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WHL - Woolworths - Black Economic Empowerment Transaction
Woolworths Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number 1929/001986/06
Share code: WHL & ISIN: ZAE000063863
("Woolworths" or "the Company")
BLACK ECONOMIC EMPOWERMENT TRANSACTION
1. INTRODUCTION AND RATIONALE
The broad-based black economic empowerment ("BEE") transaction,
subject to the conditions precedent set out in paragraph 4 below,
will empower eligible Woolworths employees by enabling them to
acquire the equivalent of approximately 10% of the ordinary issued
share capital of Woolworths before the BEE transaction.
The board of directors of Woolworths ("the board") is committed to
the spirit and principles of broad-based BEE and has established
empowerment policies and structures throughout the business to
facilitate BEE. The board recognises the social and economic
imperative to undertake a BEE ownership transaction and following
an extensive process, has decided to propose a BEE ownership
transaction involving eligible Woolworths employees for the
following reasons:
- eligible Woolworths employees have contributed to the group`s
progress thus far and will continue to be important in driving the
future growth of the group;
- the eligible Woolworths employees have a sound knowledge of the
operations and are best positioned to participate and add value from the
commencement of the BEE transaction;
- the nature and demographic composition of Woolworths employee base
(90% black and 85% women) is ideal for an empowerment partner; and
- the BEE transaction will align the objectives of the ordinary
shareholders with those of the eligible Woolworths employees, whose
efforts have been the origin of the value created over the past years.
2. SALIENT FEATURES OF THE BEE TRANSACTION
2.1 Creation and issue of ESOS Shares
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Woolworths will create a new class of convertible, redeemable,
non-cumulative participating preference shares with a par
value 0.15 cent each ("ESOS shares"). Woolworths will at
appropriate times issue these ESOS shares, up to a maximum of
89 400 000 ESOS shares, to the Woolworths Employee Share
Ownership Trust ("ESOS trust"). The ESOS trust will hold the
ESOS shares for the benefit of the vested beneficiaries for
the eight year term of the scheme, following which, and
subject to the provisions of the Woolworths Employee Share
Ownership Trust Deed ("trust deed"), the ESOS shares will be
distributed to beneficiaries entitled thereto and will convert
into ordinary shares on a one-for-one basis.
2.2 Scheme beneficiaries
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All Woolworths employees who were employed by the Woolworths
group ("group") as at 1 May 2007 and who are still employed as
at the initial vesting date (expected to be 30 June 2007) will
participate in the BEE transaction, with the exception of
white managers and white executives who already participate in
an existing Woolworths` share ownership scheme. The result is
approximately 17 000 employees will participate in the
transaction, of whom 90% are black and 85% are women.
Beneficiaries have been defined into three categories i.e.
broad-based beneficiaries, management beneficiaries and
executive beneficiaries. Provision has also been made in the
scheme for future black executives.
2.3 Voting rights
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The ESOS shares will rank pari passu with the Woolworths
ordinary shares except for certain economic rights and a right
on the winding-up of the Company to receive a return of par
value in priority to the ordinary shares. Whilst the ESOS
shares will be unlisted, they will have full voting rights, in
terms of a dispensation received from the JSE Limited ("JSE").
Accordingly, the trustees of the ESOS trust will be entitled
to exercise the voting rights of the ESOS shares on items
requiring shareholder approval in terms of the Companies Act
and the JSE Listing Requirements.
There will be five trustees of the ESOS trust, at least three
of whom will be black and of whom at least two will be black
women. The beneficiaries will elect three trustees of whom two
will be independent and the Company will appoint two trustees
of whom one will be independent. Trustee elections will take
place every three years, at which, beneficiaries will be
entitled to elect, or re-elect as the case may be,
representatives to act as trustees for their benefit.
2.4 Vesting of the ESOS shares in beneficiaries
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The initial vesting process will recognise a broad-based
beneficiary`s length of service to the group and accordingly,
relatively more ESOS shares will vest in a broad-based
beneficiary employed within the group prior to 1 March 2003
than a broad-based beneficiary employed after that date.
A beneficiary`s entitlement to ESOS shares at the end of the
scheme is subject to the beneficiary remaining an employee of
the group for a minimum service period, which service period
will end three years and 1 day after the date on which the
right in the ESOS shares vests in the beneficiary. If a
beneficiary leaves the employment of the group, for reason
other than retirement, disability, dismissal or death, after
the minimum service period but before the end of the scheme he
or she will forfeit his or her vested right to a portion of
his or her ESOS shares.
2.5 Dividends
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The ESOS trust will be entitled to receive the preference
share dividend paid on the ESOS shares ("the ESOS payment").
The ESOS payment will be equal to a percentage of the ordinary
dividend, which percentage will increase over the term of the
scheme to 100% in the penultimate year of the scheme. A
beneficiary will be entitled to receive his or her
attributable share of the ESOS payment received by the ESOS
trust based on his or her vested right to ESOS shares for as
long as he or she remains an employee of the group.
A beneficiary who leaves the employment of the group after the
service period, but before the end of the scheme, will forfeit
his or her right to receive his or her attributable share of
the ESOS payment on the ESOS shares in which they have
retained a vested right.
There are particular provisions relating to the forfeiting of
the ESOS payments for retirement, disability, dismissal and
death.
2.6 Distribution and conversion of the ESOS shares
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It is envisaged that the ESOS trust will own the ESOS shares
for a period of eight years during which time the
beneficiaries will receive their attributable share of the
ESOS payments.
At the end of the scheme, a formula determined number of ESOS
shares will be distributed to the beneficiaries entitled
thereto and the balance of a beneficiary`s vested ESOS shares
will be forfeited. Following the distribution, the ESOS
shares will convert into ordinary shares, on a one-for-one
basis, which the beneficiaries will be entitled to hold or
realise.
In terms of the formula, a beneficiary will only receive a
distribution if the termination date ruling price (being the
volume weighted average price of an ordinary share on the JSE
for the five trading days prior to the close of business on 30
June 2015) exceeds the hurdle rate price on the termination
date (being the volume weighted average price of an ordinary
share on the JSE for the five trading days prior to the close
of business on 30 June 2007 increased by the hurdle rate of
10% per annum compounded annually over the period to the close
of business on 30 June 2015). However, if the hurdle rate
price on the termination date is higher than the termination
date ruling price, the beneficiary will forfeit his or her
right to a distribution of all of his vested ESOS shares.
2.7 Creation of an educational fund
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Woolworths has undertaken, subject to the provisions of the
ESOS trust deed, and provided the termination date share price
is higher than the hurdle rate price on the termination date,
to set up an educational trust or fund, using an amount equal
to the ESOS payments forfeited by the beneficiaries who leave
the employment of the group after the service period but
before the end of the scheme (described in paragraph 2.5
above), for the black employees of the group, employed at the
end of the scheme, and/or their dependents. This will be in
addition to the educational expenditure being undertaken by
Woolworths in terms of its Corporate Social Investment (CSI)
programmes.
2.8 Minimum benefit payment to broad-based beneficiaries
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The nature of the BEE transaction means that beneficiaries
will face inherent share price risk. In order to ensure that
its employees will not be disincentivised by reason of the
failure to achieve the hurdle rate share price at the end of
the scheme and to ensure that its employees will continue to
promote the best interests of the group, each employer company
has undertaken, in respect of its employees, who are broad-
based beneficiaries at the end of the scheme, to make an
incentive payment of an amount which will ensure that such
broad-based beneficiary will receive at least
R20 000 before taxation at the end of the scheme.
3 CONDITIONS PRECEDENT
The implementation of the BEE transaction is subject, inter alia,
to the fulfilment of the following conditions precedent:
- the passing of all necessary special and ordinary resolutions by
the requisite majority of ordinary shareholders at the general meeting
convened to be held on 12 June 2007;
- the registration of the special resolutions by the Registrar of
Companies; and
- the Master of the High Court of South Africa issuing letters of
authority to the first trustees of the ESOS trust.
4 ESTIMATED ECONOMIC COST
Woolworths has estimated the economic cost of entering into the BEE
transaction for the Company and its shareholders to be
approximately R292 million. This represents approximately 1.38% of
the market capitalisation of approximately R21 107 million as at 26
April 2006.
This figure was calculated with reference to the requirements of
IFRS 2 -Share Based Payments.
5 FINANCIAL EFFECTS OF THE BEE TRANSACTION
The unaudited pro forma financial effects illustrate the impact of
the BEE transaction on the most recently published interim results
as at 31 December 2006 assuming that the transaction took effect on
1 July 2006.
The unaudited pro forma financial effects have been prepared for
illustrative purposes only and are the responsibility of the
directors. Due to the nature of the unaudited pro forma financial
effects, it may not give a fair reflection of Woolworths` financial
position, changes in equity, results of operations or cash flows
after completion of the BEE transaction. The directors are
responsible for the preparation of the unaudited pro forma
financial information.
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For the 26 weeks ended 31 Before the Pro forma Increase/
December 2006 BEE after the (Decrease)
Transaction BEE (%)
Transaction
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Earnings per ordinary share 70.5 65.5 (7.1)
(cents)
Headline earnings per ordinary 64.8 59.8 (7.7)
share (cents)
Diluted earnings per ordinary 69.3 63.9 (7.8)
share (cents)
Diluted headline earnings per 63.8 58.4 (8.5)
share (cents)
Net asset book value per ordinary 363.3 361.6 (0.5)
share ("NAV") (cents)
Tangible net asset book value per 360.5 358.8 (0.5)
ordinary share (cents)
Number of ordinary shares in 800.4 800.4
issue (millions)
Weighted average number of 799.2 799.2
ordinary shares in issue
(millions)
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Notes:
1.Earnings are reduced by the IFRS 2 - Share Based Payments
expense as spread over the period of the scheme. This
represents the estimated initial six months expense.
2. Key assumptions made in the IFRS 2 valuation:
- Black-Scholes option valuation model utilised;
- Reference share price of R23.31;
- Share price volatility based on historic experience;
- Dividend yield of 4.2%; and
- Staff retention rate of 23% for broad-based beneficiaries,
29.6% for management beneficiaries and 100% for executive
beneficiaries.
6 Opinion and recommendations
The Standard Bank of South Africa Limited, the independent professional
expert appointed by the board in terms of the JSE Listings Requirements,
has considered the terms and conditions of the BEE transaction and is of
the opinion that such terms and conditions are unfair but reasonable to
the ordinary shareholders. The full opinion of the independent
professional expert is contained in the circular which will be posted to
Woolworths ordinary shareholders on 21 May 2007.
The board has considered the terms and conditions of the BEE transaction
and the opinion of the independent professional expert and is of the
opinion that the BEE transaction is in the best interests of Woolworths
and its shareholders.
7 SHAREHOLDER APPROVAL
The BEE transaction will require that Woolworths ordinary
shareholders approve, inter alia, the following resolutions:
- special resolutions to amend the authorised share capital of the
Company and amend the Articles of Association of the Company to create
the ESOS shares; and
- ordinary resolutions to approve the ESOS trust deed and place the
ESOS shares under the control of the directors.
8 IMPORTANT DATES AND TIMES
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2007
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Circular and notice of general meeting Monday, 21 May
posted to shareholders on
Last day for receipt of proxies in Friday, 8 June
respect of the general meeting by 09h00
General meeting of shareholders at 09h00 Tuesday, 12 June
Results of general meeting published on Tuesday, 12 June
SENS on
Results of general meeting published in Wednesday, 13 June
the Press on
Special resolutions lodged with the Wednesday, 13 June
Registrar of Companies on or about
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Notes:
1. Any material changes to the above dates and times will be published
on SENS and in the press.
9 DOCUMENTATION
A circular containing the full details of the BEE transaction,
including a notice of general meeting, will be posted to Woolworths
ordinary shareholders on 21 May 2007. The circular will also be
available on our website at www.woolworthsholdings.co.za.
Cape Town
21 May 2007
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Merchant bank and sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Corporate law and Tax advisors
Taback and Associates (Proprietary) Limited
edward nathan sonnenbergs inc.
Independent expert
The Standard Bank of South Africa Limited
Reporting accountants and auditors
Ernst & young Inc.
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited
Date: 21/05/2007 08:00:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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