| Wed 21 Sep 2005, 8:33 | | Distell - Introduction Of A BEE Partner Into Diste |
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Distell - Introduction Of A BEE Partner Into Distell And Withdrawal Of
Cautionary Announcement
DISTELL GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1988/005808/06)
Share code: DST & ISIN: ZAE000028668
(`Distell` or `the company`)
INTRODUCTION OF A BLACK ECONOMIC EMPOWERMENT (`BEE`) PARTNER INTO DISTELL AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Investec Corporate Finance (`Investec`) is authorised to announce on behalf of
the board of directors of Distell (`the Distell board`) that the company has
conditionally entered into a broad-based black economic empowerment (`BEE`)
transaction that will result in a meaningful percentage of Distell`s operations
being owned by previously disadvantaged individuals.
The Distell board intends to ask shareholders of the company to approve
resolutions which will have the effect of introducing BEE partners (`the BEE
parties`) via a newly registered company, WIPHOLD Beverages (Proprietary)
Limited (`WIP Beverages`), into Distell`s wholly-owned operating subsidiary
South African Distilleries & Wines (SA) Limited (`SADW`). WIP Beverages will,
subject to the fulfilment of the conditions precedent set out in paragraph 6
below, acquire an effective 15% strategic investment in SADW for the
consideration of approximately R869,4 million (`the proposed BEE transaction`).
All Distell`s current operations are held via SADW, and accordingly SADW
represents Distell`s entire value.
Women Investment Portfolio Holdings Limited (`WIPHOLD`) will be the strategic
BEE partner of Distell.
2. RATIONALE
As South Africa`s premier producer and marketer of fine wines, spirits, and
ready-to-drink alcoholic beverages (`RTDs`), Distell recognises the importance
of positive transformation as a key element of the future prosperity of not only
the country, but also the company. Distell therefore supports the South African
government`s BEE initiatives and in doing so is actively involved in the
transformation of the liquor industry. Distell has begun a company-wide
transformation programme, components of which include employment equity,
incorporating management demographics, human resource development, preferential
procurement, social development and enterprise development. Significant progress
has been made on a number of fronts and Distell is now taking the next step to
advance its BEE strategy through the introduction of a BEE partner into Distell.
In terms of BEE ownership of the company, it is Distell`s intention to embrace
broad-based BEE as the foundation of its BEE ownership strategy including the
upliftment of poor black communities. For purposes of this transaction, black
people will mean black people as defined in the Broad-Based Black Economic
Empowerment Act 53 of 2003 and will include Africans, Coloureds and Indians. To
this extent, the BEE parties consist of a shareholder base that is approximately
77% broad-based and approximately 65% black.
As illustrated in section 3, the largest shareholder of WIP Beverages will be
employees of Distell, 67% of whom are black. The company believes that its
employees have been and will continue to be a major contributor to the success
of its business and that a significant component of the BEE shareholding should
be appropriately directed at employees of Distell.
As part of Distell`s BEE ownership strategy, the Distell board has sought a
strategic partner that will assist it in enhancing its growth prospects and make
a positive contribution to Distell in terms of its transformation initiatives,
relationships with the public and private sector, business opportunities in the
rest of Africa and a partner that has an understanding of Government, including
the legislative process. To this end, Distell considers it imperative to have a
leading black business grouping as a major shareholder of WIP Beverages. The
Distell board considers WIPHOLD to be such a party.
The cost of the proposed BEE transaction, as detailed in paragraph 5.1 below,
equates to approximately 1,97% of Distell`s market capitalisation on 20
September 2005, which compares favourably with other recent BEE transactions.
Distell recognises that transformation will be a key underpin of the future
growth of its business and believes that the proposed BEE transaction is another
step towards its goal of continuing to be a truly great South African company.
3. THE BEE SHAREHOLDERS
Following a systematic investigation extending over a significant period, the
board of Distell has identified WIPHOLD to be its optimal strategic BEE partner
and has agreed with WIPHOLD that WIPHOLD will hold, via its wholly-owned
subsidiary WIPHOLD Distilleries and Wines Investments (Proprietary) Limited
(`WIPHOLD Distilleries`), an effective 40% interest in WIP Beverages. The
Distell Employee Share Allocation Trust (`ESOP Trust`) will own 45% of the
shares in WIP Beverages and the Distell Corporate Social Investment Trust (`CSI
Trust`) will hold a 15% interest in WIP Beverages.
The ESOP Trust was formed for the benefit of all Distell employees (over 4 000)
of whom the majority by number and allocation are black (more than 67%). Distell
employees that currently participate in a share incentive scheme have been
excluded from the ESOP Trust.
WIPHOLD will be entitled to appoint three directors and the ESOP Trust will be
entitled to appoint two directors to the WIP Beverages board.
The shareholding structure of WIP Beverages will be as follows:
WIPHOLD CSI Trust ESOP Trust
via WIPHOLD | |
Distilleries | |
40%| 15%| 45%|
|______________|_________________|
|
WIP Beverages----15%--->SADW
I. WIPHOLD
WIPHOLD is a company driven by a dedication to the empowerment of women, and
black women in particular. It was borne out of the knowledge that South African
women, while the largest contributors to the economy, both as producers and
consumers, have historically been the most disadvantaged. The knowledge that
financial independence represents a powerful tool for helping women redirect
their lives is what motivated the formation of WIPHOLD, still drives it today,
and is manifested through the company`s ongoing drive to galvanise women into an
investment vehicle that makes investments of benefit to women in the areas of:
- financial services and infrastructure; and
- diversified investments (telecommunications; consumer goods and services;
tourism; industrials; mining and energy).
Four successful women executives founded WIPHOLD 11 years ago as an organisation
dedicated to women`s empowerment. With 1 200 direct beneficiaries and 18 000
indirect beneficiaries through the WIPHOLD Investment Trust, 10 non-governmental
organisations (`NGO`) representing predominantly 250 000 women in all nine
provinces, through the WIPHOLD NGO Trust, WIPHOLD is one of the most genuinely
broad-based black empowerment companies in South Africa. It is a majority black-
owned company, with in excess of 50% of its shareholding owned by or for the
benefit of black people. Sixty percent of WIPHOLD is owned by women. All
shareholdings are direct and unencumbered. As at July 2005, the WIPHOLD
Investment Trust had distributed R46 million to its beneficiaries.
The directors of WIPHOLD include two of the original founding members, Louisa
Mojela, CEO of WIPHOLD, and Gloria Tomatoe Serobe, CEO of Wipcapital
(Proprietary) Limited.
II. The ESOP Trust
The ESOP Trust is a trust formed for the benefit of the employees of the
company. Distell will allocate in principle the same units, representing an
interest as beneficiary in the ESOP Trust, to all employees with there being no
weighting attached to seniority or position in the company. Distell does however
recognise the benefits of staff loyalty and has therefore decided to allocate
additional units to employees with more than a specified number of years`
service. At present, more than 67% of the employees who will participate in the
ESOP Trust are black.
III. The CSI Trust
Independent trustees will oversee the CSI Trust. Management of Distell and
WIPHOLD are currently in the process of finalising the beneficiaries of the CSI
Trust and it is the intention to focus the CSI Trust on previously disadvantaged
communities and areas in which Distell operates. Distell will announce further
details regarding the CSI Trust as soon as it has been finalised.
4. SALIENT TERMS OF THE PROPOSED BEE TRANSACTION
4.1 Disposal and funding of 15% of SADW
In terms of the proposed BEE transaction, Distell will dispose of a 15% interest
in SADW to WIP Beverages for a consideration of approximately R869,4 million
(`the purchase consideration`), which was determined by calculating the 30-day
volume weighted average share price of Distell up to the day preceding Friday,
16 September 2005 (R29,37 per Distell share), being the last practical date
before finalising the proposed BEE transaction. Distell will, in turn, subscribe
for preference shares in WIP Beverages for a subscription consideration equal to
the purchase consideration (`the WIP Beverages preference shares`). The
obligation of WIP Beverages to pay the purchase consideration will be set off
against the obligation of Distell to pay the subscription consideration for the
WIP Beverages preference shares.
Preference shares
Distell --------------------------------------
| |
|85% WIP Beverages
| |
SADW<--15%-----------------------------------
|
All Distell`s
operations
The BEE parties will then acquire all of the issued ordinary shares in WIP
Beverages (`the WIP Beverages ordinary shares`) from Distell for a consideration
equal to their par value. Distell will continue to hold all of the WIP Beverages
preference shares.
The WIP Beverages preference shares will entitle the holder to receive a
cumulative preference dividend equal to the average of the South African
consumer price index (excluding mortgages) rate of change over the period plus
7% (`the pref funding rate`). The pref funding rate will be amended, from the
period commencing after the 30th day after the publication of Distell`s annual
report for the financial year 2015, to a rate equal to:
- the most favourable funding rate offered to WIPHOLD on the 30th day after the
publication of Distell`s annual report for the financial year 2015 by any
registered bank; less
- 50 basis points.
The WIP Beverages ordinary shares carry full voting rights. The dividends
received by WIP Beverages on its investment in SADW will be used to service the
preference dividend payable on the WIP Beverages preference shares and repayment
of capital. The WIP Beverages preference shares, which are held by Distell, will
not have any voting rights unless, inter alia, there is a breach of the
shareholders` agreements by WIP Beverages or in respect of a resolution which
affects any of the rights of the WIP Beverages preference shares.
4.2 The put and call option
Distell has granted the BEE parties a put option, in terms of which Distell is
required to purchase all, and not only some, of the WIP Beverages ordinary
shares held by the BEE parties (`the put option`). In turn, the BEE parties
grants Distell the option to purchase from them all, and not only some, of the
WIP Beverages ordinary shares (`the call option`).
4.2.1 Exercise dates
If after 30 June 2013 the BEE parties collectively holding more than 75% of the
WIP Beverages ordinary shares, wish to exercise the put option, then the other
members of the BEE parties shall also be obliged to sell their WIP Beverages
ordinary shares to Distell. Thereafter, WIPHOLD shall have the right to exercise
the put option on behalf of all the other members of the BEE parties by giving
Distell written notice to such effect.
WIPHOLD shall, inter alia, be entitled to exercise the put option:
- if all the WIP Beverages ordinary shares are offered for sale to Distell; and
- within 30 days after the publication of Distell`s annual report for the
financial years ending on 30 June 2013, or 30 June 2014, or 30 June 2015 (`the
put option date`).
Distell shall, inter alia, be entitled to exercise the call option:
- within 30 days after the publication of Distell`s annual report for the
financial year ending on 30 June 2015 (`call option date`).
4.2.2 Exercise price
The put option and call option can be exercised at a price that will entitle the
BEE parties to realise the benefit of any increase in the value of the WIP
Beverages ordinary shares. The value of the WIP Beverages ordinary shares will
be based on the value of WIP Beverages` investment in SADW, less the outstanding
balance of the WIP Beverages preference shares. The value of WIP Beverages`
investment in SADW will be calculated using an agreed formula, based on the
value of Distell.
4.2.3 Settlement of the exercise price
The exercise price will be settled by Distell either by issuing (`the specific
issue`) the requisite number of new Distell shares or Distell shares that have
been repurchased during the transaction period. The number of Distell shares to
be issued or transferred to WIP Beverages ordinary shareholders will be based on
the volume weighted average ruling price of Distell ordinary shares for the 60
days preceding the put option date or call option date.
The settlement of the exercise price shall not exceed 15% of the market
capitalisation of Distell on the JSE Limited (`JSE`) as at the put option date
or call option date.
4.3 Nomination to the Distell board and contribution by WIPHOLD
WIPHOLD will be entitled to nominate two directors for appointment to the
Distell board. As part of the proposed BEE transaction, WIPHOLD will invest R5
million into Distell.
5. UNAUDITED PRO FORMA FINANCIAL EFFECTS AND ACCOUNTING TREATMENT OF THE
PROPOSED BEE TRANSACTION
5.1 Cost to Distell shareholders
Distell has calculated the cost of the proposed BEE transaction to Distell
shareholders, using an option pricing model, to equate to approximately R122,3
million, which amount is equal to 1,97% of Distell`s market capitalisation on 20
September 2005.
5.2 Unaudited pro forma financial effects
The unaudited pro forma financial effects, for which the Distell board are
responsible, are presented for illustrative purposes only and may not give a
fair reflection of Distell`s financial position nor the effect on future
earnings post the implementation of the proposed BEE transaction.
The table below sets out the unaudited pro forma financial effects of the
proposed BEE transaction on Distell based on the published financial results of
Distell for the year ended 30 June 2005:
Before (1) After (2, 3, 4) Change
Per Distell share (cents) (cents) %
Earnings 245,8 211,5 (14,0)
Headline earnings 245,8 211,5 (14,0)
Net asset value 1 440,3 1 406,2 (2,4)
Tangible net asset value 1 436,9 1 402,9 (2,4)
Number of shares
in issue (`000) 197 347 197 347
Weighted issued number
of shares (`000) 196 194 196 194
Note:
1. Extracted from the published financial results of Distell for the year ended
30 June 2005.
2. The economic substance for accounting purposes of the proposed BEE
transaction is the granting of a call option on Distell`s interest in its
subsidiary, SADW, in favour of the BEE parties, excluding the option granted to
the ESOP Trust, and should be accounted for as a derivative in terms of IAS 39.
On initial recognition the derivative liability needs to be measured at fair
value using an option-pricing model. The option has been valued at R4,13 per
share. This resulted in a derivative liability of R67,2 million that was raised
and expensed through the income statement.
3. For purposes of calculating the earnings per share and headline earnings per
share it was assumed that the proposed BEE transaction was effected on 1 July
2004.
4. For purposes of calculating the net asset value and tangible net asset value
per share it was assumed that the proposed BEE transaction was effected on 30
June 2005.
5. Transaction costs have been ignored as they are considered immaterial.
6. The proposed BEE transaction will not have a material effect on the diluted
earnings per share.
5.3 Accounting treatment
The South African Institute of Chartered Accountants (`SAICA`) has issued two
exposure drafts, ED 199 and ED 200, which deal with the accounting for BEE
transactions. ED 200 is based on the International Financial Reporting
Interpretations Committee (`IFRIC`) document D 16. Based on these, the
International Financial Reporting Standard 2 (`IFRS 2`) could apply to the
proposed BEE transaction. Assuming IFRS 2 is applicable, an expense and a
related increase in equity (a separate reserve) will be recognised on the date
that the equity instrument is granted. No further measurement or adjustments
would be required as it is assumed that the BEE credentials are received
upfront, in accordance with the preferred position of SAICA in ED 199. Upon
settlement, a transfer between components of equity (i.e. from the reserve to
share capital and share premium) would be made in the statement of changes in
equity.
The accounting treatment of the proposed BEE transaction will only be finalised
once comments from the public have been received by the IFRIC and SAICA on these
exposure drafts and the related interpretation and/or South African Statement of
Generally Accepted Accounting Practice has been issued.
As the proposed BEE transaction will not terminate before 2013 it is possible
that changes to accounting standards, including some not presently envisaged,
will be made before then, which could affect how the proposed BEE transaction is
accounted for, including the consideration paid by Distell on the exercise of
the put option or call option.
6. CONDITIONS PRECEDENT
The proposed BEE transaction is conditional on the fulfilment, inter alia, of
the following conditions precedent:
6.1 the approval of the proposed BEE transaction by the requisite majority of
Distell shareholders; and
6.2 the approval of the specific issue by the requisite majority of Distell
shareholders.
7. OPINION AND RECOMMENDATIONS
The Distell board has considered the terms and conditions of the proposed BEE
transaction and is of the opinion that the proposed BEE transaction is in the
best interests of all of Distell`s key stakeholders, including customers,
suppliers, staff, debt funders and shareholders and, accordingly, recommend that
the Distell shareholders vote in favour of the resolutions required to implement
the proposed BEE transaction.
8. DISTELL SHAREHOLDER SUPPORT
Remgro-KWV Investments Limited and Other Beverages Interests (Proprietary)
Limited, representing 89,2% of the issued share capital of Distell, have
provided Distell with irrevocable undertakings to vote in favour of all the
resolutions necessary to implement the proposed BEE transaction.
9. PUBLICATION OF CIRCULAR
A circular containing full details of the proposed BEE transaction and
incorporating a notice of general meeting, which is subject to the approval of
the JSE, is being prepared and will be posted to Distell shareholders in due
course.
10. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Distell shareholders are referred to the cautionary announcements dated 4 April,
16 May, 27 June and 8 August 2005, and are advised that the discussions referred
to therein have been completed. Caution is therefore no longer required to be
exercised by Distell shareholders when dealing in their Distell securities.
Stellenbosch
21 September 2005
Corporate adviser and transactional sponsor to Distell - Investec Bank Limited
Reporting accountants - PricewaterhouseCoopers
Sponsor to Distell - Rand Merchant Bank
Transaction advisers to WIPHOLD - Wipcapital
Corporate legal adviser to Distell - Sonnenberg Hoffmann Galombik
Corporate legal adviser to WIPHOLD - Edward Nathan Corporate Law Advisers
Date: 21/09/2005 08:00:35 AM
Produced by the JSE SENS Department
