| Wed 10 Aug 2005, 9:05 | | Group Five Limited - Bee Ownership Transaction And |
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Group Five Limited - Bee Ownership Transaction And Withdrawal Of Cautionary
Announcement
Group Five Limited
Incorporated in the Republic of South Africa
Reg. no. 1969/000032/06
JSE code: GRF ISIN: ZAE000027405
(`Group Five` or `the Company`)
BEE ownership transaction and withdrawal of cautionary announcement
371 Rivonia Boulevard Rivonia, PO Box 5016, Rivonia 2128, South Africa Tel +27
11 806 0111, Fax +27 11 806 0187, Email info@g5.co.za website: www.g5.co.za
Further to the announcement dated 15 February 2005, which informed Group Five
shareholders that Group Five had commenced its Black Economic Empowerment
(`BEE`) ownership initiative that will introduce black people into the
shareholding structure of the Company (`the BEE Transaction`), Group Five is
pleased to announce the following:
1. Key highlights of the BEE Transaction
* Resultant direct black ownership of 26.1% of Group Five with immediate voting
and economic rights;
* A consortium formed of two broad-based empowerment entities, namely, the iLima
Consortium and Mvelaphanda Group Ltd (`Mvelaphanda`) - iLimaMvela Consortium
(`iLimaMvela`);
* Introduction of new BEE ownership entrant, namely, the iLima Consortium, a
100% black owned consortium;
* iLima Mvela will hold 21.6% and Black Management (current and future) and
broad-based employees(collectively `Employee Schemes`) will hold 4.5%; and
* Once-off transaction, with total economic cost to shareholders of
approximately 5.8%.
2. Proposed structure of the BEE Transaction
The owners of the shares to be issued are set out below:
* iLima Consortium 10.8%;
Mvelaphanda 10.8%
* The beneficiaries of the Broad-based Scheme will be permanent Group Five
employees of all races who fall under a predetermined level at a date to be
determined and
* Black Management above a certain level (current and prospective).
Ilima Consortium 10.8%
Mvelaphanda 10.8%
Black Management Trust 3.9%
Broad-based Scheme 0.6%
3. Rationale for the BEE Transaction
Besides its core business objectives, Group Five is also committed to
transformation in South Africa, at a shareholder level, in its communities and
throughout its business. The BEE Transaction has been constructed to be
consistent with the Codes of Good Practice in Broad-based Black Economic
Empowerment, published by the DTI (`the Codes`) and the impending Construction
Industry Charter.
The BEE Transaction has been designed to complement the Company`s overall
strategic objectives towards implementing broad-based empowerment in its
business and includes employees, entrepreneurs, women and communities in South
Africa.
In addition to the ownership element of the BEE Transaction, Group Five has also
focused on other elements to meet the requirements of the Broad-based Black
Economic Empowerment Act 53 of 2003.
* In particular, Group Five has embarked upon a systematic process of assisting
companies in the construction industry owned by black people in order to
encourage further participation by black people in construction. To date, it has
formed alliances with a number of such companies throughout its business.
* As part of this BEE transaction, Group Five has concluded an innovative
enterprise development agreement with iLima Projects (Proprietary) Limited
(`iLima Projects`), the construction arm of the iLima Consortium. Group Five and
iLima Projects will enter into subcontractor agreements for selected contracts.
Group Five will also perform arms-length related services to iLima Projects,
including but not limited to, administration, management and provision of
funding, including guarantees. The two groups have already worked together in
the past on several successful projects.
* iLima Projects will assist in the transformation of management at Group Five
through the sourcing of previously disadvantaged individuals for Group Five.
Eventually it is also envisaged that once iLima Projects has grown to an
acceptable size, Group Five will have the option to acquire it, the proceeds of
which will be utilised by iLima to acquire Group Five shares. This will further
entrench internal transformation at Group Five.
4. Principles of the BEE Transaction
In designing the BEE Transaction, the following set of principles aimed at
sustainable, broad-based empowerment were adopted:
Transformation - The BEE Transaction has been designed to accelerate operational
transformation within Group Five. This extends to employment equity,
particularly at management level, enterprise development through its
arrangements with iLima Projects and the profiling of Group Five. The BEE
Transaction is being implemented, as part of Group Five`s comprehensive,
overarching approach to rapid transformation.
Broad-based - The BEE Transaction is designed to directly and indirectly benefit
black people throughout the country, including, employees, entrepreneurs, women
and communities in South Africa. Group Five has sought to achieve an equitable
balance between individuals that are internal and external to the Company.
Full economic benefits and voting rights - From the inception of the BEE
Transaction, iLimaMvela and the Employee Schemes will have full voting rights
and economic benefits attached to equity ownership. A Black Management Trust,
which will be formed to acquire and hold Group Five shares for current and
future employees, will be structured so as to comply with the ownership
requirements of the Codes.
No undue dilution to shareholders - The overall economic cost of the BEE
Transaction equates to approximately 5.8% of Group Five`s market capitalisation
using the 30-day volume weighted average price (`VWAP`) (ex the final dividend
for 2005 of 32 cents per share), as at the close of business on 4 August 2005,
which is in line with precedent transactions concluded in the South African
economy.
5. Direct black shareholding as a result of the BEE Transaction
Group Five is proposing the introduction of direct, broad-based black ownership
into Group Five by way of the issue of new ordinary shares in the share capital
of Group Five ranking pari passu in all respects with the existing issued
ordinary shares of Group Five.
The table below provides further details on the BEE Transaction:
Total
Number Shareholding
of Transaction (post issue of
shares value new shares)
m (R)(1) %
Employee Schemes 4 366 109 70 009 554 4.5
Broad-based Scheme 575 000 9 219 992 0.6
Black Management Scheme 3 791 109 60 789 562 3.9
ILimaMvela 20 957 325 336 045 858 21.6
Total 25 323 434 406 055 413 26.1
(1) Based on a share price of R16.03 cents per share being the 30-day VWAP (ex
dividend) as at the close of business on 4 August 2005.
6. iLimaMvela
6.1 iLima Consortium
iLima Consortium is a diversified BEE group of companies and trusts that are led
and managed by previously disadvantaged individuals. It has interests in
construction, mining, financial services and telecommunications industries and
is a member of the Bombela consortium which has been awarded the rights to the
Gautrain project. The iLima consortium represents the interests of youth in the
form of the Qulani Trust, women involved in construction in the Yanda
development and Zeranza 42 (Pty) Ltd; and black entrepreneurs with interests in
an all black, experienced, operating infrastructural developments company, iLima
Group (Proprietary) Limited with professionals with a high level of skills in
infrastructure financing and engineering.
6.2 Mvelaphanda
On 13 December 2004 the merger of the business and assets of Mvelaphanda
Holdings and Rebserve Holdings Ltd was implemented, and Mvelaphanda Holdings
became the controlling shareholder of Rebserve. Rebserve changed its name to
Mvelaphanda and has become a broad-based, black-controlled, owned and managed
diversified group. Mvelaphanda has combined the stature and reputation of
Mvelaphanda Holdings` brand and team, as well as the prospects of substantial
BEE deal flow, with the cash-generative base and proven operational and
transactional skills of the former Rebserve and its management, all of whom have
been retained by the group. The strategy of the group is to be invested in
businesses covering facilities management, technical and professional, and
support services extending countrywide. Mvelaphanda is listed on the JSE Limited
(`JSE`), in the Industrial Service sector.
6.3 iLimaMvela
iLimaMvela will acquire 21.6% of the enlarged share capital of Group Five (the
`iLimaMvela transaction`) and will be structured on the basis as detailed in
paragraph 7 below. To this end, each of iLimaMvela, the iLima Consortium and
Mvelaphanda have entered into detailed binding legal agreements with Group Five
setting out the terms of their participation.
7. Mechanics and structure of the BEE Transaction
7.1 The Employee Schemes
7.1.1 The Black Management Scheme
The participants in the Black Management Scheme will be the permanent black
managers of Group Five. As these numbers are limited, participation will also be
directed so as to attract and retain talented black managers within Group Five.
The Black Management Trust will administer the Black Management Scheme. Three
independently elected black trustees will be appointed to the Black Management
Trust. The majority of these trustees will be elected by the beneficiaries of
the Black Management Scheme.
Group Five will provide the Black Management Trust with a loan to enable the
Black Management Trust to subscribe for Group Five shares (ex the final dividend
for 2005). Annual interest on the loan will equate to the lesser of dividends
received from the Group Five shares (less expenses required to administer the
Trust) and the prime overdraft rate per annum. Group Five will undertake a fresh
issue of shares for cash at the 30-day VWAP. The full quantum of Group Five
shares that will be required by the Black Management Trust will be issued
upfront. Allocations, at the discretion of the Group Five Remuneration
Committee, will be made at the inception of the scheme to earmarked black
managers. The balance will be allocated during the term of the scheme to new
appointees and managers that are promoted.
The Group Five shares will vest in the participants in tranches subject to the
fulfilment of the vesting criteria, which are:
* a lock-in period of two to four years from the allocation date to the
participant;
* settlement of the outstanding debt relating to the vesting shares; and
* permanent employment within Group Five.
7.1.2 The Broad-based Scheme
The beneficiaries of the Broad-based Scheme will be all of the permanent Group
Five employees of all races who fall under a predetermined level as at a date to
be determined. Based on the structure of construction companies, it is likely
that this will result in more than 85% of the participants of the Broad-based
Scheme being black. Staff joining Group Five after the allocation date will not
participate in the Broad-based Scheme.
Group Five will issue Group Five shares with a total value of R2 000 per
participant. The full quantum of the shares that will be required in respect of
the Broad-based Scheme will be allocated and issued upfront.
Participants are to be paid the dividends in respect of the share awards and
will be entitled to exercise the voting rights in respect of the Group Five
shares. Participants may however only take delivery of the Group Five shares
after five years of participation in the Broad-based Scheme, whereafter they may
do as they wish with the shares. There are no other conditions attaching to
participation in the Broad-based Scheme.
7.2 iLimaMvela transaction
Group Five has developed a structure for the iLimaMvela transaction that
involves Group Five issuing shares at the Subscription Price of one (1) cent per
share to iLimaMvela.
iLimaMvela will subscribe for 20 957 325 shares with a fair value amounting to
R336 million (ex the final dividend for 2005), which represents 21.6% of Group
Five`s market capitalisation pursuant to the BEE Transaction. This will be
financed through an internal funded mechanism.
On the End Date of the iLimaMvela transaction, Group Five will repurchase (`the
Forward Sale`) as many of the shares as, based on their then Market Value, equal
in value to the final accumulated internal funding account.
The Forward Sale will be implemented at the End Date or if an Event of Default
occurs. The effect of this Forward Sale is that within a period of 20 (twenty)
business days after the End Date, Group Five will acquire between 0% and 100% of
the Subscription Shares.
The application of the formula referred to above, replicates materially the same
economic consequences that would ensue had the iLimaMvela transaction been
funded by way of fixed rate preference share provided by Group Five.
Group Five will grant iLimaMvela a Right of Further Subscription, which entitles
iLimaMvela to subscribe, at the then Market Value, for the equivalent number of
Group Five shares as acquired by Group Five in implementing the Forward Sale.
Group Five`s obligation under this arrangement will be settled by a fresh issue
of shares against payment to it by iLimaMvela of the Market Value of such
shares.
iLimaMvela are obliged to apply the proceeds of any distribution received by it
by virtue of holding Group Five shares, to the acquisition of additional shares
in Group Five at their then Market Value. Shares acquired in this manner, shall
be subject to the Forward Sale.
8. Estimated economic costs of the BEE Transaction
The value of the BEE Transaction is based on the indicative market
capitalisation of Group Five at 4 August 2005, using the 30-day VWAP (ex
dividend) to that date of 1 603 cents per share.
Group Five has estimated the economic cost of the BEE Transaction to be R67
million. This translates to 5.8% of Group Five`s market capitalisation.
9. Accounting treatment of the BEE Transaction
In accordance with the rules of the 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 Group Five,
information is to be presented in accordance with SA GAAP as it existed as at 30
June 2005. Group Five has not yet adopted International Financial Reporting
Standards(`IFRS`).
10. Pro forma financial effects of the BEE Transaction
The pro forma financial effects of the BEE Transaction for the financial year
ended 30 June 2005 are set out in the table below. The pro forma financial
effects have been prepared for illustrative purposes only to provide information
on how the BEE Transaction might have affected the financial results and
position of Group Five for the year ended and as at 30 June 2005. Because of
their nature, these financial effects may not give a true reflection of the
actual financial effects of the BEE Transaction. The pro forma financial effects
of the BEE Transaction are the responsibility of the directors of Group Five.
Before the
BEE transaction After the BEE
(cents) transaction %
Consolidated Adjustments (cents) Change
Basic EPS(1)(3) 190,1 0 190,1 0.0
HEPS(1)(3) 151,6 0 151,6 0.0
NAV and 897,1 (3.9) 893,2 (0.4)
Tangible NAV
per share(2)(4)
Notes:
(1) The `Before the BEE Transaction` column reflects the earnings and headline
earnings per Group Five share for the year ended 30 June 2005. The `After the
BEE Transaction` column reflects the earnings and headline earnings adjusted for
the financial effects of the BEE Transaction based on the assumption that the
BEE Transaction was implemented from 1 July 2004.
(2) The `Before the BEE Transaction` column reflects the net asset value per
Group Five share at 30 June 2005. The `After the BEE Transaction` column
reflects the net asset value per Group Five share after the consideration
received from the BEE Transaction, net of associated costs, based on the
assumption that the BEE Transaction was implemented on 30 June 2005.
(3) The `Before the BEE Transaction` column weighted average number of shares in
issue used in calculating EPS and HEPS was 70,3 million. The `After the BEE
Transaction` column weighted average number of shares in issue used in
calculating EPS and HEPS was 70,3 million.
(4) In calculating NAV and Tangible NAV per share `Before the BEE Transaction`
the number of shares in issue as at 30 June 2005 was 71,9 million and in
determining the NAV and Tangible NAV per share `After the BEE Transaction`, the
number of shares in issue was 71,9 million.
11. Proposed appointments to the Board
Once the BEE Transaction has been effected and all conditions precedents have
been met, nominations will be made by iLimaMvela, for its representatives to
serve as non-executive directors on the Board.
12. Conditions precedent to the BEE Transaction
The implementation of the BEE Transaction is subject to the fulfillment of the
following conditions precedent:
* That no default event has occurred in relation to the BEE Transaction prior to
the commencement date;
* Approval of the requisite majority of Group Five ordinary shareholders in
general meeting to the issue of new Group Five shares to each of the schemes. In
this regard, the required circular is expected to be posted to ordinary
shareholders of Group Five in due course; and
* Obtaining of the necessary regulatory approvals to implement the BEE
Transaction.
13. Directors` recommendation
The Board recommends that the shareholders of Group Five vote in favour of the
BEE Transaction and the resolutions to be proposed at the general meeting to be
held to consider the transaction. In respect of their personal holdings in Group
Five, the relevant board members intend to vote their shares in favour of the
BEE Transaction and the resolutions to be proposed at the aforementioned general
meeting.
14. Timetable and documentation
A circular setting out the full details of the proposed introduction of direct
black ownership, including details of the BEE Transaction and the meetings
required to implement it will be posted to shareholders on or about Tuesday, 6
September 2005 and a meeting of shareholders will be convened on Thursday, 29
September 2005.
15. Withdrawal of cautionary announcement
Shareholders are advised that as the detailed terms of the BEE Transaction have
been announced, caution is no longer required when dealing in Group Five shares
Rivonia
8 August 2005
Investment bank, Transaction Advisor and Sponsor to Group Five
Nedbank Capital
Reporting Accountants and Auditors
PricewaterhouseCoopers
Legal advisors to Group Five
Prinsloo, Tindle and Andropoulos Inc
Legal advisors to iLimaMvela
Werksmans
Date: 10/08/2005 07:18:00 AM
Produced by the JSE SENS Department
