| Thu 4 Nov 2004, 14:26 | | 10% BEE Transaction |
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FIRSTRAND LIMITED - CAUTIONARY ANNOUNCEMENT RELATING TO A 10% BLACK ECONOMIC
EMPOWERMENT (`BEE`) TRANSACTION
FIRSTRAND LIMITED
Incorporated in the Republic of South Africa
Registration number: 1966/010753/06
Share Code: FSR
ISIN: ZAE000014973
(`FirstRand`)
CAUTIONARY ANNOUNCEMENT RELATING TO A 10% BLACK ECONOMIC EMPOWERMENT (`BEE`)
TRANSACTION
1. Introduction
FirstRand intends to conclude a BEE transaction in respect of 10% of its issued
ordinary share capital (`the BEE transaction`) funded through a combination of
vendor and third party funding. A binding memorandum of understanding has been
entered into with FirstRand`s BEE partners and discussions with a number of
third party funders are at an advanced stage. In order to progress the third
party funding discussions it is necessary to fix the purchase price of the
FirstRand shares for the purposes of the BEE transaction.
The BEE transaction comprises two components, namely:
- broad based BEE groups (`the BEE partners`) will be the beneficial owners
of 6.5% of FirstRand`s issued ordinary share capital, such shares to be held via
the FirstRand Empowerment Trust, a trust to be created for the purposes of the
BEE transaction; and
- FirstRand`s black South African staff and non-executive directors will have
a beneficial interest in 3.5% of FirstRand`s issued ordinary share capital.
To give effect to the BEE transaction, approximately 7.6% of FirstRand`s issued
ordinary shares will need to be procured from existing shareholders. This will
be implemented by proposing a scheme of arrangement in terms of section 311 of
the Companies Act (Act 61 of 1973), as amended, between FirstRand and its
ordinary shareholders (`the scheme`). A total of 418.3 million shares (`the
scheme shares`) will be procured on a pro rata basis from existing ordinary
shareholders in terms of the scheme.
In addition, to facilitate the BEE transaction and ensure its sustainability,
FirstRand plans to issue Approximately 120 million FirstRand ordinary shares to
the FirstRand Empowerment Trust at the par value thereof. This aspect of the BEE
transaction will lead to a dilution of approximately 2.1% for FirstRand
shareholders.
As one of South Africa`s premier financial institutions, FirstRand is committed
to BEE and embraces the principles embodied in the Financial Sector Charter
(`the Charter`). The BEE transaction demonstrates FirstRand`s commitment to
broad based BEE. At current market prices, the BEE transaction has a value of
approximately R6.8 billion, which will make it one of the largest broad based
BEE transactions in South Africa to date.
2. Details of the BEE transaction
2.1 Rationale and principles for the BEE transaction
FirstRand is committed to the process of achieving transformation in South
Africa. It specifically wishes to ensure that the long term benefits of the BEE
transaction reach the widest possible community of black South Africans, with a
focus on lower income groups.
FirstRand was guided by the following principles in structuring the BEE
transaction:
- transfer full economic and voting rights in respect of 10% of the issued
ordinary shares of FirstRand to the BEE partners and black FirstRand staff on
implementation of the BEE transaction. Given that FirstRand has a number of
operations outside South Africa, the transaction represents more than 10% of
FirstRand`s South African operations;
- focus on broad based BEE groups and FirstRand staff;
- enable active contribution by the BEE partners to the FirstRand group and
its transformation programme;
- ensure that the BEE partners remain shareholders of FirstRand for at least
ten years, being the envisaged minimum period for the BEE transaction;
- provide inherent sustainability and resilience to changes in market
conditions;
- achieve a realistic economic cost (inclusive of any dilution) to FirstRand
shareholders; and
- ensure compliance with the letter and spirit of the Charter.
2.2 The FirstRand Empowerment Trust
Participants
The BEE partners were selected taking account of, inter alia:
- their excellent reputations and long and successful track records in South
Africa;
- the longstanding good relations between each of the partners and FirstRand
and with each other; and
- their objectives in uplifting black South Africans and in enhancing broad
based BEE by addressing the needs of a wide constituency;
The BEE partners selected to participate in the BEE transaction as participants
in the FirstRand Empowerment Trust comprise:
- Kagiso Trust;
- Mineworkers Investment Trust (`MIT`);
- WDB Trust;
(collectively `the BEE trusts`); and
the FirstRand Empowerment Foundation.
Kagiso Trust
Kagiso Trust was established in 1985 during the struggle against apartheid as a
conduit for donor funding from the European Community`s special programme for
the victims of apartheid. During the first twelve years of operation, Kagiso
Trust became the largest black-led development agency in South Africa. By the
mid 1990s, Kagiso Trust was disbursing funds of approximately R300 million per
annum. For many years the European Community remained the largest funder while
the governments of Japan, France, the Rockefeller Foundation and the Swedish
International Development Agency contributed sizeable amounts. Since 1986,
Kagiso Trust has injected over R 1 billion of grant funds into various
development projects in the fields of water and sanitation, training, health,
education, small business development and agriculture across the country.
MIT
MIT was founded by the National Union of Mineworkers in July 1995 to make a
direct contribution to the economic development and social upliftment of
mineworkers, ex-mineworkers, construction and energy sector workers and their
dependents. Since 1997, MIT has disbursed R62 million to fund its social
development projects and programmes that focus on poverty alleviation, local
economic development, enterprise development, job creation and education.
WDB Trust
WDB Trust was established in 1992 with the purpose of supporting the economic
upliftment of poor black women in rural South Africa. Its specific objectives
are to provide poor women with access to finance through not for profit micro-
credit, to educate women about developing their own businesses, to enhance their
household livelihoods and to improve the position of women in society overall.
WDB emphasises a banking relationship based on mutual trust, credit discipline,
collective responsibility, accountability and savings. Since its establishment,
WDB has reached over 14 000 women in rural areas with its training and micro-
credit programmes. The micro-credit programme has disbursed in excess of R25
million through the issuance of over 22 000 micro-loans for income generation
activities. WDB also provides training in mother tongue functional literacy,
computer literacy, business development skills and micro-credit delivery.
First Rand Empowerment Foundation
The FirstRand Empowerment Foundation (which may be renamed at a later stage) is
an entity which will be created pursuant to the BEE transaction. The FirstRand
Empowerment Foundation will be a BEE entity, with the majority of its trustees
being black South Africans and its objective will be to economically uplift
black South Africans. Its trustees will be drawn from amongst FirstRand`s non-
executive directors, trustees of the BEE trusts, staff members and independent
people with appropriate experience. Amongst its initial programmes, the
FirstRand Foundation will focus on the educational and professional development
of black South Africans for the industry and to support the growth of a future
skills pool to underpin FirstRand`s transformation initiatives.
2.3 Black South African FirstRand staff and directors
FirstRand`s board of directors believes that further broad based BEE can be
achieved through the participation of its black staff in the BEE transaction.
In this way the following objectives will be achieved:
- the attraction and retention of black management;
the incentivisation of out-performance by black managers; and
- the ability to attract and retain black employees.
FirstRand and the BEE partners are also committed to ensuring that real
transformation takes place within the organisation. FirstRand already has a well
developed transformation programme, which demonstrates its commitment to the
sustainability of its BEE initiatives. The BEE partners will play an active role
in this area as well as in the strategic direction of the FirstRand group and
numerous other initiatives.
3. Details of the scheme
3.1 Rationale for the scheme
On 7 October 2004, FirstRand announced that as part of its capital management
strategy and to further improve its cost of capital, it had raised variable rate
non-redeemable, non-cumulative preference shares to the value of R3 billion.
This has resulted in FirstRand having excess capital, enabling it to meet that
part of the envisaged funding requirements over and above the third party
funding of the BEE transaction. Given the excess capital that exists, the issue
of additional shares at market value to the BEE partners would not be value
enhancing to existing shareholders.
In the context of the BEE transaction and the quantum of shares involved, it is
important that the shares for the BEE transaction are acquired as a `block` at
an appropriate price. The scheme represents the most practical and equitable
method of procuring such shares from all shareholders.
3.2 Details of the scheme
In terms of the scheme, 7.6 FirstRand shares will be acquired for every 100
FirstRand shares held by a FirstRand shareholder on the record date.
The acquisition price per share will be R12.28, which represents the 10 trading
day volume weighted average FirstRand share price on the JSE Securities Exchange
South Africa to the close of business on 3 November 2004.
The total consideration payable to existing FirstRand shareholders in terms of
the scheme will be approximately R5.1 billion.
The operative date of the scheme is envisaged to be in March 2005. The scheme
will be subject to a number of conditions precedent, including the approval by a
majority of not less than 75% of the ordinary shareholders of FirstRand present
and voting or voting by proxy at a meeting convened to consider the scheme and
the sanction of the scheme by the High Court of South Africa.
4. Further announcement
A further announcement will be published once third party funding arrangements
are finalised. This announcement will provide full details of the BEE
transaction, including the financial effects and expected economic cost of the
BEE transaction, which cost is anticipated to be comparable to BEE transactions
announced to date in the financial services sector.
5. Cautionary announcement
Shareholders are advised to exercise caution when dealing in their FirstRand
shares until publication of the announcement referred to above.
Sandton
4 November 2004
Merchant bank and joint Lead sponsor
sponsor PWC
RAND MERCHANT BANK (A
division of FirstRand
Bank Limited) CORPORATE
FINANCE
Financial adviser to
Kagiso Trust, MIT and
WDB Trust
Rothschild
