| Tue 12 Sep 2006, 16:00 | | Wilson Bayly Holmes - The Introduction Of Addition |
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WBO
WBO
Wilson Bayly Holmes - The Introduction Of Additional Black Economic
Empowerment Shareholding
Wilson Bayly Holmes - Ovcon Limited
(Incorporated in the Republic of South Africa)
(Registration number 1982/011014/06)
Share code: WBO ISIN: ZAE000009932
("WBHO" or "the company")
THE INTRODUCTION OF ADDITIONAL BLACK ECONOMIC EMPOWERMENT ("BEE") SHAREHOLDING
IN WBHO
1. INTRODUCTION
Investec Corporate Finance is authorised to announce on behalf of the board of
directors of WBHO ("the board") that the company has concluded agreements ("BEE
agreements") for the facilitation of black equity ownership into WBHO in terms
of which a group of black people as defined in the Broad-Based Black Economic
Empowerment Act, No. 53 of 2003, as amended ("black people"), including a
significant proportion of WBHO"s permanent employees ("the BEE Consortium"),
will acquire a shareholding in WBHO ("the proposed BEE transaction").
It is envisaged that the BEE Consortium will be introduced via a new company to
be renamed Akani Investment Holdings (Proprietary) Limited ("Akani") ("we are
building" in Shangaan). WBHO will, subject to the fulfilment of the conditions
precedent set out in paragraph 9 below ("the conditions precedent"), issue 9 989
000 new WBHO ordinary shares (15% of the issued share capital of WBHO) ("the
subscription shares") to Akani at a subscription price of one cent per share.
The subscription shares will rank pari passu in all respects with the existing
issued ordinary shares of WBHO.
2. RATIONALE FOR THE PROPOSED BEE TRANSACTION
WBHO supports the South African Government"s BEE initiatives and in doing so is
actively involved in the transformation of the construction industry.
WBHO recognises the importance of BEE as a key driver of sustainable economic
growth and positive transformation in South Africa.
As part of WBHO"s BEE ownership strategy, the board has sought partners that
will assist it in, inter alia, enhancing its growth prospects and will make a
positive contribution to WBHO in terms of its transformation initiatives,
relationships with the public and private sector and in developing business
opportunities.
Further it is WBHO"s intention to embrace Broad-Based BEE as the foundation of
its BEE ownership strategy, including the upliftment of the employees of the
WBHO group. Accordingly, a significant portion of the equity available under the
proposed BEE transaction has been set aside for existing and future employees of
the WBHO group.
3. PRINCIPLES OF THE BEE TRANSACTION
In structuring the proposed BEE transaction, WBHO developed a set of key
objectives aimed at sustainable, broad-based empowerment to ensure that:-
- the BEE Consortium includes a broad base of black people;
- economic benefits and voting rights are transferred to the BEE Consortium
from the inception of the proposed BEE transaction, thereby ensuring that the
ownership requirements of the Codes of Good Practice on Broad-Based BEE
published by the Department of Trade and Industry ("DTI Codes") and the
Construction Industry Charter are met. In particular the strategic black
partners participating in the proposed BEE transaction ("the black partners")
receive cash flows (one third of all distributions received) for the term of the
proposed BEE transaction;
- the black partners or their approved successors remain shareholders of WBHO
for at least ten years;
- the proposed BEE transaction is sustainable and value enhancing for the BEE
Consortium; and
- the proposed BEE transaction is transparent with an acceptable upfront
economic cost to existing shareholders and no undue dilution of their
shareholding - the overall cost of the transaction equates to approximately 1.8%
of WBHO"s market capitalisation based on the WBHO trading price at 29 August
2006, which compares favourably with precedent transactions concluded in the
South African construction industry.
4. INFORMATION RELATING TO AKANI
Akani is a special purpose vehicle whose sole purpose will be to acquire and
hold shares in WBHO, pursuant to WBHO"s BEE objectives.
The rights and benefits attaching to the WBHO shares held by Akani will be
exercised by, and transferred to, the Akani shareholders on the basis that one
Akani ordinary share ("linked Akani share") is linked to one WBHO share.
Akani will have the following obligations with regard to the WBHO shares held by
it:
- to distribute to its shareholders by way of dividend or otherwise the net
proceeds of any dividends or other distributions received by it on the WBHO
shares to the holders of the linked Akani shares;
- to pass on to its shareholders any documents pertaining to WBHO shares
received by it; and
- to exercise all rights in respect of the WBHO shares in accordance with the
terms contained in the BEE agreements and on the instructions of its
shareholders.
Akani will hold a 15% shareholding in WBHO on the date upon which WBHO issues
shares to Akani, Akani by that time having issued the same number of shares to
its own shareholders ("the issue date"). The shares in Akani and the WBHO shares
held by Akani carry full voting rights and rights to participate in any
distributions on those shares.
5. THE BEE CONSORTIUM
5.1 The BEE Consortium consists of the following members:
Broad-Based Employee Share Incentive Trust ("the Employee Trust")
In acknowledgement of the vitally important role played in the past and to be
played in the future by the employees of the WBHO group, it has been proposed
that a large portion of the shareholding which forms the basis of the proposed
BEE transaction be allocated for the benefit of the group"s existing and future
employees. This shareholding allocation is to be facilitated via the Broad-Based
Employee Share Incentive Scheme ("the Broad- Based Employee Scheme") as
described in paragraph 6.2.
The Broad Based Employee Scheme will operate for the benefit of all employees
who:
- are full time employees of the WBHO group;
- are between 25 and 55 years of age;
- have at least five years service with WBHO;
- are South African citizens; and
- have never participated in another share incentive scheme of the WBHO
group.
Employee participation in the Broad Based Employee Scheme will be allocated
based on a weighting factor depending on number of years service and level of
seniority of employees. There are currently approximately 1 660 employees who
will participate in the Broad Based Employee Scheme of which approximately 96%
are black people.
All unallocated shares held by the Employee Trust will be held for the benefit
of WBHO employees who do not qualify for participation in the Broad Based
Employee Scheme or any other existing WBHO share incentive scheme ("non-
qualifying employees"), future participants and welfare projects.
The trustees of the Employee Trust will exercise or apply all rights attaching
to, and all dividends and distributions derived from the unallocated shares, for
the benefit of non-qualifying employees, or for projects which are for the
benefit of permanent employees of the WBHO group, or their families or
communities. In this regard those employees that would have qualified for
participation in the Broad Based Employee Scheme save for the fact that they are
older than 55 years of age have been identified as potential recipients of this
benefit for the first five years from the issue date.
The Employee Trust is obliged to ensure that at least 90% of the income derived
from the unallocated shares is distributed, or applied for the benefit of,
employees who are black people.
5.2 Black partners
Three black partners have been identified to be included in the proposed BEE
transaction initially, namely:
- Mr James Ngobeni;
- Ms Nonhlanhla Mjoli-Mncube; and
- Ms Savannah Maziya.
The black partners have previous experience in the construction and mining
industries. Specifically, James and Nonhlanhla were involved in the development
of the Construction Sector Charter and Nonhlanhla and Savannah hold seats on the
Construction Industry Development Board. Abridged curriculum vitae of the black
partners identified above are set out below.
JM Ngobeni (BA honours degree in geography (University of the North), masters
degree in city and regional planning (University of Cape Town), certificate in
urban development and housing finances (Harvard)).
James is currently the managing director of Matingi and Associates, a town
planning, transport planning, project and construction management company and
holds positions on the boards of a number of business and professional bodies,
including, inter alia:
- Chairman and board member of South African Rail Commuter Corporation;
- Deputy chairman of MAMOET Southern Africa (Pty) Ltd;
- Chairman of the South African Council for Planners;
- Director of Rand Airport (Germiston); and
- Co-chairperson of the Construction Sector Charter.
N Mjoli-Mncube (BA degree (University of Fort Hare) masters degree in city and
regional planning (University of Cape Town), certificate in finance (Wharton
School of Business).
Nonhhlanha has also completed modules in management at the Washington State
University, USA and the special programme in urban studies from the
Massachusetts Institute of Technology, USA, the executive leadership programme
at Harvard University and obtained a post-graduate certificate in technology
management from Warwick University.
Nonhlanhla is presently the economic adviser to the deputy president, focusing
on ASGISA. Previously, she ran her own companies, Mjoli Development Company
(Pty) Ltd and Eziko Investments for the past 3 years. Nonhlanha currently holds
positions on the boards of a number of professional bodies, including, inter
alia:
- Chair of the Rural Housing Loan Fund and NURCHA;
- Deputy chair of the Construction Industry Development Board;
President of South African Women"s Entrepreneurial Network (SAWEN); and
- Board member of Capitec Bank Holdings Limited, Pioneer Foods, Cadiz
Holdings and Lafarge Cement (Pty) Limited.
Nonhlanha has been the winner of several prestigious awards, including Business
Woman of the Year (SABC), Finance Woman of the Year (Department of Housing) and
being selected to form part of the Top 10 Black Leaders, selected by the Black
Management Forum.
S Maziya (B.Com (Honours) degree in Finance and Broadcast Communication
(Bridgewater State University in Boston), MBA in Strategy and Finance (De
Montfort University in Leicester, UK).
After holding the position of national sales and investment manager (USA) for
Cacharel, a French top-end clothing chain, Savannah joined Gencor, where she was
involved in the investment and marketing arenas. Subsequently, Savannah was
elected president and board member of SPOP, an investment, strategy and
marketing company, where she was employed for 5 years. Before her current
position of group CEO of Bunengi Holdings, a company with mining and
infrastructure divisions Savannah occupied the position of CEO of African
Broadcast Network (the largest TV network in Africa with over 120 million
viewers), for 2 years.
Savannah is currently on the boards of the Construction Industry Development
Board, SRX Uranium One and Aflease Gold.
5.3 Akani shareholding structure
The shareholders of Akani on the issue date will be as follows:
Shareholder Number of shares Percentage
Employee Trust 4 500 000 45.05
Black partners 2 000 000 20.02
Granted on issue date 1 200 000 12.01
Set aside for future issues to 800 000 8.01
black partners (1)
WBHO (1) 3 489 000 34.93
9 989 000 100.0
(1) WBHO will hold shares in the capital of Akani and will be entitled to
transfer these shares (which will be linked to the WBHO shares held by Akani) to
black people identified by WBHO from time to time. WBHO intends transferring at
least 800,000 Akani shares to new black partners or existing black partners
within a period of three years from the issue date.
6. TERMS AND MECHANICS OF THE PROPOSED BEE TRANSACTION
The proposed BEE transaction will be implemented as detailed below:
6.1 Black partners
6.1.1 Each of the initial black partners (namely James, Nonhlanha and
Savannah) will subscribe for 400 000 linked Akani shares at a subscription price
of one cent per share. Akani will apply the subscription price to subscribe for
an equal number of WBHO shares at their par value. Each Akani share carries the
same value and voting rights as one WBHO share.
6.1.2 WBHO will be entitled to transfer the Akani shares it holds (which
will be linked to the WBHO shares held by Akani) to black people identified by
WBHO from time to time. WBHO intends transferring at least 800 000 of these
Akani shares ("the dedicated Akani shares") to new black partners or existing
black partners within a period of three years from the issue date.
If within a period of three years from the issue date WBHO has not sold at least
800 000 of the dedicated Akani shares to new black partner(s), then WBHO will
sell to the existing black partners so many of the 800 000 dedicated Akani
shares remaining. Any such sale of Akani shares to the existing black partners
will be in such proportions as WBHO in its sole discretion shall decide.
The dedicated Akani shares to be sold to either the existing or new black
partners will be sold at the par value of the Akani shares and will be subject
to the repurchase formula as set out in paragraph 6.1.3 below, provided that the
repurchase formula will only be applied from the date of purchase of the
dedicated Akani shares.
Collectively, the Akani shares issued to the black partners on the issue date
and the dedicated Akani shares equate to a 20% shareholding in Akani and an
effective 3% shareholding in WBHO.
6.1.3 At the end of the ten year lock-up period ("the lock-up period") or if
an event of default occurs ("the repurchase date"), WBHO will repurchase from
Akani (with Akani immediately thereafter repurchasing an equal number of Akani
shares from the relevant black partner/s) (`the share repurchase") so many of
the WBHO shares, at their par value of one cent per share, as is equal in value
to the final accumulated internal funding balance. The details of the repurchase
formula to be used to determine the number of shares to be repurchased by WBHO
are set out below:
A = ((B + D)/C) * E
- A = number of WBHO shares to be repurchased. To the extent that A is a
fraction, it will be rounded to the nearest whole number;
- B = notional initial amount being the 15 trading day volume weighted
average price of a WBHO share for the period preceding the issue date;
- C = market value of a WBHO share on the date of repurchase;
- D = an amount determined by applying a hurdle rate, a nominal annual
growth rate of 8.33% compounded annually ("hurdle rate") to the notional initial
amount less the subscription price paid for the share for the period from the
issue date until the date of repurchase; and
- E = original number of WBHO shares subscribed for by the black partner in
question,
provided that where the repurchase occurs as a result of an event of default in
relation to a black partner, the number of shares repurchased shall be equal to
the total number of shares held by such black partner on the date of repurchase.
6.1.4 Each black partner is obliged to utilise the proceeds of all cash
distributions (and the proceeds of any distributions in specie converted to
cash) received by such black partner by virtue of such black partner"s indirect
holding of WBHO shares, during the lock-up period, as set out below:
- two thirds must be applied to subscribe for additional Akani shares with
Akani applying the proceeds to acquire additional WBHO shares on the open market
("the re-investment obligation"). The subscription price for each Akani share
will be an amount equal to the price at which Akani acquires a WBHO share on the
open market, plus any costs associated with doing so, and the obligation to pay
the subscription price will be set off against the obligation of Akani to make
payment of the distribution; and
- one third may be retained by the black partners.
Any shares acquired by the black partners in terms of the re-investment
obligation will also be subject to the lock-up, and two thirds of distributions
received on such shares will also be subject to the re-investment obligation.
The share repurchase will be limited to the shares originally subscribed for by
the black partners with shares acquired in terms of the re-investment obligation
not being subject to the share repurchase.
6.1.5 The black partners may not encumber or dispose of their directly held
interest in Akani or indirectly held interest in WBHO or any additional shares
acquired in terms of the re-investment obligation for the duration of the lock-
up period.
Notwithstanding the above, after the expiry of a period of five years from the
date upon which a black partner subscribes for or acquires Akani shares, the
black partner may sell a maximum of 20% of those shares per annum, from that
date forward, provided that the buyer of those shares shall be a black person as
approved by WBHO. Any shares forming part of the said 20% will be subject to the
repurchase formula as set out in paragraph 6.1.3.
6.2 The Broad-Based Employee Scheme
6.2.1 The Employee Trust will subscribe for 4 499 900 Akani shares at their
par value, which, together with the 100 Akani shares (issued on incorporation)
held by it, equates to a 45.1% shareholding in Akani and an effective 6.8%
shareholding in WBHO. Akani will in turn subscribe for an equal number of WBHO
shares at their par value which shall be allotted and issued by WBHO upon
receipt of payment.
6.2.2 Allocations will be granted to employees meeting the qualification
criteria set out by the board, detailed in paragraph 5.1. On the issue date it
is anticipated that allocations in respect of 1 400 000 WBHO shares and linked
Akani shares will be granted to approximately 1 660 employees.
Of the 4 500 000 Akani shares to be issued to the Employee Trust, approximately
3 100 000 will initially remain unallocated. All future allocations will only be
granted to employees who are black people.
6.2.3 The Employee Trust will be funded on substantially the same terms as
is applicable to the black partners, save that:
- the re-investment obligation of the Employee Trust applies to 100% of all
cash distributions (and the proceeds of any distributions in specie converted to
cash) received by the Employee Trust;
- the term of the lock-up period is for five years only; and
- the hurdle rate of 8.33% compounded annually may be adjusted from time to
time by the board of directors of WBHO.
6.2.4 Each allocation will entitle the participant, at the expiry of the
five year allocation period, to either, at the election of the board, receive
such number of WBHO shares as may be purchased by the Employee Trust using the
proceeds from the sale by Akani of those WBHO shares linked to the Akani shares
which are the subject of the allocation (after application of the repurchase
formula) including the shares purchased in terms of the re-investment obligation
in respect of that allocation, less the costs, taxes and levies payable by
Akani in connection with realising the linked WBHO shares ("the net proceeds"),
or an amount in cash equal to the net proceeds.
6.2.5 At the end of the allocation period, or such longer period as WBHO may
determine, WBHO will repurchase from Akani (with Akani repurchasing an equal
number of Akani shares from the Employee Trust) so many of the WBHO shares, at
their par value of one cent each, based on the repurchase formula.
6.2.6 A participant"s right to an allocation will lapse if the participant
leaves the employ of WBHO, unless the participant:
- retires;
- is lawfully retrenched; or
- is unable to continue in his/her employment due to injury, disability or
death.
Should a participant leave the employ of WBHO on the occurrence of one of the
events above, they (or their executor) will receive the net proceeds as soon as
practically possible after the date they cease to be an employee.
7. NOMINATIONS TO THE WBHO BOARD
It is proposed that following the implementation of the proposed BEE
transaction, all three of the initial black partners will be recommended for
appointment to the WBHO board of directors.
8. FINANCIAL EFFECTS
8.1 Economic cost to WBHO shareholders
WBHO has estimated the economic cost of the proposed BEE transaction to WBHO
shareholders utilising recognised financial risk pricing and valuation
methodologies to be approximately R58,6 million based on the WBHO share price as
at the last practicable date, being 29 August 2006, of R58.50, which equates to
approximately 1.8% of WBHO"s market capitalisation.
Of the R58,6 million estimated economic cost approximately R32,2 million relates
to the WBHO shares to be held by the Employee Trust, which cost will continue
into the future and be amortised over the five year vesting period of the Broad-
Based Employee Scheme.
8.2 Pro forma financial effects
The unaudited pro forma financial effects for which the WBHO board is
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 latest published reviewed financial
results for the year ended 30 June 2006:
Per WBHO share Before the After the proposed Change
proposed BEE BEE transaction (%)
transaction (cents)
(cents)
EPS
Basic EPS (cents) (1) 356.2 298.2 (16.3)
HEPS (cents) (1) 351.7 293.7 (16.5)
Fully diluted EPS
Basic EPS (cents) (1) 356.2 298.2 (16.3)
HEPS (cents) (1) 351.7 293.7 (16.5)
Net asset value per 1 266 1 266 -
share (cents) (2)
Net tangible asset value 1 129 1 129 -
per share (cents) (2)
Number of shares in 55 490 500 65 479 500 18.0
issue
Weighted average number 55 490 500 65 479 500 18.0
of shares in issue (3)
It should be noted that these financial effects have been based on the reviewed
financial results for the year ended 30 June 2006 and represent a cost in terms
of International Financial Reporting Standards 2: Share-based Payment ("IFRS 2")
of R32,2 million (58 cents per share, based on the weighted average number of
shares in issue as at 30 June 2006) which will reduce earnings for that period.
Of the R32,2 million cost, approximately R25,6 million relates to an upfront
cost arising on the issue of shares to the black partners and approximately R6,6
million (12 cents per share) will continue into the future and will be amortised
over the 5 year vesting period of the Broad-Based Employee Scheme.
Notes:
1. The "Before the proposed BEE transaction" column reflects the earnings and
headline earnings per WBHO share, as per the reviewed Group income statement of
WBHO for the year ended 30 June 2006. The "After the proposed BEE transaction"
column reflects the earnings and headline earnings adjusted for the financial
effects of the proposed BEE transaction based on the assumption that the
proposed BEE transaction was implemented with effect from 1 July 2005.
2. The "Before the proposed BEE transaction" column reflects the net tangible
asset value and net asset value per WBHO share at 30 June 2006. The "After the
proposed BEE transaction" column reflects the net tangible asset value and net
asset value per WBHO share adjusted for the financial effects of the proposed
BEE transaction based on the assumption that the proposed BEE transaction was
implemented on 30 June 2006.
3. The weighted average number of shares in issue (55 490 500 shares) used in
order to calculate EPS, HEPS, net asset value per share and net tangible asset
value per share remains the same following the implementation of the proposed
BEE transaction as the shares issued to Akani are treated as treasury shares for
accounting purposes.
4. The income statement has been adjusted to take into account the IFRS 2 cost
of the proposed BEE transaction amounting to approximately R32,2 million.
9. CONDITIONS PRECEDENT
The proposed BEE transaction is conditional on the fulfilment of the following
conditions precedent, by no later than 31 October 2006:
- the approval and where necessary registration of the resolutions of the
shareholders of WBHO approving:
- the specific issue of shares by the requisite majority of WBHO
shareholders; and
- the repurchase of shares in terms of the share repurchase by the requisite
majority of WBHO shareholders.
10. OPINIONS AND RECOMMENDATIONS
The directors of WBHO have considered the terms and conditions of the proposed
BEE transaction and are of the opinion that the proposed BEE transaction is in
the best interests of all of WBHO"s key stakeholders, including customers,
suppliers, staff, debt funders and shareholders and, accordingly, recommend that
the WBHO shareholders vote in favour of the resolutions required to implement
the proposed BEE transaction.
The directors of WBHO who directly or indirectly beneficially own WBHO shares
intend to vote in favour of the resolutions to implement the proposed BEE
transaction.
11. NOTICE OF GENERAL MEETING
A general meeting of WBHO shareholders will be held at 09:00 at 53 Andries
Street, Wynberg, Sandton, on Wednesday, 11 October 2006 in order to consider
and, if deemed fit, pass, with or without modification, the resolutions required
to authorise the specific issue of shares for cash and the specific repurchase
of shares in terms of the share repurchase required in order to give effect to
the proposed BEE transaction, as set out in the notice of general meeting
attached to and forming part of the circular to WBHO shareholders to be posted
to shareholders on or about 14 September 2006.
12. FURTHER DOCUMENTATION
A circular containing full details of the proposed BEE transaction (which
contains the notice of general meeting) will be posted to WBHO shareholders on
or about 14 September 2006.
Sandton
12 September 2006
Investment Bank to WBHO Sponsor to WBHO
Investec Corporate Finance Investec Bank Limited
Reporting accountant and auditors Attorneys to WBHO
BDO Spencer Steward Cliffe Dekker
Attorneys to the black partners
Read Hope Phillips
Date: 12/09/2006 04:00:31 PM Produced by the JSE SENS Department
