subsidiaries (`Comm Co`) which, in turn, will own approximately 20.1 million
Standard Bank ordinary shares (valued at approximately R854.7 million based on
the closing Standard Bank share price on 9 July 2004); and
- the General Staff Trust will own approximately 3.1 million Standard Bank
ordinary shares (valued at approximately R133.3 million based on the closing
Standard Bank share price on 9 July 2004). The rights to these Standard Bank
ordinary shares in the General Staff Trust will vest immediately in the
participating employees but such employees will not be able to dispose of their
Standard Bank ordinary shares until the expiry of a period of time, which is
proposed to be three years, regardless of whether or not they are still
employees of Standard Bank.
4.2 The resultant structure of Standard Bank
For a diagrammatic explanation of the simplified shareholding structure of
Standard Bank subsequent to the sale of the ordinary shares in the SBG
subsidiaries and the implementation of the general staff scheme, PLEASE REFER TO
THE PRESS ANNOUNCEMENT TO BE PUBLISHED IN THE PRESS TOMORROW (Friday,
16 July 2004).
4.3 Conditions precedent to the scheme
The scheme will become operative and be implemented when, among others, the
following conditions precedent are fulfilled:
4.3.1 the special resolution approving the acquisition by the SBG subsidiaries
of the ordinary shares from Standard Bank ordinary shareholders being duly
passed by Standard Bank ordinary shareholders in general meeting;
4.3.2 the ordinary resolution approving the disposal being duly passed by
Standard Bank ordinary shareholders in general meeting;
4.3.3 the scheme being approved by a majority representing not less than three-
fourths (75%) of the votes exercisable by scheme members present and voting
either in person or by proxy at the scheme meeting;
4.3.4 the Court sanctioning the scheme in terms of the Companies Act;
4.3.5 any approvals required from the Registrar of Banks under the Banks Act,
1990 (Act 94 of 1990), as amended, being obtained; and
4.3.6 any other regulatory approvals that may be required are obtained.
4.4 Conditions precedent to the general staff scheme
The implementation of the general staff scheme is subject to the fulfillment of
the following conditions:
- the ordinary resolution approving the general staff scheme being duly passed
by Standard Bank ordinary shareholders in general meeting; and
- the implementation of the scheme.
4.5 The terms of the preference shares
The SBG subsidiaries will be capitalised by Standard Bank subscribing for
preference shares. The preference shares will:
- entitle Standard Bank to receive a cumulative preference cash dividend at a
fixed rate of 8.5%, nominal annual compounded semi-annually;
- be redeemable by the relevant SBG subsidiary at any time after three years and
one day following their issue but not later than the first business day after
the expiry of the period of 20 years following their issue; and
- entitle Standard Bank to sell such preference shares.
In addition, all dividends paid to each SBG subsidiary in respect of the
Standard Bank ordinary shares to be acquired by the SBG subsidiary through the
scheme, less any costs necessary for administrative function of the SBG
subsidiary, will be used to pay the preference dividend and to redeem the
preference shares.
4.6 The shareholders` agreements
It is proposed that each black partner and each SBG subsidiary will enter into a
shareholders` agreement with Standard Bank to regulate the relationship between
Standard Bank (as preference shareholder) and the relevant black partner (as
ordinary shareholder) and, insofar as possible, to ensure the continued
compliance by the black partners with the direct ownership requirements of the
Charter.
The shareholders` agreements will provide that, unless with Standard Bank`s
consent, the black partners will not be entitled to dispose of their interest in
the relevant SBG subsidiary, and the relevant SBG subsidiary will not be
entitled to dispose of its interest in Standard Bank, until the expiry of a
minimum lock-in period (which could be in 2011, depending on when the Charter
Council ownership review takes place, but the final date of which will be
midnight on 31 December 2014). Furthermore, until the end of the lock-in period,
the black partners will undertake that each SBG subsidiary will remain a `Black
Company` as defined in the Charter.
5. ECONOMIC COST
Standard Bank has estimated the economic cost of the black ownership initiative
and the general staff scheme, both incurred and potential, using recognised
financial risk pricing methodologies and assumptions, to be
R1 605 million. This translates to 2.80% of the market capitalisation of
Standard Bank calculated with reference to the closing Standard Bank share price
of R42.50 per share on 9 July 2004. This estimation has been reviewed by
JPMorgan. Liberty Life is proposing a black ownership initiative that is being
announced on SENS today and including costs relating to Liberty Life`s black
ownership initiative the economic cost for Standard Bank would increase to R1
716 million. This translates to 3% of the market capitalization of Standard Bank
calculated with reference to the closing Standard Bank share price of R42.50 per
share of 9 July 2004.
6. ACCOUNTING TREATMENT
The principle underlying the accounting treatment is compliance with South
African Statements of Generally Accepted Accounting Practice and the
international accounting standards on which they are based (`GAAP`). GAAP may
require a transaction to be accounted for in a different manner to its legal
substance and form. The accounting treatment described below has been determined
based on both local and international accounting advice and interpretations of
GAAP.
6.1 The black ownership initiative
The acquisition of the Standard Bank ordinary shares by the SBG subsidiaries is
accounted for as a reduction in equity in Standard Bank`s company and
consolidated annual financial statements. The preference share capital provided
to the SBG subsidiaries does not meet the definition of a financial asset in
terms of GAAP, as the repayment of the preference share obligation will
effectively be financed by Standard Bank`s ordinary dividends. As a result,
Standard Bank`s dividend and capital redemption payments received on the
preference shares are eliminated against gross ordinary dividends declared.
For purposes of the calculation of earnings per ordinary share, the weighted
average number of ordinary shares in issue is reduced by the number of ordinary
shares held by those SBG subsidiaries which subsidiaries have been sold to the
Tutuwa Consortium, the Managers Trusts and the Community Trust. The weighted
average number of ordinary shares in issue will be restored on final redemption
of the preference shares by the SBG subsidiaries owned by the black partners, or
to the extent transferred to a third party, upon such transfer.
In considering the applicability of International Financial Reporting Standards
(`IFRS`): Share-based Payments (`IFRS 2`), Standard Bank has been advised that
the black ownership initiative cannot be regarded as a `good` or a `service` as
envisaged by the standard. The transaction is performed for a purpose other than
the payment for goods or services supplied to Standard Bank and the requirements
of IFRS 2 are therefore not considered to be applicable.
6.2 The general staff scheme
As the acquisition of ordinary shares by employees in terms of the general staff
scheme is funded by remuneration, the cost of the general staff scheme will be
treated as an employee cost on implementation.
7. PRO FORMA FINANCIAL EFFECTS
The pro forma financial effects set out below have been prepared to assist
Standard Bank ordinary shareholders to assess the impact of the black ownership
initiative and the general staff scheme on the earnings per share (`EPS`),
headline EPS (`HEPS`) and the net asset value (`NAV`) and tangible NAV (`TNAV`)
per Standard Bank ordinary share. The material assumptions are set out in the
notes following the table. These pro forma financial effects have been disclosed
in terms of the JSE Listings Requirements and do not constitute a representation
of the future financial position of Standard Bank on implementation of the
scheme and the disposal. The pro forma financial effects are the responsibility
of the board and are provided for illustrative purposes only.
It should be noted that:
- as announced on Tuesday, 6 July 2004, Standard Bank raised additional
preference share capital with an aggregate value of R3 billion (`the capital
raising`), the impact of which has been shown in the table below with effect
from 1 January 2003; and
- in compliance with external opinions on GAAP, the accounting treatment only
accounts for the disposal of the SBG subsidiaries` ordinary shares to the black
partners to the extent that the preference share obligation of the SBG
subsidiaries is redeemed. Accordingly, as the full preference share obligation
is outstanding at the inception of the black ownership initiative there are no
initial financial effects recognised from this disposal.
7.1 Pro forma financial effects of Standard Bank`s black ownership initiative
Before After
the the Net After the Net
scheme capital change scheme change3
raising (%) (%)
EPS (cents) 475.7 467.4 (1.7) 466.8 (1.9)
HEPS (cents) 468.3 460.0 (1.8) 458.9 (2.0)
NAV per ordinary
share (cents)1 2 141 2 141 0.0 1 976 (7.7)
TNAV per ordinary
share (cents)1 2 082 2 082 0.0 1 913 (8.1)
ROE (%)2 22.8 22.4 24.4
1 Excludes cash in the hands of the shareholder.
2 Return on ordinary shareholders` equity (`ROE`) is based on average
shareholders` equity for the year.
3 Represents the net change after the capital raising and the scheme.
Notes:
1. The EPS, HEPS, NAV per ordinary share and TNAV per ordinary share `Before the
scheme` are based on the audited results for the year ended
31 December 2003.
2. The EPS and HEPS `After the scheme` are based on the assumption that the
capital raising and the scheme were implemented on 1 January 2003. The average
prime interest rate used in calculating the financial effects was 15.18%.
3. The NAV per ordinary share and TNAV per ordinary share `After the scheme` are
based on the assumption that the capital raising and the scheme were implemented
on 31 December 2003.
4. The EPS and HEPS `After the scheme` are based on 1 234 908 381 weighted
average ordinary shares in issue (1 334 098 578 weighted average ordinary shares
in issue as per the 2003 audited results less 99 190 197 shares effectively
owned by the Tutuwa Consortium, the Managers Trusts and the Community Trust).
5. The NAV per ordinary share and TNAV per ordinary share `After the scheme` are
based on 1 239 539 470 ordinary shares in issue (1 338 729 667 ordinary shares
in issue as per the 2003 audited results less 99 190 197 shares effectively
owned by the Tutuwa Consortium, the Managers Trusts and the Community Trust).
6. The adjustments assume the following events:
6.1. the SBG subsidiaries have acquired 99 190 197 ordinary shares at R40.50 per
share in terms of the scheme. The acquisition has been facilitated by
R3 billion raised in terms of the capital raising (refer to note 6.2) and
surplus cash in the group of R1.02 billion. The full acquisition has been
debited to equity;
6.2. 30 000 000 non-redeemable, non-cumulative, non-participating Standard Bank
preference shares with a par value of R0.01 each at a subscription price of R100
per share have been issued. The preference share coupon is 70% of the prime
overdraft rate of Standard Bank (prior to the scheme it is assumed the Group
invested the funds from the capital raising at the average JIBAR effective rate
of 11.83%, after tax 8.28%);
6.3. the Group has made a gross payment to employees in terms of the general
staff scheme of R211.7 million, after tax of R148.2 million, facilitated out of
surplus cash in the Group. The payment has been utilised to acquire a further 3
136 400 ordinary shares in term of the scheme. These shares immediately vest
with employees through the General Staff Trust;
6.4. the Group has forgone the opportunity to earn interest on the surplus cash
and the cash utilised in the general staff scheme, and has earned interest on
cash retained, at the average JIBAR effective rate of 11.83%, after tax 8.28%,
for the year ended 31 December 2003; and
6.5. the above transactions, unless otherwise stated, are subject to South
African taxes and the tax effects have been accounted for in the adjustments.
7. The scheme of Standard Bank`s subsidiary, Liberty Life, is not included in
the pro forma financial effects.
7.2 Pro forma financial effects on Standard Bank including the Liberty Life
black ownership initiative (Liberty Life is also proposing a black ownership
initiative, details of which are separately published on SENS today).
Before After
the the Net After the Net
scheme capital change scheme change3
raising (%) (%)
EPS (cents) 475.7 467.4 (1.7) 466.9 (1.8)
HEPS (cents) 468.3 460.0 (1.8) 459.0 (2.0)
NAV per ordinary
share (cents)1 2 141 2 141 0.0 1 975 (7.8)
TNAV per ordinary
share (cents)1 2 082 2 082 0.0 1 912 (8.2)
ROE (%)2 22.8 22.4 24.4
1 Excludes cash in the hands of the shareholder.
2 ROE is based on average shareholders` equity for the year.
3 Represents the net change after the capital raising and the scheme.
Notes:
The adjustments assume the following events:
1. notes 1 to 6.5 above apply as well as the Liberty Life adjustments. (Refer to
the Liberty Life announcement for a detailed breakdown of the assumptions);
2. the scheme of Standard Bank`s subsidiary, Liberty Life, is approved; and
3. cash obtained by Liberty Holdings Limited from the repurchase earns a return
equivalent to a call interest rate being 10.49%, after tax 7.34%.
8. OPINIONS AND RECOMMENDATIONS
8.1 Independent experts` opinion
Although not required in terms of the JSE Listings Requirements, the board
appointed JPMorgan as an independent expert to advise the board on whether the
terms and conditions of the black ownership initiative are fair and reasonable
from a financial point of view to Standard Bank. JPMorgan has considered the
terms and conditions of the black ownership initiative and, based on a review of
the information made available to it and discussions with management of Standard
Bank, is of the opinion that, collectively, the black ownership initiative is
fair and reasonable from a financial point of view, to Standard Bank.
8.2 Opinion of the board
The board, together with Standard Bank`s advisers, has structured the black
ownership initiative in an attempt to ensure that it is in line with the black
economic empowerment strategy of Standard Bank as set out in paragraph 2.1
above. The board is also mindful of the fact that a failure by Standard Bank to
embark on a black economic empowerment strategy that complies with the Charter
will have negative consequences for the business of Standard Bank.
Taking the above factors into account and having considered JPMorgan`s opinion,
the board is of the unanimous opinion that the terms and conditions of the black
ownership initiative and the general staff scheme are fair and reasonable to the
ordinary shareholders of Standard Bank. Accordingly, the board recommends that
ordinary shareholders vote in favour of the scheme and the resolutions to be
proposed at the general meeting. In respect of their personal holdings in
Standard Bank, the board members intend to vote in favour of the scheme and the
resolutions to be proposed at the general meeting.
Saki Macozoma recused himself of the decision-making process of the board due to
his 20% interest in the issued share capital of Safika.
9. FURTHER IMPORTANT DETAILS
Standard Bank ordinary shareholders will be advised in due course as to the
important dates and times relevant to the scheme, the black ownership initiative
and the general staff scheme.
A circular setting out the full details of the black ownership initiative,
including details of the scheme, the black ownership initiative and the general
staff scheme, and the meetings required to implement them, will be posted to
Standard Bank ordinary shareholders by mid-August 2004.
Johannesburg
15 July 2004
Investment bank and joint sponsor
Standard Bank
Independent financial adviser
JP Morgan
Independent lead sponsor
Deutsche Securities
Legal adviser
Bowman Gilfillan Attorneys
Joint independent reporting accountants
KPMG
PriceWaterhouseCoopers
Financial adviser to MCI
MCI Advisers
Attorneys to the Tutuwa Consortium
Prinsloo, Tindle & Andropoulos Inc. Attorneys
Moss Morris Attorneys
Derek H. Rabin and Associates (Proprietary) Limited
Date: 15/07/2004 02:24:59 PM Produced by the JSE SENS Department
