| Mon 7 Nov 2005, 12:30 | | Sun International - The introduction of a BEE Shar |
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Sun International - The introduction of a BEE Shareholding in Sun International
Sun International Limited
(Incorporated in the Republic of South Africa)
(Registration number 1967/007528/06)
Share code: SUI & ISIN: ZAE000070678
("Sun International" or "the company")
THE INTRODUCTION OF A BLACK ECONOMIC EMPOWERMENT SHAREHOLDING IN SUN
INTERNATIONAL
INTRODUCTION
Investec Corporate Finance ("Investec") is authorised to announce on behalf of
the board of directors of Sun International ("the board") that the company has
conditionally entered into a Broad-based Black Economic Empowerment ("BEE")
transaction that will result in 7% of the issued share capital of Sun
International ("the shares") being owned by a group of historically
disadvantaged individuals ("HDI") (including a significant proportion of Sun
International"s staff and black management through separate trusts) ("the BEE
parties") ("the proposed BEE transaction").
It is envisaged that the BEE parties will be introduced via a company to be
renamed Dinokana Investments (Proprietary) Limited ("Dinokana") which will hold
shares directly into Sun International. Dinokana will, subject to the
fulfilment of the conditions precedent set out in paragraph 6 below ("the
conditions precedent"), acquire a 7% interest for a consideration of
approximately R392 million ("the proposed BEE transaction"), based on the Sun
International"s share price of R77,00 as at 26 October 2005 being the last
practicable date prior to the finalisation of the circular to Sun International
shareholders ("the circular") posted on Monday, 7 November 2005 ("the last
practicable date"). The 7% shareholding is valued at approximately R604 million
as at the last practicable date.
The board has selected Lereko Investments (Pty) Limited ("Lereko") to be the
lead BEE partner. Lereko has a 28,05% shareholding in Dinokana resulting in an
effective 1,96% interest in Sun International.
RATIONALE FOR THE BEE TRANSACTION
BEE has been an integral part of Sun International"s business strategy,
particularly with respect to new casino licensing and bidding processes.
Sun International views BEE as a value creating strategy, designed to create
realistic, meaningful and enduring partnerships. Sun International believes that
BEE will be a key driver of sustainable economic growth and transformation in
South Africa. Sun International has been at the forefront of BEE in the leisure
industry with all new casino operations being owned in partnership with
empowerment groups.
A condition of Sun International"s casino licences in the North West Province
was to facilitate the sale or transfer of not less than 5% of the equity of Sun
International to empowerment entities, including previously disadvantaged
individuals and groupings from the North West Province, by no later than 30 June
2006.
In structuring the proposed BEE transaction, Sun International developed a set
of key objectives ("BEE objectives") to ensure that:-
- the BEE parties include a broad base of HDI and groupings with links from
the North West Province as well as participation by Sun International"s
employees;
- economic interest and voting rights are transferred to the BEE parties
immediately;
- the BEE parties remain shareholders of Sun International for at least nine
years ("lock-up period"), with limited ability to trade their shareholding
in Dinokana;
- the proposed BEE transaction is sustainable and value enhancing for the BEE
Parties; and
- the proposed BEE transaction is transparent with an acceptable upfront
economic cost to existing shareholders.
THE BEE PARTIES
The shares in Dinokana have been allocated to parties with a link to the North
West Province as well as a large portion to Sun International"s current and
future employees and black management.
The individuals and groupings with a link to the North West province include
Lereko, Phodiso Investments (Proprietary) Limited ("Phodiso"), Balapeng
Investment Holdings (Proprietary) Limited ("Balapeng"), Tsutsuma Investments
(Proprietary) Limited ("Tsutsuma") and the North West Community Development
Trust ("the North West Development Trust") (collectively "the North West
Consortium").
The vitally important role played in the past and to be played in the future by
the employees of Sun International and its subsidiaries ("the group") is
recognised by allocating a 43% interest in Dinokana to the Sun International
Employee Share Trust ("the Sun International Employee Share Trust"), which
currently benefits the group"s employees (excluding executives and management)
and a 6% interest in Dinokana to the Sun International Black Management Trust
("the Sun International Black Management Trust"), a new trust to be formed for
the benefit of current and future black management. Approximately 80% of the
beneficiaries of the Sun International Employee Share Trust are HDI.
The shareholding structure of Dinokana will be as follows:
(Please refer to the newspaper publication)
Lereko
Lereko is a 100% black owned empowerment vehicle led by Dr Popo Molefe
(chairman), Mr Valli Moosa and Dr Lulu Gwagwa, all of whom are full time
executives of Lereko. It includes a number of other strategic non-executive
minority shareholders brought in to support and add value to Lereko"s
objectives.
Lereko, leveraging on its proven leadership credentials and North West roots,
will lead the North West Consortium through a majority holding.
North West Development Trust
The North West Development Trust has been established for the benefit of the
communities and entities of the North West Province including local communities
situated around Sun International"s operations in that Province, namely
Carousel, Morula and Sun City. The North West Development Trust will own 15,3%
of Dinokana. The trustees of the North West Development Trust will be nominated
by Lereko and Sun International.
Tsutsuma
Tsutsuma is a broad based BEE group led by Bushy Maape, a prominent North West
Province businessman. Tsutsuma comprises of 80 HDIs featuring black owned
companies, investment vehicles, businesswomen and professionals, all of whom are
from the North West Province. Tsutsuma will acquire a 4.08% shareholding in
Dinokana. Approximately 42% of the shareholders in Tsutsuma are women or women
groupings.
Balapeng
Balapeng is a company owned and managed by experienced black businesswomen,
Connie Mashaba (Managing Director of Black Like Me), Kobote Molefe, Connie
Diphoko and Jeanette Ngwane. Balapeng has a presence in the North West Province.
Balapeng will acquire a 1,02% shareholding in Dinokana.
Phodiso
Phodiso is owned by a broad based grouping of 64 doctors, healthcare
professionals and business leaders operating in Mabopane, areas of the North
West Province and on a national basis as well. Phodiso has a majority stake in
the Legae Private Clinic, as well as a significant interest in the Curamed group
of hospitals. Phodiso will own 2,55% of Dinokana.
The Sun International Employee Share Trust
The group directly employs over 8 000 people who are Sun International"s most
valuable resource. The Sun International Employee Share Trust is for the benefit
of the group"s employees (excluding directors or employees holding executive and
senior management positions), in order to enable eligible employees to
participate indirectly in the benefits of share ownership.
The Sun International Employee Share Trust will hold a 43% shareholding in
Dinokana through which it will acquire an effective 3,01% shareholding in Sun
International.
The trustees of the Sun International Employee Share Trust have approved the
necessary amendments to certain of the terms of the Trust deed in order to
enable the Sun International Employee Share Trust to participate in the proposed
BEE transaction. The necessary resolution for the amendments to the Sun
International Employee Share Trust deed will be put forward, for consideration
and approval by shareholders at the forthcoming annual general meeting of Sun
International shareholders ("the AGM") to be held on Tuesday, 29 November 2005.
Sun International Black Management Trust
As a further commitment to BEE and to assist Sun International in retaining
black managerial staff, to attract new black talent and to contribute towards
the creation of sustainable black leadership, a new trust is being formed for
the benefit of current and future South African black management of the group.
Permanent employees of the group in South Africa, who occupy management grade
levels and are black people, as defined in the Broad Based Black Economic
Empowerment Act, No 53 of 2003, will be eligible to participate in the Sun
International Black Management Trust. The Sun International Black Management
Trust will own 6% of Dinokana
TERMS OF THE PROPOSED BEE TRANSACTION
Mechanics of the proposed BEE transaction
The proposed BEE transaction will be implemented as detailed below:
The BEE parties will acquire all of the issued Dinokana ordinary shares for a
consideration equal to their par value of R1,00 pro rata to their shareholdings
in Dinokana, 3 days after the fulfilment of the conditions precedent ("the
effective date")
Dinokana will raise approximately R392 million, based on the Sun International
share price on the JSE Limited ("the JSE") as at the last practicable date, in
the form of preference share funding ("preference share funding") from Nedbank
Limited ("Nedbank"), on market related terms and conditions.
Using the preference share funding raised, Dinokana will effect:
- the acquisition of 3,58 million shares Sun International shares currently
held by the Public Investment Corporation ("the PIC") (approximately 3.2%
of the total shares in issue following the implementation of the proposed
BEE transaction) at a price of R77,50 each plus interest of 7% per annum
charged by the PIC from 31 October 2005 up to the effective date ("the PIC
acquisition");
- the acquisition of approximately 1,47 million shares (approximately 1,3% of
the total shares in issue following the implementation of the proposed BEE
transaction) which will be sold to Dinokana by the Sun International
Limited Employee Share Purchase Trust (1986) ("the share option trust")
("the share option trust acquisition") for cash at market related values,
resulting in a cash consideration payable of approximately R113 million
based on the Sun International share price as at the last practicable date;
and
- the payment of any costs incurred by Dinokana, such as legal and corporate
advisory expenses and stamp duties payable.
The remaining 2,80 million shares (approximately 2,5% of the total shares in
issue following the implementation of the proposed BEE transaction) to bring
Dinokana"s shareholding in Sun International to 7% will be transferred to
Dinokana out of treasury shares currently held by two wholly owned subsidiaries
of the group ("the Sun International Subsidiaries") for no consideration ("the
treasury share transfer").
To the extent that insufficient shares are sold to Dinokana in terms of the
share option trust acquisition such shares will be sold by the Sun International
Subsidiaries at market value. The treasury share transfer and the share option
trust acquisition will result in an additional 4,27 million shares being in
issue.
In terms of the JSE Listings Requirements, the treasury share transfer is
treated as a specific issue of shares for cash requiring an ordinary resolution
to be passed by 75% of ordinary shareholders present or represented in person or
by proxy in a general meeting. The necessary resolution will be included in the
notice of AGM.
Information relating to Dinokana
Dinokana will be a limited-purpose vehicle whose sole objective is to acquire
and hold Sun International shares for the benefit of its shareholders, the
participants in the proposed BEE transaction.
The Sun International shares to be held by Dinokana carry full voting rights and
full rights to participate in dividends. The dividends received by Dinokana on
the Sun International shares held by it will be used to service the dividends
and capital on the preference share funding.
Dinokana will not be entitled to encumber or dispose of its interest in Sun
International shares until the expiry of the lock-up period.
Nomination to the Sun International board
Following the implementation of the proposed BEE transaction, Dinokana is
entitled to recommend 2 directors, which subject to the formal approval by the
board, will be appointed to the board. Dinokana have proposed Mr Valli Moosa and
Dr Lulu Gwagwa for appointment to the board.
FINANCIAL EFFECTS
Economic cost to Sun International shareholders
The economic cost of the proposed BEE transaction to Sun International
shareholders amounts to approximately R216 million based on the Sun
International share price as at the last practicable date of R77.00, which
equates to 2,5% of Sun International"s market capitalisation after the
implementation of the proposed BEE transaction.
Pro forma financial effects
The unaudited pro forma financial effects for which the Sun International 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 proposed BEE transaction.
The table below sets out the unaudited pro forma financial effects of the
proposed BEE transaction based on the published financial results of Sun
International for the year ended 30 June 2005:
Per Sun Before the After the Change
International share proposed proposed
BEE BEE
transaction transaction
(1)
(cents) (cents) (%)
EPS
Basic EPS (cents) 627 599 (4,5)
(2),
HEPS (cents) (2) 534 514 (3,7)
AHEPS (cents) (4) 416 399 (4,1)
Fully diluted EPS
Basic EPS (cents) 618 591 (4,4)
(3)
HEPS (cents) (3) 527 507 (3,8)
AHEPS (cents) (4) 410 393 (4,1)
(5)
NAV (cents) (6) 2 801 2 792 (0,3)
Number of shares in
issue (`000) 116 393 120 662 3,7
Weighted average
number of shares in
issue (`000) 113 100 117 369 3,8
Weighted average
number of shares in
issue for adjusted 104 510 108 779 4,1
HEPS (`000)
Notes:
(1) The EPS, HEPS, AHEPS and NAV per ordinary share "Before the proposed BEE
transaction" are based on the audited results for the year ended 30 June
2005.
(2) The EPS and HEPS "After the proposed BEE transaction" are based on the
following assumptions:
a. the proposed BEE transaction was implemented on 1 July 2004; and
b. the weighted average number of ordinary shares in issue of 117 368 837
(113 100 000 weighted average ordinary shares in issue as per the
audited results for the year ended 30 June 2005 plus 4 268 837 shares
transferred out of treasury shares and sold out of the share option
trust).
(3) The fully diluted EPS and HEPS "After the proposed BEE transaction" are
based on the following assumptions:
a. the proposed BEE transaction was implemented on 1 July 2004; and
b. the diluted weighted average number of ordinary shares in issue of 118
938 837 (114 670 000 weighted average ordinary shares in issue as per
the audited results for the year ended 30 June 2005 plus 4 268 837
shares transferred out of treasury shares and sold out of the share
option trust).
(4) The AHEPS "After the proposed BEE transaction" are based on the following
assumptions:
a. the proposed BEE transaction was implemented on 1 July 2004; and
b. the weighted average number of ordinary shares in issue of 108 778 837
(104 510 000 weighted average ordinary shares in issue as per the
audited results for the year ended 30 June 2005 plus 4 268 837 shares
transferred out of treasury shares and sold out of the share option
trust).
(5) The fully diluted AHEPS "After the proposed BEE transaction" are based on
the following assumptions:
a. the proposed BEE transaction was implemented on 1 July 2004;
b. the diluted weighted average number of ordinary shares in issue of 110
348 837 (106 080 000 weighted average ordinary shares in issue as per
the audited results for the year ended 30 June 2005 plus 4 268 837
shares transferred out of treasury shares and sold out of the share
option trust).
(6) The NAV per ordinary share "After the proposed BEE transaction" is based on
the following assumptions:
a. the proposed BEE transaction was implemented on 1 July 2004;
b. the number of ordinary shares in issue of 120 662 000 (116 393 000 as
per the audited results for the year ended 30 June 2005 plus 4 268 837
shares transferred out of treasury shares and sold out of the share
option trust); and
c. based on R77.00, being the Sun International share price on the JSE,
on the last practicable date.
(7) In terms of the International Financial Reporting Standards (IFRS 2) -
Share Based Payments, the cost of granting the shares to the Sun
International Employee Share Trust and the Sun International Black
Management Trust of approximately R115 million as at the last practicable
date will be expensed over the next 15 years.
(8) Dinokana is not consolidated into the Sun International group.
(9) The shares sold out of the share option trust will increase the number of
Sun International shares in issue.
CONDITIONS PRECEDENT
The proposed BEE transaction is subject to inter alia, the following conditions
precedent:
- the passing of the resolutions approving the treasury share transfer by the
requisite majority of Sun International shareholders;
- obtaining any other shareholder and regulatory approvals that may be
required; and
- signing of the final preference share funding agreement.
OPINIONS AND RECOMMENDATIONS
The 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 Sun International"s key stakeholders and, accordingly,
recommend that Sun International shareholders vote in favour of the resolutions
required to implement the proposed BEE transaction.
The directors of Sun International, who directly or indirectly beneficially own
Sun International shares, intend to vote in favour of the resolutions to
implement the proposed BEE transaction in respect of their shareholdings.
NOTICE OF ANNUAL GENERAL MEETING
The AGM of shareholders of Sun International will be held in the boardroom at
the registered office of Sun International, 4th Floor, 27 Fredman Drive,
Sandown, Sandton at 09:00 on Tuesday, 29 November 2005 in order to consider and,
if deemed fit, pass, with or without modification, the special and ordinary
resolutions required to give effect to the proposed BEE transaction, the
amendments to the trust deed of the Sun International Employee Share Trust in
order to enable the Sun International Employee Share Trust to participate in the
proposed BEE transaction, as well as other matters generally dealt with at an
AGM including the consideration for the implementation of an odd-lot offer and
consequentially amendments to the articles of association and the adoption of
new share plans (collectively "the proposed transactions").
FURTHER DOCUMENTATION
A circular containing full details of the proposed transactions and forming part
of the annual report for the financial year ended 30 June 2005 (which contains
the notice of annual general meeting) was posted to Sun International
shareholders on Monday, 7 November 2005.
Sandton
7 November 2005
Investment Bank to Sun International
Investec Corporate Finance
Sponsor to Sun International
Investec Bank Limited
Reporting accountant and auditors
PriceWaterHouseCoopers
Corporate Law advisers to Sun International
Edward Nathan
Corporate law adviser to Lereko and BEE Parties
Metier
Date: 07/11/2005 12:30:19 PM Produced by the JSE SENS Department
