| Tue 25 Jul 2006, 8:30 | | Comair - Broad-Based Black Economic Empowerment Tr |
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COM
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Comair - Broad-Based Black Economic Empowerment Transaction
Comair Limited
(Incorporated in the Republic of South Africa)
(Registration number 1967/006783/06)
(Share code: COM ISIN: ZAE000029823)
("Comair" or "the Company")
Broad-Based Black Economic Empowerment Transaction
- Black economic empowerment transaction equivalent to approximately
16.1% of Comair"s post transaction issued share capital by a broad-
based black economic empowerment consortium led by Thelo Aviation
Investments, a wholly owned subsidiary of Thelo Group.
- Consortium to subscribe for approximately 15% of post transaction
issued share capital of Comair at par value.
- Thelo Aviation Investments to acquire approximately 1.1% of post
transaction issued share capital from specific shareholders for
cash.
- Approximately 16.1 % direct black ownership with immediate voting
rights.
1. Introduction
Comair is pleased to announce that it has, subject to the
fulfilment of the conditions precedent set out in paragraph 8
below, resolved to enter into a black economic empowerment ("BEE")
transaction pursuant to which shares equivalent to approximately
15% of Comair"s post transaction issued share capital will be
issued to an empowerment consortium led by Thelo Aviation
Investments (Proprietary) Limited ("Thelo Aviation Investments"),
a wholly owned subsidiary of Thelo Group (Proprietary) Limited
("Thelo Group") (the "BEE Transaction").
Pursuant to the BEE Transaction, Thelo Aviation Investments has
agreed to purchase an additional 6 172 550 Comair ordinary shares
("Ordinary Shares") for cash from certain shareholders. This will
result in Thelo Aviation Investments and the empowerment
consortium holding in aggregate approximately 16.1% of Comair"s
issued share capital post the BEE Transaction.
The Board of Directors of Comair ("the Board") is totally
committed to the spirit and principles of broad based BEE and
believes it to be essential for redressing past inequities and for
growth, transformation and normalisation of South African society.
The Board views Comair as an integral part of the South African
political, social and economic community and therefore endorses
initiatives that promote the accumulation of human, intellectual
and economic capital at all levels of society as key to the
success of South Africa, and therefore also to Comair.
2. Information on the empowerment consortium
Thelo Aviation Consortium (Proprietary) Limited ("Thelo
Consortium") is a special purpose company established by a
consortium to acquire shares in Comair. Information on Thelo
Consortium members and their respective shareholdings is provided
below:
Thelo Aviation Investments (Proprietary) Limited (73%)
The majority of the shares in Thelo Consortium are held by Thelo
Aviation Investments, which is a wholly owned subsidiary of Thelo
Group. In addition, subject to the fulfillment of the conditions
precedent below, Thelo Aviation Investments will, pursuant to the
BEE Transaction, purchase 6 172 550 Comair shares for cash from
certain shareholders.
Thelo Group is a black-owned, managed and controlled investment
company led by Ronnie Ntuli. The company was founded by Ronnie
Ntuli and Craig Lyons, who have extensive experience in
structuring and managing BEE transactions and businesses. Their
relationship brings together a successful deal making and value
creation track record which will be carried into its investment in
Comair. Thelo Group is the lead partner in the BEE Transaction.
Lefa Group Holdings (Proprietary) Limited ("Lefa") (13%)
Lefa is a 100% black-owned and controlled investment holding
company led by Khutso Mampeule, who is currently a non-executive
director of Comair and has extensive experience in the aviation
industry. Khutso holds a majority stake in Lefa. Khutso is the
Chief Executive Officer of the South African Post Office and holds
several board positions in listed and unlisted companies.
Golden Dividend 322 (Proprietary) Limited ("Chakaza") (6%)
Chakaza is a woman"s empowerment company founded by four black
professionals with financial and legal backgrounds. The company
is 100% owned by black women. Chakaza"s members share a common
mission to promote, facilitate and implement the economic
empowerment and social upliftment of previously disadvantaged
women and youth.
DEC Investment Holding Company (Proprietary) Limited ("DIHC") (4%)
DIHC is wholly-owned by the Disability Empowerment Concerns Trust,
which was established in 1996 by seven major South African
national Non-Governmental Organisations representing people with
disabilities to engage in business ventures to the benefit of
South Africans with disabilities. At least 85% of the disabled
people represented by DIHC are black and approximately 55% are
women.
White Sail Investments (Proprietary) Limited ("White Sail
Investments") (4%)
White Sail Investments is wholly-owned by The Thabo Mbeki
Education Trust. The Thabo Mbeki Education Trust was established
as a fund that supports financially disadvantaged students in
furthering their education in the fields of technology and
economics through a bursary programme. The Thabo Mbeki Education
Trust also offers scholarships and makes awards to qualifying
candidates.
3. BEE Transaction rationale
Due to the sector"s well established presence and growth
opportunities, Thelo Group has identified the logistics and
transportation sector as strategic. Thelo Group believes that the
aviation industry is well poised to benefit from South Africa"s
and Africa"s growing middle class and the further development of
tourism, and believes that Comair"s reputation and its experienced
management presents a compelling proposition for a partnership
with Thelo Group and its consortium partners.
Thelo Consortium intends to add value to Comair in the following
areas:
- assisting Comair with regulatory issues facing the transport,
logistics and aviation industry;
- creating an improved profile and market position for Comair
through its relationships and profile in both the private and
public sectors on the African continent;
- strengthening Comair"s empowerment credentials; and
- developing an acquisition strategy with management to take
advantage of potential opportunities facing the industry both
in South Africa and internationally.
Comair believes that Thelo Consortium can add value for the
following reasons:
- Thelo Consortium brings industry specific expertise and a
broad-based empowerment component to the BEE initiative;
- Thelo Consortium is well positioned to assist with
empowerment initiatives at all levels of Comair"s business;
and
- Thelo Consortium, and particularly Thelo Group, will commit
time and effort to participating in the strategic initiatives
of Comair.
Thelo Group has shown significant commitment to the BEE
Transaction by agreeing, subject to fulfillment of the conditions
precedent below, to purchase out of its own funds an additional
1.1% of Comair"s issued share capital for cash as an integral part
of the BEE Transaction.
4. Mechanics of the BEE Transaction
Comair has, in designing the BEE Transaction, been guided by the
principles of empowerment, growth and sustainability. The BEE
Transaction will be implemented according to the following steps:
- Comair will increase its authorised share capital through the
creation of 75 000 000 `A" Shares, with a par value of one cent
each (the `A" Shares"). The `A" Shares represent a new class of
shares and are being created specifically for the BEE Transaction.
The `A" Shares will not be entitled to dividends until the hurdle
balance (as represented by B in the formula below) reaches zero or
until after Comair (or any subsidiary) has exercised its right, on
the eighth anniversary of the implementation date (the
"Implementation Date") of the BEE Transaction (the "Final Date"),
to purchase a number of the `A" Shares as determined by the
formula below (the "Call Option"). The `A" Shares will rank pari
passu with the Ordinary Shares in all other respects, including
voting.
- 74 117 647 `A" Shares will be issued to Thelo Consortium at
their par value of one cent each, for a total consideration of
R741 176. Thelo Consortium will fund the par value of R741 176
from its own sources. The difference between the equivalent
market value of 74 117 647 Comair Ordinary Shares (based on the 60
day VWAP up to 16 March 2006) and the par value to be paid by
Thelo Consortium, represents the initial accumulated hurdle
balance defined below.
- The accumulated hurdle balance will be increased annually by
the escalation factor, estimated at 10% initially, and reduced by
the amount of dividends paid by Comair on 74 117 647 Comair
Ordinary Shares from time to time after the Implementation Date.
The escalation factor will reduce should Comair achieve certain
operational targets agreed to between Comair and Thelo Consortium.
- Comair and its subsidiaries will on the Final Date have the
right pursuant to the Call Option to purchase, at their par value,
such number of `A" Shares, that, if converted into Ordinary
Shares, would be equal in value to the accumulated hurdle balance
at that date. This number of `A" Shares will be determined by the
following formula:
A = B x D
C
Where:
A = the number of shares that are the subject matter
of the Call Option;
B = the hurdle balance per share, being R1.85 on the
Implementation Date, which amount will subsequently
be adjusted for the escalation factor and dividends
paid by Comair per Ordinary Share. The escalation
factor will be reduced where Comair achieves
certain operational targets agreed to between
Comair and Thelo Consortium;
C = the VWAP of Comair"s Ordinary Shares for the
sixty trading days prior to the Final Date,
represented as a price per share;
D = the number of `A" Shares outstanding on the Final
Date, prior to the exercise of the Call Option.
- The purchase consideration will be paid by Comair from
available cash resources, subject to the requirements of the
Companies Act (Act 61 of 1973 as amended) and the JSE Limited
("JSE").
- Comair (or any subsidiary nominated by it) will have the
right to purchase all of the `A" Shares at their par value of
one cent each if Thelo Consortium breaches any of the
restrictions contained in a relationship agreement concluded
between Comair, Thelo Consortium and the Thelo Consortium
members.
- After the Final Date the `A" Shares can be converted into
Comair Ordinary Shares at the election of either Comair or
Thelo Consortium on a one-for-one basis.
5. Estimated total economic cost
Comair has calculated the total economic cost (with reference to
the requirements of International Financial Reporting Standards
("IFRS"), specifically IFRS 2 - Share Based Payments) of entering
into the BEE Transaction for the Company and its shareholders to
be approximately R27 million.
6. Financial effects of the BEE Transaction
The principles underlying the accounting treatment are in
compliance with IFRS. IFRS 2 - Share-Based Payments requires the
total charge to be amortised over the period of the BEE
Transaction, being eight years. This amortised charge will
commence in the June 2007 financial year.
The table below sets out the unaudited pro forma financial effects
of the BEE Transaction, based on the assumptions set out below.
The unaudited pro forma financial effects have been prepared for
illustrative purposes only and may not give a fair reflection of
the Company"s financial position, changes in equity, results of
operations or cash flows after completion of the BEE Transaction.
The financial effects based on the interim results for 2006 (being
for the six months ended December 2005) are set out below and are
the responsibility of the directors of the Company. The purpose
of the unaudited pro forma financial information is to illustrate
the effects of the BEE Transaction.
---------------------------------------------------------
For the six months Before the Pro forma Increase/
to December 2005 (1) (2) BEE After the (Decrease)(
Transaction BEE %)
Transaction
---------------------------------------------------------
Basic earnings per 6.70 6.30 -6.0
ordinary share (cents)
---------------------------------------------------------
Headline earnings per 6.70 6.30 -6.0
ordinary share (cents)
---------------------------------------------------------
Fully diluted basic 6.60 6.23 -5.6
earnings per ordinary
share (cents)
---------------------------------------------------------
Fully diluted headline 6.60 6.23 -5.6
earnings per share
(cents)
---------------------------------------------------------
Net asset value per 68.34 67.54 -1.2
ordinary share ("NAV")
(cents)
---------------------------------------------------------
Tangible net asset value 68.34 69.50 1.7
per ordinary share
(cents) (3)
---------------------------------------------------------
Actual number of 420 000 420 000 0.0
Ordinary Shares in issue
(000s)
---------------------------------------------------------
Weighted number of 399 440 399 440 0.0
Ordinary Shares in issue
(000s)
---------------------------------------------------------
Weighted average number 403 610 403 610 0.0
of fully diluted
Ordinary Shares in issue
(000s) (4)
---------------------------------------------------------
Notes:
1. Assuming that the BEE Transaction was implemented on 1 July
2005, the total IFRS 2 charge to be recognised over the
vesting period would be R25 811 199. The pro forma financial
effects have been calculated based on this amount. Based on
information available at 21 July 2006 and assuming that the
BEE Transaction was implemented on that date, the total IFRS
2 charge would be R27 424 399.
2. The following assumptions have been made in the preparation
of the financial effects:
- the earnings and headline earnings per share reflected
in the "Before" column were extracted from published
interim unaudited results for 31 December 2005;
- the NAV and tangible NAV per share reflected in the
"Before" column were extracted from published interim
unaudited results for 31 December 2005;
- the effect on NAV and tangible NAV per share reflected
in the "After" column assumes that the BEE Transaction
was effective 31 December 2005; and
- the effect on earnings and headline earnings per share
reflected in the "After" column assumes that the BEE
Transaction was effected on 1 July 2005 and is after
reflecting half of the IFRS 2 charge for the six months
to December 2005.
3. The tangible NAV excludes intangible assets.
4. The pro forma diluted number of Ordinary Shares in issue does not
increase as a result of the BEE Transaction. This is the result
of the basis of preparation of the pro forma financial information
which assumes information included in the interim unaudited
results for the 6 months ended 31 December 2005. The average
ordinary share price over the aforementioned period did not exceed
the aggregate of the estimated strike price at 31 December 2005
and the remainder of the value of services to be provided in
accordance with IFRS 2 - Share Based Payments and therefore the
options granted in terms of the BEE Transaction do not have a
dilutive effect in accordance with IAS33 Earnings Per Share. The
BEE Transaction may, however, have a dilutive effect in future
periods.
7. General meeting
A general meeting of shareholders will be held on Thursday, 14
September 2006 at 12h00 to pass the necessary resolutions to
implement the BEE Transaction.
8. Conditions precedent
The BEE Transaction is subject, inter alia, to the fulfillment of
the following conditions precedent:
- signature of a sale of shares agreement between Thelo Group
and certain shareholders of Comair in respect of
approximately 1.1% of post transaction issued share capital;
- signature by all members of Thelo Consortium of a
relationship agreement with Comair;
- the approval of the JSE;
- the passing of all necessary resolutions by the requisite
majority of shareholders at a general meeting of Comair; and
- registration of the special resolutions by the Registrar of
Companies.
9. Independent expert"s opinion
PKF Corporate Finance (Proprietary) Limited has been appointed by
the Comair Board to consider the terms of the BEE Transaction and
to provide an opinion as to whether they are fair and reasonable
to shareholders. The opinion from PKF Corporate Finance will be
contained in the circular to shareholders.
10. Documentation
A circular containing the full details of the BEE Transaction,
including a notice of general meeting, will be posted to Comair
shareholders on or about 21 August 2006.
11. Important dates and times
2006
Last day for receipt of proxies in respect 12 September
of the general meeting by 12:00 on
General meeting of shareholders at 12:00 14 September
Results of general meeting published on
SENS on 14 September
Results of general meeting published in
the press on 15 September
Special resolutions lodged with the
Registrar of Companies on or about 15 September
Note:
Any material changes to the above dates and time will be published
on SENS and in the press.
Kempton Park
25 July 2006
Merchant bank and transactional Corporate law advisers
sponsor Edward Nathan (Proprietary) Limited
Rand Merchant Bank
(A division of FirstRand Bank
Limited)
Independent expert Reporting accountants and auditors
PKF Corporate Finance (Proprietary) PKF Chartered Accountants (SA)
Limited
Date: 25/07/2006 08:30:27 AM Produced by the JSE SENS Department
