Wrap Text
Unwind of existing BEE transaction
RCL FOODS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1966/004972/06)
ISIN: ZAE000179438
Share code: RCL
("RCL FOODS" or "the Company")
UNWIND OF EXISTING BEE TRANSACTION
1. INTRODUCTION AND BACKGROUND
1.1. RCL FOODS shareholders ("Shareholders") are referred to the circular distributed to Shareholders on
12 December 2013, inter alia, detailing the terms and conditions of the broad-based black economic
empowerment transaction which was implemented by the Company during or about May 2014 with the
RCL Employee Share Trust ("ESOP Trust") (a trust created by RCL FOODS for the benefit of qualifying
employees), and Business Venture Investments No 1763 (RF) Proprietary Limited ("SPV 2") (a special
purpose vehicle owned by the Ikamva Labantu Empowerment Trust, Imbewu SPV 8 Proprietary Limited
and Business Venture Investments No 1723 Proprietary Limited (collectively, the "Strategic Partners")),
(the "Existing BEE Transaction").
1.2. In terms of the Existing BEE Transaction, (i) 13 962 863 ordinary shares in RCL FOODS ("Shares") were
issued to the ESOP Trust at R17.32 per Share and 5 984 084 Shares were issued to SPV 2 at R17.32 per
Share (collectively, the "Common Shares") and (ii) 30 718 299 Shares were issued to the ESOP Trust at
R0.01 per Share and 13 164 985 Shares were issued to SPV 2 at R0.01 per Share (collectively, the
"Nominal Shares").
1.3. The subscriptions for the Common Shares by the ESOP Trust and SPV 2 were funded through a
preference share structure, in terms of which RCL FOODS subscribed for cumulative, redeemable
preference shares in each of (i) a private company wholly-owned by the ESOP Trust, Business Venture
Investments No 1762 (RF) Proprietary Limited ("SPV 1"), ("SPV 1 Preference Shares") and (ii) SPV 2
("SPV 2 Preference Shares"). The subscriptions for the Nominal Shares by the ESOP Trust and SPV 2
were funded through notional vendor funding provided by RCL FOODS.
1.4. Currently, the ESOP Trust holds 44 681 162 Shares constituting approximately 4.69% of the Shares in
issue and SPV 2 holds 19 149 069 Shares constituting approximately 2.01% of the Shares in issue.
2. RATIONALE FOR AND IMPLEMENTATION OF THE UNWIND OF THE EXISTING BEE TRANSACTION
2.1. Subsequent to the implementation of the Existing BEE Transaction, the Company’s share price has
significantly declined in value, resulting in the Existing BEE Transaction being materially underwater at the
end of its term in May 2022.
2.2. In order to unwind the Existing BEE Transaction in an orderly manner, the board of directors of RCL
FOODS ("Board") has resolved to unwind the Existing BEE Transaction by way of, inter alia, the
repurchase of the Common Shares ("Common Share Repurchase") and the repurchase of the Nominal
Shares ("Nominal Share Repurchase"), in accordance with section 48(8)(b) read with sections 114(1)
and 115, of the Companies Act, No. 71 of 2008 ("Companies Act"), (the "Unwind").
2.3. In order to give effect to the Unwind, RCL FOODS has entered into an agreement with the ESOP Trust,
SPV 1, SPV 2 and the Strategic Partners (collectively, the "Parties"), ("Framework Agreement").
2.4. In the event that the Common Share Repurchase does not become unconditional in accordance with its
terms, the Framework Agreement provides for an alternative mechanism to implement the Unwind in terms
of which the Parties will implement the Nominal Share Repurchase together with an on-market disposal
and/or private placing of the Common Shares, facilitated by a third party agent ("Unwind Alternative").
2.5. The requisite specific repurchase resolutions in terms of paragraph 5.69(b) of the JSE Limited ("JSE")
Listings Requirements to authorise the Nominal Share Repurchase were obtained from Shareholders prior
to implementation of the Existing BEE Transaction ("Nominal Share Repurchase Resolution"). In the
circumstances the, (i) Nominal Share Repurchase will be implemented in accordance with the Relationship
Agreement entered into between the Parties on or about 8 May 2014, as amended from time to time and
the Nominal Share Repurchase Resolution; and (ii) Common Share Repurchase will be implemented in
accordance with the terms of the Framework Agreement, subject to, inter alia, Shareholders approving the
special and ordinary resolutions necessary to authorise the Common Share Repurchase and the Nominal
Share Repurchase (collectively, the "Repurchase").
3. SALIENT TERMS OF THE REPURCHASE
3.1. Subject to the fulfilment or waiver of the conditions precedent to the Common Share Repurchase, the
Repurchase will be effected through the repurchase by RCL FOODS of (i) an aggregate of 19 946 947
Common Shares from the ESOP Trust and SPV 2 at R11.49 per Common Share, representing the volume
weighted average price of a Share traded on the JSE over the 30 business days up to and including
Tuesday 11 October 2022, being the business day prior to that on which the terms of the Framework
Agreement were agreed; and (ii) an aggregate of 43 883 284 Nominal Shares from the ESOP Trust and
SPV 2 at R0.01 per Nominal Share.
3.2. In terms of the Unwind, the Company will purchase from the ESOP Trust and SPV 2 an aggregate of
63 830 231 Shares, representing approximately 6.70% of the Company’s total issued Shares.
3.3. The aggregate repurchase consideration for the Common Shares and the Nominal Shares to be
repurchased pursuant to the Repurchase is R229 629 253.87 ("Repurchase Consideration"). The
aggregate Repurchase Consideration for the Common Shares to be repurchased pursuant to the Common
Share Repurchase is R229 190 421.03. The aggregate Repurchase Consideration for the Nominal Shares
to be repurchased pursuant to the Nominal Share Repurchase is R438 832.84.
4. MECHANICS OF THE UNWIND
It is envisaged that the Unwind will be implemented as follows.
4.1. The Repurchase
4.1.1 RCL FOODS will repurchase the (i) 13 962 863 Common Shares held by the ESOP Trust for
R11.49 per Common Share, representing an aggregate Common Share repurchase price of
R160 433 295.87 ("ESOP Common Share Repurchase Consideration"); and (ii) 5 984 084
Common Shares held by SPV 2 for R11.49 per Common Share, representing an aggregate
Common Share repurchase price of R68 757 125.16 ("SPV 2 Common Share Repurchase
Consideration").
4.1.2 RCL FOODS will repurchase the (i) 30 718 299 Nominal Shares held by the ESOP Trust for
R0.01 per Nominal Share, representing an aggregate Nominal Share repurchase price of
R307 182.99 ("ESOP Nominal Share Repurchase Consideration"); and (ii) 13 164 985
Nominal Shares held by SPV 2 for R0.01 per Nominal Share, representing an aggregate
Nominal Share repurchase price of R131 649.85 ("SPV 2 Nominal Share Repurchase
Consideration").
4.2. Step 2 - Distribution of the ESOP Common Share Repurchase Consideration to the ESOP Trust
The ESOP Trust will distribute the ESOP Nominal Share Repurchase Consideration and ESOP Common
Share Repurchase Consideration (collectively, the "ESOP Repurchase Consideration") to SPV 1 ("ESOP
Distribution").
4.3. Step 3 - Settlement of accrued preference dividends and redemption of preference shares
4.3.1 SPV 1 will utilise the ESOP Repurchase Consideration (net of any securities transfer tax ("STT")
payable in respect of the redemption of the SPV 1 Preference Shares) to (i) firstly declare the
accrued but unpaid dividends in respect of the SPV 1 Preference Shares ("SPV 1 Accrued
Preference Dividends"); and thereafter (ii) redeem all the SPV 1 Preference Shares,
(collectively, the "SPV 1 Pref Share Redemption"). The ESOP Repurchase Consideration, net
of STT, is likely to be less than the aggregate amount of the SPV 1 Accrued Preference Dividends
and the redemption price of the SPV 1 Preference Shares (collectively, the "SPV 1 Preference
Share Outstandings"). RCL FOODS will waive the balance of the SPV 1 Preference Share
Outstandings since there will be no further value in SPV 1 after implementation of the SPV 1
Preference Share Redemption.
4.3.2 SPV 2 will utilise the SPV 2 Nominal Share Repurchase Consideration and the SPV 2 Common
Share Repurchase Consideration, (collectively, the "SPV 2 Repurchase Consideration") (net of
any STT payable in respect of the redemption of the SPV 2 Preference Shares) to (i) firstly declare
the accrued but unpaid dividends in respect of the SPV 2 Preference Shares ("SPV 2 Accrued
Preference Dividends"); and thereafter (ii) redeem all the SPV 2 Preference Shares,
(collectively, the "SPV 2 Pref Share Redemption"). The SPV 2 Repurchase Consideration, net
of STT, is likely to be less than the aggregate amount of the SPV 2 Accrued Preference Dividends
and the redemption price of the SPV 2 Preference Shares (collectively, the "SPV 2 Preference
Share Outstandings"). RCL FOODS will waive the balance of the SPV 2 Preference Share
Outstandings since there will be no further value in SPV 2 after implementation of the SPV 2
Preference Share Redemption.
4.4. Step 4 - Discharge of obligations
4.4.1 The ESOP Repurchase Consideration, the ESOP Distribution and the SPV 1 Pref Share
Redemption will be settled by way of RCL FOODS (i) agreeing to make payment of, on behalf of
the ESOP, the ESOP Distribution to SPV 1; (ii) utilising a portion of the ESOP Distribution to settle
any STT payable in respect of the SPV 1 Pref Share Redemption on behalf of SPV 1; and (iii)
retaining the balance of the ESOP Distribution.
4.4.2 The SPV 2 Repurchase Consideration and the SPV 2 Pref Share Redemption will be settled by
(i) RCL FOODS utilising a portion of the SPV 2 Repurchase Consideration to settle any STT
payable in respect of the SPV 2 Pref Share Redemption on behalf of SPV 2; and (ii) the balance
of the SPV 2 Repurchase Consideration being set-off against the amount payable by SPV 2 to
RCL FOODS pursuant to the SPV 2 Pref Share Redemption.
4.5. Step 5 - Deregistration of SPV 1, SPV 2 and the ESOP Trust
As soon as practicably possible after the implementation of Step 4, SPV 1 and SPV 2 will be voluntarily
wound-up and subsequently dissolved and deregistered and the ESOP Trust will be terminated and
deregistered.
4.6. Full details of the Unwind will be set out in the circular referred to in paragraph 10 below.
5. SMALL RELATED PARTY TRANSACTION
5.1. Gcina Cecil Zondi, a non-executive director of RCL FOODS, is a beneficial shareholder of SPV 2 and also
serves as one of the directors on the board of directors of SPV 2. As such, SPV 2 is an associate of
Mr Zondi and is a related party to RCL FOODS as contemplated in paragraph 10.1(b)(ii) and (vii) of the
JSE Listings Requirements.
5.2. In the circumstances, in terms of paragraph 10.1(a), read with paragraph 10.7, of the JSE Listings
Requirements, the Framework Agreement, in so far as it relates to SPV 2, constitutes a small related party
transaction for the Company. In this regard, Shareholders are advised that the arrangements between the
Company and SPV 2 under the Framework Agreement are substantially the same as those with the ESOP
Trust and they do not confer any specific benefit on SPV 2.
5.3. In accordance with paragraphs 10.1(a) and (b)((ii) and (vii), read with paragraph 10.7, of the JSE Listings
Requirements, the Board has appointed BDO Corporate Finance Proprietary Limited ("BDO") as the
independent expert for the purposes of providing external advice in the form of a fairness opinion regarding
the terms and conditions of the Framework Agreement insofar as they relate to SPV 2 ("Fairness
Opinion"). The Fairness Opinion will be included in the circular referred to in paragraph 10 below.
6. AFFECTED TRANSACTION
6.1. Independent board
6.1.1 Since the Repurchase amounts to a repurchase of more than 5% of the Company's issued Shares
in terms of section 48(8)(b) of the Companies Act, the Repurchase is treated by the Takeover
Regulation Panel ("TRP") as an "affected transaction" and is accordingly subject to the provisions
of Part B of Chapter 5 of the Companies Act and Chapter 5 of the Companies Regulations, 2011
("Regulations"). In compliance with the Regulations, RCL FOODS has constituted an
independent board of directors comprising George Murray Steyn, Cindy Joy Hess and Derrick
Thembinkosi Vusumuzi Msibi, who are each independent, non-executive directors of the
Company ("Independent Board") for purposes of considering the Repurchase and providing
recommendations to Shareholders.
6.1.2 In accordance with sections 114(2) and 114(3) of the Companies Act, read with regulations 90
and 110 of the Regulations, the Independent Board has appointed BDO as the independent
expert for purposes of providing the Independent Board with independent external advice in the
form of a report regarding the Repurchase ("Independent Expert Report"). The Independent
Expert Report and the recommendation of the Independent Board will be set out in the circular
referred to in paragraph 10 below.
6.2. Cash guarantee
The TRP has granted the Company an exemption from the requirement to provide a cash guarantee or a
cash confirmation to the TRP in respect of the SPV 2 Repurchase Consideration in terms of regulation
114(4), read with regulation 101(7)(b)(vi), of the Regulations. In accordance with regulations 111(4) and
111(5) of the Regulations, FirstRand Bank Limited has issued a bank guarantee to the TRP in respect of
the ESOP Repurchase Consideration.
7. CONDITIONS PRECEDENT
7.1. The implementation of the Repurchase is subject to the fulfilment or waiver of the following conditions
precedent:
7.1.1 by no later than 20 January 2023, the TRP has issued a compliance certificate in respect of the
Repurchase in terms of section 121(b) of the Companies Act;
7.1.2 by no later than 31 December 2022, the special and ordinary resolutions required in order to
approve and implement the Repurchase are adopted by the requisite majority of Shareholders,
including the following resolutions:
7.1.2.1. approval of the Common Share Repurchase by way of a special resolution in terms of
paragraph 5.69(b) of the JSE Listings Requirements; and
7.1.2.2. approval of the Repurchase by way of a special resolution in terms of section 48(8)(b), read
with sections 114 and 115, of the Companies Act; being the "Repurchase Resolution";
7.1.3 in the event of the provisions of section 115(2)(c) of the Companies Act becoming applicable in
relation to the Repurchase Resolution:
7.1.3.1. by no later than the 10th business day after the Repurchase Resolution is adopted:
7.1.3.1.1. the High Court of South Africa approving the implementation of the Repurchase
Resolution and no appeal or review is timeously lodged or, if timeously lodged, the
appeal or review is not successful; or
7.1.3.1.2. the provisions of section 115(2)(c) of the Companies Act cease to be applicable; and
7.1.3.2. if applicable, RCL FOODS not treating the Repurchase Resolution as a nullity as
contemplated in section 115(5)(b) of the Companies Act; and
7.1.4 in relation to the Repurchase Resolution, either:
7.1.4.1. no Shareholder gives notice objecting to such Repurchase Resolution, as contemplated in
section 164(3) of the Companies Act, alternatively, Shareholders give notice objecting to
such Repurchase Resolution, as contemplated in section 164(3) of the Companies Act, and
vote against such Repurchase Resolution in respect of 0.5% or less of all of the Shares in
issue; or
7.1.4.2. if Shareholders give notice objecting to such Repurchase Resolution, as contemplated in
section 164(3) of the Companies Act, and vote against such Repurchase Resolution in
respect of more than 0.5% of all of the Shares in issue, then dissenting shareholders have
not exercised appraisal rights in respect of more than 0.5% of all the Shares in issue,
(the "Repurchase Conditions").
7.2. In the event that all of the Repurchase Conditions are not timeously fulfilled or waived by no later than the
relevant date/s for fulfilment or waiver thereof (or such later date/s as may be determined by RCL FOODS),
then the Repurchase will not be implemented. Rather, the Unwind Alternative will be implemented.
7.3. The Repurchase Conditions envisaged in:
paragraphs 7.1.1, 7.1.2 and 7.1.3 are not capable of being waived; and
paragraph 7.1.4 is capable of waiver by RCL FOODS, in whole or in part, upon written notice to
the ESOP Trust and SPV 2, prior to the date for fulfilment of such Repurchase Condition.
7.4. RCL FOODS shall be entitled to, prior to a Repurchase Condition having failed, extend the date for
fulfilment or waiver of such Repurchase Condition from time to time upon written notice to the ESOP Trust,
SPV 2, SPV 1 and the Strategic Partners.
7.5. Full details of the Repurchase Conditions will be set out in the circular referred to in paragraph 10 below.
8. SOURCE OF FUNDS
The Repurchase Consideration will be funded from existing cash resources. In this regard, Shareholders are
advised that there will be no cash outflow pursuant to the Unwind other than pursuant to any STT levied in terms
of the Securities Transfer Tax Act, No. 25 of 2007 and payable by SPV 1 and SPV 2 pursuant to the SPV 1 Pref
Share Redemption and the SPV 2 Pref Share Redemption, respectively.
9. PRO FORMA FINANCIAL INFORMATION
The Existing BEE Transaction was not recognised for accounting purposes and the financial effects on the
earnings, headline earnings, net asset value and/or net tangible asset value of Shares will be limited to the
transaction expenses and are considered to be negligible. The financial position of RCL FOODS is not expected
to change as a result of the Repurchase and, as such, no pro forma financial information is provided.
10. CIRCULAR, GENERAL MEETING AND VOTING
10.1. In terms of paragraph 5.69(b) of the JSE Listings Requirements, Shareholder approval is required to
authorise the Common Share Repurchase. In addition, since the Repurchase will result in the Company
repurchasing in excess of 5% of its Shares in issue, the Repurchase requires Shareholder approval in
terms of section 48(8)(b) as read with sections 114 and 115 of the Companies Act.
10.2. Accordingly, the Company is required to issue a circular to Shareholders providing information regarding
the Common Share Repurchase and the Repurchase ("Circular") incorporating a notice convening a
general meeting of Shareholders for the purposes of considering and, if deemed fit, passing with or without
modification, the special and ordinary resolutions required to approve and implement the Common Share
Repurchase and the Repurchase ("General Meeting"). No Shareholder approval is required to implement
the Unwind Alternative.
10.3. The Circular, providing full details of the Common Share Repurchase and the Repurchase, and
incorporating, inter alia, a notice of the General Meeting, the Fairness Opinion, the Independent Expert
Report and the recommendations of the Board and the Independent Board, will be distributed to
shareholders on or about Monday, 7 November 2022.
10.4. In terms of paragraph 5.69(b) of the JSE Listings Requirements, the ESOP Trust, and its associates, will
be excluded from voting on the special resolution required to authorise the specific repurchase of the ESOP
Common Shares pursuant to the Repurchase.
10.5. In terms of paragraph 5.69(b) of the JSE Listings Requirements, SPV 2 and its associates (including Mr
Zondi), will be excluded from voting on the special resolution required to authorise the specific repurchase
of the SPV 2 Common Shares pursuant to the Repurchase.
11. DELISTING AND CANCELLATION
An application will be made to the JSE for the delisting of the Shares repurchased by the Company pursuant to
the Repurchase ("Repurchase Shares"). The cancellation of the Repurchase Shares will be implemented
simultaneously with their delisting and such Shares will revert to authorised but unissued shares.
12. DIRECTORS’ RESPONSIBILITY STATEMENTS
12.1. Board
The Board, collectively and individually, accepts full responsibility for the information contained in this
announcement and the accuracy thereof and certifies that, to the best of its knowledge and belief,
information contained in this announcement is true, and that there are no facts that have been omitted
which would make any of the information false or misleading or would be likely to affect the importance of
any information contained in this announcement.
12.2. Independent Board
The Independent Board, collectively and individually, accepts full responsibility for the accuracy of the
information contained in this announcement and certifies that, to the best of its knowledge and belief, such
information is true and that there are no facts that have been omitted which would make any of the
information false or misleading or would be likely to affect the importance of any information contained in
this announcement.
Durban
13 October 2022
Financial Adviser and Transaction Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Attorneys
Webber Wentzel
Date: 13-10-2022 04:05:00
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