| Mon 20 Nov 2006, 15:35 | | Reunert - Introduction of Black Economic Empowerme |
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RLO
RLO
Reunert - Introduction of Black Economic Empowerment partners into Reunert
Reunert Limited
(Incorporated in the Republic of South Africa)
(Registration number 1913/004355/06)
Share code: RLO & ISIN: ZAE000057428
("Reunert")
THE INTRODUCTION OF BLACK ECONOMIC EMPOWERMENT ("BEE") PARTNERS INTO REUNERT
("THE BEE TRANSACTION") AND A PROPOSED SHARE OWNERSHIP SCHEME FOR SOUTHERN
AFRICAN EMPLOYEES OF THE REUNERT GROUP ("THE EMPLOYEE TRANSACTION") ("THE
PROPOSED TRANSACTIONS")
1. INTRODUCTION AND BACKGROUND
Investec Corporate Finance is authorised to announce, on behalf of the
board of directors of Reunert ("the board"), that Reunert has concluded
agreements to facilitate the acquisition by BEE partners of an effective
9.5% indirect shareholding in Reunert, valued at R1,112.4 million. This
is based on a value per Reunert ordinary share of R66.81, being the
volume weighted average price of a Reunert ordinary share for the period
1 August 2006 to 16 August 2006, being the period prior to the
finalisation of the terms of the BEE transaction and prior to the
declaration of the Reunert special dividend on 31 August 2006 ("the
disposal value"), less 10%.
Reunert proposes to introduce the BEE partners through the sale by
Reunert of the entire issued ordinary share capital of its wholly owned
subsidiary, Bargenel Investments Limited ("Bargenel"), to Retona
Investment Holdings (Proprietary) Limited, to be renamed Rebatona
Investment Holdings (Proprietary) Limited ("Rebatona"), a special purpose
vehicle incorporated for purposes of the BEE transaction and whose entire
issued ordinary share capital will be held by the BEE partners.
The BEE partners are:
- the Rebatona Educational Trust, a broad-based BEE trust created by
Reunert for the purposes of benefiting black youth; and
- Cheryl Ann Carolus; Dolly Doreen Mokgatle; Noluthando Dorian Orleyn
and Wendy Elizabeth Lucas-Bull ("the Peotona founding members")
(collectively "the BEE partners").
The issued ordinary share capital of Rebatona will be held by the BEE
partners as follows:
The Rebatona Educational Trust - 70.0%
Cheryl Ann Carolus - 8.7%
Dolly Doreen Mokgatle - 8.4%
Noluthando Dorian Orleyn - 8.4%
Wendy Elizabeth Lucas-Bull - 4.5%.
The implementation of the BEE transaction is subject to the fulfilment of
the conditions precedent set out in paragraph 7 below.
In addition to the BEE transaction, in order to encourage share ownership
by employees of the Reunert Group, Reunert is proposing to issue up to a
maximum of 600 000 new Reunert ordinary shares to the Reunert Staff Share
Trust which will hold those shares for the southern African employees of
the Reunert Group who do not currently participate in another employee
share incentive scheme ("qualifying Reunert employees"). Each of the
qualifying Reunert employees will acquire ownership of 100 of those new
Reunert ordinary shares.
The employee transaction, if implemented, will result in the qualifying
Reunert employees holding an effective 0.3% shareholding in Reunert (on
the assumption that 600 000 new Reunert ordinary shares are allotted and
issued to the Reunert Staff Share Trust), valued at approximately R46.4
million based a Reunert share price of R77.50 per ordinary share as at 15
November 2006.
2. RATIONALE
Reunert considers the BEE transaction at the Reunert level to be an
essential element of its overall BEE strategy. Reunert is firmly
committed to BEE in South Africa and views BEE as a value creating
strategy, designed to create realistic, meaningful and enduring
partnerships. Reunert recognises that broad-based BEE is in the long
term national interest of South Africa.
Reunert is also firmly committed to empowering its employees as well as
the communities and families associated with its employees. The employee
transaction is aimed at encouraging share ownership by the southern
African employees of the Reunert Group, enabling those employees to share
in the success of the Reunert Group.
THE BEE TRANSACTION
3. PRINCIPLES OF THE BEE TRANSACTION
In structuring the BEE transaction, Reunert developed the following set
of key objectives aimed at ensuring sustainable, broad-based BEE:
- the BEE transaction will benefit a broad base of previously
disadvantaged persons;
- full economic benefits and voting rights are transferred from the
inception of the BEE transaction;
- the Peotona founding members will be locked in as indirect Reunert
shareholders (through their indirect shareholding in Bargenel) for
at least 11 years from the effective date of the BEE transaction;
- the Rebatona Educational Trust will not be entitled to encumber or
dispose of any of its shares in Rebatona without Reunert"s prior
written consent; and
- the BEE transaction is transparent with an acceptable upfront
economic cost to existing shareholders and limited dilution to
shareholders - the overall cost of the transaction equates to
approximately 3.1% of Reunert"s market capitalisation as at 15
November 2006, based on the disposal value per Reunert ordinary
share, less 10%.
4. PARTICIPANTS IN THE BEE TRANSACTION
The board took great care in selecting its BEE partners. A number of
key factors were considered by the board, including: the standing of the
Peotona founding members; the ability of the Peotona founding members to
add value for all Reunert shareholders; and the need of the board to
ensure that the benefit of empowerment will be spread for the benefit of
a broad base of previously disadvantaged individuals.
4.1 The Peotona founding members
Cheryl Ann Carolus
Ms Carolus has in-depth knowledge of government policy having
occupied the positions of the African National Congress" overall
policy co-ordinator for South Africa"s first democratic elections in
1994 and Deputy Secretary General of the African National Congress.
Ms Carolus was the South African High Commissioner to London and
chief executive officer of SA Tourism. Furthermore Ms Carolus has a
history of working closely with communities for programmes such as
the Love Life Trust"s HIV/AIDS programme. Her board roles include
Chairman of South African National Parks Board, member of the
International Marketing Council of South Africa, Mpumalanga
Premier"s Advisory Council and Chairman of SoulCity Health
Institute.
Dolly Doreen Mokgatle
Ms Mokgatle is the former chief executive officer of Spoornet and
former managing director of Transmission, a division of Eskom
Holdings Limited. She has a strong human rights and corporate law
background. She is the current chairman of the Electricity
Distribution Industry Holdings Company(EDI), and deputy chairman of
the National Electricity Regulator of South Africa (NERSA).
Noluthando Dorian Orleyn
Ms Orleyn was a director of Routledge Modise Moss Morris. She is the
former national director of the Commission for Conciliation
Mediation and Arbitration (CCMA) and was regional director of the
Legal Resources Centre and National Director of the Independent
Mediation Service of South Africa. Currently she is a mediator and
arbitrator for the CCMA and Tokiso Dispute Settlement, an
adjudicator for the Financial Sector Charter and a member of the
Competition Tribunal. Her board roles include the South African
Reserve Bank and chairman of the Johannesburg Roads Agency.
Wendy Elizabeth Lucas-Bull
Ms Lucas-Bull is the former chief executive officer of FirstRand
Retail (which included First National Bank, Wesbank, Outsurance and
Firstlink). Prior to that she was an executive director of Rand
Merchant Bank and an international partner of Andersen Consulting.
She has extensive experience in the development of public/private
partnerships through her role as the founding chairman of Business
Against Crime and now founding chairman of Partners for Housing. Her
board roles include Eskom, where she chairs the finance committee
and the Development Bank of Southern Africa. She is actively
involved with South African Women in Dialogue and global sustainable
development and poverty elimination groups.
4.2 The Rebatona Educational Trust
The Rebatona Educational Trust is a broad-based BEE trust created by
Reunert to facilitate the empowerment and development of black youth.
The object of the Rebatona Educational Trust is to provide:
* further education and training to black youth in, inter alia, the
subjects of Mathematics, Science, English and Accounting to assist
black youth in entering tertiary education institutions in South
Africa; and
* skills development to black youth with the view of empowering them
to succeed in business.
Reunert will establish a BEE Committee to assist with the selection of
the Rebatona Educational Trust"s beneficiaries and to determine the
extent of their respective benefits ("the BEE Committee"). The BEE
Committee will identify the beneficiaries of the Rebatona Educational
Trust on an annual basis.
5. MECHANICS OF THE BEE TRANSACTION
Bargenel currently holds 19 063 631 Reunert ordinary shares
(approximately 9.8% of Reunert"s ordinary issued share capital). Prior
to implementing the BEE transaction Bargenel will be restructured as
follows:
* Reunert will, in terms of section 85 of the Companies Act 1973 ("the
Companies Act"), repurchase 563 631 Reunert ordinary shares from
Bargenel at the closing market price of a Reunert ordinary share on
the JSE Limited on the trading day prior to the implementation of
the repurchase ("the specific share repurchase"). The Reunert
ordinary shares repurchased will be cancelled and returned to the
status of authorised but unissued share capital;
* Bargenel will issue 1 112 405 `A" redeemable, cumulative preference
shares to Reunert with a par value of R0.01 and a premium of R999.99
per share ("preference shares"), being, in total, an amount equal to
R1 112,4 million based on the disposal value of R66.81 multiplied by
18 500 000, the number of Reunert ordinary shares to be held by
Bargenel following the implementation of the specific share
repurchase, less 10%; and
* existing reserves and intercompany loans within Bargenel will be
transferred to Reunert (by way of a dividend), resulting in Bargenel
holding only the 18 500 000 Reunert ordinary shares with a
corresponding preference share liability, a non distributable
reserve, nominal share capital and a deferred tax liability.
Following the restructuring, Reunert will sell the entire ordinary issued
share capital in Bargenel to Rebatona for a consideration of R100.
The sale of the entire ordinary issued share capital of Bargenel to
Rebatona will give the BEE partners indirect control over Bargenel and as
a result, indirect control over the 18 500 000 Reunert ordinary shares
(approximately 9.5% of Reunert"s ordinary issued share capital) held by
Bargenel.
Bargenel will receive dividend income from its holding of Reunert
ordinary shares which will be used to pay the preference dividends and to
redeem the preference shares.
The Reunert ordinary shares held by Bargenel carry full voting rights and
full rights to participate in dividends.
The relationship of Reunert and Rebatona as preference and ordinary
shareholders of Bargenel, and the protection of the empowerment status of
Rebatona and Bargenel following the implementation of the BEE
transaction, will be regulated in a relationship agreement.
In order to further protect its rights, Reunert will subscribe for a
special preference share in each of Bargenel and Rebatona ("the special
preference share").
6. FACILITATION OF THE BEE TRANSACTION
Based on the disposal value of R66.81 per Reunert ordinary share, the
9.5% indirect shareholding in Reunert, to be acquired by the BEE
partners, is valued at R1,236 million. An upfront discount of 10% on the
disposal value per Reunert ordinary share will be provided, resulting in
the total fundable portion of the BEE transaction amounting to R1,112.4
million.
The funding required for the implementation of the BEE transaction will
be obtained from Reunert on the following basis:
* Reunert will subscribe for the preference shares in Bargenel;
* the term of the preference shares will be 11 years, or such longer
term as Reunert on written notice to Bargenel may allow, provided
that the longest term which Reunert may allow will be 15 years. The
preference shares may however be redeemed earlier on the occurrence
of certain default events as set out in the terms of the preference
shares;
* preference dividends will be declared on each date on which the
right to any dividend or other distribution or payment of any kind
declared or made by Reunert accrues to Bargenel by virtue of its
holding of Reunert ordinary shares and will be paid when such
dividend, declaration or payment becomes due and payable to
Bargenel;
* the preference dividends are calculated from 1 February 2007 on the
initial issue price of the preference shares at the rate equal to
the prime rate multiplied by (1 less the corporate tax rate,
expressed as a decimal), nominal annual compounded monthly; and
* there will be no equity participation by Reunert in Rebatona.
All dividends, distributions and payments received by Bargenel in respect
of the Reunert ordinary shares held by it will be used to pay the
preference dividends and to redeem the preference shares.
The terms of the preference shares contain various conditions of default
and covenants, which are usual for funding of this nature.
7. CONDITIONS PRECEDENT TO THE BEE TRANSACTION
The BEE transaction is subject to the fulfilment or deemed fulfilment, by
30 June 2007 or by such later date as the parties to the relationship
agreement may agree in writing, of, inter alia, the following conditions
precedent:
* the reorganisation of Bargenel"s share capital;
* the adoption of new memorandum and articles of association by each
of Bargenel and Rebatona;
* the allotment and issue by Bargenel to Reunert of the preference
shares and the special preference share;
* the implementation of the specific share repurchase;
* the allotment and issue by Rebatona to Reunert of the special
preference share; and
* that all and any approvals required in terms of the Competition Act
for the implementation of the BEE transaction are duly given or
deemed to be duly given in accordance with the requirements of that
Act.
Certain of the conditions precedent may be waived by Reunert and, if so
waived, will be deemed to have been fulfilled.
8. NOMINATIONS TO THE REUNERT BOARD
Following the implementation of the BEE transaction it is proposed that
Noluthando Dorian Orleyn be recommended for appointment to the Reunert
board of directors.
THE EMPLOYEE TRANSACTION
9. TERMS OF THE EMPLOYEE TRANSACTION
Reunert will issue 100 new Reunert ordinary shares per qualifying Reunert
employee to the Reunert Staff Share Trust. There are approximately 6 000
qualifying Reunert employees of which approximately 67% are black
persons. The ordinary shares issued to the Reunert Staff Share Trust will
be registered in the name of the Reunert Staff Share Trust and be held by
it for the qualifying Reunert employees.
The new Reunert ordinary shares will be issued at their par value in
terms of a specific issue of shares. The subscription price of the
ordinary shares will be borne by the relevant employer company of the
qualifying Reunert employees.
The new Reunert ordinary shares subscribed for by the Reunert Staff Share
Trust will be held by the Reunert Staff Share Trust on behalf of the
qualifying Reunert employees until the expiry of a 5 year holding period,
which period can be reduced in certain non-fault circumstances such as
death or incapacity of a qualifying Reunert employee. The qualifying
Reunert employees will receive full economic and voting rights on the new
Reunert ordinary shares from the issue date.
The qualifying Reunert employees will collectively own 0.3% of the
Reunert ordinary shares in issue subsequent to the implementation of the
employee transaction (on the assumption that 600 000 new Reunert ordinary
shares are allotted and issued to the Reunert Staff Share Trust).
The employee transaction will not be implemented unless the conditions to
which the BEE transaction is subject are fulfilled or deemed to be
fulfilled.
10. PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTIONS
10.1 Economic cost to the Reunert ordinary shareholders
The economic cost of the proposed transactions to Reunert ordinary
shareholders amounts to approximately R471 million. This is based on
the disposal value per Reunert ordinary share of R66.81, taking into
consideration the upfront discount of 10% on that value for purposes
of calculating the cost of the BEE transaction and on the Reunert
share price of R77.50 as at 15 November 2006 for the purposes of
calculating the cost of the employee transaction, which equates to
3.1% of Reunert"s market capitalisation on 15 November 2006.
10.2 Pro forma financial effects of the proposed transactions
The unaudited pro forma financial effects, for which the 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 transactions.
The table below sets out the unaudited pro forma effects of the proposed
transactions based on the published reviewed results for Reunert for the
year ended 30 September 2006. The pro forma financial information is
the responsibility of the directors.
Before the After the Change
proposed proposed
transactions transactions
Per Reunert ordinary (cents) (cents) (%)
share
Earnings per share
("EPS")
Basic EPS 527.0 253.8 (51.8)
Headline EPS ("HEPS") 524.6 251.4 (52.1)
Fully diluted EPS
Basic EPS 522.4 251.6 (51.8)
HEPS 520.0 249.3 (52.1)
Net Asset Value ("NAV") 953 955 0.2
Tangible NAV 761 763 0.3
Number of shares in 195.4 195.4 0.3
issue (in millions of ( 19.1) (18.5)
shares) 176.3 176.90
less: Treasury shares
Net ordinary shares in
issue
Weighted average number 175.1 175.7 0.3
of shares in issue for
EPS(in millions of
shares)
Weighted average number 176.6 177.2 0.3
of shares in issue for
fully diluted EPS (in
millions of shares)
The economic cost of the proposed transactions represents an upfront +/- R438
million cost of the BEE transaction calculated using recognised financial risk
pricing and valuation methodologies, based on the disposal value and the
financing terms of the BEE transaction, and +/- R33 million cost of the shares
issued to employees (based on value of Reunert ordinary shares issued to
employees as at 15 November 2006 less the tax saving associated therewith).
Notes:
1. The EPS, HEPS and NAV per ordinary share "Before the proposed
transactions" are based on the reviewed results for the year ended 30
September 2006.
2. The EPS and HEPS "After the proposed transactions" are based on the
following assumptions:
2.1 the proposed transactions were implemented on 1 October 2005; and
2.2 the weighted average number of ordinary shares in issue of 175.7
million (175.1million weighted average ordinary shares in issue as
per the reviewed results for the year ended 30 September 2006.)
3. The fully diluted EPS and HEPS "After the proposed transactions" are
based on the following assumptions:
3.1 the proposed transactions were implemented on 1 October 2005; and
3.2 the diluted weighted average number of ordinary shares in issue of
177.2 million (176.6 million weighted average ordinary shares in
issue as per the reviewed results for the year ended 30 September
2006.)
4. The NAV per ordinary share "After the proposed transactions" is based on
the following assumptions:
4.1 the proposed transactions were implemented on 30 September 2006; and
4.2 the number of ordinary shares in issue of 176.9 million (176.3
million ordinary shares in issue as per the reviewed results for the
year ended 30 September 2006).
5. Bargenel continues to be consolidated into the Reunert Group.
6. Total transaction costs of +/-R6 million have been taken into
consideration in the calculation of the pro forma financial effects.
11. SHAREHOLDER APPOVALS
The proposed transactions are also subject to the passing of the
resolutions required for the specific share repurchase, the sale of the
entire issued share capital of Bargenel to Rebatona and the specific
issue of Reunert ordinary shares to the Reunert Staff Share Trust ("the
Reunert resolution") by the requisite majority of Reunert shareholders.
12 OPINIONS, RECOMMENDATIONS AND UNDERTAKINGS
The directors have considered the terms and conditions of the proposed
transactions and are of the unanimous opinion that those terms and
conditions are in the best interests of the Reunert ordinary
shareholders. Accordingly, the board of directors of Reunert supports
the proposed transactions and recommends that Reunert shareholders vote
in favour of the Reunert resolutions. The directors who hold Reunert
ordinary shares intend to vote in favour of the Reunert resolutions in
respect of their shareholdings.
13 FURTHER DOCUMENTATION
A circular containing full details of the proposed transactions will be
posted to Reunert shareholders mid December 2006 together with the annual
report for the year ended 30 September 2006 ("the Reunert annual
report"). The resolutions to be proposed at the annual general meeting
for the implementation of the proposed transactions will be contained in
the notice of the annual general meeting included in the Reunert annual
report.
Sandton
20 November 2006
Investment Bank and Sponsor Attorneys
Transactional Sponsor
(Investec Bank Limited) (RMB ) (Bowman Gilfillan )
Reporting Accountants Legal advisors to
the Peotona
founding members
(Deloitte & Touche ) (Cliffe Dekker )
Date: 20/11/2006 03:35:30 PM Produced by the JSE SENS Department
