| Tue 1 Nov 2005, 16:39 | | Primedia - Increase of the BEE shareholding in Pri |
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Primedia - Increase of the BEE shareholding in Primedia
and withdrawal of cautionary announcement
Primedia Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/003355/06)
Share code: PMA & ISIN: ZAE000035119
Share code: PMN & ISIN: ZAE000035127
("Primedia" or "the company")
INCREASE OF THE BLACK ECONOMIC EMPOWERMENT ("BEE")
SHAREHOLDING IN PRIMEDIA AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
1. INTRODUCTION
As part of its commitment to broad-based black
economic empowerment, Primedia is proposing, subject
to shareholder approval, to facilitate the
acquisition by the Mineworkers Investment Company
(Pty) Limited ("MIC") of an additional 9.8% direct
ownership interest in the total share capital of
Primedia (excluding the treasury shares held by the
Primedia share trust) ("the proposed BEE
transaction"). The total value of the proposed BEE
transaction is approximately R322.0 million, based
on the market price of Primedia "N" shares on the
close of business on Thursday, 20 October 2005,
being the last practicable date prior to the
finalisation of the proposed BEE transaction.
In terms of the proposed BEE transaction, Primedia
is proposing to issue a total of 8 million Primedia
"N" shares ("the par value "N" shares") to MIC or
its wholly-owned special purpose subsidiary,
Newshelf 793 (Proprietary) Limited ("MIC SPV"), at
their par value of 0.02 cents per share ("the
specific issue") in order to facilitate the proposed
BEE transaction, which will equate to a 3.6%
dilution to existing Primedia shareholders, and is
in line with recent BEE transactions. MIC or the MIC
SPV will hold the 8 million par value "N" shares
issued to them in terms of the specific issue and
the additional Primedia "N" shares to be acquired
from Active Value Fund Managers Limited, a company
incorporated in the British Virgin Islands, acting
as general partner of Active Value Capital, L.P.,
Active Value Pledge Fund, L.P. and AVC CIP L.P., as
investment manager of Active Value Capital, Inc and
Active Value Euro Partners, Inc ("Active Value").
In total, BEE shareholders will be entitled to
participate in approximately 18.6% of Primedia"s
total issued share capital subsequent to the
implementation of the proposed BEE transaction.
The acquisition of the Primedia "N" shares from
Active Value by MIC and/or the MIC SPV will be
funded by third party financiers.
2. RATIONALE
The Broad-Based Black Economic Empowerment Act 53 of
2003 ("BBBEE Act") establishes a legislative
framework for the promotion of an increased
participation of black people in the economy and
empowers the Minister to establish industry Codes of
good practice. Primedia is committed to BEE and
has made enormous strides in this regard, as
evidenced by its recent ranking by Financial
Mail/Empowerdex as the most transformed media
company in South Africa. The proposed BEE
transaction will enable Primedia to position itself
for the current and future requirements of the BBBEE
Act and applicable Codes and ensure the preservation
of its current businesses and competitiveness within
the South African context. The transaction will
also augment the range of strategies that Primedia
has implemented to date, to ensure its successful
transformation, including equity ownership,
employment equity, skills and enterprise
development, preferential procurement and social
development.
Primedia has identified MIC as its strategic BEE
partner due to MIC"s commercial background,
understanding of the media sector, its broad based
nature, current shareholding and existing
relationship with Primedia. Primedia shareholders
are referred to the published audited financial
results of Primedia for the year ended 30 June 2005,
wherein they were advised that Primedia Broadcasting
(Pty) Limited, a wholly-owned subsidiary of
Primedia, had acquired, subject to certain
regulatory approvals, MIC"s effective 14.2% interest
in Africa on Air (Pty) Limited ("AoA"), for a
consideration of R7.1 million in cash and 5 962 385
Primedia "N" shares ("the AoA Primedia "N" shares")
("the AoA transaction"). AoA owns 94.7 Highveld
Stereo, which is South Africa"s leading commercial
radio station. The AoA acquisition will be earnings
and cash flow enhancing for Primedia. In terms of
the Listings Requirements of the JSE Limited
("JSE"), the AoA transaction is classified as a
small related party transaction, and accordingly a
fair and reasonable opinion was obtained from
Deloitte & Touche Corporate Finance, who have issued
an opinion that, in their view, the AoA transaction
is fair and reasonable to Primedia shareholders.
MIC currently owns a 9.2% economic interest in
Primedia (including the AoA Primedia "N" shares to
be issued to MIC and/or its wholly owned
subsidiaries in terms of the AoA transaction), and
has joint voting control over Primedia, in
consortium with the Kirsh family. In terms of the
proposed BEE transaction, MIC will better align its
economic and voting interests in Primedia.
After the implementation of the proposed BEE
transaction, MIC will hold an ownership interest in
Primedia`s total issued share capital of
approximately 18.6%. Primedia"s BEE shareholding,
calculated in economic terms, will increase from
approximately 9.2% to 18.6%. The 9.2% includes the
AoA Primedia "N" shares to be issued to MIC and/or
its wholly owned subsidiaries in terms of the AoA
transaction, which is still subject to certain
regulatory approvals. In terms of the JSE Listings
Requirements the specific issue is considered to be
an issue of shares to non-public shareholders, which
represents a discount of approximately 100% as at
the last practicable date.
3. SALIENT TERMS OF THE PROPOSED BEE TRANSACTION
3.1 Steps required to implement the proposed BEE
transaction
The proposed BEE transaction will be
implemented as follows:
Step 1 Primedia will issue 8 million
Primedia "N" shares to MIC or the MIC SPV
at par value on the effective date. The
effective date will be the date on which
the resolutions approving the specific
issue are passed by Primedia shareholders.
Step 2 MIC or the MIC SPV will obtain
funding of approximately R 205 million
from third party funders, which has
already been secured and is on market
related terms and conditions. In terms of
these funding arrangements, MIC has
pledged 14.9 million of its existing
shareholding in Primedia as collateral, as
well as the additional shares to be
acquired pursuant to the proposed BEE
transaction.
Step 3 Using the funding obtained in step 2
above and existing funding resources, MIC
or the MIC SPV will acquire 15 million
Primedia "N" shares from Active Value.
Primedia shareholders are referred to the
cautionary announcement dated 9 September
2005 wherein they were informed that MIC
had agreed with Active Value to acquire 15
million Primedia "N" shares. The
aforementioned acquisition is conditional
upon the specific issue.
3.2 The proposed BEE transaction structure
Refer to press announcement for diagram
3.3 Primedia and MIC relationship agreement
Subject to its funding arrangements, MIC will
not, without Primedia"s prior written consent,
be permitted to dispose of any of its Primedia
shares except for the AoA Primedia "N" shares,
for a period of six years from the effective
date. This will result in approximately 37.9
million of MIC"s total shareholding in Primedia
of 43.9 million shares being subject to a lock-
in restriction for a period of six years ("the
lock-in undertaking"). If Primedia grants its
consent to MIC to dispose of any of its
Primedia shares during the said six-year
period, it will be on the basis that MIC
disposes of the shares to another empowerment
group that is acceptable to Primedia or that
Primedia is given a 60 day pre-emption right to
acquire the shares in question.
Furthermore and subject to its funding
arrangements if, during the six-year period,
MIC ceases to be controlled by the Mineworkers
Investment Trust ("MIT") or there is a change
in the beneficiaries of MIT which results in a
material prejudice to Primedia"s BEE status,
Primedia will entitled to buy back the par
value "N" shares at its issue price plus an
amount equal to any funding shortfall suffered
by MIC or the MIC SPV in respect of the
15 million Primedia "N" shares acquired from
Active Value, which amount shall not exceed the
market value of the par value shares at the
effective date.
After the first six years, but before the
expiry of a ten-year period from the effective
date, MIC will be entitled to dispose of its
Primedia shares on market related terms, to (a)
an empowerment group that is acceptable to
Primedia free of any other restrictions, or (b)
any other party, subject to a 30 day pre-
emption right in favour of Primedia.
4. FINANCIAL EFFECTS
4.1 Cost to Primedia shareholders
The cost of the proposed BEE transaction to
Primedia shareholders is a dilution of
approximately 3.6%.
4.2 Pro forma financial effects of the AoA transaction
and proposed BEE transaction
The unaudited pro forma financial effects for
which the Primedia board of directors (`the
Primedia board") are responsible, are presented
for illustrative purposes only and may not give
a fair reflection of the financial position and
results of operations post the implementation
of the AoA transaction or the proposed BEE
transaction. The Primedia board believe that
in order for Primedia shareholders to obtain a
complete understanding of the transactions
entered into by Primedia with BEE parties
subsequent to 30 June 2005, it is important to
disclose the unaudited pro forma financial
effects of the AoA transaction and the proposed
BEE transaction.
The table below sets out the unaudited pro
forma financial effects of the AoA transaction
and proposed BEE transaction based on the
published financial results of Primedia for the
year ended 30 June 2005:
Per Primedia (6,7,8)
share After
(4,5,8) the AoA
After tran-
(2,3) the saction
After proposed and
(1) the AoA Change BEE tran- Change Proposed Change
Before tran- saction BEE tran-
saction saction
(cents) (cents) % (cents) % (cents) %
EARNINGS 97.0 99.5 2.6% 93.3 (3.8%) 96.2 (0.8%)
Headline 95.0 97.8 2.9% 91.6 (3.6%) 94.5 (0.5%)
earnings
Diluted 94.0 97.2 3.4% 91.2 (3.0%) 94.0 -
earnings
Net Asset 183.6 215.5 17.4% 175.5 (4.4%) 206.5 12.5%
Value ("NAV")
Tangible Net (22.2) 0.7 103.2% (23.1) (4.1%) (1.1) 95.0%
Asset Value
("TNAV")
Weighted 223 032 228 994 231 032 236 994
issued number
of shares
(`000)
Note:
1. Extracted from the published financial results of
Primedia for the year ended 30 June 2005.
2. For purposes of calculating the earnings per share,
headline earnings per share and diluted earnings per
share it was assumed that the AoA transaction was
effective on 1 July 2004.
3. For purposes of calculating the NAV per share and
TNAV per share it was assumed that the AoA transaction
was effective on 30 June 2005.
4. For purposes of calculating the earnings per share,
headline earnings per share and diluted earnings per
share it was assumed that the proposed BEE transaction
was effective on 1 July 2004.
5. For purposes of calculating the NAV per share and
TNAV per share it was assumed that the proposed BEE
transaction was effective on 30 June 2005.
6. For purposes of calculating the earnings per share,
headline earnings per share and diluted earnings per
share it was assumed that the AoA transaction and the
proposed BEE transaction were effective on 1 July 2004.
7. For purposes of calculating the NAV per share and
TNAV per share it was assumed that the AoA transaction
and the proposed BEE transaction were effective on 30
June 2005.
8. Transaction costs relating to the proposed BEE
transaction of approximately R4 million have been
included in the financial effects calculations applicable
to the proposed BEE transaction.
4.3 Pro forma financial effects of the AoA transaction
and the proposed BEE transaction taking into account the
impact of IFRS2
Primedia will, with effect from 1 July 2005
adopt the new International Financial Reporting
Standards ("IFRS"). The principal effect of
this change, in relation to the proposed BEE
transaction, is in respect of IFRS 2: Share
Based Payments which sets out how entities must
recognise and measure share-based payment
transactions. Under IFRS2, Primedia is
required to expense, through the income
statement, the fair value of the par value "N"
shares to be issued in terms of the proposed
BEE transaction. This fair value is deemed to
be equal to the current Primedia "N" share
price, which at close on 20 October 2005 was
R14.00 per share. Accordingly, the fair value
of the 8 million par value "N" shares to be
issued in terms of the proposed BEE transaction
has been calculated to be R112.0 million, which
amount will be recognised as a once-off expense
through headline earnings. This once off
expense will have no effect on the group"s cash
flows or distribution policy and the ongoing
economic effect of the proposed BEE transaction
will be limited to the dilution in earnings
resulting from the increased number of shares
in issue.
The AoA transaction will be accounted for as a
business combination in terms of IFRS 3:
Business Combinations and IFRS 2 will therefore
not apply in respect thereof.
Using the same assumptions as in 4.2 above and
assuming IFRS2 was in effect in 2005, the
financial effects applying IFRS 2 in respect of
the proposed BEE transaction and AoA
transaction are as follows:
Per Primedia (6,7,8)
share After
(4,5,8) the AoA
After transact
(2,3) the ion and
After proposed Proposed
(1) the AoA Change BEE tran- Change BEE tran- Change
Before tran- saction saction
saction
(cents) (cents) % (cents) % (cents) %
EARNINGS 97.0 99.5 2.6% 44.8 (53.8%) 48.9 (49.6%)
Headline 95.0 97.8 2.9% 43.1 (54.6%) 47.3 (50.2%)
earnings
Diluted 94.0 97.2 3.4% 43.8 (53.4%) 47.8 (49.1%)
earnings
NAV 183.6 215.5 17.4% 175.5 (4.4%) 206.5 12.5%
TNAV (22.2) 0.7 103.2% (23.1) (4.1%) (1.1) 95.0%
Weighted 223 032 228 994 231 032 236 994
issued number
of shares
(`000)
It should be noted that these financial effects have
been based on the 2005 results for illustrative
purposes only and represent a once off reduction in
reported headline earnings per share under IFRS of
48 cents per Primedia share based on the weighted
average number of shares in issue in 2005. As the
proposed BEE transaction will take effect only in
the 2006 financial year, the 2006 interim and final
headline earnings per share will accordingly be
approximately 48 cents per Primedia share lower than
normalised headline earnings per share would have
been. The distribution to shareholders in 2006 will
be based on the normalised earnings for that year
excluding the IFRS adjustment relating to the
proposed BEE transaction. In 2007 and subsequent
financial years, there will be no headline earnings
per share effect in relation thereto and Primedia
would anticipate growth in 2006/7 based on
normalised headline earnings per share for the prior
year (excluding the IFRS2 adjustment relating to the
proposed BEE transaction).
5. CONDITION PRECEDENT
The proposed BEE transaction is conditional on the
approval, by the requisite majority of Primedia
shareholders, of all the resolutions necessary to
implement the proposed BEE transaction and ancillary
matters.
6. OPINIONS AND RECOMMENDATIONS
The Primedia 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 Primedia"s key
stakeholders, including employees and shareholders
and, accordingly, recommend that Primedia
shareholders vote in favour of the resolutions
required to implement the proposed BEE transaction.
The specific issue is regarded as a related party
transaction in terms of the JSE Listings
Requirements and, as a result, an opinion from an
independent expert as to the fairness and
reasonableness of the specific issue is required in
terms of the JSE Listing Requirements. Deloitte &
Touche Corporate Finance, the independent expert,
has considered the terms of the specific issue and
is of the opinion that it is fair and reasonable and
has advised the company accordingly.
The directors of Primedia, who directly or
indirectly beneficially own Primedia shares intend
to vote in favour of the resolutions to implement
the proposed BEE transaction in respect of their
shareholdings.
7. PUBLICATION OF CIRCULAR
A circular containing full details of the proposed
BEE transaction and incorporating a notice of
general meeting has been prepared and will be posted
to Primedia shareholders on Thursday, 3 November
2005. Notice is hereby given that the general
meeting of Primedia shareholders to consider and, if
deemed fit, approve the resolutions necessary to
implement the proposed BEE transaction will be held
at 09:00 on Friday, 18 November 2005 at the
registered office of Primedia, First Floor, Primedia
Place, 5 Gwen Lane (Corner Fredman Drive), Sandown,
Sandton.
8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Primedia shareholders are referred to the cautionary
announcements dated 17 August 2005 and 9 September
2005, and are advised that the negotiations referred
to therein have been completed. Caution is therefore
no longer required to be exercised by Primedia
shareholders when dealing in their Primedia
securities.
Sandton
1 November 2005
Investment bank to Independent Corporate law
Primedia expert adviser to
Primedia
Investec Corporate Deloitte and Edward Nathan
Finance Touche Corporate
Finance
Sponsor to Primedia Legal adviser to Reporting
MIC accountants
Investec Bank MJ King Inc. Deloitte and
Limited Touche
Date: 01/11/2005 04:39:23 PM Produced by the JSE SENS Department
