| Thu 1 Mar 2007, 11:02 | | ADR - Adcorp Holdings Limited - Introduction Of Ne |
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ADR
ADR
ADR - Adcorp Holdings Limited - Introduction Of New Broad Based Black Economic
Empowerment Announcement And Renewal Of Cautionary Announcement
ADCORP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1974/001804/06)
Share code: ADR & ISIN: ZAE000000139
("Adcorp" or "the company")
Introduction of new Broad Based Black Economic Empowerment ("BBBEE") partners
into Adcorp and Renewal of Cautionary Announcement
1. INTRODUCTION
Investec Corporate Finance ("Investec") is authorised to announce on behalf of
the board of Directors of Adcorp ("the Adcorp board") that the company has
conditionally entered into a new Broad Based Black Empowerment ("BBBEE")
transaction that will result in a meaningful percentage of Adcorp being
owned by previously disadvantaged individuals ("the proposed BEE
transaction").
Adcorp previously had two empowerment shareholding structures at operational
level in its Adcorp Communication Solutions (Pty) Limited ("ACS")
subsidiary and in its Adcorp Flexible Staffing Solutions (Pty) Limited
("AFSS") subsidiary. The operations of ACS were disposed of in March 2006
whilst the 25% empowerment shareholding in AFSS previously owned by a
consortium comprising the Black Management Forum Investment Company
Limited, Zungu Investments Company (Pty) Limited and Vunani Capital
Holdings (Pty) Limited was re-acquired by Adcorp in January 2007 for an
amount of R 22,8 million. As such, the direct empowerment shareholding in
AFSS is no longer in existence and the Group has now effectively
consolidated its empowerment ownership into the new proposed structure at
holding company level.
As part of its commitment to BEE, Adcorp is proposing, subject to shareholder
approval, to facilitate the acquisition of a 25%+1 vote direct ownership
interest in the total issued share capital of Adcorp by the BEE parties.
The total value of the proposed BEE transaction, based on the market
capitalisation of Adcorp on the close of business on the last practicable
date, being Tuesday 27 February 2007 is approximately R512 million.
In terms of the proposed BEE transaction, Adcorp will issue a total of 17.127
million unlisted "A" ordinary shares to the BEE parties at par value of 2.5
cents per share in order to facilitate the proposed BEE transaction. It is
intended that the proposed BEE transaction will be implemented through the
creation of the following structures:
* Incentive Co, a company, the entire share capital of which will be held by
the trustees of a share incentive trust established for the benefit of the
employees of Adcorp, which will hold 6.851 million unlisted "A" ordinary
shares issued to it in terms of the specific issue;
* BEE Co 1 , a Black Owned Company, the share capital of which will be held
by Women Investment Portfolio Holdings Limited ("WIPHOLD"), which will hold
5.994 million unlisted "A" ordinary shares issued to it in terms of the
specific issue; and
* BEE Co 2 , a Black Owned Company, the share capital of which will be held
by Simeka Group (Pty) Limited ("Simeka" or "Simeka Group"), which will
hold 4.282 million unlisted "A" ordinary shares issued to it in terms of
the specific issue;
In total, previously disadvantaged individuals will be entitled to participate
in approximately 25%+1 vote of Adcorp`s total issued share capital
subsequent to the implementation of the proposed BEE transaction.
2. RATIONALE
Adcorp recognises the importance of positive transformation as a key element
of the future prosperity of, not only the country, but also the company.
Adcorp therefore supports the South African government`s BEE initiatives
and the requirements in terms of the BEE Codes and has therefore committed
to a transaction that will result in a meaningful percentage of Adcorp
being owned by previously disadvantaged individuals. In terms of BEE
ownership of the company, it is Adcorp`s intention to embrace broad-based
BEE as the foundation of its BEE ownership strategy including the
upliftment of previously disadvantaged people.
Adcorp recognises that transformation will be a key underpin of the future
growth of its business and believes that the proposed BEE transaction is
another step towards its goal of continuing to be a truly South African
company.
3. THE BEE SHAREHOLDERS
The Adcorp board has identified WIPHOLD and Simeka to be its strategic BEE
partners and have agreed with them that they will each hold 100% of the
share capital in BEE Co 1 and BEE Co 2 respectively. BEE Co 1 and BEE Co 2
will, in turn, hold a total of 10.276 million unlisted "A" ordinary shares
issued to it in terms of the specific issue.
The entire share capital of Incentive Co will be held by the Trustees of a
share incentive trust established for the benefit of the employees of
Adcorp, which will, in turn, hold 6.851 million unlisted "A" ordinary
shares issued to it in terms of the specific issue.
The employee share trust will be formed for the benefit of all Adcorp
employees (approximately 1500 employees) of which the majority by number
and allocation are black (more than 60%).
The proposed transaction structure will be as follows:
Please see details in press announcement
I WIPHOLD
WIPHOLD is a company driven by a dedication to the empowerment of women and
black women in particular. It was borne out of the knowledge that South
African women, while the largest contributors to the economy, both as
providers of labour and consumers, have historically been the most
disadvantaged. The knowledge that financial independence represents a
powerful tool for helping women redirect their lives is what motivated the
formation of WIPHOLD, still drives it today, and is manifested through the
company`s ongoing drive to galvanise women into a company that makes
investments of benefit to women in key sectors of the economy.
Four successful women executives founded WIPHOLD 13 years ago as an
organisation dedicated to women`s empowerment. With 1 200 direct
beneficiaries and 18 000 indirect beneficiaries through the WIPHOLD
Investment Trust, 10 non-governmental organisations ("NGO") predominantly
representing in excess of 200 000 women in all nine provinces, through the
WIPHOLD NGO Trust, WIPHOLD is one of the most genuinely broad-based black
empowerment companies in South Africa. It is a majority black owned
company, with in excess of 50% of its shareholding owned by or for the
benefit of black people. 60% of WIPHOLD is owned by women. All
shareholdings are direct and unencumbered. To date, the WIPHOLD Investment
Trust has distributed in excess of R51 million to its beneficiaries.
The directors of WIPHOLD include two of the original founding members, Louisa
Mojela, CEO of WIPHOLD and Gloria Tomatoe Serobe, CEO of Wipcapital (Pty)
Limited.
II SIMEKA
Since the inception of Simeka, the company has grown impressively to establish
itself in the South African business services sector.
After 10 years of sustained growth in a demanding environment Simeka
transformed from a heritage of consulting on a national scale to a truly
African solutions company. Simeka now has investments in employee benefits
operations through Simeka Consultants and Actuaries, communications through
Graphicor / Simeka TWS, call center operations through Verge Management
Services and information technology through Simeka BSG, now listed on
Alternative Exchange of the JSE Limited. Simeka Group has also expanded
its horizons into other areas in the South African economy including
property through a partnership with Sanlam Properties and has invested in
financial services through a 25% interest in Fintech.
Muthanyi Robinson Ramaite is the chairman and majority shareholder of the
Simeka Group who, along with Cecil Maswanganyi, Barrett Manson Jerling,
Tshilidzi Ratshitanga and Michael Anthony Luiz make up the Board of
Directors of Simeka Group. Included in Simeka Group`s shareholding is an
Education Trust and a Staff Trust for the benefit of employees.
Simeka has had a long association with Adcorp that dates back to 1996 and
looks forward to the inevitable future growth that this transaction will
bring from the inherent synergies that already exist between the
organisations.
IIIThe ESOP
The ESOP Trust is a trust formed for the benefit of the employees of Adcorp.
The trust will, at all times, be majority owned by Black employees.
Allocation of units will be weighted according to seniority and according
to service and the allocation is designed to attract and retain exceptional
candidates into the group. Net economic interest in the trust will flow
directly into the hands of employees.
Adcorp will be entitled to appoint 2 trustees and the Adcorp employees 3
trustees to the ESOP Trust. It is intended that the quorum for trustee
meetings will require a majority of the employee appointed trustees to be
present.
4. SALIENT TERMS OF THE PROPOSED BEE TRANSACTION
4.1 Acquisition and funding of 25%+1 vote of Adcorp
In terms of the proposed BEE transaction, Adcorp will issue 25%+1 vote of
total issued shares as "A" ordinary shares to 3 separate BEE companies
("IncentiveCo", "BEECo 1" and "BEECo 2") at par (2.5 cents per share). The
difference between the market value and the par value of shares is deemed
to be a notional threshold amount ("NTA") used as a hurdle to determine the
net BEE equity value. The market value of the shares will be determined
based on the 90-day volume weighted average price of Adcorp up to Tuesday
27, February 2007, being the last practicable date before finalising the
proposed BEE transaction. The NTA will annually increase by 500 basis
points more than the Consumer Price Index (excluding mortgages) ("CPIX")
("the NTA notional rate").
The "A" shares carry voting rights equivalent to the voting rights attached to
ordinary shares. An amount equal to dividends will decrease the NTA but BEE
Co. 1, BEE Co. 2 and Incentive Co. are entitled to receive a portion of the
dividends declared in cash if certain earnings growth targets for the
headline earnings per Adcorp share ("HEPS") are met ("trickle dividend").
The trickle dividends will be calculated using the Trickle Dividend Formula
as described below
At the end of 10 years from transaction date ("the Trigger Date") the
limitation on the rights of the holders of A Shares to participate in
dividends declared by Adcorp, shall lapse, and the A Shares shall
thereafter rank pari passu in all respects with all other shares in the
issued ordinary share capital of Adcorp.
Adcorp shall, subject to compliance with sections 85 to 90 of the Companies
Act, buy back such number of the A Shares (at par value) as exceeds the
number of A Shares calculated in accordance with the formula shown in
paragraph 4.3 below.
4.2 Nomination to the Adcorp board
WIPHOLD will be entitled to nominate 2 directors for appointment to the Adcorp
board and Simeka will be entitled to nominate 1 director for appointment to
the Adcorp board.
4.3 Terms and conditions of unlisted "A" ordinary shares
The following terms shall apply to the unlisted A ordinary shares of 2,5 cents
each ("the A Shares") in the share capital of Adcorp:
* The A Shares shall rank pari passu in all respects with the Ordinary
Shares, save to the extent that the rights set out below will be deferred
until the Trigger Date;
* Until the Trigger Date, the A Shares shall confer on the holder thereof a
limited participation in the profits of Adcorp, which it shall determine to
distribute by way of the trickle dividend from time to time calculated in
accordance with the following formula ("the Trickle Dividend Formula"):
A = ( (D x B) x H ) / a
Where:
A = the annual trickle dividend per "A" share (Rand)
D = the amount of the total dividend declared by the board of directors of
Adcorp in the relevant financial year, expressed in Rand
B = the shareholding represented by the total number of "A" shares in
issue as a percentage of the total issued share capital (limited to
ordinary shares) of Adcorp, expressed as a percentage, it being
recorded that, at the Closing Date, B will be 25%+1 vote
H = the hurdle rate of earnings for dividends on "A" shares, which is
determined with reference to the growth in HEPS (excluding the impact
of the BEE Option Cost as calculated in terms of International
Financial Reporting Standards - Share based payments), expressed as a
percentage (G), for the relevant financial year, as published in the
national press, as follows:
G < 15%: H = 0
15% = G < 20%: H = 20% (0.2 applied in the formula)
G = 20%: H = 25% (0.25 applied in the formula)
a = The number of "A" shares in issue
The registered holders of the A Shares shall be entitled to:
* receive notice of every general meeting of the members of Adcorp; and
* exercise 1 (one) vote in respect of each A Share held, at any such general
meeting.
The terms of the A Shares may not be modified without the approval of the
holders of at least three-quarters of the ordinary Shares.
On the Trigger Date:
* the limitation on the rights of the holders of A Shares to participate in
dividends declared by Adcorp from time to time, shall lapse, and the A
Shares shall thereafter rank pari passu in all respects with all other
shares in the issued ordinary share capital of Adcorp; and
* Adcorp shall, subject to compliance with sections 85 to 90 of the Companies
Act, buy back, at par value of 2,5 cents per share such number of the A
Shares as exceeds the number of A Shares calculated in accordance with the
following formula ("the Conversion Formula"):
O = ( (B x M) - CNTA ) / P
Where:
O = the number A Shares, which are to be retained by BEE Co1, BEE Co 2 and
Incentive Co
B = the shareholding represented by the total number of "A" shares in
issue as a percentage of the total issued share capital of Adcorp,
expressed as a percentage, it being recorded that, at the Closing
Date, B is 25%+1 vote
M = the market value of Adcorp on the day of conversion, determined as
follows:
90-day volume weighted average share price of Adcorp x total number of
ordinary Adcorp shares in issue.
P = 90-day volume weighted average share price of Adcorp preceding the
trigger date;
CNTA = Closing Notional Threshold Amount, which will be calculated in terms of
the NTA adjusted annually for:
* Notional interest which will be charged to the NTA on a compounded basis at
an interest rate equal to the CPIX annual rate of change plus 5%
* An amount equal to dividends will decrease the NTA annually with the
following amount:
Q = (Z-A) x a
Where:
Q = notional annual dividend reduction of NTA
Z = ordinary dividend per ordinary Adcorp share declared and paid to
ordinary Adcorp shareholders
A= annual trickle dividend per "A" ordinary share declared and paid
to "A" ordinary shareholders
a = the number of "A" shares in issue
and NTA is approximately a value of R512 million at the transaction date
5. CONDITIONS PRECEDENT
The proposed BEE transaction is conditional on the fulfilment, inter alia, of
the following conditions precedent:
i. the JSE approving the transaction and documentation to be distributed to
shareholders in respect of the transaction
ii. the shareholders of Adcorp approving:
1. by special resolution, of the amendment of the memorandum and articles
of association of Adcorp to create A Shares in the authorised share
capital of Adcorp;
2. by special resolution, deferral of the rights attaching to 17 127 349
(seventeen million one hundred and twenty seven thousand three hundred
and forty nine) Ordinary Shares in the authorised share capital of
Adcorp to the rights attaching to A Shares;
3. by ordinary resolution, of the transaction contemplated in terms of
paragraph 5.51(g) of the Listings Requirements;
iii. the registration of the special resolutions referred to in 1 and 2 by
the Registrar of Companies.
6. OPINION AND RECOMMENDATIONS
The directors of Adcorp have 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 Adcorp`s key stakeholders,
including customers, suppliers, staff, debt funders and shareholders and,
accordingly, recommend that the Adcorp shareholders vote in favour of the
resolutions required to implement the proposed BEE transaction.
The directors of Adcorp who directly or indirectly beneficially own Adcorp
shares intend to vote in favour of the resolutions to implement the
proposed BEE transaction in respect of their shareholdings.
Ernst & Young Corporate Finance have been appointed by Adcorp to furnish an
independent fair and reasonable opinion on the proposed transaction.
7. PUBLICATION OF CIRCULAR
A circular containing full details of the proposed BEE transaction and
incorporating a notice of general meeting, which is subject to the approval
of the JSE, is being prepared and will be posted to Adcorp shareholders in
due course.
8. RENEWAL OF CAUTIONARY ANNOUNCEMENT
The financial effects of the proposed BBBEE transaction have not been
illustrated to Adcorp shareholders, due to the fact that Adcorp will be
announcing its annual financial results for the twelves months ending 31
December 2006 on 7 March 2007. The Adcorp board believes that the financial
effects of the proposed BBBEE transaction will be more accurately
illustrated to Adcorp shareholders, using the results for the twelve months
ended 31 December 2006 results of Adcorp as a reference. Shareholders of
Adcorp should therefore continue to exercise caution when dealing in their
Adcorp shares, until the financial effects of the proposed BEE transaction
have been illustrated to Adcorp shareholders.
Bryanston
1 March 2007
Investment Bank to Adcorp Transactional sponsor Corporate legal
to Adcorp adviser to Adcorp
Investec Corporate Finance Investec Bank Limited Roodt
Sponsor to Adcorp Reporting accountants
Deloitte & Touche Sponsor Deloitte & Touche
Services
Transaction advisers to Corporate law advisers
WIPHOLD to WIPHOLD
Wipcapital Edward Nathan
Date: 01/03/2007 11:02:00 Produced by the JSE SENS Department.
