| Tue 5 Apr 2005, 10:07 | | 7.25% Black Economic Empowerment transaction |
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Imperial Holdings Limited - Announcement of a 7.25% Black Economic Empowerment
transaction
Imperial Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1946/021048/06)
JSE code: IPL ISIN number: ZAE000003620
(`Imperial` or `the Company`)
Announcement of a 7.25% Black Economic Empowerment transaction
1. Introduction
Rand Merchant Bank, a division of FirstRand Bank Limited (`RMB`), is authorised
to announce that Imperial has concluded a black economic empowerment (`BEE`)
transaction with Lereko Mobility (Proprietary) Limited (`Lereko Mobility`), a
company formed by a broad-based black empowerment consortium (`Lereko
Consortium`), led by Lereko Investments (Proprietary) Limited (`Lereko
Investments`). Lereko Mobility will acquire approximately 7.25% of Imperial`s
post-transaction equity, net of its treasury shares and excluding its deferred
ordinary shares. Lereko Mobility will be 51% owned by Lereko Consortium and 49%
by Imperial.
This transaction is complementary to the acquisition, concluded in March 2004,
of a 10.1% equity interest in Imperial by Ukhamba Holdings (Proprietary) Limited
(`Ukhamba`), a black empowerment vehicle set up to benefit the company`s
historically disadvantaged staff and a community development trust.
Lereko Mobility will acquire its equity interest in Imperial through the
subscription for 14 516 617 preferred ordinary shares in Imperial (`the specific
issue`), being a new class of share in the capital of the Company. These
preferred ordinary shares, which will have a par value of 4 cents each in the
share capital of Imperial (`the preferred ordinary shares`), will pay a
cumulative fixed annual distribution of approximately 540 cents per share but
will, in all other respects including voting rights, rank pari passu with the
ordinary shares. The subscription price of the preferred ordinary shares is
dealt with in paragraph 0 below. At the end of 5 years, the preferred ordinary
shares will automatically convert into ordinary shares (`the converted shares`).
In order to ensure that the specific issue is not dilutive to Imperial`s
shareholders, Imperial, through its wholly owned subsidiary Imperial Corporate
Services (Proprietary) Limited (`ICS`), will repurchase a total of 14 516 617
ordinary shares from its shareholders, other than ICS and Ukhamba, at a price of
R96.85 per ordinary share, which represents the 3-day volume-weighted average
price (`VWAP`) of an ordinary share, calculated over the three trading days up
to, and including, 31 March 2005 (`the 3-day VWAP`) (`the repurchase`). The
repurchase will be effected by means of a scheme of arrangement in terms of
section 311 of the Companies Act, Act 61 of 1973, as amended (`the Companies
Act`), to be proposed by Imperial between Imperial and its shareholders, other
than ICS and Ukhamba, (`the scheme participants`) for the acquisition by
Imperial from the scheme participants of 7.25 ordinary shares for every 100
ordinary shares held at the price of R96.85 per ordinary share (`the scheme
consideration`)(`the scheme`). In terms of the scheme, scheme participants will
be required to apply part of the scheme consideration to the subscription for
redeemable equity-linked debentures to be issued by Lereko Mobility, which
instruments will be listed on the JSE Securities Exchange South Africa (`JSE`)
(`debentures`). The salient terms of the debentures are set out in paragraph 0
below.
Imperial believes that acquiring the aforementioned ordinary shares from the
scheme participants, in terms of the scheme, is the most equitable and efficient
way of procuring such a large block of ordinary shares as these ordinary shares
would be acquired from scheme participants on a pro rata basis.
At the price of R96.85 per ordinary share, the transaction will have a value of
approximately R1.4 billion, making it one of the largest broad-based BEE
transactions in the mobility industry.
The scheme and the specific issue are hereinafter collectively referred to as
the `BEE transaction`.
Imperial will facilitate the BEE transaction through the issue of approximately
6 205 494 preferred ordinary shares at their par value, of which approximately 6
185 248 will be issued in terms of a financial arrangement, which will have the
effect of providing Lereko Mobility with the notional equivalent of junior
finance of approximately R599 million. The issue of the 6 205 494 preferred
ordinary shares is more comprehensively dealt with in paragraph 0 below.
Lereko Mobility will fund the acquisition of the preferred ordinary shares (some
of which will be issued by Imperial at their par value per share and others
which will be issued at a price of R96.85 per share) and associated transaction
costs of approximately R30 million, by:
- raising equity capital of R2 million from Lereko Consortium;
- raising subordinated funding of approximately R458 million through the issue
of the debentures to the scheme participants; and
- raising senior funding of approximately R375 million through the issue of
redeemable preference shares to financial institutions (`the preference
shares`).
The information contained in this announcement relating to the terms of all the
funding is based on the market conditions ruling and the number of ordinary
shares in issue as at the close of business on 31 March 2005, and may be altered
to take into account changes in market conditions and the number of ordinary
shares in issue at the time of finalisation of the application to the High Court
of South Africa. A further announcement will be published on the Securities
Exchange News Service (`SENS`) and in the press once the terms of all the
funding, other than the cost of the preference shares, have been finalised. The
cost of the preference share funding is only expected to be finalised after the
High Court of South Africa sanctions the scheme.
If the scheme is successful, the anticipated equity ownership structure of the
relevant entities will be as follows:
See Business Day and Beeld for structure.
2. Rationale
As the leading listed transportation and mobility group in South Africa, it is
Imperial`s intention to embrace broad-based BEE as a key transformation
initiative. Imperial is confident that BEE will bring long-term economic
benefits to the country and that black empowerment initiatives will improve the
lives of historically disadvantaged individuals by addressing the discrimination
and imbalances of the past.
To this end, Imperial concluded the Ukhamba BEE transaction in March 2004,
whereby Ukhamba acquired a 10,1% equity interest in Imperial. Whilst Ukhamba is
a growing business enterprise, which is successfully empowering 15 500 of the
Imperial Group`s black employees and historically disadvantaged communities,
Imperial believes that it is in its interests to bolster its BEE credentials by
facilitating a further BEE equity ownership transaction. In this regard, Lereko
Consortium was identified as being an appropriate BEE partner, having the
following attributes:
- experience in the key industries in which Imperial operates i.e. tourism,
mobility and logistics;
- ability to add value at a strategic level;
- knowledge and relationships with important Imperial clients;
- strong network into South African business;
- network opportunities into the rest of Africa;
- an understanding of Government and its processes, including the legislative
process;
- understanding of issues affecting the country;
- ability to advise on grass roots issues and assist with internal
transformation within Imperial; and
- strong corporate governance credentials.
Imperial believes that Lereko Mobility will assist it materially in enhancing
its growth prospects, for the benefit of its current and future shareholders.
Lereko Mobility is expected to play a meaningful role in positioning Imperial as
an entity with the profile to deliver quality services to key segments of the
South African economy, including both the private and public sector.
To this end, Imperial considers it imperative to have a leading black business
grouping as the controlling shareholder of Lereko Consortium, with a view to
assisting Imperial in meeting its strategic objectives. Imperial believes that
Lereko Investments is such a party.
3. The members of Lereko Consortium
Lereko Consortium is a private company which has been established solely for the
purpose of acquiring and holding ordinary shares in Lereko Mobility. The
diagram below indicates the shareholder composition of Lereko Consortium.
See Business Day and Beeld for structure
3.1 Lereko Investments
Lereko Investments is a newly established company founded by black individuals
who have been involved in community service and the liberation struggle since
the 1970s through to the 1990s and who continue to undertake community work.
They were influential in the unfolding of the South African democratic process
in the early 1990s. These individuals have since established themselves as
business people.
Lereko Investments` mission is to establish itself as a leading player in the
black empowerment arena, focusing on selected sectors of the economy where
together with key stakeholders including shareholders, management, employees and
communities, it will participate in the transformation of South Africa with a
view to enhancing the economic well-being of all its stakeholders and creating
long-term value for them. Lereko Investments will draw on the experience and
background of its shareholders in identifying those sectors where it is best
positioned to add value. Lereko Investments` founders are committed to
participating in value-adding, sustainable black empowerment transactions.
The shareholders of Lereko Investments are Popo Molefe (31%), Valli Moosa (31%),
Lulu Gwagwa (8%), Eric Molobi (8%), Monhla Hlahla (5%), Murphy Morobe (5%), Seth
Phalatse (5%), Titus Mafolo (5%) and Tsheko Ratsheko (2%).
To ensure an appropriate and truly broad-based participation (which will include
a black women`s involvement of approximately 31%) in the BEE transaction, Lereko
Investments has introduced appropriate partners for the purpose of taking up a
38% equity interest in Lereko Consortium. As a result, no single individual
will hold a beneficial equity interest in excess of 0.75% of Imperial following
the implementation of the BEE transaction.
3.2 Malibongwe Women Development (`Malibongwe`)
Malibongwe is a not-for-profit organisation focusing on the upliftment of women
in South Africa. Malibongwe operates in all nine provinces in South Africa and
has a beneficiary base in excess of ten thousand women.
3.3 Zonkizizwe Investments (Proprietary) Limited (`Zonkizizwe`)
Zonkizizwe was founded during March 1999, out of a conviction that the African
renaissance can only be initiated, developed and sustained by means of a
compelling vision and the practice of principled values and ethics aimed at
creating wealth and prosperity in previously disadvantaged communities.
Zonkizizwe operates in Gauteng with a broad beneficiary base through
Zonkizizwe`s policy of directing all dividends declared to furthering the
interest of skills development, education and community upliftment in previously
disadvantaged communities.
3.4 Black Women`s Groups
3.4.1 Eziko Investments (Proprietary) Limited (`Eziko`)
Eziko is an empowerment vehicle established by Nonhlanhla Mjoli-Ncube to take
advantage of investment opportunities in key sectors of the economy. Eziko works
closely with a number of women SMMEs.
3.4.2 MMRT Investments (Proprietary) Limited (`MMRT`)
MMRT is a newly formed women`s grouping led by Advocate Pansy Tlakula who is the
Chief Electoral Officer of the Independent Electoral Commission. Advocate Pansy
Tlakula brings a wealth of experience and contacts to the Lereko Consortium.
3.4.4 Khulani Bafazi (Proprietary) Limited (`Khulani Bafazi`)
Khulani Bafazi represents a broad base of historically disadvantaged women
grassroots communities. The company was recently formed to ensure that
historically disadvantaged women, who due to cultural and traditional restraints
were marginalised or barred from mainstream business, are given the opportunity
to gain a foothold in the formal business sector.
3.5 Imperial and Ukhamba Community Development Trust (`the Trust`)
The Trust, which was established by Imperial and Ukhamba, provides financial
support for specific educational and disability needs of a number of
historically disadvantaged communities.
4. Facilitation of the BEE transaction by Imperial
In order for Lereko Mobility to attract the required amount of senior and
subordinated funding to conclude the BEE transaction, Imperial will issue
approximately 6 205 494 preferred ordinary shares of the 14 516 617 (to be
issued in terms of the specific issue), at their par value instead of the agreed
price of R96.85 per share, The issue of the 6 205 494 preferred ordinary shares
will comprise:-
- 20 246 shares (with a value of R2 million at a price of R96.85 per share)
which will be issued to Lereko Mobility in lieu of Imperial`s equity
contribution for its 49% equity interest in Lereko Mobility;
- approximately 6 185 248 shares (with a value of approximately R599 million at
a price of R96.85 per share) reflecting the approximate value of the equivalent
of junior finance to be notionally provided by Imperial, which notional finance
will be provided for a term of 10 years. In order for Imperial to recover this
amount of value and earn an appropriate rate of return on the notional junior
finance, Lereko Mobility will provide Imperial with a right to purchase, at the
end of 10 years, such number of converted shares at the par value thereof as
will provide Imperial with an amount of value, which will result in an
appropriate rate of return on its notional junior finance (`the Imperial call
option`). This notional junior finance will provide Imperial with a rate of
return over the 10-year period, which will be dependent on the performance of
the ordinary share price. The actual rate which will be realised will be
subject to a minimum rate of return of approximately 12.51% per annum and a
maximum of approximately 14.26% per annum, which rates shall be nominal annual
compounded semi-annually (`nacs`) in arrear. The number of the converted shares
will be determined using an appropriate 20-day VWAP, to be calculated prior to
the date of exercise of the Imperial call option.
5. Salient features of the BEE transaction
5.1 The scheme
In terms of the scheme, Imperial will, through ICS, acquire 14 516 617 ordinary
shares on a pro rata basis from the scheme participants. Scheme participants
will receive the scheme consideration of R96.85 per scheme share in cash, but
will be required to apply R31.52 towards the subscription of each debenture.
Consequentially, on implementation of the scheme, scheme participants will
automatically become debenture holders in the ratio of one debenture for each
scheme share surrendered. The salient terms of the debentures are described in
paragraph 6.2 below.
5.2 Specific issue
If the scheme is implemented, Imperial will issue 14 516 617 preferred ordinary
shares to Lereko Mobility for a total consideration of approximately R805
million, which shares will have a value of R1 406 million at a price of R96.85
per share. The preferred ordinary shares will be issued as follows:
- approximately 6 205 494 preferred ordinary shares will be issued at their par
value of 4 cents, for a total consideration of R248 220 (which shares will have
a value of R601 million at a price of R96.85 per share); and
- approximately 8 311 123 preferred ordinary shares will be issued at a price of
R96.85 per share, for a total consideration of R805 million.
The preferred ordinary shares:
- will constitute a separate class of shares in the capital of Imperial;
- will rank pari passu in all respects with all ordinary shares in respect of
voting;
- will entitle Lereko Mobility to fixed annual distributions of capital or
dividends of approximately 540c, payable semi-annually in equal instalments,
with such distributions ranking ahead of those of the ordinary shares;
- will automatically convert into ordinary shares at the end of approximately 5
years; and
- will, at all times, be subject to the provisions of the Listings Requirements
of the JSE, even though they will not be listed on the JSE prior to their
conversion into ordinary shares.
The terms of the preferred ordinary shares will be described in the circular to
shareholders relating to the BEE transaction.
5.3 Imperial call option
The consideration payable by Imperial upon the exercise by it of the Imperial
call option will be the par value of its ordinary shares at the time of exercise
multiplied by the number of ordinary shares so calculated to be repurchased.
This consideration will be paid by Imperial from available cash resources,
subject to the requirements of the Companies Act and the rules of the JSE.
5.4 Lereko Mobility call option
In order to allow Lereko Mobility to retain the same number of ordinary shares
after the exercise of the Imperial call option by Imperial, Lereko Mobility will
have a right to simultaneously acquire from Imperial that number of ordinary
shares as will equal the number of converted shares that Imperial would have
purchased in terms of the Imperial call option, or part thereof. The price per
ordinary share at which Lereko Mobility will have the right to acquire such
number of ordinary shares will be determined using a 20-day VWAP, calculated
prior to the date of exercise of the Imperial call option.
6. Funding
Lereko Mobility will fund its purchase of the preferred ordinary shares and
associated transaction costs, through:
- the issue of ordinary shares to Lereko Consortium for a total consideration of
R2 million (`equity investment`);
- the issue of the debentures on a pro rata basis to scheme participants for a
total consideration of approximately R458 million (`subordinated funding`); and
- the issue of preference shares to financial institutions for a total
consideration of approximately R375 million (`senior funding`).
These three components are dealt with more fully below.
6.1 Equity investment
Lereko Consortium will acquire its 51% equity stake in Lereko Mobility for a
cash consideration of R2 million.
6.2 Subordinated funding
As detailed above, scheme participants will be required to utilise a portion of
their scheme consideration to acquire the debentures on the basis of one
debenture for each scheme share surrendered. The debentures will offer a
minimum yield to maturity of approximately 11.65% per annum, whilst the yield to
maturity that will actually be realised will depend on the performance of the
ordinary shares over the life of the debentures.
The full terms of the debentures will be detailed in a pre-listing statement
that will be sent to all scheme participants together with the documentation
required for the scheme. The debentures, which will be classified as asset-
backed securities (i.e. securities whose performance will be backed by the
assets of Lereko Mobility), will be listed on the JSE under the `Specialist
Securities-Other Securities` sub-sector.
The salient terms of the debentures are as follows:
- the debentures will be issued by Lereko Mobility;
- the debentures will be unsecured and subordinated to the preference shares,
but will rank senior to Imperial`s claims in terms of the Imperial call option;
- the debentures will have a term to redemption of approximately 5 years;
- the debentures will have a principal amount of R42.00 per debenture;
- the debentures will pay a coupon of 5% per annum, payable semi-annually in
arrear and calculated on their principal amount;
- the debentures will be issued at a price of approximately R31.52 per
debenture, providing the scheme participants with a minimum yield to maturity of
approximately 11.65% per annum;
- the debentures will be redeemable by Lereko Mobility at the end of their life
for an amount in cash equal to their principal amount, plus a further amount
which will depend on the performance of an ordinary share (`equity-linked
interest bonus`); and
- The equity-linked interest bonus per debenture will be calculated according to
the following formula:
Equity-linked interest bonus = 0.25 x (S - R145.25)
Where:
S represents the 20-day VWAP to be determined prior to the final redemption date
of the debentures.
This formula will be subject to adjustment in terms of the debenture trust deed
in certain circumstances relating to corporate events.
6.3 Senior funding
Lereko Mobility will raise senior finance of approximately R375 million from
financial institutions, through the issue of the preference shares. The
preference shares will rank senior to all other funding to be raised by Lereko
Mobility.
The rate at which the preference shares are to be issued will be determined
immediately after the High Court of South Africa has sanctioned the scheme and
will be dependent on market rates prevailing at such time. This rate was, at the
time of this announcement, approximately 7.73% (nacs).
7. Conditions precedent
The BEE transaction is subject to the following conditions precedent:
7.1 the signature of the funding agreements required to implement the BEE
transaction;
7.2 the approval by ordinary shareholders in general meeting of all resolutions
required to implement the BEE transaction;
7.3 the approval of the scheme by a majority representing not less than three
fourths (75%) of the votes exercisable by scheme participants, present and
voting, either in person or by proxy;
7.4 the sanctioning of the scheme by the High Court of South Africa in terms of
the Companies Act;
7.5 the registration of a certified copy of the Order of Court sanctioning the
scheme with the Registrar of Companies in terms of the Companies Act and the
registration of all special resolutions required;
7.6 the procurement of any other regulatory approvals that may be required; and
7.7 there being no breach of the asset cover required by the financial
institutions providing the senior funding prior to the operative date of the
scheme.
8. Key terms of participation in the BEE transaction
The following key terms of participation in the BEE transaction have been
agreed:
8.1 Lereko Consortium will not be entitled to sell its ordinary shares in Lereko
Mobility, nor will Lereko Mobility be entitled to sell any of its preferred
ordinary shares or converted shares, prior to the expiry of a 10-year period;
8.2 Lereko Consortium will be subject to a restraint of trade, in terms of which
it will be restrained from investing in businesses which compete directly with
Imperial. This restraint will apply for the duration of the BEE transaction and
a further period of 18 months thereafter;
8.3 Imperial will have pre-emptive rights over any disposals of the converted
shares by Lereko Mobility; and
8.4 Lereko Consortium will make available Popo Molefe and Valli Moosa for
appointment to the Imperial board of directors.
9. Financial effects
9.1 Accounting treatment
The principle underlying the accounting treatment is in compliance with South
African Statements of Generally Accepted Accounting Practice (`GAAP`). GAAP may
require a transaction to be accounted for in a different manner to its legal
substance and form. The transaction is accounted for in terms of existing GAAP
and does not take into consideration the adoption of accounting standards in the
future.
Although Imperial does not exercise control over Lereko Mobility, an application
of GAAP results in Imperial consolidating Lereko Mobility on the basis that the
notional finance that Imperial has provided exposes Imperial to the majority of
the risks in relation to Lereko Mobility. In terms of this accounting treatment,
the preferred ordinary shares are treated as treasury stock by Imperial on a
consolidated basis.
9.2 Pro forma financial effects
The financial effects of the BEE transaction are presented together as they
comprise one indivisible transaction.
The table below sets out the unaudited pro forma financial effects of the
transaction, based on Imperial`s interim results for the 6 months ended 25
December 2004 and the assumptions set out below. The unaudited pro forma
financial effects have been prepared for illustrative purposes only. Due to the
nature of the unaudited pro forma financial effects, it may not give a fair
reflection of shareholders` financial position after completion of the
transaction. The financial effects set out below are the responsibility of the
directors of the Company.
Actual Pro forma Increase/ Increase/
before the after the (Decrease) (Decrease)
BEE BEE %
transaction transaction
Earnings per ordinary 479.8 483.2 3.4 0.7%
share (cents)
Headline earnings per 470.3 472.9 2.6 0.6%
ordinary share (cents)
Fully diluted earnings 450.0 451.0 1.0 0.2%
per ordinary share
(cents)
Fully diluted headline 441.0 441.4 0.4 0.1%
earnings per share
(cents)
Net asset value per 4 621.8 4 210.9 -410.9 -8.9%
ordinary share (cents)
Tangible net asset 4 352.4 3 920.3 -432.1 -9.9%
value per ordinary
share (cents)
Actual number of 200 032 185 515 -14 517 -7.3%
ordinary shares in
issue (000`s) (net of
treasury shares)
Weighted average 200 186 185 669 -14 517 -7.3%
number of ordinary
shares in issue
(000`s)
Weighted average 213 449 198 932 -14 517 -6.8%
number of fully
diluted ordinary
shares in issue
(000`s)
Notes:
1. The tangible net asset value excludes intangible assets.
The following assumptions have been made in the preparation of the financial
effects:
- the earnings and headline earnings per share reflected in the `Before` column
were extracted from the Company`s unaudited reported results for the six months
ended 25 December 2004;
- the NAV and tangible NAV per share reflected in the `Before` column were
extracted from the Company`s unaudited reported results for the six months ended
25 December 2004;
- the effect on NAV and tangible NAV per share reflected in the `After` column
assumes that the BEE transaction was effective 25 December 2004; and
- the effect on earnings and headline earnings per share reflected in the
`After` column assumes that the BEE transaction was effected on 26 June 2004.
10. Opinion
As the BEE transaction involves the issue of preferred ordinary shares, which
will convert into ordinary shares and a discount at the time of conversion that
is not known, a fair and reasonable opinion is required from an independent
expert in terms of the Listings Requirements of the JSE. Accordingly, KPMG
Services (Proprietary) Limited (`KPMG`) has been appointed by the Imperial Board
of Directors to consider the terms of the BEE transaction and to opine as to
whether they are fair and reasonable to ordinary shareholders. The opinion from
KPMG will be contained in the circular to shareholders.
11. Documentation
A further announcement will be published on SENS and in the press providing
final details of the BEE transaction once the full terms and the salient dates
have been finalised. A circular to shareholders will be sent to shareholders in
due course.
Johannesburg
5 April 2005
Merchant Bank to Imperial and Financial adviser to Lereko
transaction adviser Consortium
RMB AMB Advisory Services Limited
Legal adviser to Imperial Legal adviser to Lereko
Consortium
TWB RHP Attorneys
Sponsor to Imperial Independent advisor to
ordinary shareholders
Merrill Lynch KPMG
Legal adviser to third party
funders
Deneys Reitz
Date: 05/04/2005 09:59:02 AM
Produced by the JSE SENS Department
