An overview of Adcorp s BBBEE Partners is set out below:

Transcription

1 Adcorp Holdings Limited (Incorporated in the Republic of South Africa) (Registration number 1974/001804/06) Share Code: ADR ISIN: ZAE ("Adcorp" or the "Company") THE INTRODUCTION OF A NEW TEN YEAR BROAD-BASED BLACK ECONOMIC EMPOWERMENT ( BBBEE ) TRANSACTION AND THE UNWINDING OF THE 2007 BBBEE TRANSACTION (COLLECTIVELY THE PROPOSED TRANSACTION ) 1. INTRODUCTION Adcorp recognises the importance of positive transformation as a key element of the future prosperity of, not only the country, but also the Adcorp group. BBBEE is a business imperative and a key competitive advantage for Adcorp and as a result of its leadership in this sphere, Adcorp has been recognised, inter alia, as: South Africa s most empowered company in 2008 and 2009 in the Financial Mail's Most Empowered Companies Survey; the most empowered company in the services sector in and 2010 in the Financial Mail's Most Empowered Companies Survey; and South Africa s 3 rd most empowered company in the Mail & Guardian supplement: South Africa s 10 Most Empowered Companies published on 15 March Adcorp implemented its current BBBEE transaction ( 2007 BBBEE Transaction ) in April 2007 prior to the global financial crisis ( GFC ) and the growth assumptions and other variables which were applied have subsequently turned out to be inappropriate for the post GFC environment. As a result, the 2007 BBBEE Transaction is underwater with it being unlikely that any value will accrue to Adcorp s Employee Share Trust or to Adcorp s strategic BBBEE partners ( 2007 BBBEE Partners ) by 2017 which is the end date of the 2007 BBBEE Transaction. In order to maintain Adcorp s excellent BBBEE rating and its status as one of South Africa s most empowered companies, Adcorp is proposing the introduction of a new ten year BBBEE transaction ( Proposed BBBEE Transaction ) and the unwinding of its 2007 BBBEE Transaction. The total value of the Proposed BBBEE Transaction, based on the market capitalisation of Adcorp on the close of business on Friday, 22 March 2013 is approximately R521.5 million with Grant Thornton calculating the total IFRS 2 cost as R93.1 million. In terms of the Proposed Transaction, Adcorp will: unwind the 2007 BBBEE Transaction by repurchasing the 16,822,849 A ordinary shares ( A Shares ) at the original subscription price of 2.5 cents each; issue 16,822,849 unlisted B ordinary shares ( B Shares ) at nominal value to the following BBBEE partners ( BBBEE Partners ) in the following proportions: 1

2 40% to the Adcorp Employee Benefits Trust 2 ( AEBT 2 ) which is a share incentive trust to be established for the benefit of the employees of Adcorp; 35% to WIPHOLD Financial Services Number Two Proprietary Limited ( WIP SPV ), a wholly owned subsidiary of Women Investments Portfolio Holdings Limited ( WIPHOLD ); and 25% to Thornbird Trade and Invest 33 Proprietary Limited ( Simeka SPV ), a wholly owned subsidiary of Simeka Group Proprietary Limited ( Simeka ). 2. ADCORP S BBBEE PARTNERS WIPHOLD and Simeka have already made an important contribution to Adcorp since their introduction as shareholders in 2007 through their participation on the board of directors ( Adcorp Board ), by promoting the business and helping Adcorp identify opportunities to attract new clients. In addition, AEBT 2 will provide Adcorp with an important mechanism to incentivise employees and to reward them based on the performance of the Company. AEBT 2, WIPHOLD and Simeka also offer an important balance between broad-based and strategic black empowerment partners. An overview of Adcorp s BBBEE Partners is set out below: I. AEBT 2 AEBT 2 is a trust to be formed for the benefit of Adcorp employees, with the majority of the trust s vested rights ( Units ) being allocated to beneficiaries who are black employees. Adcorp employees will be allocated Units by the trustees according to seniority and length of service with the intention of attracting and retaining exceptional candidates into the group. The value is vested directly into the hands of employees over the term and at the end of the Proposed BBBEE Transaction. Adcorp will be entitled to appoint 2 trustees and the Adcorp employees will be entitled to appoint 3 trustees of AEBT 2. II. WIPHOLD WIPHOLD is an investment and operating company owned and managed by black women. WIPHOLD was established 19 years ago as a company dedicated to the empowerment of women. WIPHOLD s business is primarily focused on financial services, infrastructure, mining and strategic value investments whose investment portfolio has grown significantly from the initial R500,000 seed capital invested by its pioneering black women founders. WIPHOLD is more than 50% black women owned and has a permanent broad-based shareholding that includes 1,200 direct and 18,000 indirect beneficiaries through the WIPHOLD Investment Trust, and over 200,000 indirect beneficiaries through the WIPHOLD NGO Trust. Over the years, the company has pioneered an innovative business model which integrates development and empowerment into robust business operations. WIP SPV is a wholly owned subsidiary of WIPHOLD and is the entity which will hold WIPHOLD s B Shares. 2

3 III. Simeka Simeka has had a long association with Adcorp that dates back to 1996 and is an active investment holding company which mobilises capital and skills to invest in high growth areas to create winning partnerships with management teams. Simeka has investments in call centre operations through Verge Management Services, business process outsourcing through EuropAssistance and professional services through Gobodo Forensic and Investigative Accounting. Simeka has also expanded 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 Simeka who, along with Cecil Maswanganyi and Glenda White forms the board of directors. Simeka s shareholding includes an Education Trust and a Staff Trust for the benefit of employees. Simeka SPV is a wholly owned subsidiary of Simeka and is the entity which will hold Simeka s B Shares. 3. SALIENT TERMS OF THE PROPOSED TRANSACTION 3.1 The unwinding of Adcorp s 2007 BBBEE Transaction Adcorp s 2007 BBBEE Transaction will be unwound and the 16,822,849 A Shares will be repurchased from the 2007 BBBEE Partners at the original issue price, being 2.5 cents per A Share ( the Repurchase ). 3.2 Implementation of the Proposed BBBEE Transaction Adcorp will issue 16,822,849 B Shares to its BBBEE Partners at 2.5 cents per share. The difference between the volume weighted average share price ( VWAP ) of Adcorp ordinary shares preceding the Trigger date and the subscription price of 2.5 cents is deemed to be a notional threshold amount ( NTA ) used as a hurdle to determine the net BEE equity value at the end of the ten year term of the Proposed BBBEE Transaction. The VWAP will be determined based on the 90-day VWAP of Adcorp ordinary shares up to the last business day before the issue of the B Shares in terms of the Proposed Transaction. The NTA will increase annually by a notional escalation factor of the Consumer Price Index ( CPI ) plus 3% compounded annually; and will decrease annually by an amount equal to dividends declared and paid by Adcorp in respect of the Adcorp ordinary shares generally which would, but for the suspension of the rights associated with the B Shares, have been due to the holders of the B Shares, so as to derive the closing notional threshold amount ( CNTA ). The rights to receive dividends and other distributions in respect of the B Shares are suspended until the end of 10 years or when the CNTA is zero, whichever occurs first ( the Trigger Date ). During the period of the Proposed BBBEE Transaction, the BBBEE Partners will be entitled to receive a portion of the dividends declared in cash if certain earnings growth targets for the normalised earnings per Adcorp ordinary share ( NEPS ) are met ( B Trickle Dividend ). The B Trickle Dividend will be calculated using the formula shown in paragraph 3.5 below. 3

4 At the Trigger Date, the suspension of the rights of the holders of B Shares to participate in dividends and other distributions, shall lapse, and the B Shares will rank pari passu in all respects with the ordinary shares in the issued ordinary share capital of Adcorp. Adcorp shall, subject to compliance with section 46 of the Companies Act 71 of 2008 ( Companies Act ), redeem such number of the B Shares (at the original issue price) as is calculated in accordance with the formula shown in paragraph 3.5 below. The remaining balance of the B shares shall be converted into ordinary shares of Adcorp and (provided Adcorp is still a listed company) listed on the stock exchange operated by the JSE, subject to approval of the listing of the shares by the JSE. 3.3 Voting rights The registered holders of the B Shares shall be entitled to: receive notice of each Adcorp annual general meeting or other general meeting of Adcorp; and vote at any annual general meeting or general meeting, or as contemplated in section 60 of the Companies Act, in person or by proxy, on any matter to be decided by the shareholders of Adcorp and to 1 vote in respect of each B Share held. The B Shares will constitute approximately 15.49% of Adcorp s voting rights following the implementation of the Proposed BBBEE Transaction. 3.4 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. 3.5 Summary of Terms and conditions of the unlisted B Shares The following terms shall apply to the B Shares: The B Shares shall rank pari passu in all respects with the ordinary shares in the issued share capital of Adcorp, save that the rights to participate in dividends or other distributions will be suspended until the Trigger Date; Until the Trigger Date, the B Shares shall entitle the holder to a limited participation in the profits of Adcorp, which are distributed by way of dividends calculated in accordance with the following formula ("the B Trickle Dividend Formula"): A = [(D x B) x H ] / a Where: A = D = B = the B Trickle Dividend per B Share (expressed in Rand); the amount of the total dividends declared by the board of directors of Adcorp in the relevant financial year, expressed in Rand, but excluding, for the avoidance of doubt, any B Trickle Dividend and any consideration for the acquisition by Adcorp of any shares in its issued share capital (as contemplated in section 48 of the Companies Act); the shareholding represented by the total number of B Shares in issue, expressed as a percentage of the total issued share capital (limited to ordinary shares and B Shares) of Adcorp, it being 4

5 recorded that, at the effective date of the Proposed BBBEE Transaction, B is expected to be 15.49%; H = the hurdle rate of earnings for dividends on B Shares, which is determined with reference to the growth in NEPS, expressed as a percentage (G), for the relevant financial year, as published in the national press, as follows: G - CPI 3%: H = 0; 3% < G - CPI < 8%: H = 15%; G - CPI 8%: H = 20% CPI = means the headline consumer price index for all urban areas, with the index base being 100 (one hundred) for December 2012, as published by Statistics South Africa or such other body upon whom responsibility for the determination and publication of the CPI may devolve from time to time in respect of any relevant date or period; a = The number of B Shares in issue; On the Trigger Date: - the suspension on the rights of the holders of B Shares to participate in dividends or other distributions declared by Adcorp from time to time, shall lapse, and the B 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 section 46 of the Companies Act, redeem such number of the B Shares as calculated in accordance with the following formula: O = 16,822,849 - [(B x M) CNTA ] / P Where: O = B = M = the number B Shares, which are to be redeemed by Adcorp rounded down to the nearest whole number; the shareholding represented by the total number of B Shares in issue expressed as a percentage of the total issued share capital of Adcorp (limited to ordinary shares and B Shares), it being recorded that, at the effective date of the Proposed BBBEE Transaction, B is expected to be 15.49%; the market value of Adcorp on the Trigger Date, being the 90-day volume weighted average share price of Adcorp multiplied by the total number of ordinary shares in issue; CNTA = the Notional Threshold Amount ( NTA ) as at the Trigger Date, which is equal to the difference between the 90-day VWAP of Adcorp ordinary shares preceding the Trigger Date and the cash amount paid by the BBBEE Partners on subscription for the B Shares adjusted annually (at each financial year end of Adcorp) as follows: 5

6 - The NTA is escalated by a notional escalation factor equal to CPI plus 3%, compounded annually; - The NTA will be reduced annually by an amount equal to any amount declared and/or paid by Adcorp in respect of the ordinary shares generally which would, but for the suspension of the rights associated with the B Shares, have been due to the holders of the B Shares, in accordance with the following formula: Q = (Div - Z) x a Where: Q = Div = Z = a = the amount by which NTA is reduced annually; an amount equal to any amount declared and/or paid by Adcorp annually in respect of the ordinary shares generally (expressed in Rand) which would, but for the suspension of the rights associated with the B Shares as set out in these terms, have been due to the holders of the B Shares; any B Trickle Dividend declared and paid annually to holders of B Shares (expressed in Rand); the number of B Shares in issue; P = the 90-day volume weighted average share price of Adcorp preceding the Trigger Date. The terms of the B Shares may not be modified without the approval of the holders of at least three-quarters of the B Shares in terms of a special resolution. 4. CONDITIONS PRECEDENT The Proposed Transaction is conditional on the fulfilment, inter alia, of the following conditions precedent: the signature by Adcorp and its 2007 BBBEE Partners and its BBBEE Partners of the relevant transaction agreements in respect of the Proposed Transaction; the approval by the JSE of the Proposed Transaction and the documentation to be distributed to shareholders in respect of the Proposed Transaction in terms of the JSE Listings Requirements; the requisite approval by the Adcorp shareholders of all the necessary special and ordinary resolutions tabled at the general meeting of Adcorp shareholders; and the filing and acceptance (insofar as required) of the special resolutions referred to above by the Companies and Intellectual Property Commission. 5. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED BBBEE TRANSACTION The unaudited pro forma financial effects of the Proposed Transaction on Adcorp shareholders, for which the Adcorp Board is responsible, are provided for illustrative purposes only to provide information about how the Proposed Transaction will affect 6

7 the financial position of the Adcorp shareholders by illustrating the effect thereof on the earnings per share ( EPS ), normalised earnings per share ( NEPS ) and headline earnings per share ( HEPS ) of Adcorp as if the Proposed Transaction had become operative on 1 March 2012 and, for the purpose of net asset value per share ( NAVPS ) and net tangible asset value per share ( NTAVPS ) of Adcorp, as if the Proposed Transaction had become operative on 31 August Because of their nature the unaudited pro forma financial effects may not give a fair presentation of Adcorp s financial position and results of operations after the Proposed Transaction. The unaudited pro forma financial effects have been compiled using accounting policies that comply with IFRS and that are consistent with those applied in the audited consolidated financial statements of Adcorp for the 12 months ended 29 February Before the Proposed Transaction After the Proposed Transaction % Change EPS (cents) % HEPS (cents) % NEPS (cents) % NAVPS (cents) 1,918 1,913 0% NTAVPS (cents) % Weighted average number of shares in issue ( 000) 76,978 76,978 Number of shares in issue ( 000) 78,139 78,139 Notes: 1. The financial information in the "Before the Proposed Transaction" column has been prepared based on Adcorp s published unaudited interim results for the 6 months ended 31 August For purposes of calculating the EPS, NEPS and HEPS it was assumed that the Proposed Transaction was effective on 1 March In terms of IFRS 2, the BBBEE transaction is viewed as 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. Adcorp has applied a Black Scholes model to value the option over 10 years, making certain assumptions namely: (a) The starting price is the 90-day VWAP to Wednesday, 20 March 2013 which isr This may not be the case on final implementation. (b) The dividend payout ratio is assumed to be fixed over the 10 year period, based on current dividend payment levels. In view of the importance of the dividend in the determination of the notional threshold debt balance in year 10, this assumption has a major impact on valuation of the option cost. 4. The IFRS 2 valuation of the B Shares has been determined as R93.1 million. 60% of this is attributable to the option issued to WIPHOLD and Simeka. In terms of IFRS 2, this is seen as a modification, and therefore only the incremental value, being the difference between the IFRS 2 valuation of the A Shares (R8.0m) and the IFRS 2 value of the B Shares is expensed immediately. The balance of the IFRS 2 cost, amounting to R37.2 million relates to the option granted to AEBT 2. As there is a service condition attached, this cost will be amortised over 10 years based on the assumption that the grant date is 1 7

8 March The amortisation expense is the amortisation for the IFRS 2 value of the A Shares over 10 years as well as the incremental amortisation, being the difference between the IFRS 2 valuation of the A Shares and the IFRS 2 value of the B Shares, amortised over 10 years. 5. The resultant share based payment IFRS 2 expense through the income statement is therefore R52.8 million on a pro forma basis for the 6 month period to 31 August 2012, which represents the once off IFRS 2 expense relating to the BBBEE Partners and the amortisation over ten years of the employee service portion. 6. For purposes of calculating the NAVPS and NTAVPS it was assumed that the Proposed Transaction was effective on 31 August Once-off transaction costs of R3.4 million relating to the Proposed Transaction have been included in the determination of these pro forma financial effects. 8. Since the AEBT 2 trust deed is still to be finalised, the employee share trust has been accounted for on the assumption that it will be an equity settled scheme for accounting purposes. 9. No post balance sheet events have occurred. The pro-forma financial effects are based on the valuation of the option using data as at March On implementation of the Proposed Transaction the current market data at that point in time may have an impact on the valuation of the option, the total option cost and the resulting amortisation of this option cost in terms of IFRS 2. Adcorp shareholders are further advised that the IFRS 2 cost of the option (being the reason for the reduction in the EPS, NEPS and HEPS) is a non cash flow expense. As such, these costs will not impact Adcorp s ability to pay future distributions out of cash generated from operations. 6. SALIENT DATES AND TIMES The salient dates and times in respect of the Proposed Transaction are summarised below: Record date to receive circular and notice of general meeting Circular and notice of general meeting posted to shareholders on Last day to trade in Adcorp shares in order to be recorded in Adcorp s securities register to vote at the general meeting is Record date to be entitled to attend, participate in and vote at the general meeting by close of trading on Proxy forms for the general meeting to be received by 10:00 on Friday, 12 April 2013 Wednesday, 17 April 2013 Friday, 3 May 2013 Friday, 10 May 2013 Friday, 17 May 2013 General meeting held at 10:00 on Monday, 20 May 2013 Results of the general meeting released on SENS on Results of the general meeting published in the South African press on Monday, 20 May 2013 Tuesday, 21 May 2013 Expected date on which the A Shares will be Monday, 3 June

9 repurchased and the B Shares issued 7. IRREVOCABLE UNDERTAKINGS Adcorp has received irrevocable undertakings and/or indications of support from certain Adcorp shareholders holding between them 42,459,766 Adcorp ordinary shares, representing in aggregate 46.2% of the total voting rights which can be exercised on the resolutions required to implement the Proposed Transaction. 8. OPINION AND RECOMMENDATIONS The Adcorp Board has considered the terms and conditions of the Proposed Transaction and is of the opinion that Proposed Transaction is in the best interests of all of Adcorp s key stakeholders, including customers, suppliers, staff, debt funders and shareholders and, accordingly, recommends that the Adcorp shareholders vote in favour of the resolutions required to implement the Proposed Transaction. The directors of Adcorp who directly or indirectly beneficially own Adcorp ordinary shares intend to vote in favour of the resolutions to implement the Proposed Transaction in respect of their shareholdings. Grant Thornton has been appointed by Adcorp to prepare an independent fairness opinion and an independent expert s report as required in terms of the JSE Listings Requirements and the Companies Act as a result of the transaction involving related parties as defined in the JSE Listings Requirements and the requirements of sections 48(8) and 114 of the Companies Act in respect of the Repurchase. Details of the opinion and the report will be provided in the circular to be posted to Adcorp shareholders on or about Wednesday, 17 April PUBLICATION OF CIRCULAR A circular containing full details of the Proposed Transaction and incorporating a notice of general meeting is being prepared and will be posted to Adcorp shareholders on or about Wednesday, 17 April Bryanston 25 March 2013 Investment Bank, Corporate Advisor and Transaction Sponsor Investec Corporate Finance Sponsor Deloitte & Touche Sponsor Services (Pty) Ltd Corporate Legal Advisor Webber Wentzel Tax Advisor DLA Cliffe Dekker Hofmeyr Reporting Accountants Deloitte & Touche 9

10 Independent Expert Grant Thornton 10