| Wed 15 Jun 2005, 16:23 | | Edgars Consolidated Stores Limited - Subdivision o |
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Edgars Consolidated Stores Limited - Subdivision of shares and staff empowerment
transaction
Edgars Consolidated Stores Limited
(Registration number 1946/022751/06)
(Incorporated in the Republic of South Africa)
JSE share code: ECO NSX share code: ECN
ISIN: ZAE000018388
(`Edcon` or `the company`)
SUBDIVISION OF SHARES AND STAFF EMPOWERMENT TRANSACTION
1. INTRODUCTION
Shareholders are advised that the board of directors of Edcon (`Edcon
board`) intends to ask shareholders to approve resolutions which will have the
effect of subdividing each ordinary share of 10 cents each into ten ordinary
shares of 1 cent each (`subdivision`). Shareholders are further advised that
the Edcon board has resolved to enter into a staff empowerment transaction
which will result in a meaningful percentage of Edcon`s equity being placed
under the control of black employees (`staff empowerment transaction`).
2. THE SUBDIVISION
The Edcon share price is currently at very high levels relative to the
shares of other retail companies listed on the JSE Securities Exchange South
Africa (`JSE`), having increased considerably in the last few years. The
purpose of the proposed subdivision of Edcon`s ordinary shares is to bring
Edcon`s share price into range with other listed retail companies, thereby
facilitating easier comparison. The proposed subdivision may also have the
related benefits of encouraging more investment by private investors in Edcon
shares and increasing liquidity.
The table below shows the effect of the subdivision on Edcon`s
authorised and issued share capital, before the implementation of the staff
empowerment transaction, as at 6 June 2005:
Number of Number of
shares before shares after
the subdivision the subdivision
Authorised share capital
Ordinary shares of 10 cents each 72 000 000
Ordinary shares of 1 cent each 720 000 000
6% cumulative preference shares of 200
cents each 150 000 150 000
Issued share capital
Ordinary shares of 10 cents each 55 865 772
Ordinary shares of 1 cent each 558 657 720
Treasury shares (8 375 123) (83 751 230)
Issued ordinary shares excluding
treasury shares 47 490 649 474 906 490
6% cumulative preference shares of 200
cents each 150 000 150 000
3. THE STAFF EMPOWERMENT TRANSACTION
3.1 Rationale
As one of South Africa`s largest retailers, Edcon believes that the
future prosperity of the country, as well as that of the company, hinges on
positive transformation and upliftment of its communities.
Edcon`s empowerment and transformation policies address ownership,
management and control of the company, employment equity, human development,
preferential procurement and social development. Edcon has continued to make
significant progress in all these areas, and the staff empowerment transaction
further addresses the ownership and control elements of Edcon`s empowerment
policy.
The following employees, based in South Africa, Namibia, Botswana,
Lesotho and Swaziland, will be eligible to participate in the staff
empowerment transaction:
* all black employees from time to time for the duration of the staff
empowerment transaction; and
* all non-black employees who are permanent part timers, grade A or grade
B employees, being the three lowest levels on Edcon`s grading system.
The staff empowerment transaction will place 10,6% of Edcon`s equity
under the control of black employees and will transfer wealth to a broad base
of black employees, as approximately 93% of the value created in terms of the
staff empowerment transaction will accrue to Edcon`s black employees.
Furthermore, it is anticipated that the staff empowerment transaction will
enhance shareholder value by aligning the interests of Edcon`s employees with
those of its shareholders.
3.2 Salient Features
The salient features of the staff empowerment transaction are as follows:
3.2.1 Edcon will create a new class of ordinary shares (` `A` shares`). The
`A` shares, which will be unlisted, will:
* carry voting rights equivalent to the voting rights attached to ordinary
shares;
* not be entitled to dividends, but will entitle the holder thereof to a
staff empowerment payment, the terms of which are set out in paragraph 3.2.4
below;
* entitle the holder thereof to receive, in three and six years` time, for
each `A` share held, the number of ordinary shares which have a market value
equal to the amount by which the share price of an ordinary share at the end
of the relevant three-year period exceeds a particular hurdle share price. For
the first three-year period ending in three years` time, the hurdle share
price (after taking into account the effect of the subdivision) shall be R50.
For the second three-year period ending in six years` time, the hurdle share
price shall be the greater of R50 and the share price of an ordinary share at
the end of the first three-year period; and
* be convertible into `A` preference shares upon written notice by, and at
the option of, Edcon, which notice may be given after six years. The `A`
preference shares will be redeemable at par upon written notice by, and at the
option of, Edcon.
3.2.2 The Edcon Staff Empowerment Trust (`Trust`) will be created. The
beneficiaries of the Trust will be eligible employees of Edcon (based on
Edcon`s employee grading system), not less than 90% of whom must be black
(`beneficiaries`). Five trustees will be elected by beneficiaries and up to
two independent trustees may be appointed by the Edcon board. None of the
trustees may be executive directors of Edcon.
3.2.3 Edcon will issue 56 500 000 `A` shares to the Trust, equivalent to 10,6%
of the total ordinary shares and `A` shares in issue (net of treasury shares
and after the issue of the `A` shares). The `A` shares will be issued at par
value for a total consideration payable by the Trust of R565 000. The Trust
will establish units which are notionally linked to the `A` shares and these
units will be allocated to the beneficiaries.
3.2.4 Edcon will simultaneously implement a staff empowerment payment policy
in terms of which beneficiaries will receive a semi-annual empowerment payment
calculated with reference to Edcon`s earnings performance and dividend
declarations. The taxed empowerment payment will result in beneficiaries
receiving a payment similar to that which they would have received had they
held the same number of ordinary shares. This mechanism also allows for the
empowerment payment to be made directly to beneficiaries through Edcon`s
payroll system.
3.2.5 The Trust, through its holding of `A` shares, will, in three and six
years` time, for each `A` share held, be issued with the number of ordinary
shares which have a market value equal to the amount by which the share price
of an ordinary share at the end of the relevant three-year period exceeds a
particular hurdle share price. For the first three-year period ending in three
years` time, the hurdle share price (after taking into account the effect of
the subdivision) shall be R50. For the second three-year period ending in six
years` time, the hurdle share price shall be the greater of R50 and the share
price of an ordinary share at the end of the first three-year period. The
ordinary shares will be issued at par value.
3.2.6 The capital appreciation mechanism, based on the assumption that the
subdivision has been implemented, is illustrated by way of the following
example:
Hurdle share price R50
Assumed actual share price after three years R60
Resultant capital appreciation above hurdle (R60 - R50) R10
Therefore the Trust, through its holding of `A` shares, will be entitled
to 1 ordinary share for every 6 `A` shares held (R10 capital appreciation/R60
ordinary share price). The ordinary shares received by the Trust will be
distributed to beneficiaries in accordance with the units allocated to them.
In the above example, the hurdle share price will increase to R60 for
the following three-year capital appreciation period.
3.2.7 The Trust, as the registered holder of the `A` shares, will be entitled
to vote the `A` shares at all meetings of the shareholders of Edcon as well as
at any separate class meeting of the holders of the `A` shares. The trustees
will convene a meeting, sufficiently in advance of any meeting of the
shareholders of the company at which the `A` shares are to be voted, to
consider how to vote the `A` shares.
3.2.8 The trustees shall elect one of their number to act as chairman for the
purpose of meetings of trustees, provided that such chairman must be a trustee
elected by the beneficiaries. All decisions (i.e. resolutions) of the trustees
shall be taken by a simple majority vote with each trustee being entitled, at
meetings of trustees, to exercise one vote. The chairman shall have a second
or casting vote in addition to his deliberative vote if a simple majority is
not achieved.
3.2.9 A quorum for the purpose of meetings of trustees is three trustees of
which at least two trustees must be trustees elected by the beneficiaries.
3.2.10 In respect of the `A` preference shares, the Trust, as the
registered holder of the `A` preference shares, will be entitled to receive
notice of and to be present at any general meeting of holders of any class of
shares of the company, but will only be entitled to vote at such meeting
during any period during which any redemption payment on the `A` preference
shares remains in arrear and unpaid for six months or more after the due date
of such redemption payment or if a resolution of the company is proposed for
consideration at that meeting and such resolution affects the rights attached
to the `A` preference shares or the interests of the `A` preference
shareholder.
3.2.11 The `A` shares are convertible into `A` preference shares upon
written notice by, and at the option of, Edcon, which notice may be given
after six years. At the end of that six-year period Edcon will evaluate the
staff empowerment transaction and if Edcon is of the opinion that the staff
empowerment transaction has achieved its objectives, Edcon will give notice as
aforesaid. The `A` shares will then be converted into `A` preference shares
and will be redeemed by Edcon at par value.
3.3 Financial information
3.3.1 Costs
Edcon has calculated that the present value of the costs of the staff
empowerment transaction amounts to approximately R455 million, which amount
was equal to approximately 2,9% of Edcon`s market capitalisation at 6 June
2005.
3.3.2 Pro forma financial effects
The table below sets out the pro forma financial effects of the staff
empowerment transaction on Edcon`s published earnings per ordinary share and
headline earnings per ordinary share for the 2005 financial year, based on the
assumption that the staff empowerment transaction had been implemented at the
commencement of the 2005 financial year. The staff empowerment transaction
would not have had a material effect on Edcon`s net asset value or net
tangible asset value per share at the end of the 2005 financial year, had it
been implemented at that time.
The pro forma financial effects have been prepared for illustrative
purposes only and, due to the nature thereof, may not give an exact reflection
of the effect of the staff empowerment transaction. The figures shown in the
`Before` and `After` columns do not take into account the effect of the
subdivision.
Before After Change
(cents) (cents) (%)
Earnings per ordinary share 2 670 2 5271 (5)
Headline earnings per ordinary share 2 661 2 5191 (5)
Note:
1. Based on the assumption that the staff empowerment transaction had been
implemented on 1 April 2004 and had been in effect for the 12 months ended 2
April 2005.
4. SHAREHOLDER APPROVAL
The subdivision and the staff empowerment transaction will require
shareholders to approve, inter alia, the following resolutions:
* a special resolution to subdivide each ordinary share of 10 cents each
into ten ordinary shares of 1 cent each; and
* an ordinary resolution by a 75% majority vote approving the issue of the
`A` shares for cash.
5. OPINION OF INDEPENDENT EXPERT
Deloitte & Touche Corporate Finance, acting as an independent expert,
has furnished a fair and reasonable opinion on the terms of the staff
empowerment transaction.
6. CONDITIONS PRECEDENT
The implementation of the subdivision and the staff empowerment
transaction is subject to the fulfilment of the following conditions
precedent:
* the approval by shareholders of the requisite special and ordinary
resolutions; and
* the registration of the special resolutions by the Registrar of
Companies.
7. SALIENT DATES AND TIMES
The salient dates and times in respect of the subdivision and the staff
empowerment transaction are set out below:
2005
Circular and notice of general meeting posted to
shareholders on or about Friday, 17 June
Last day for receipt of proxies in respect of the general
meeting by 10:00 on Monday, 11 July
Annual general meeting of shareholders at 09:00 on Wednesday, 13 July
General meeting of shareholders (at 10:00 or so soon
thereafter as the annual general meeting convened
for 09:00 on the same day is concluded) on Wednesday, 13 July
Results of general meeting released on SENS on Wednesday, 13 July
Results of general meeting published in the press on Thursday, 14 July
Special resolutions lodged with the Registrar of Companies
on or about Thursday, 14 July
Last day to trade in ordinary shares with a par value of
10 cents each on Friday, 22 July
Trading commences in ordinary shares with a par value of
1 cent each under the new ISIN of ZAE000068649 on Monday, 25 July
Record date for the subdivision on Friday, 29 July
Ordinary shares with a par value of 1 cent each issued on Monday, 1 August
Replacement certificates reflecting the subdivision will be
posted to certificated shareholders whose share
certificates have been received by Friday, 29 July 2005
on or about Monday, 1 August
If share certificates have not been received by Friday,
29 July 2005,replacement share certificates will be
posted within five business days of receipt of the share
certificates
Dematerialised shareholders will have their accounts at
their Central Securities Depository Participant
or broker updated on Monday, 1 August
Shareholders will be advised of any changes to the above dates and times
by means of an announcement on SENS and in the press.
8. FURTHER DOCUMENTATION
A circular convening a general meeting of shareholders to approve the
requisite resolutions and containing further details of the subdivision and
the staff empowerment transaction is being prepared and will be posted to
Edcon shareholders on or about Friday, 17 June 2005.
Johannesburg
15 June 2005
Merchant bank and lead sponsor
RAND MERCHANT BANK
A division of FirstRand Bank Limited
Attorneys
Werksmans Incorporated
(Registration number 1990/007215/21)
Joint sponsor
JP Morgan
Namibian sponsor
IJG (Pty)Ltd
Irwin,Jacobs,Greene(Pty)Ltd
Member of the NSX
Independent expert
Deloitte & Touche Chartered Accountants (SA)
Corporate Finance Division
Registered Accountants and Auditors
Date: 15/06/2005 04:00:13 PM
Produced by the JSE SENS Department
