| Wed 7 Mar 2007, 12:19 | | ADR - Adcorp - Financial effects of BBBEE transact |
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ADR
ADR
ADR - Adcorp - Financial effects of BBBEE transaction and withdrawal 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")
Financial effects of Broad Based Black Economic Empowerment transaction and
withdrawal of cautionary announcement
1. INTRODUCTION
Adcorp shareholders are referred to the previous announcement released on SENS
on 1 March 2007 and published in the press on 2 March 2007, regarding the
introduction of new Broad Based Black Economic Empowerment ("BBBEE") partners
into Adcorp ("the proposed BEE transaction"). The Adcorp board have identified
Women Investments Portfolio Holdings Limited ("WIPHOLD") and Simeka Group (Pty)
Limited ("Simeka") to be its strategic Black Economic Empowerment ("BEE")
partners and a share incentive trust will be established for the benefit of the
employees of Adcorp. The trust will be formed for the benefit of approximately
1500 employees of which the majority by number and allocation are black (more
than 60%).
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.
The financial effects of the proposed BEE transaction were not published on 1
March 2007. This was due to the Adcorp board believing that the financial
effects of the proposed BBBEE transaction would be more accurately illustrated
to Adcorp shareholders, using the results for the twelve months ended 31
December 2006 as a reference. These results were released on SENS today, 7 March
2007 and the financial effects of the proposed BEE transaction are illustrated
in paragraph 2 below.
2. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED BEE TRANSACTION
Cost to Adcorp shareholders
The cost of the proposed BEE transaction to Adcorp shareholders is a dilution of
approximately 5% of Adcorp`s market capitalisation, which compares favourably
with other recent BEE transactions.
The unaudited pro forma financial effects of the proposed BEE transaction
The unaudited pro forma financial effects for which the Adcorp board are
responsible, are presented for illustrative purposes only and, because of its
nature, may not give a fair reflection of the financial position, changes in
equity and results of operations or cash flows 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 Adcorp for
the twelve months ended 31 December 2006:
Per Adcorp share (1) (2,3,4,5) Change
Before After the %
(cents) proposed BEE
transaction
(cents)
EARNINGS 251.8 126.6 (49,7)
Headline earnings 236.5 111.0 (53,1)
Net asset value 716.4 703.2 (1,8)
Tangible net asset 518.7 505.6 (2,5)
value
Number of shares in 43,382 43,382
issue (`000)
Weighted issued number 42,882 42,882
of shares (`000)
Notes:
1. Extracted from the reviewed published financial results of Adcorp for the
twelve months ended 31 December 2006.
2. For purposes of calculating the earnings per share and headline earnings
per share it was assumed that the proposed BEE transaction was effective on
1 January 2006. The number of "A" ordinary shares issued as part of the BEE
deal was based on the number of shares in issue on the 31 December 2006.
3. The economic substance for accounting purposes is the granting of a call
option on Adcorp. On initial recognition, the derivative liability needs to
be measured at fair value using an option pricing model. The option has
been valued at approximately R74.3 million. The resultant expense through
the income statement is R47.6 million. This represents the once off option
expense relating to the third party BEE partners and the amortisation over
ten years of the employee portion.
4. For purposes of calculating the net asset value per share and tangible net
asset value per share it was assumed that the proposed BEE transaction was
effective on 31 December 2006.
5. Transaction costs relating to the proposed BEE transaction have been
included.
6. Adcorp is not able to ascertain the extent of ultimate dilution in 10 years
time and therefore has not updated diluted earnings or diluted headline
earnings per share for the potential "A" share dilution.
The pro-forma financial effects are based on the valuation of the option using
data as of 31 December 2006. On implementation of the proposed deal, both the
increased share capital of Adcorp in 2007 as well as current market data at that
point in time can and will have a material impact on the valuation of the
option, the total option cost and the resulting amortisation of this option cost
under IFRS2 "Share based payments".
Shareholders are further advised that the IFRS2 Share based payments cost of the
option (being the reason for the reduction in the earnings and headline earnings
per share) are non cash flow expenses. As such, these costs will have no impact
on Adcorp`s ability to continue making existing dividend distributions out of
cash generated by operations.
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 17 126 349
(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; and
iii. the registration of the special resolutions referred to in 1 and 2 by the
Registrar of Companies.
4. OPINION AND RECOMMENDATIONS
The directors of Adcorp 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 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 BEE transaction.
5. 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.
6. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are advised that as a result of the publication of the financial
effects of the proposed BEE transaction, caution is no longer required to be
exercised by shareholders when dealing in their securities.
Bryanston
7 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 Logo
Ernst & Young Corporate
Finance
Independent Expert
Transaction advisers to Attorneys to WIPHOLD
WIPHOLD
Wipcapital Edward Nathan
Date: 07/03/2007 12:19:55 Produced by the JSE SENS Department.
