| Tue 19 Apr 2005, 8:45 | | Group Black Economic Empowerment Transaction |
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Old Mutual plc/ Nedcor/ Old Mutual (SA)/ Mutual & Federal - Old
Mutual Group Black Economic Empowerment Transaction
Old Mutual plc
ISIN code: GB0007389926
JSE share code: OML
NSX share code: OLM
Issuer code: OLOML
(`Old Mutual plc`)
Nedcor Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1966/010630/06)
JSE share code: NED
ISIN code: ZAE000004875
(`Nedcor`)
Old Mutual (South Africa) Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1998/012276/06)
(`Old Mutual (SA)`)
Mutual & Federal Insurance Company Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1970/006619/06)
JSE share code: MAF
NSX share code: MTF
ISIN code: ZAE000010823
(`Mutual & Federal`)
Overview
Rationale
`Old Mutual plc is a very significant participant in the South
African economy through its three subsidiaries Old Mutual
(SA)(our life assurance and asset management businesses), Nedcor
and Mutual & Federal. Our strategy is to create a powerful
international financial services company using our strong South
African businesses. The strength of those businesses and the
growth of our customer base requires the normalisation of South
African society and the establishment of successful black
participation in the economy.
Accordingly, Old Mutual plc has been actively addressing various
aspects of Black Economic Empowerment (`BEE`) over the past few
years. Today we announce a crucial milestone on this journey. We
are proposing three separate but inter-dependent transactions
designed under a common set of principles, which will introduce
new broad-based black ownership into each of our South African
subsidiaries.
Proposal
We propose to issue new ordinary shares to black controlled
entities beneficially owned by our black employees (39%), clients
and distributors (27%), communities (10%) and our Black Business
Partners (24%) to the value of:
-13.48% of the value of Old Mutual (SA)(Old Mutual plc shares)
-11.50% of the value of Nedcor`s South African business (Nedcor
shares)
-11.00% of Mutual & Federal(Mutual & Federal shares)
For Old Mutual plc as a whole, shares to the value of 12.75% of
the value of its South African business will be placed under
direct black ownership. The total value of all the shares to be
issued under this proposal is R7.2bn of which R7.1bn will be to
black shareholders.
Internal funding arrangements are proposed for each South African
subsidiary to allow them to acquire the shares.
The total number of shares to be issued under this proposal will
amount to (as a percentage of the enlarged share capital of each
entity):
- 5.64% of Old Mutual plc
- 9.47% of Nedcor
- 11.14% of Mutual & Federal
Financial Impact
The financial impact of these proposals is a reduction in the
embedded value of Old Mutual plc of 3.1p (33c) per share (2.2%)
and a 3.3% and 5.7% dilution in adjusted and basic earnings per
share respectively. The impact at Nedcor is a 0.10% accretion in
NAV per share and a 0.14% dilution in headline earnings per
share. At Mutual & Federal, there will be a 0.28% dilution in NAV
per share and a 1.05% accretion in headline earnings per share.
There will be an additional dilutive impact from the effects of
share based payments which will be more apparent when accounts
are prepared under new IFRS conventions.
The economic cost for each South African subsidiary is as
follows:
Economic costs as a Economic costs as a
% of the value of % of the value of
South African indicative market
business capitalisation
The OMSA Transaction 3.15% -
The Nedcor Transaction 3.66% 3.28%
The Mutual & Federal
Transaction 3.13% 3.13%
Old Mutual plc(effect of
three transactions) 3.31% 2.49%
We are confident that the cost of this proposal will be amply
repaid over its ten year life.
Very Broadly Based
As a result of this proposal, all of our South African employees
will have share interests in our companies with the
incentivisation that share ownership provides. Uniquely, many of
our clients and distributors will also acquire an interest in our
shares which will support our strategy greatly.
Quality Partners with Detailed Performance Agreements
We believe that our Black Business Partners will add value to our
business and we are extremely pleased to have the WIPHOLD and
BRIMSTONE Consortia becoming shareholders in our businesses, was
well as Mtha and Mutual & Federal. All are leading
entrepreneurial BEE groupings with wide spread beneficial
ownership. Our agreements with the Black Business Partners
include detailed measurable performance agreements with
significant financial incentives for delivery, and require a
substantial commitment of time and energy.
Summary
In summary, our proposals today, form a transformational deal
that secures future returns for all our stakeholders.
The breadth of involvement means that over 500 000 South
African`s across all nine provinces, amongst all our stakeholders
- employees, clients, distributors, communities, will have an
interest in our success.
And our proposals are good business sense - they build our
customer base, incentivise our employees, and add the strength of
our partners towards the achievement of our strategy.
These transactions are an important investment in our future.
Jim Sutcliffe
Chief Executive, Old Mutual plc
A Strong Foundation, A New Future
Empowering the Old Mutual Group
Transaction summary
The Old Mutual Group (which comprises Old Mutual plc, its
subsidiaries, joint ventures and associates) proposes three
separate but inter-dependent transactions which will introduce
new direct broad-based black ownership in each of its South
African subsidiaries which equates to:
-13.48% of Old Mutual (SA) which includes all of Old Mutual plc`s
South African businesses with the exception of its investments in
Nedcor and Mutual & Federal, through the issue of new ordinary
share capital of Old Mutual plc which will amount to 5.58% of the
enlarged issued share capital of Old Mutual plc. Shareholders
will be requested to approve the issue of 5.98% of Old Mutual
plc`s current issued share capital;
-11.50% of Nedcor`s South African businesses, through the issue
of new ordinary share capital of Nedcor which will amount to
9.33% of the enlarged issued share capital. Shareholders will be
requested to approve the issue of 10.46% of Nedcor`s current
issued share capital; and
-11.00% of Mutual & Federal, through the issue of new ordinary
share capital of Mutual & Federal which will amount to 11.00% of
the enlarged issued share capital. Shareholders will be requested
to approve the issue of 12.54% of Mutual & Federal`s current
issued share capital,
collectively the `Group Transactions`.
Based on Old Mutual plc`s effective interest in each of these
subsidiaries, the Group Transactions will result in the
introduction of direct black ownership worth 12.75% of the value
of Old Mutual plc`s South African businesses and are subject to
the various conditions precedent set out in this announcement
which includes shareholder, regulatory and various other
approvals.
Total value of
OLD MUTUAL PLC direct black
shareholding
OLD MUTUAL NEDCOR MUTUAL&FEDERAL
(SA businesses) Rm % Rm % Rm % Rm
Employees &
management 1 689 6.66 680 2.57 357 6.00 2 725
Clients &
Distributors 288 1.14 1 593 6.03 30 0.50 1 911
Non-executive
directors - - 59 0.22 - - 59
Communities 576 2.27 118 0.45 30 0.50 724
Black Business
Partners 864 3.41 590 2.23 238 4.00 1 692
3 417 13.48 3 040 11.50 655 11.00 7 112
(1) Percentage of value of South African business value
Rationale for the Group Transactions
Old Mutual plc is an international financial services group with
significant business interests in Africa, the United States and
the United Kingdom. South Africa is the core of the business and,
through clients` savings, the Old Mutual Group (or the `Group`)
is a significant financial participant in the South African
economy. It is, therefore, important that Old Mutual plc`s
shareholders` long-term interests are aligned with the success of
South Africa as a country. We believe that Black Economic
Empowerment (`BEE`) is a key requirement for the promotion of
sustainable economic growth and social development in South
Africa and is therefore fundamental to the interests of our
employees, clients and shareholders.
As an active participant in the development of the Financial
Sector Charter (`FSC`), the Old Mutual Group is committed to the
goals and targets set out in the FSC. Along with the South
African Insurers Association, the Life Offices Association and
the Banking Association amongst others, the Old Mutual Group is a
signatory to the FSC signed on the 17 October 2003 and views the
FSC as setting minimum standards for financial sector
participants. The Group Transactions have been designed to
complement the Group`s overall strategy towards implementing
broad-based empowerment in its businesses. The Group Transactions
are truly broad-based and include staff and management, clients,
distributors, black trade union members, professional bodies,
entrepreneurs, women`s and community groupings throughout South
Africa.
The owners of shares to be issued in the Group Transactions are
set out below:
-Employees and Management - The Group recognises the importance
of creating an employee and management complement that is
representative of South Africa`s demographics. Acknowledging that
the Group is not fully representative and that transformation
comes from within, the Group proposes to set aside shares with a
market value of R2 726m to recruit, retain and incentivise black
employees and management. These shares will initially be
distributed to an estimated 29 260 Group employees of which
approximately 17 500 are black.
-Clients and Distributors - Part of the Group`s strategy is to
focus on black clients. An aggregate of R1 911m worth of shares
have been set aside for clients and distributors throughout South
Africa. R288m worth of Old Mutual plc shares have been assigned
to develop black distributors in underserved markets. R1 593m of
Nedcor shares will be made available to black retail and
corporate banking clients and R30m of Mutual & Federal shares
have been set aside to support black people wishing to develop
broker businesses.
-Communities - Since 1994, the Group has invested over R750m in
community development around South Africa. As part of the Group
Transactions, an additional R148m will be allocated to black
communities and charitable organisations in every province
throughout South Africa. In addition R576m of Old Mutual plc
shares have been assigned to assist with the education of black
members of unions who do business with Old Mutual (SA).
-Black Business Partners - The WIPHOLD and BRIMSTONE Consortia
(in the case of Old Mutual (SA) and Nedcor) and the WIPHOLD
Consortium and Mtha-we-Mpumelelo (`Mtha`) (in the case of Mutual
& Federal) have been chosen as active Black Business Partners to
assist in growing the business and driving
transformation.
Principles of the Group Transactions
In designing the Group Transactions, the Group developed a set of
principles aimed at sustainable, broad-based empowerment. These
principles include:
-Transformation - The Group has designed the Group Transactions
to accelerate operational transformation. This extends to
employment equity, particularly at the management level, client
acquisition, strategies for underserved markets, profiling the
Group and community involvement. The Group Transactions are being
implemented as part of the Group`s comprehensive, overarching
approach to rapid transformation.
-Broad-based approach - The Group Transactions are designed to
directly or indirectly benefit more than half a million black
South Africans across the country, including employees and
management, clients and women`s groupings, black trade union
members, entrepreneurs and communities. The Group has sought to
achieve an equitable balance between individuals that are
internal and external to the Group. In the process, the ultimate
beneficiaries of the Group Transactions have been reviewed to
ensure that no individual benefits unduly. Employees and
management will be the prime beneficiaries of the Group
Transactions.
-Alignment of value added to benefits received - No one
individual or ultimate beneficiary will be rewarded out of
proportion to the value that they add.
-Performance agreements (in the form of binding Memoranda of
Understanding `MoU`)have been negotiated with the Black Business
Partners to ensure mutually beneficial, enduring partnerships.
The performance agreements have been designed to incentivise the
Black Business Partners by aligning their rewards which they
receive under the performance agreements to the value that they
add to the businesses;
-The Group Transactions aim to balance the economic
participation by internal and external individuals, the
consequence of which is that no single external individual
benefits more than the Group`s most highly paid South African
employee; and
-The Group Transactions seek to ensure that benefits are
earned incrementally over the term of the agreements.
-Full economic benefits and voting rights - From the inception of
the Group Transactions, shareholders and beneficiaries must have
the full benefits of the voting rights and the economic benefits
attached to equity ownership. Trusts, which have been or will be
formed to acquire and hold Old Mutual plc, Nedcor or Mutual &
Federal shares, have been or will be structured so as to comply
with the ownership and control requirements of the FSC in that
the majority of trustees will be independent black people and
beneficiaries will be black people.
-Estimated benefits to exceed the estimated costs of the Group
Transactions -In designing the Group Transactions, the Group
sought to ensure that over time the commercial benefits of
implementing the Group Transactions would outweigh the costs, and
that the costs are in line with BEE transactions concluded in
the financial sector to date.
-Existing black shareholding to be excluded from the calculation
of black ownership in terms of the Group Transaction - Old Mutual
plc had 1.46% (at
1 January 2004) existing black shareholding which translates into
3.50% of the value of Old Mutual (SA). In calculating the black
ownership in Old Mutual (SA) post the implementation of the Group
Transactions, existing black shareholding has not been taken into
account.
-Maximising long-term shareholder value - The overall cost of the
Group Transactions equates to approximately 3.31% of the value of
the Group`s South African businesses. The initial impact is a
reduction in embedded value per share of 2.2%. Initial costs
associated with implementation of the Group Transactions have
been excluded from adjusted operating profit such that the impact
on adjusted operating earnings per share of 3.3% results from
costs associated with managing the schemes and the dilution of
the Old Mutual Group`s holdings in Nedcor and Mutual & Federal.
While the Group Transactions are dilutive to earnings and
embedded value per share in the short term, they will reposition
the Old Mutual Group in the longer term enabling it to transform
and grow within South Africa. The Group expects the benefits of
the different elements of the Group Transactions to significantly
outweigh the costs over the longer term.
Transaction Summary
Subject to the fulfilment of the conditions precedent set out in
paragraphs 3.14, 4.15 and 5.11 below, which include, inter alia,
the approval of Old Mutual plc, Nedcor and Mutual & Federal
shareholders, the Old Mutual Group proposes to facilitate three
separate but inter-dependent transactions that will result in
direct black ownership worth over 10% of each of its South
African subsidiaries namely Old Mutual (SA), Nedcor and Mutual &
Federal. The Group Transactions, as defined below, include:
-the issue of 5.98% of Old Mutual plc`s current issued share
capital with resulting of black shareholding worth 13.48% of Old
Mutual (SA)(the `Old Mutual (SA) Transaction`);
- the issue of 10.46% of Nedcor`s current issued share capital
with resulting black shareholding worth 11.50% of Nedcor`s South
African business (the `Nedcor Transaction`); and
-the issue of 12.54% of Mutual & Federal`s current issued share
capital with resulting black shareholding worth 11.00% of Mutual
& Federal`s South African businesses (the `Mutual & Federal
Transaction`).
As part of this process, Old Mutual plc has signed various legal
agreements and binding Memoranda of Understanding (`MoUs`) with
the WIPHOLD and BRIMSTONE Consortia with respect to the Old
Mutual (SA) Transaction. Further, detailed, binding MoUs have
been entered into between Nedcor and the WIPHOLD and BRIMSTONE
Consortia respectively and between Mutual & Federal and the
WIPHOLD Consortium and Mtha respectively, setting out the terms
of their participation as well as related performance criteria
together with the implications of not meeting or exceeding those
criteria. It is expected that the MoUs will be replaced by final
legal agreements prior to the posting of the required circulars
to Old Mutual plc, Nedcor and Mutual & Federal shareholders.
In summary, the table below sets out the number and value of
shares which, will be issued through the Group Transactions.
Summary of the Group Transactions
Total deal
% of shares
issued pre
Number of the Group
shares Transactions Value of shares
m Rm GBPm
Old Mutual (SA)
Transaction 230.6 5.98% 3,448 296
Nedcor Transaction 41.3 10.46% 3,085 265
Mutual & Federal
Transaction 31.1 12.54% 663 57
7,196 618
Black ownership portion
Value as
a % of
South African
% of shares businesses
Number issued post post
of the Group issue of
shares Transactions Value of shares shares
m % Rm GBPm
Old Mutual
(SA)
Transaction 228.5 5.58% 3,417 293 13.48%
Nedcor
Transaction 40.7 9.33% 3,040 261 11.50%
Mutual & Federal
Transaction 30.7 11.00% 655 56 11.00%
7,112 610
This announcement sets out the details and financial effects of
the Old Mutual (SA) Transaction, the Nedcor Transaction and the
Mutual & Federal Transaction and the combined financial effects
for Old Mutual plc shareholders.
1. Impact of the Group Transactions on Old Mutual plc
Shareholders
1.1. Accounting Treatment of the Group Transactions
In accordance with the rules of the UK Listing Authority (`UKLA`)
and the JSE Securities Exchange South Africa (`JSE`), the
underlying accounting treatment is in accordance with the
accounting policies set out in the last published audited
financial information. In presenting the consolidated impact for
Old Mutual plc of the Group Transactions, information is to be
presented in accordance with UK GAAP as it existed at 31 December
2004.
The accounting treatments adopted may require transactions to be
accounted for in a different manner to their legal substance and
form. The accounting treatment described below has been
determined based on accounting advice and emerging
interpretations.
Effective 1 January 2005, the Old Mutual Group will prepare its
consolidated financial statements in accordance with
International Financial Reporting Standards (`IFRS`). It has
therefore been necessary to consider the accounting treatments
under both bases of reporting. Restated 31 December 2004 results
on an IFRS basis will be published by Old Mutual plc on 3 May
2005.
The following accounting principles are applicable:
-Consolidation of Special Purpose Vehicles (`SPVs`) - where
control is deemed to remain within the Old Mutual Group, the
entities established to support the Group Transactions are
regarded as subsidiaries. The acquisition of Old Mutual plc
shares by the consolidated SPVs are regarded as issues of
treasury shares, resulting in a reduction in equity within the
consolidated financial statements.
-Earnings per share - the weighted average number of shares is
impacted by the Group Transactions only to the extent that any
issue of shares is not regarded as treasury shares for the
purpose of the consolidated financial statements.
-Embedded value per share - the number of shares in issue will
increase to include the Old Mutual plc shares acquired by all
SPVs. Where deferred consideration is to be received for the
issue of the shares, an adjustment to the embedded value is
required to represent the discounted present value of the
consideration.
1.2. Combined Pro forma Financial Effects for Old Mutual plc
Shareholders
The pro forma financial effects of the Group Transactions for the
financial year ended 31 December 2004 are set out in the table
below to assist Old Mutual plc shareholders to assess the impact
of the Group Transactions on adjusted operating earnings per
share (`Adjusted EPS`), basic earnings per share (`Basic EPS`)
and adjusted embedded value per share (`Adjusted EV per share`).
The pro forma financial effects have been prepared in accordance
with UK GAAP as it existed at 31 December 2004. They are provided
for illustrative purposes only. Due to the unaudited pro forma
nature of the information, it may not give a true reflection of
the Group`s financial position after completion of the Group
Transactions, nor the effect on the Group`s future earnings.
Before the After the
Group Transactions and Group Transactions and change
the issue of shares the issue of shares (%)
United Kingdom
pence
Adjusted
EPS(1) 15.3 14.8 (3.3)
Basic EPS(1) 14.1 13.3 (5.7)
Adjusted EV
per share(2) 139.1 136.0 (2.2)
Before the After the
Group Transactions and Group Transactions and change
the issue of shares the issue of shares (%)
South African
cents
Adjusted
EPS(1) 181.1 175.7 (3.0)
Basic EPS(1) 166.2 156.8 (5.7)
Adjusted EV
per share(2) 1 508.0 1 475.0 (2.2)
Notes:
(1) The `Before the Group Transactions and issue of shares`
column reflects the audited earnings and adjusted earnings per
Old Mutual plc share for the year ended 31 December 2004. The
`After the Group Transactions and issue of shares` column
reflects the earnings adjusted for the financial effects of the
various Group Transactions based on the assumption that the Group
Transactions were implemented on 1 January 2004.
The financial effects on earnings include the initial impact of
entering into the Group Transactions of GBP10m (R120m) and the
first year of annual impact of GBP18m (R203m). The initial impact
is excluded from the adjusted operating profit, and hence
Adjusted EPS. As a result of the Group Transactions, Old Mutual
plc`s interests in its subsidiaries Nedcor and Mutual & Federal
will be reduced. The financial effects take into account a
reduction in the Group`s share of earnings from these
subsidiaries accordingly.
(2) The `Before the Group Transactions and issue of shares`
column reflects the audited Adjusted EV per Old Mutual plc share
at 31 December 2004. In determining Adjusted EV per share, the
total number of shares in issue as at 31 December 2004 of 3 854m
includes 383m treasury shares, consisting of 92m shares held in
ESOP Trusts and 291m shares held in policyholder funds. The
`After the Group Transactions and issue of shares` column
reflects the adjusted EV per share after the considerations
received from the various scheme and an enlarged number of shares
based on the assumption that the Group Transactions were
implemented on 31 December 2004. In determining the Adjusted EV
per share, the number of shares in issue of
4 085m includes all Old Mutual plc shares issued under the Group
Transactions.
The financial effects on embedded value `After the Group
Transactions and issue of shares` include the initial
consideration received on the issue of Old Mutual plc shares to
SPVs which are considered external to the Old Mutual Group.
Embedded value is unchanged for the initial consideration
received in respect of treasury shares issued to consolidated
SPVs. A pro forma uplift adjustment is included to reflect the
discounted present value of the deferred consideration to be
received from external parties in respect of all schemes.
(3) The weighted average number of shares in issue remains
unchanged. Shares issued to consolidated SPVs are to be excluded
as they are accounted for as treasury shares. Shares issued to
unconsolidated SPVs are excluded due to the restricted nature of
the issue. The weighted average number of shares in issue used in
calculating Basic EPS as at 31 December 2004 was 3 432m. The
weighted average number of shares in issue used in calculating
Adjusted EPS, after allowing for shares held in policyholders`
funds, was 3 748m.
IFRS financial effects
The accounting treatment under IFRS differs from the accounting
treatment under UK GAAP as it existed at 31 December 2004 to the
extent that IFRS 2 `Share based payments` applies to the Group
Transactions. As the additional IFRS 2 costs incurred are in
respect of equity settled share based payment transactions, the
charge to the profit and loss account will result in a
corresponding credit to an equity reserve and, therefore, has no
impact on the embedded value. There are no other differences in
the calculation of Adjusted EV per share.
1.3. Opinions and Recommendations
1.3.1. Opinion of the Old Mutual plc board
The board of Old Mutual plc, together with its advisors, has
structured the direct black ownership initiative in an attempt to
ensure that it is in line with the BEE strategy of the Old Mutual
Group.
Although not required in terms of the UKLA Listing Rules, nor the
JSE`s Listings Requirements, the board of Old Mutual plc
appointed Deutsche Securities (SA) (Proprietary) Limited
(`Deutsche Securities`) to consider the terms of the Group
Transactions from a financial point of view.
Deutsche Securities in giving their financial advice to the
director`s of the board of Old Mutual plc have relied upon the
board of Old Mutual plc for the commercial assessment of the
Group Transactions. The board of Old Mutual plc, having received
this advice, considers the terms and conditions of the Group
Transactions to be fair and reasonable.
Accordingly, the board recommends that ordinary shareholders vote
in favour of the resolutions to approve the Group Transactions.
In respect of their personal holdings in Old Mutual plc, the
board members currently intend to vote in favour of the proposed
resolutions.
2. Black shareholder groupings
2.1. Employee and Management schemes
Current and future employees are a critical component of the
Group`s transformation strategy. By reserving a significant
portion of shares for the benefit of current and future black
managers and employees, the Group Transactions will assist in
transforming and creating a dynamic, effective workforce.
To this end, each of the Group Transactions incorporates a broad-
based component which allows for an award of shares to the value
of R7 500 to employees who have not participated in any other
employee and management share scheme of the Group.
The employee and management schemes also provide the Group with
sufficient resources to meet the ongoing employment equity
targets of the FSC.
2.2. Client and Distributor schemes
In the spirit of broad-based empowerment, current and future
Clients and Distributors, where appropriate, will be invited to
participate in the Group Transactions. To this end, Old Mutual
(SA), Nedcor and Mutual & Federal have designed specific Client
and Distributor schemes. Old Mutual (SA) has created a trust to
support the emergence of new black distributors as set out in
paragraph 3.4.1 Nedcor has designed specific schemes for its
corporate and retail clients detailed in paragraphs 4.4.1 and
4.4.2 below. Mutual & Federal has established a Black Broker
Trust to support black people wishing to develop broker
businesses as detailed in paragraph 5.5 below.
2.3. Community Schemes
Community Schemes enhance the broad-based nature of the Group
Transaction and supplement existing community social initiatives
undertaken by the Group.
2.4 Black Business Partners
2.4.1 Overview of the Black Business Partner selection process
The Old Mutual Group has selected the WIPHOLD and BRIMSTONE
Consortia as its Black Business Partners. The selection process
involved the assessment of the potential Black Business Partners
against the following criteria:
-Empowerment credentials and broad-based criteria - an assessment
of the shareholding and the ultimate beneficiaries of the Black
Business Partners with the specific objective of ensuring that
potential partner companies are black-owned and controlled
companies, representing a broad-base of beneficiaries.
Consideration was also given as to whether directors and
management of the potential Black Business Partners comprised
predominantly black people, as defined in the FSC.
-Leadership and values - an assessment of whether the potential
Black Business Partners had strong, clear leadership and shared
the Group`s values. Regard was also given as to whether the
leadership of the potential Black Business Partners would be able
to commit sufficient time and resources to focus on business
development and transformation.
-Experience - an assessment of whether the potential Black
Business Partners had a demonstrable track record of
transformational ability as well as financial services sector
experience.
-Risk and reward philosophy - an assessment of whether the
potential Black Business Partners would be able to place their
own capital at risk and therefore make a capital contribution of
2.5% of the transaction value.
A further assessment of each of the potential Black Business
Partners` ability to assist Old Mutual (SA), Nedcor and Mutual &
Federal with each of the following objectives was undertaken:
-the retention of existing business and the attraction of
additional business;
-the strategic and holistic transformation of the Group in
response to a changing business environment; and
-improving the corporate profile and image of the Group in the
market and helping to position the business.
This process assisted the Group to determine the level of
participation of each of the Black Business Partners in the Group
Transactions.
2.4.2. Performance agreements
The Black Business Partners have each concluded performance MoUs
(referred to hereinafter as `performance agreements`) with the
relevant Group companies, which will govern the relationship with
and performance and remuneration of the Black Business Partners.
It is intended that on an annual basis the Black Business
Partners will meet with each of the business units of Old Mutual
(SA), Nedcor and Mutual & Federal, as appropriate, in order to
detail the specific tasks to be performed in the following twelve
month period. The Black Business Partners have agreed the first
set of performance criteria with the Group which will benchmark
future performance agreements in terms of the type and the amount
of work required and which will apply to the eighteen month
period from 1 July 2005. In terms of the performance agreements,
the WIPHOLD and BRIMSTONE Consortia will commit substantial time
and resources to the business units of Old Mutual (SA), Nedcor
and Mutual & Federal in order to meet the requirements of their
respective performance agreements. Progress will be monitored
semi-anually.
The Black Business Partners will be paid an annual performance
fee that will be linked to performance targets achieved in terms
of the performance agreements. The annual fee will range between
Rnil and R36.5m,Rnil and R25m and Rnil and R10m for Old Mutual
(SA),Nedcor and Mutual & Federal respectively. A portion of this
performance fee will be used to cover pre-agreed working capital
requirements of the Black Business Partners. The balance in the
case of Old Mutual (SA) will be applied to satisfy the amounts
remaining due in respect of the Old Mutual shares issued to the
relevant SPV. In the case of Nedcor and Mutual & Federal, the
balance will be utilised to acquire new Nedcor and Mutual &
Federal shares as detailed in the paragraphs dealing with the
funding arrangements in the separate Old Mutual (SA), Nedcor and
Mutual & Federal sections below.
2.4.3. Key terms of the Group`s agreements with the Black
Business Partners
Subject to the terms of the subscription agreements the Black
Business Partners:
-Must remain black companies as defined in the FSC during the 10
year lock-in period;
-May not dispose of Old Mutual plc, Nedcor and/or Mutual &
Federal shares acquired as a result of the Group Transactions
during such lock-in period;
-May not enter into equity transactions or substantial
relationships with any of the Old Mutual Group`s competitors; and
-May not take up any directorships with any of the Old Mutual
Group`s competitors.
2.4.4. The Women Investment Portfolio Holdings Limited
(`WIPHOLD`) Consortium:
The WIPHOLD Consortium will acquire:
-0.71% of the enlarged issued share capital of Old Mutual plc,
which equates to 1.70% of Old Mutual (SA);
-0.91% of the enlarged issued share capital of Nedcor; and
-3.50% of the enlarged issued share capital of Mutual & Federal.
ORGANOGRAM - REFER TO MEDIA ANNOUNCEMENT
The WIPHOLD Consortium is led by WIPHOLD (82.0% of the WIPHOLD
Consortium) - WIPHOLD was founded 10 years ago by four successful
women executives as an organisation dedicated to women`s
empowerment. With 1 200 direct beneficiaries and 18 000 indirect
beneficiaries through the WIPHOLD Investment Trust, and over 300
000 indirect beneficiaries through the WIPHOLD NGO Trust, whose
constituent Non-Government Organisations (`NGOs`) span all nine
provinces, WIPHOLD is one of the most genuinely broad-based black
empowerment companies in South Africa. WIPHOLD is a majority
black owned company, with in excess of 50% of the shareholding in
the hands of women. All shareholdings are direct and
unencumbered. As at December 2003, the WIPHOLD Investment Trust
had distributed R46m to its beneficiaries.
Old Mutual (SA), has an effective 32.5% stake in WIPHOLD,
demonstrating the strength of its existing relationship.
WIPHOLD`s current business activities are focused in three areas:
-Financial services (advisory, asset management, stockbroking,
treasury services);
-Ownership of infrastructure assets; and
-Diversified investments (in telecommunications, tourism,
manufacturing and power & automation).
The directors of WIPHOLD include two of the original founding
members, Louisa Mojela, CEO of WIPHOLD and Gloria Tomatoe Serobe,
CEO of Wipcapital (Pty) Limited.
Wendy Luhabe (2% of WIPHOLD`s 82% in the WIPHOLD Consortium), one
of the other original founding members of WIPHOLD, will be
contributing her experience in the areas of financial services
and human resource development as a further operational value-add
by the WIPHOLD Consortium.
WIPHOLD has also included Sphere Holdings (Proprietary) Limited
(`Sphere`) in its consortium (15% of the WIPHOLD Consortium).
Sphere is a new generation empowerment company, comprised of
experienced individuals with a proven track record in private
equity, investment banking and asset management. Sphere`s
ownership structure promotes broad-based empowerment whilst
incentivising founder shareholders and management. Sphere`s
directors and management include Itumeleng Kgaboesele, CEO,
Executive Directors Pulane Kingston and Aadil Carim and Associate
Director, Marang Denalane. Directors and management hold the
majority shareholding of Sphere (57%). 17.5% of Sphere`s
shareholding is reserved for broad-based groupings that have a
particular focus on education and the economic upliftment of
black women. These groups include Ditikeni Investment Company
Limited (an investment vehicle for 24 NGOs involved in education
and training, health (HIV/AIDS), housing and rural development)
and the Student Sponsorship Programme (a non-profit organisation
offering scholarships to previously disadvantaged students) to
which shares have already been allocated. Nedbank Limited owns
13% of Sphere.
The remaining 3% of the WIPHOLD Consortium`s stake will be held
by the WIPHOLD NGO Trust. The WIPHOLD NGO Trust was established
in 2004 with the aim of further enhancing the black and female
profile of WIPHOLD, as well as its broad-base of beneficiaries.
Louisa Mojela and Gloria Tomatoe Serobe serve as trustees. A
majority of independent trustees will be appointed.
The Trust has two primary objectives:
- To empower and support NGOs whose primary focus is development
programmes pertaining to black women and/or children; and
- The inclusion of NGOs with the ability to contribute
strategically to the activities of WIPHOLD.
The ten organisations that currently form part of the WIPHOLD NGO
Trust are: The Democratic Nursing Organisation of South Africa;
the South African Democratic Teachers Union (women`s chapter);
National Baptist Church, Kwa Drabo Trust; People Opposing Women
Abuse; the Thusanang Development and Training Project;
Tshwarangang Legal Advocacy Centre; Tshepang Educare Trust; Young
Women`s Christian Association and the Thandanani Association.
2.4.5. The Brimstone Investment Corporation Limited (`BRIMSTONE`)
Consortium:
The BRIMSTONE Consortium will acquire:
- 0.71% of the enlarged issued share capital of Old Mutual plc,
which equates to 1.70% of Old Mutual (SA); and
- 0.91% of the enlarged issued share capital of Nedcor.
Mtha, a 33% shareholder in the BRIMSTONE Consortium, will acquire
0.50% of the enlarged issued share capital of Mutual & Federal.
ORGANOGRAM - REFER TO MEDIA ANNOUNCEMENT
- The BRIMSTONE Consortium is led by BRIMSTONE (67.0% of the
BRIMSTONE Consortium) - BRIMSTONE was incorporated in South
Africa on 2 October 1995 as an investment vehicle for black South
Africans and listed in the `Investment Companies` sector of the
JSE in 1998. The company`s mission is to be profitable,
empowering and to have a positive social impact on the businesses
and individuals with whom it is involved, including shareholders,
employees, suppliers, customers and the community. BRIMSTONE
currently has a market capitalisation of approximately R240
million.
The directors of BRIMSTONE include two of its original founding
members, Mustaq Brey, Chief Executive Officer, and Fred
Robertson, Executive Deputy Chairman, both of whom have long and
extensive experience across the financial services sector.
BRIMSTONE`s board is chaired by Professor Jakes Gerwel, former
Director General in the Office of President Nelson Mandela and
Secretary of the State in the first Government of National Unity.
BRIMSTONE is a focused black controlled and managed investment
holding company seeking to achieve above average returns for its
shareholders by investing in businesses and entering into
alliances to which it contributes capital, ideas, management,
impeccable empowerment credentials and a value driven corporate
identity. BRIMSTONE has strategic investments in the following
sectors of the South African economy:
- Industrial sector: investments in the manufacturing of upmarket
men`s clothing, packaging and fishing;
- Financial Services sector: investments in insurance broking,
consulting, and short-term insurance; and
- Healthcare sector: investments in one of South Africa`s largest
private hospital groups and smaller investments in the supply of
medical equipment to this sector.
More than 52% of BRIMSTONE`s economic value is held by
approximately 3 700 black South Africans. The company has a black
board of directors and operational management is in black hands.
BRIMSTONE employs approximately 1 100 employees directly in its
subsidiaries and more than 19 300 in its associate companies and
has sought to empower its people through extensive employee
participation in the equity of BRIMSTONE.
Old Mutual (SA) holds 9.95% of BRIMSTONE`s `N` ordinary shares.
The BRIMSTONE Consortium includes Mtha-we-Mpumelelo (`Mtha`) (33%
of the BRIMSTONE Consortium) which is comprised as follows:
- Chestnut Hill is a 35% shareholder in Mtha and the shareholders
of Chestnut Hill include Bulelani Ngcuka, Chairman, Sango
Ntsaluba, Non-executive Chairman of Sizwe Ntsaluba and Chief
Executive Officer of Amabubesi Investments (Proprietary) Limited
(`Amabubesi`) and Thabiso Tlelai, Chair of the Tourism Business
Council of South Africa. Other shareholders include Mveleleli
Booi, currently an Executive at Amabubesi, Gilimamba Mahlati,
Chairman of Risk Monitor Group and Kennedy Memani, Director of
KREM Investment Holdings and the Senior Partner in XK Memani,
Ruiters and Associates.
- Izingwe Financial Investments, an associate company of Izingwe
Capital, is a 35% shareholder in Mtha. Izingwe`s Chairman is
Sipho M. Pityana, formerly a Group Executive Director of Nedcor
Investment Bank Holdings, managing director of Strategic Business
Development at Nedbank Corporate and the Director General of the
Departments of Foreign Affairs and Labour. Other directors
include Ashley Ally, the former CEO of the Legal Aid Board,
Tsakani Matshazi, a Chartered Accountant, Phillip Dexter, the
former Executive Director of Nedlac, and Mark Sifris, a corporate
attorney.
Mtha includes the investment vehicles of three broad-based
groupings that represent black professionals namely:
- The Black Lawyers Association (`BLA`) (10% of Mtha) - The BLA
represents approximately 900 black legal professionals and 300
legal students. It is a voluntary association whose objectives
include the support and development of black lawyers and the
provision of legal education and services to the black community.
- National Association for Democratic Lawyers (`Nadel`) (10% of
Mtha) - Nadel is a voluntary organisation of lawyers, which has
the primary goal of ensuring access to justice for previously
disadvantaged individuals. Its members comprise all legal
practitioners including attorneys, advocates, judges, paralegals
and law students. Nadel provides legal advocacy and various
legal support programmes, includ
