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Nampak - A 10% BEE transaction and scheme of arrangement
Nampak Limited
(Incorporated in the Republic of South Africa)
(Registration number 1968/008070/06)
JSE code: NPK & ISIN number: ZAE000004933
("Nampak" or "the Company")
Announcement of a 10% Black Economic Empowerment transaction and scheme of
arrangement
1. Introduction
Further to the cautionary announcement dated Friday 5 August 2005,
Nampak is pleased to announce that it has reached agreement to conclude
a 10% Black Economic Empowerment ("BEE") transaction ("the proposed BEE
transaction") pursuant to which approximately:
- 5% of the issued share capital of Nampak will be owned by Nampak
employees; and
- 5% will be owned by BEE groups comprising a broad base of black
people.
The proposed BEE transaction has a value of approximately R980.97
million based on the 30 day volume weighted average price ("VWAP") per
share to Monday 15 August 2005 of R15.13. Due to the fact that Nampak
holds significant offshore assets, the transaction represents
approximately 12% of the value of Nampak"s South African operations.
The proposed BEE transaction entails the creation of three special
purpose vehicles for the purpose of owning shares in Nampak:
- the Nampak Employee Share Trust ("NEST") will be created for the
benefit of all of Nampak"s permanent employees in South Africa who
are not beneficiaries of Nampak"s existing share incentive scheme
and who will not participate elsewhere as beneficiaries of the
proposed BEE transaction. The NEST will benefit approximately 10
200 permanent employees in South Africa;
- the Black Management Trust ("BMT") will be created for the benefit
of Nampak"s black permanent employees in South Africa who are
classified by Nampak as management. "Black"" for the purposes of
this announcement refers to historically disadvantaged individuals
and includes African, Coloured and Asian people. This trust will
initially benefit approximately 480 employees, but the number of
beneficiaries is expected to increase over time; and
- a special purpose company to be initially known as Red Coral
Investments 23 (Proprietary) Limited ("Red Coral"), will be created
for the benefit of third-party BEE companies, broad-based BEE
groups and existing Nampak black non-executive directors.
(collectively referred to as the "BEE parties")
The structure for the proposed BEE transaction entails the following:
- Nampak will issue 5 610 000 ordinary shares to the NEST, on behalf
of its beneficiaries, equivalent to 0.88% of its net shares in
issue (net shares in issue refers to Nampak"s issued shares net of
treasury shares) at their par value of 5 cents. Nampak will make a
grant of R280 500 to the NEST to facilitate the issue of the
shares. The NEST will provide Nampak with BEE ownership credentials
of approximately 0.70% of Nampak"s net shares in issue as the
interest of white employees will be excluded for BEE purposes;
- Nampak will issue 27 369 195 ordinary shares to the BMT ("the BMT
shares"), equivalent to 4.30% of its net shares in issue. Nampak
will fund the BMT for the purchase of the ordinary shares; and
- Nampak will issue to Red Coral a new class of share ("preferred
ordinary share") equivalent to 5% of Nampak"s net shares in issue
which will entitle Red Coral to fixed and preferential dividends
for a period of approximately 5 years. Approximately 58% of the
preferred ordinary shares will be issued to Red Coral at R15.13
being the Nampak 30 day VWAP per share to Monday 15 August 2005.
Approximately 42% of the preferred ordinary shares will be issued
at their par value through a structure whereby Nampak shareholders
effectively provide Red Coral with 10 year facilitation. This will
enable Red Coral to procure the majority of its total funding
requirement from third party financiers. The primary purpose of
the preferred ordinary shares is to provide certainty to the BEE
groups and third party financiers as to the dividend available to
service the funding.
In order to mitigate the dilution arising from the issue of the ordinary
and preferred ordinary shares described above, Nampak will propose a
scheme of arrangement ("scheme") in terms of section 311 of the
Companies Act (No 61 of 1973, as amended) ("the Companies Act") between
Nampak and its ordinary shareholders detailed further in paragraph 8
below.
2. Rationale
It is Nampak"s stated objective to embrace broad-based BEE and achieve
real transformation. Nampak is confident that BEE will deliver long-term
economic benefits to the country, the economy and to the Company.
Nampak"s commitment to addressing broad-based BEE is demonstrated by the
establishment of its own internal transformation charter in May 2004.
One aspect of this charter refers to direct black equity ownership in
Nampak. The proposed BEE transaction achieves a meaningful direct black
shareholding in Nampak.
In designing the proposed BEE transaction, Nampak identified the
following key objectives:
- Nampak wishes to include its black current and future employees, who
will play a major role in contributing to the Company"s future
success;
- Nampak considers it imperative to have a leading black business
grouping as an anchor BEE partner, with a view to assisting the group
in achieving its strategic objectives;
- Nampak believes that the participation of its key stakeholders, namely
the unions representing a significant number of the employees of
Nampak, would ensure that the benefits of the proposed BEE transaction
would flow to a wide group of people; and
- Nampak wishes to redress the imbalances of the past where women have
been under-represented in the economy and, accordingly, will invite a
women"s group to participate.
3. Nampak"s BEE partners
Aka Capital Consortium
The Aka Capital Consortium ("the Aka Consortium") will be led by Aka
Capital (Proprietary) Limited ("Aka Capital"), which will hold at least
92% of the Aka Consortium"s shareholding.
Aka Capital is a black-owned and managed investment holding company that
seeks to proactively add value to its underlying investments. The Aka
Capital executive team, led by Reuel Khoza (Executive Chairman), Sam
Nematswerani (CEO) and Gary Morolo (Executive Director), brings hands-on
experience in business leadership, strategy, marketing and
transformation.
Mr Khoza is immediate past Non-executive Chairman of Eskom, the largest
electricity utility in Africa, an organisation that he chaired for over
eight years. He is a former director of, inter alia, Standard Bank,
Liberty Group, Vodacom, IBM South Africa, Glaxo-Wellcome South Africa
(which he chaired). He is also, inter alia, a Fellow and current
President of the Institute of Directors, Chairman of the NEPAD Business
Foundation, Member of the International Business Council of The World
Economic Forum, non-executive director of the JSE Limited ("JSE"),
Corobrik, Protea Hotels and Nedbank.
Mr Nematswerani is a chartered accountant with over ten years experience
in accounting, auditing and merchant banking. He is a non-executive
director of the JSE (and chairs its Audit Committee), Corobrik and
Protea Hotels.
Mr Morolo has extensive experience in marketing, strategy and change
management consulting. He is a former board member of the Financial
Services Board and the current chairman of the board of Datacentrix
Holdings.
Nampak identified Aka Capital as a suitable anchor partner having the
following attributes:
- ability to add value at a strategic level;
- strong understanding of the South African and African business
environment;
- a long history with Nampak at leadership level;
- a long successful track record; and
- its commitment to uplifting black South Africans.
The Aka Consortium will hold 56% of the shares in Red Coral
representing approximately 2.8% of Nampak"s net shares in issue.
Black non-executive directors
Nampak has invited its two incumbent black non-executive directors,
namely Mr M L Ndlovu and Mr K M Mokoape, to participate in the proposed
BEE transaction in their personal capacities. These non-executive
directors will participate in Red Coral on similar terms to Nampak"s
other BEE partners and will beneficially hold 4% of Red Coral. Each
black non-executive director will hold a beneficial interest of not more
than 0.1% of Nampak"s net shares in issue in terms of this invitation.
Other broad-based BEE shareholders
The other broad-based BEE shareholders will include two of the major
unions which have significant representation amongst Nampak"s employees
in South Africa, namely Chemical, Energy, Paper, Printing, Wood & Allied
Workers Union and the South African Typographical Union. In addition, a
broad-based women"s grouping, the National African Women"s Alliance has
accepted an invitation to participate. The details of the participation
of these organisations is in the process of being finalised.
4. Key terms of participation in the proposed BEE transaction
The following key terms of participation in the proposed BEE transaction
have been agreed by Red Coral and Nampak:
- the BEE parties will not be entitled to sell their ordinary shares in
Red Coral, nor will Red Coral be entitled to sell any of its preferred
ordinary shares or ordinary shares, prior to the expiry of a 10 year
period;
- the BEE parties will be subject to a restraint of trade, in terms of
which they will be restrained from investing in businesses which
compete directly with Nampak. The BEE parties will also be restrained
from investing in businesses which constitute major suppliers or
customers of Nampak. This restraint will apply for the duration of the
proposed BEE transaction;
- Nampak will have pre-emptive rights over any disposals of the
preferred ordinary shares or ordinary shares by Red Coral; and
- subject to the invitation and approval of the board of Nampak, Aka
Capital will be entitled to propose appropriate individuals to
represent them on the board of Nampak and/or its operating
subsidiaries/divisions.
5. Nampak staff participation
5.1 NEST
Nampak has created the NEST for the benefit of all its permanent
employees in South Africa not participating in the BMT and the
existing Nampak share incentive scheme. Employees of Nampak"s
subsidiaries outside of South Africa will not be eligible.
Nampak will issue to the NEST 5 610 000 ordinary shares,
equivalent to 0.88% of its net shares in issue, at their par
value of 5 cents each. These shares have a market value of
approximately R84.88 million based on the 30 day VWAP to Monday
15 August 2005, being R15.13 per share. The par value payable of
R280 500 for the acquisition of the shares will be paid for by
the NEST from a grant made to it by Nampak. This grant will be a
once off cost to Nampak.
Nampak employees will participate in the NEST on the following
terms:
- each employee will receive beneficial ownership of
approximately 550 ordinary shares, with a current market
value of approximately R8 322;
- voting rights will vest immediately with each employee;
- employees will receive dividends declared by Nampak in
respect of shares held; and
- employees will not be entitled to dispose of their shares
prior to 31 December 2010.
5.2 BMT
The BMT has been created for the benefit of Nampak"s black
employees in South Africa who are classified by Nampak as
management. Each beneficiary of the BMT will be allocated rights
to a certain number of the BMT shares.
More than 50% of the trustees of the BMT will be black and 2 of
the 3 trustees will be independent of Nampak ("the external
trustees").
Individual participants will be entitled to give instructions
regarding the voting of the BMT shares to which they have rights.
Should a participant not provide a voting instruction and in
respect of unallocated shares, the external trustees may vote
such shares at their discretion.
The Nampak Remuneration and Nominations Committee ("Remuneration
Committee") will be responsible for allocating rights to the BMT
shares to participants. Unallocated rights will be under the
control of the Remuneration Committee. Participation in the BMT
will be open to current and future Nampak black managers in South
Africa. Allocation of the shares will be made as follows:
- approximately 55% of the BMT shares will be allocated to
eligible employees of Nampak within three months of the
fulfilment of the conditions precedent to the proposed BEE
transaction;
- the balance of approximately 45% of the BMT shares will, at
the discretion of the Remuneration Committee, be allocated
to eligible employees within a period of five years from the
date of implementation of the scheme; and
- allocations will not be transferable.
Once full allocation of the BMT shares has been made, the scheme
will be closed with no further allocations made.
Nampak will issue to the BMT shares at the 30 day VWAP per share
to Monday 15 August 2005 being R15.13. The BMT shares will be
funded by means of a capital contribution of R414.09 million made
by Nampak. The terms of such capital contribution will provide
that:
- 100% of dividends received from the BMT shares vest in
Nampak until the BMT shares are distributed to its
beneficiaries; and
- Nampak should, over a 10 year period, receive as a vested
beneficiary an amount equal to its capital contribution and
a premium which provides a notional return equivalent to 85%
of the prime overdraft interest rate net of any dividends
received.
Each participant in the BMT will be entitled to receive his
benefits in respect of the BMT shares once Nampak has received
its vested benefits from the BMT. Beneficiaries who cease to be
employed by the Nampak group, other than through retrenchment,
within the first 3 years after the allocation of such rights,
will forfeit all their rights in the BMT. Between the third and
the fifth year of the grant such rights will be proportionately
forfeited so that after 5 years the beneficiary will be entitled
to receive his full rights under the BMT. Any rights so forfeited
will be retained by the BMT for allocation to other eligible
employees.
Beneficiaries may not dispose of their rights until the end of
the 10 year period ("lock-in period") ending 31 December 2015. At
that time the BMT shares, net of the benefits due to Nampak, will
be distributed to beneficiaries who will then be free to trade in
these shares.
6. Mechanics relating to Red Coral
6.1 Specific issue of shares
Nampak will issue 31 857 195 preferred ordinary shares to Red
Coral for a total consideration of approximately R279.41 million,
which shares will have a value of R482.00 million based on the 30
day VWAP to Monday 15 August 2005, being R15.13 per share. The
preferred ordinary shares will be issued as follows:
- approximately 13 434 214 preferred ordinary shares will be
issued at their par value of 5 cents, for a total
consideration of R671 711 (which shares will have an
approximate value of R203.26 million at a price of R15.13
per share); and
- the balance of approximately 18 422 981 preferred ordinary
shares will be issued at a price of R15.13 per share, for a
total consideration of R278.74 million.
The preferred ordinary shares:
- will constitute a separate class of shares in the share
capital of Nampak;
- will rank pari passu in all respects with all ordinary
shares in respect of voting;
- will be entitled to fixed annual dividends of 100 cents per
share, payable in equal amounts on 31 January and 31 July,
with such dividends ranking ahead of those of the ordinary
shares;
- will automatically convert into ordinary shares on 31
January 2011 or on the occurrence of certain events linked
to the terms of funding provided by third party financiers
to Red Coral; and
- will, at all times, be subject to the provisions of the
Listings Requirements of the JSE, even though they will not
be listed on the JSE prior to their conversion into ordinary
shares.
The terms of the preferred ordinary shares will be described
in more detail in the circular to shareholders relating to the
proposed BEE transaction.
6.2 Facilitation of the proposed BEE transaction by Nampak
To enable Red Coral to raise the required amount of senior and
subordinated funding to conclude the proposed BEE transaction,
Nampak will issue approximately 13 434 214 preferred ordinary
shares at their par value. This represents direct facilitation
provided by Nampak shareholders ("the facilitation amount"). Red
Coral will provide Nampak and its subsidiaries with a right to
purchase, at the end of approximately 10 years, such number of
ordinary shares (as the preferred ordinary shares will have
converted into ordinary shares) at their par value as will
provide Nampak with a notional return on this facilitation amount
of 7.46% (nacs) per annum ("the Nampak repurchase agreement").
The number of ordinary shares will be determined using a 30 day
VWAP per Nampak share, to be calculated 5 days prior to the date
of exercise of the Nampak repurchase agreement.
The consideration payable by Nampak in terms of the Nampak
repurchase agreement will be the par value of its ordinary shares
at the time of exercise multiplied by the number of ordinary
shares to be repurchased. This consideration will be paid by
Nampak from available cash resources, subject to the requirements
of the Companies Act and the rules of the JSE.
6.3 Red Coral call option
In order to allow Red Coral to retain the same number of ordinary
shares after the repurchase of the shares in terms of the Nampak
repurchase agreement by Nampak, Red Coral will have a right to
simultaneously acquire from Nampak, at the 30 day VWAP per Nampak
share, the same number of shares that Nampak purchased in terms
of the Nampak repurchase agreement, or part thereof.
6.4 Funding of Red Coral
Red Coral will be funded through the following:
- equity contribution by Aka Capital of R1.0 million;
- subscription by subordinated funders for cumulative
redeemable B preference shares for an amount of R144.00
million. The B preference shares will rank senior to the
claims of Nampak under its repurchase agreement but junior
to the claims of Rand Merchant Bank, a division of FirstRand
Bank Limited, ("RMB") under the A preference share funding;
- subscription by RMB for cumulative redeemable A preference
shares in Red Coral for an amount of R144.00 million. The A
preference shares rank senior to both the claims of the B
preference shares and the claims of Nampak. Dividends on
these A preference shares will be serviced over the 5 year
funding term from dividends paid in respect of the preferred
ordinary shares.
7. Resultant structure
Upon implementation of the proposed BEE transaction, the direct BEE
shareholding in Nampak will be as follows (see Business Day and Beeld).
The shareholding in Red Coral is summarised in the table below:
% shareholding Effective
in Red Coral shareholding in
Nampak
Aka Consortium 56% 2.8%
Current non-executive 4% 0.2%
directors
Other broad-based BEE 40% 2.0%
shareholders
Total 100% 5.0%
8. The scheme
Nampak will propose a scheme between Nampak and its ordinary
shareholders in which it will repurchase at a price of R15.13 per share
from all ordinary shareholders, other than the BEE parties, in terms of
section 89 of the Companies Act, 10 ordinary shares for every 100
ordinary shares held. The scheme consideration per share represents the
30 day VWAP to Monday 15 August 2005. The scheme consideration is equal
to the issue price of Nampak shares to the BMT and the issue price in
respect of certain of the preferred ordinary shares.
The issue of the ordinary and preferred ordinary shares to NEST, BMT and
Red Coral ("the specific issues for cash") will not be conditional on
the implementation of the scheme and the issue of such shares is
expected to occur prior to the sanction of the scheme by the High Court
of South Africa ("the Court").
9. Conditions precedent
The specific issues for cash required to implement the proposed BEE
transaction will be subject to the following conditions precedent:
- the approval by ordinary shareholders of a special resolution to
increase the authorised share capital of Nampak and create the
preferred ordinary shares;
- the approval by 75% of ordinary shareholders in general meeting of
the resolutions required to implement the specific issues; and
- the procurement of any other regulatory approvals that may be
required.
The scheme will, in addition, be subject to the following conditions
precedent:
- the approval of the scheme by a majority representing not less than
three fourths (75%) of the votes exercisable by shareholders eligible
to vote at the scheme meeting, either in person or by proxy;
- the sanctioning of the scheme by the Court in terms of the Companies
Act; and
- the registration of a certified copy of the Order of Court sanctioning
the scheme with the Registrar of Companies in terms of the Companies
Act.
10. Estimated economic cost
The estimated economic cost of the proposed BEE transaction is
calculated to be R250.21 million representing 2.60% of the Nampak
market capitalisation calculated with reference to a price of R15.13
per Nampak share and the net ordinary shares in issue.
Nampak estimates the economic cost of the proposed BEE transaction to
its shareholders to arise as follows:
- the dilution of 0.88% arising from the specific issue to the
NEST;
- the provision of funding on favourable terms by Nampak to the BMT
for its purchase of ordinary shares; and
- the facilitation provided in respect of those preferred ordinary
shares issued at their par value.
11. Pro forma financial effects
The table below sets out the unaudited pro forma financial effects of
the proposed BEE transaction and the scheme, based on the assumptions
set out below. The unaudited pro forma financial effects have been
prepared for illustrative purposes only. Due to the nature of the
unaudited pro forma financial effects, it may not give a fair
reflection of shareholders" financial position after implementation of
the proposed BEE transaction and the scheme. The financial effects set
out below are the responsibility of the directors of the Company.
Before the Pro forma Pro forma Increase/ Increase/
proposed after the after the (Decrease) (Decrease)
BEE BEE scheme (cents) %
transaction transaction (cents)
and the (cents)
scheme
(cents)
Basic earnings 77.4 75.1 1.9 2.5
per ordinary
share ("EPS") 79.3
Headline earnings 70.8 68.6 1.3 1.8
per ordinary
share ("HEPS") 72.1
Fully diluted 76.9 74.6 1.8 2.3
earnings per
ordinary share 78.7
Fully diluted 70.3 68.1 1.2 1.7
headline earnings
per share 71.5
Net asset value 835.5 826.9 (84.1) (10.1)
per ordinary
share ("NAV") 751.4
Tangible net 666.3 659.1 (101.) (15.2)
asset value per
ordinary share 565.1
("TNAV")
Actual number of 635.7 641.3 (58.0) (9.1)
ordinary shares
in issue (000"s) 577.7
Weighted average 638.2 643.8 (58.0) (9.1)
number of
ordinary shares
in issue (000"s) 580.2
Weighted average 642.7 648.3 (58.0) (9.0)
number of fully
diluted ordinary
shares in issue
(000"s) 584.7
Notes:
1. The tangible net asset value excludes intangible assets.
2.In respect of the "Before the proposed BEE transaction and the scheme"
column:
- the earnings and headline earnings per share reflected are
extracted from the Company"s unaudited interim results for the
six months to 31 March 2005;
- the NAV and tangible NAV per share are extracted from the
Company"s unaudited interim results as at 31 March 2005.
3. The pro forma financial effects assume that:
- in respect of NAV and tangible NAV per share, that the proposed
BEE transaction was implemented on 31 March 2005; and
- in respect of earnings and headline earnings per share, that the
proposed BEE transaction was implemented on 1 October 2004.
12. Opinion
The JSE has requested that a fair and reasonable opinion in respect of
the proposed BEE transaction be obtained from an independent expert.
Deloitte & Touche Corporate Finance has been appointed by the Nampak
board of directors to consider the terms of the proposed BEE
transaction and to provide an opinion as to whether they are fair and
reasonable to shareholders. The opinion from Deloitte & Touche
Corporate Finance will be contained in the circular to shareholders.
13. Important dates and times
2005
Last day to trade in order to vote at the Monday 19 September
scheme meeting
Record date to vote at the scheme meeting Monday 26 September
Last day for receipt of proxies for the Tuesday 27 September
scheme meeting by 10:00 on
Last day for receipt of proxies for the Tuesday 27 September
general meeting by 10:30 on
Scheme meeting to be held at 10:00 on Thursday 29 September
General meeting to be held at 10:30 or as Thursday 29 September
soon as the scheme meeting is finalised or
adjourned, whichever time is the later on
Results of the general meeting and scheme Thursday 29 September
meeting released on SENS on or about
Report of chairman of the scheme meeting Friday 30 September
available for inspection from
Results of the general meeting and scheme Friday 30 September
meeting published in the press on or about
Court hearing to sanction the scheme Tuesday 11 October
Announcement of Court sanction of the Tuesday 11 October
scheme released on SENS
Announcement of Court sanction of the Wednesday 12 October
scheme published in the press on or about
If the scheme is sanctioned:
Last day to trade for ordinary shareholders Friday 21 October
to be eligible to receive the scheme
consideration
Shares trade "ex" the scheme under the new Monday 24 October
ISIN
Record date on which ordinary shareholders Friday 28 October
must be recorded in the register of members
of Nampak in order to receive the scheme
consideration by
Operative date of the scheme at the Monday 31 October
commencement of trading
Scheme consideration and balance of Monday 31 October
ordinary share certificates posted to
certificated scheme participants (if
documents of title are received on or prior
to the consideration record date) on or
about
or, failing receipt of documents of title Monday 31 October
on or before the consideration record date,
within five business days of receipt
thereof by the transfer secretaries.
Dematerialised scheme participants have Monday 31 October
their accounts held at their CSDP or broker
credited with the scheme consideration on
Notes:
1. These dates and times are subject to change. Any material change will
be released on SENS and published in the press. Any reference to time
is a reference to South African time.
2. If a form of proxy for the general or scheme meeting is not received
by the time and date shown above, it may be handed to the chairperson
of the general or scheme meeting up to 10 minutes before the
commencement of the general or scheme meeting.
3. Ordinary shareholders should note that as trades in ordinary shares
are settled through STRATE, settlement for trade takes place five
business days after such trade. Therefore, ordinary shareholders who
acquire ordinary shares after Monday 19 September 2005 will not be
eligible to vote at the scheme meeting.
4. No dematerialisation or rematerialisation of any ordinary shares
currently in issue may take place after the close of business on
Friday 21 October 2005.
14. Circular
A circular to shareholders setting out the full details of the
proposed BEE transaction will be sent to Nampak shareholders in due
course.
15. Withdrawal of cautionary
Shareholders are advised that as the terms of the proposed BEE
transaction have been announced, caution is no longer required when
dealing in Nampak shares.
Sandton
18 August 2005
Merchant Bank, transaction adviser, arranger of funding and transaction
sponsor to Nampak
Rand Merchant Bank (A division of FirstRand Bank Limited)
Independent adviser
Deloitte & Touche Corporate Finance
Legal advisers to Nampak
Edward Nathan
Legal adviser to funders
Tugendhaft Wapnick Banchetti & Partners
Reporting accountant
Deloitte & Touche
Registered Accountants and Auditors
Date: 18/08/2005 08:30:38 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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