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ITE - Italtile Limited - BEE transaction, a sub-division of Share Capital and
the adoption of new Employee Share Incentive Schemes
Italtile Limited
(Registration number 1955/000558/06)
JSE code: ITE & ISIN code: ZAE000003679
("Italtile" or "the group")
ANNOUNCEMENT IN RESPECT OF BLACK ECONOMIC EMPOWERMENT TRANSACTION, A SUB-
DIVISION OF SHARE CAPITAL AND THE ADOPTION OF NEW EMPLOYEE SHARE INCENTIVE
SCHEMES
1. PROPOSED BLACK ECONOMIC EMPOWERMENT TRANSACTION
1.1 INTRODUCTION
As part of the group`s broader black economic empowerment ("BEE")
and employment equity initiatives, Italtile is pleased to announce
that it proposes implementing a transaction that will introduce a
strategic BEE shareholding to Italtile (the "proposed BEE
transaction").
The proposed BEE transaction will ultimately result in approximately
2 000 000 Italtile shares (equivalent to 10.7% of the entire issued
ordinary share capital of Italtile) being owned by the participants
in the proposed BEE transaction.
1.2 THE PARTICIPANTS IN THE PROPOSED BEE TRANSACTION
Italtile`s proposed BEE partners comprise the following groupings -
* Mafumbuka Investment Holdings (Proprietary) Limited
("Mafumbuka")
Mafumbuka is a wholly black owned entity which has a
shareholder profile comprising of a trust, private individuals
as well as the Ingcuce Women Organisation, a broad-based
women`s group involved with HIV/AIDS projects as well as
employment generation for rural women.
The executive of Mafumbuka consists of Siyabonga Gama,
Elizabeth Ntshingila (Non Executive Director), Khulu Andrew
Ntshingila (Executive Director), Nana Queeneth Gama (MD) and
Mpika Manyathi (Executive Director).
Siyabonga Gama currently serves and will continue to serve on
the board of directors of Italtile as a non executive director.
Mr. Gama has extensive experience in international banking and
finance having worked for JP Morgan in the United States in
corporate and structured finance and for the Standard Bank of
South Africa Limited in the areas of retail and commercial
banking. Gama has held leadership positions as Vice President
of the International Association of Ports and Harbours
responsible for the Africa/Europe region, President of the Pan
African Association for Ports Cooperation and Chairman of the
Port Management Association of Eastern and Southern Africa. He
worked for Portnet for a period of 10 years during which time
he rose to the position of Chief Executive. Siyabonga is
credited with the successful transformation and repositioning
of Portnet into the National Ports Authority and South African
Port operations. He is at present the chief executive of
Spoornet, a member of the Transnet Group Executive Committee
and is President of the Union of African Railways.
Khulu Ntshingila has extensive management and executive
experience in the retail, fuels and FMCG sector. He has held
executive positions at Total, both locally and internationally,
and Tiger Brands over the past 18 years. Khulu has joined
Italtile in an executive capacity.
* Aka Capital (Proprietary) Limited ("Aka Capital")
Aka Capital is a black owned and managed private equity and
investment holding company, which was founded in 2001.
The executive of Aka Capital includes the founding principals,
Dr Reuel Khoza (Executive Chairman), Sam Nematswerani (CEO) and
Gary Morolo (Executive Director).
Dr Reuel Khoza is, inter alia, non-executive Chairman of
Nedbank Group Limited, President of the Institute of Directors,
Chairman of the Nepad Business Foundation and was previously
non-executive Chairman of Eskom for eight years. In addition to
board membership of some of Aka Capital`s investee companies,
he is a member of South African State President Thabo Mbeki`s
Economic Advisory Panel, and also a member of The Honorary
International Investor Council of the President of Nigeria.
Sam Nematswerani is a Chartered Accountant and has over ten
years experience in accounting, auditing and merchant banking.
In addition to board membership of some of Aka Capital`s
investee companies, he is a non-executive director of JSE
Limited.
Gary Morolo is Chairman of Datacentrix Holdings Limited, a
listed Aka Capital investee company. In addition to board
membership of some of Aka Capital`s investee companies, Gary is
a former board member of the Financial Services Board, which he
served for about ten years in a non-executive capacity.
Aka Capital has agreed to contribute a total of 10% of the
Italtile shares to be issued to it in terms of the proposed BEE
transaction in favour of a broad-based BEE educational trust
which will cater to the needs of historically disadvantaged
persons.
It is intended that Sam Nematswerani will be appointed to the
board of directors of Italtile with Gary Morolo to be appointed
as his alternate.
* Italtile BEE Trust
In addition, Italtile`s staff will be afforded an opportunity
to participate in the proposed BEE transaction through a newly
established special purpose trust, in which most of the
beneficiaries will come from historically disadvantaged
communities (the "BEE trust").
1.3 PRINCIPLES UNDERLYING THE PROPOSED BEE TRANSACTION
The proposed BEE transaction has been structured to give effect to
the following principles:
* Broad-based BEE as contemplated in the Broad-based Black
Economic Empowerment Act, 2003 (the "BEE Act"), together with
the "Codes of Good Practice" issued by the Minister of Trade
and Industry in terms of the BEE Act; and
* the group`s own transformation goals through the inclusion of
BEE partners who will contribute to the growth of the group and
will enable the group to trade in market segments where it has
previously been inactive.
1.4 TERMS OF THE PROPOSED BEE TRANSACTION
1.4.1 The proposed BEE transaction entails the BEE partners
establishing one or more wholly owned special purpose
companies (the "BEECo`s") and the establishment of the BEE
trust.
1.4.2 Italtile will, subject to shareholder approval, issue 800
000 Italtile shares to Mafumbuka, 600 000 Italtile shares
to Aka Capital and 600 000 Italtile shares to the BEE
trust over a period of time, with the initial number of
Italtile shares to be issued to the BEE trust being 200
000. The Italtile shares to be issued to the BEECo`s and
the BEE trust (the "BEE shares"), as set out above, equate
to 10.7% of the entire issued ordinary share capital of
Italtile, after the issue of the shares in question.
1.4.3 The BEE shares will be issued to the BEECo`s and the BEE
trust for a consideration of R201.00 per share. This
represents a discount of 17% to the volume weighted
average price of Italtile shares over the month of March
2007, being the month during which agreement was reached
between Italtile and the BEE partners on the terms of the
proposed BEE transaction. If one has regard to the volume
weighted average price of Italtile shares over the month
of April 2007 the discount is equal to 25,96%.
1.4.4 The BEE shares will be subject to restrictions on
alienation and encumbrance for 7 years after the issue
thereof to the BEECo`s and for 3 years in the case of the
BEE trust, whereafter Italtile or its nominee will,
subject to shareholder approval, have pre-emptive rights
in their favour in the event of any sale of such shares.
1.4.5 Under the JSE`s Listings Requirements:
1.4.5.1 the proposed issue of the BEE shares by Italtile to
the BEECo`s and the BEE trust constitutes a specific
issue of shares for cash;
1.4.5.2 as a consequence of the participation of Mr Siyabonga
Gama, a director of Italtile, in the proposed BEE
transaction, there will be a specific issue of shares
to a related party; and
1.4.5.3 if Italtile ever exercises its pre-emptive rights to
buy back the BEE shares, any such buy back would be a
specific repurchase of shares.
1.4.6 Accordingly, both the issue of the BEE shares to the
BEECo`s and the BEE trust and the authority to exercise
the pre-emptive rights in favour of Italtile require
approval by way of special resolution to be passed by 75%
of ordinary shareholders of Italtile present or
represented by proxy at a general meeting of shareholders,
excluding any party and its associates participating in
such issue of shares.
1.4.7 In addition, the board of directors of Italtile has
briefed PKF Corporate Finance (Proprietary) Limited to
prepare an opinion as to whether the specific issue of
shares for cash to the related party/ies is fair and
reasonable to shareholders.
1.4.8 The necessary notices and resolutions in regard to the
aforegoing, and a copy of the independent expert`s
opinion, will be included in the circular referred to
below.
1.5 PRO FORMA FINANCIAL EFFECTS
The unaudited pro forma financial effects for which the board of
Italtile is responsible are presented for illustrative purposes only
and may not give a fair reflection of the financial position and
results of operations after 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 Italtile for the six month period ended 31 December 2006
and the financial year ended 30 June 2006 particularly having regard
to the impact of IFRS2 which is referred to below.
Six month period ended 31 December 2006:
Before the After the
proposed BEE proposed BEE
transaction transaction % change
Earnings per share 694 426 (38.6)
and headline earnings
per share(cents)
Notes:
1. The earnings per share ("EPS") and headline earnings per share
("HEPS") "Before the proposed BEE transaction" are based on the
published financial results of Italtile for the 6 month period
ended 31 December 2006. For purposes of the calculations, the
consolidated weighted average number and the actual number of
Italtile shares in issue (net of treasury shares) at 31
December 2006 are both 18,148 million.
2. For purposes of the calculations relating to the EPS and HEPS
"After the proposed BEE transaction", the consolidated weighted
average number and the actual number of Italtile shares in
issue (net of treasury shares) at 31 December 2006 are both
18,148 million.
3. The EPS and HEPS "After the proposed BEE transaction" are based
on the assumption that the BEE transaction was implemented on 1
July 2006 and assume transaction fees and other administration
fees.
4. The effect of the proposed BEE transaction on net asset value
("NAV") and net tangible asset value ("NTAV") per Italtile
share is immaterial and therefore not shown.
Year ended 30 June 2006:
Before the After the
proposed BEE proposed BEE
transaction transaction % change
Earnings per share 1 290 1 019 (21.0)
(cents)
Headline earnings per 1 312 1 041 (20.7)
share (cents)
Notes:
1. The EPS and HEPS "Before the proposed BEE transaction" are
based on the published financial results of Italtile for the
year ended 30 June 2006. For purposes of the calculations, the
consolidated weighted average number and the actual number of
Italtile shares in issue (net of treasury shares) at 30 June
2006 are both 18.095 million.
2. For purposes of the calculations relating to the EPS and HEPS
"After the proposed BEE transaction", the consolidated weighted
average number and the actual number of Italtile shares in
issue (net of treasury shares) at 30 June 2006 are both 18,095
million.
3. The EPS and HEPS "After the proposed BEE transaction" are based
on the assumption that the BEE transaction was implemented on 1
July 2005 and assume transaction fees and other administration
fees.
4. The effect of the proposed BEE transaction on NAV and NTAV per
Italtile share is immaterial and therefore not shown.
Impact of IFRS 2
As required when preparing pro forma financial effects, the above tables
have been prepared on the basis of Italtile`s accounting policies for the
year ended 30 June 2006.
Under IFRS2, Italtile is required to expense, through the income
statement, the difference between the fair value of the shares issued in
terms of the proposed BEE transaction and the proceeds received on the
issue of those shares ("the cost of the BEE transaction"). The fair value
is deemed to be the current share price, adjusted for any restrictions
applicable to the specific shares to be issued, determined on the date of
issue of the shares.
For the purposes of preparation of the pro forma financial effects, the
fair value is R264, being the price at which Italtile`s shares were
traded on the JSE on 2 April 2007. On this assumption, the cost of the
BEE transaction is R48,4 million, which amount will be recognised as a
once-off expense through headline earnings.
This non-recurring expense will have no effect on the group`s cash flows.
1.6 FUNDING OF THE BEECO`S AND THE BEE TRUST
1.6.1 In order to raise the funds necessary to subscribe for the
BEE shares, the BEECo`s will:
1.6.1.1 be capitalised in an amount of R1 million by AKA
Capital out of its own funds;
1.6.1.2 procure loan funding from Absa Bank Limited for an
amount equal to not less than the balance of the
total cash subscription price of the BEE shares (the
"bridging loan").
1.6.2 Immediately upon the issue of the BEE shares to the
BEECo`s, Italtile will subscribe for preference shares in
the BEECo`s (the "BEECo preference shares") upon the
following terms:
1.6.2.1 Italtile will subscribe for a total of 1,400,000
BEECo preference shares for a total subscription
price of R266,400,000;
1.6.2.2 the BEECo preference shares will yield an annual
cumulative dividend equal to 70% of the prime lending
rate from time to time;
1.6.2.3 the BEECo preference shares will be redeemed by no
later than the 10th anniversary of the date upon
which Italtile subscribes for them (the "subscription
date") and may be redeemed by the BEECo`s at any time
after the subscription date and may further be
redeemed at the option of Italtile at any time after
the 8th anniversary of the subscription date.
1.6.3 The BEECo`s shall apply the proceeds from the issue of the
BEECo preference shares to settle the bridging loan.
1.6.4 In order to raise the funds necessary to subscribe for the
BEE shares to be issued and allotted to it, the BEE trust
will be funded by way of a loan from Italtile.
1.7 CONDITIONS PRECEDENT
The implementation of the proposed BEE transaction is subject, inter
alia, to the following conditions precedent:
1.7.1 Section 38(2A) of the Companies Act, 1973 (the "Companies
Act") coming into effect. This section will allow a
company to provide financial assistance for the purchase
of shares issued by it (thereby enabling Italtile to
subscribe for the BEECo preference shares). At the date of
this announcement, although Section 38(2A) has been
enacted, no effective date has yet been declared;
1.7.2 the approval by the requisite majority of Italtile
shareholders of all the resolutions necessary to implement
the proposed BEE transaction, including:
1.7.2.1 a special resolution approving the grant of financial
assistance by Italtile to the BEECo`s by way of the
subscription for the BEECo preference shares;
1.7.2.2 a resolution substituting the current memorandum and
articles of association of Italtile with an entirely
new and updated memorandum and articles of
association that include provisions granting Italtile
or its subsidiaries the authority to acquire shares
issued by Italtile, by way of special resolution, as
contemplated in sections 85 and 89 of the Companies
Act;
1.7.2.3 those resolutions approving the issue of the BEE
shares to the BEECo`s and the specific re-purchase of
the BEE shares from the BEECo`s by Italtile or its
nominee (in the event of an exercise of pre-emptive
rights); and
1.7.2.4 the requisite regulatory approvals.
1.8 OPINIONS AND RECOMMENDATIONS
The board has considered the terms and conditions of the proposed
BEE transaction and is unanimously of the opinion that it is in the
best interests of all of Italtile`s stakeholders. Accordingly, the
board recommends that shareholders vote in favour of the resolutions
required to approve and implement the proposed BEE transaction.
The directors of Italtile who, directly or indirectly, beneficially
own Italtile shares, intend to vote in favour of the resolutions to
implement the proposed BEE transaction in respect of their
shareholdings.
1.9 IRREVOCABLE UNDERTAKINGS
The board has received irrevocable undertakings in excess of 75%
from Italtile`s shareholders, in terms of which such shareholders
have undertaken to vote in favour of the resolutions necessary to
implement the proposed BEE transaction. These irrevocable
undertakings are valid until 15 August 2007.
2. SUB-DIVISION OF SHARE CAPITAL
It is proposed to sub-divide the share capital of Italtile in order to
promote liquidity in the trading of Italtile shares on the JSE. The
proposed sub-division entails that each authorised ordinary Italtile
share (whether issued or unissued) of no par value will be divided into
44 Italtile shares of no par value.
This proposal will be implemented by appropriate variations to the terms
of Italtile`s memorandum of association in the new and updated memorandum
and articles of association to be submitted for shareholder approval as
contemplated in paragraph 1.7.2.2 above.
3. ADOPTION OF NEW EMPLOYEE SHARE INCENTIVE SCHEMES
At the general meeting convened for the purposes of approving the
resolutions necessary to implement the proposed BEE transaction,
shareholders will be asked to approve two new employee share incentive
schemes, to be known as the Italtile Share Appreciation Rights Scheme and
the Italtile Longterm Performance Incentive Plan.
Both schemes will be used to incentivise selected group directors and
employees, including directors and employees of group franchisees.
4. FURTHER DOCUMENTATION AND IMPLEMENTATION
A circular containing full details of the proposed BEE transaction, the
sub-division of the share capital and the adoption of the new employee
share incentive schemes will be posted to Italtile shareholders during
June 2007.
At the time of posting of the circular a salient dates announcement will
appear on SENS and in the press.
It is anticipated that the general meeting will be held during July 2007
and the proposed BEE transaction, the sub-division of the share capital
and the adoption of the new employee share incentive schemes will be
implemented by August 2007.
Bryanston
10 May 2007
Corporate advisor and legal advisor
Rabin and Associates (Proprietary) Limited
Attorneys
Routledge Modise Attorneys
Reporting Accountants
Ernst & Young Incorporated
Independent Expert
PKF Corporate Finance (Proprietary) Limited
Transaction sponsor
Java Capital (Proprietary) Limited
Date: 10/05/2007 14:39:19 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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