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MTN - MTN Group - Announcement Relating To The Proposed Acquisition
Of Newshelf 664 (Proprietary) Limited And MTN`s Proposed Black
Economic Empowerment Transaction
MTN Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1994/009584/06
Share code: MTN ISIN: ZAE000042164
("MTN")
ANNOUNCEMENT RELATING TO THE PROPOSED ACQUISITION OF NEWSHELF 664
(PROPRIETARY) LIMITED AND MTN`S PROPOSED BLACK ECONOMIC EMPOWERMENT
TRANSACTION
1. Introduction and rationale
Since its incorporation in 1994, MTN has been and remains
fully committed to the principles of broad-based black
economic empowerment ("BEE"). MTN also embraces the
principles of BEE enshrined in the Government of South
Africa`s Broad-Based Black Economic Empowerment Codes of Good
Practice ("Codes").
MTN currently obtains its equity ownership points in terms of
the Codes from the 13.1% shareholding which Alpine Trust
("AT"), through Newshelf 664 (Proprietary) Limited
("Newshelf"), holds in MTN ("Newshelf Structure"). The
Newshelf Structure was established independently of MTN in
2002, prior to and independent of the promulgation of the
Codes. AT was designed to be unwound in December 2008, and the
trustees intend to unwind AT on, or as soon as practically
possible after, 22 December 2008, which may lead to a
significant reduction in the number of MTN ordinary shares
("MTN Shares") held by or for the benefit of historically
disadvantaged South Africans ("HDSAs").
MTN believes that broad-based BEE participation in MTN has
contributed to MTN`s success to date and is equally important
to its future success. Subject to appropriate financial market
conditions, MTN intends to make proposals to its shareholders
to implement a new BEE transaction ("BEE Transaction") during
the first half of 2009. These proposals will be designed to
ensure that MTN continues to support both the letter and
spirit of the Codes. Accordingly, MTN and Public Investment
Corporation Limited ("PIC") have entered into a memorandum of
understanding ("MOU"), subject to the fulfilment or waiver of
the conditions precedent referred to in paragraph 0 below,
recording the salient terms and conditions of a transaction
("Newshelf Acquisition"). The purpose of the Newshelf
Acquisition is to facilitate the orderly unwind of the
Newshelf Structure and minimise the dilutionary impact of the
BEE Transaction on earnings going forward.
As part of the BEE Transaction, MTN intends to perpetuate the
success of the Newshelf Structure by providing an opportunity
for AT beneficiaries to continue their long term relationship
with MTN by reinvesting a material portion of their benefits
from the Newshelf Structure in the BEE Transaction. As
currently conceptualised, it is envisaged that the BEE
Transaction will comprise between 5% and 6% of MTN`s issued
ordinary share capital. MTN`s South African operations
comprise 29.5% of the value of MTN (based on MTN`s South
African operations` relative contribution to MTN`s earnings
before interest, tax, depreciation and amortisation ("EBITDA")
for the 6 months to 30 June 2008). Therefore, on an
illustrative basis, using EBITDA contribution as a proxy for
value, a BEE Transaction in respect of 5% - 6% of MTN`s issued
ordinary share capital will effectively equate to 21.2% -
25.5% of MTN`s South African operations (after adjusting for
40% mandated investments in MTN in terms of the Codes and
assuming 75% effective black ownership in the BEE
Transaction). The ultimate size of the BEE Transaction, if
implemented, may change depending on, inter alia, financial
market conditions at the time of implementation and the extent
of reinvestment by AT beneficiaries.
2. Newshelf Acquisition
2.1 Steps to be undertaken prior to the Newshelf Acquisition
In terms of an agreement reached between PIC, Newshelf
and AT, Newshelf will acquire sufficient MTN ordinary
shares ("MTN Shares") on loan account from PIC to enable
Newshelf to declare these same MTN Shares as a dividend
in specie to AT. The number of MTN Shares will be based
on the net asset value ("NAV") of Newshelf on the date of
declaration determined with reference to the 20 trading
day volume weighted average price ("VWAP") of an MTN
Share on or about 19 December 2008. AT beneficiaries will
receive these MTN Shares (representing approximately 1.8%
of MTN`s issued ordinary share capital based on MTN`s 20
trading day VWAP up to 10 December 2008 of R100.01
("Reference Price")) as a dividend in specie as a result
of their participation interest in the net assets of AT.
It is anticipated that the dividend in specie to AT
beneficiaries will be declared on or about 22 December
2008 and distributed early in 2009.
After declaration of the dividend, PIC will be granted
call option rights to acquire the entire issued ordinary
share capital of Newshelf from AT for its residual
nominal value. The exercise of the call option rights
acquired by PIC is subject to the approval of the
relevant South African competition authorities.
2.2 Newshelf Acquisition
In terms of the MOU, MTN has agreed, in principle, to
acquire the entire issued ordinary share capital of
Newshelf, or the call option rights thereto, from PIC for
its residual nominal value. The Newshelf Acquisition will
be effected by way of a specific issue of shares in
acquisition or settlement of the liabilities in Newshelf
and the specific repurchase of the 243.5 million MTN
Shares owned by Newshelf ("Newshelf`s MTN Shares") and
will be concluded as soon as practicable in 2009, subject
to the fulfilment or waiver of the conditions precedent
referred to in paragraph 5 below. By acquiring the entire
issued ordinary share capital of Newshelf, MTN will
indirectly acquire Newshelf`s MTN Shares (equivalent to
13.1% of MTN with a market value of R24.4 billion based
on the Reference Price) owned by Newshelf and indirectly
assume all of the funding obligations outstanding in
Newshelf. MTN will effectively acquire Newshelf at a
discount to the market value of Newshelf`s MTN Shares of
approximately 10% based on the Reference Price. MTN
intends to apply a significant portion of this discount
to offer future participants in the BEE Transaction an
incentive to invest in that transaction.
As part of the Newshelf Acquisition, MTN will:
- facilitate the acquisition and/or settlement of all
outstanding funding obligations in Newshelf to PIC (estimated to be
R21.8 billion on 27 February 2009 based on the Reference Price)
through the payment of R400 million in cash and the issue to PIC of
213.8 million new MTN Shares for the balance of the obligations to
PIC, equivalent to approximately 11.5% of MTN`s issued share
capital. The number of new MTN Shares to be issued to PIC will be
determined with reference to the 20 trading day VWAP of an MTN
Share five business days prior to the posting of the circular to
MTN shareholders for the approval of the Newshelf Acquisition and
related transactions ("BEE VWAP"). On a purely indicative basis,
assuming a BEE VWAP of R110, the number of shares to be issued will
be 213.3 million and at a BEE VWAP of R70, the number of shares to
be issued will be 216.5 million; and
- repurchase and cancel Newshelf`s 243.5 million MTN Shares.
Post the implementation of the Newshelf Acquisition, the
total number of MTN Shares in issue will reduce by
approximately 1.6%.
3. BEE Transaction
PIC has also undertaken in the MOU to make available from its
equity portfolio up to 6% of MTN`s issued ordinary share
capital for purposes of the BEE Transaction. These MTN Shares
will be made available for a period of 6 months (i.e. from 31
December 2008 to 30 June 2009) at the BEE VWAP. In addition,
PIC has undertaken to provide mezzanine funding of up to 1% of
the market capitalisation of MTN into the BEE Transaction on
market-related terms.
The BEE Transaction will be designed to provide long term,
sustainable benefits to MTN and all participants and is
proposed to have a duration of six years. The black South
African public, eligible employees of MTN and black South
African non-executive directors of MTN are expected to
participate in the BEE Transaction. Participation in the BEE
Transaction will require an equity investment by eligible
participants.
MTN will utilise a significant portion of the effective
discount realised on the Newshelf Acquisition to provide an
equity incentive ("Equity Incentive") to enhance the benefits
of the eligible participants in the BEE Transaction. MTN will
launch a black public offer that will be open to members of
the South African public who are black people as defined in
the Codes in order to broaden participation in its empowerment
initiatives.
In addition, as part of its empowerment initiatives, MTN
intends establishing an employee share ownership plan ("ESOP")
that will benefit eligible employees of MTN, who do not
participate in any of MTN`s existing employee incentive
schemes. It is envisaged that the ESOP will comprise
approximately 0.05% of MTN`s issued share capital.
Participation in the ESOP will be facilitated by MTN and
participants will not be required to contribute any equity to
participate.
In addition to the Equity Incentive, it is indicatively
envisaged that MTN will provide facilitation to assist in the
raising of finance for the BEE Transaction. The cost of the
faciliation is estimated to be less than 0.75% of MTN`s market
capitalisation.
Subject to market conditions, MTN plans to finalise the
structure of the BEE Transaction in the first half of 2009.
Full details of the BEE Transaction will be communicated to
shareholders soon thereafter.
4. Financial effects of the Newshelf Acquisition
The unaudited pro forma financial information of MTN was
prepared in order to provide the illustrative financial
effects of the Newshelf Acquisition, assuming that the
Newshelf Acquisition took place on 1 January 2008. The
unaudited pro forma financial effects are based on the
assumptions set out below and include assumptions on share
price.
The unaudited pro forma financial information is the
responsibility of the directors of MTN and was prepared for
illustrative purposes only and may not, because of its nature,
fairly present MTN`s financial position, changes in equity and
results of its operations or cash flows. It does not purport
to be indicative of what the financial results would have
been, had the Newshelf Acquisition been implemented on a
different date.
The unaudited pro forma financial information is based on the
unaudited financial position of MTN as of 30 June 2008.
Unaudited pro forma financial information per share before and
after the Newshelf Acquisition is set out in the table below:
For the period ended 30 Before After Change
June 2008 (%)
Net asset value per SA cents 3,384.0 3,411.9 0.8
share1
Tangible net asset value SA cents 1,054.2 1,044.5 (0.9)
per share1
Basic earnings per share SA cents 334.6 338.3 1.1
(2, 3)
Diluted earnings per SA cents 326.6 330.2 1.1
share (2, 4)
Headline earnings per SA cents 339.3 343.2 1.1
share (2, 5)
Adjusted headline SA cents 408.5 413.4 1.2
earnings per share (2, 6)
Weighted average number millions 1,865.0 1,835.4 (1.6)
of shares in issue (7)
Weighted average diluted millions 1,878.0 1,848.7 (1.6)
number of shares in issue
(8)
Number of shares in issue millions 1,865.4 1,835.7 (1.6)
(9)
Notes:
1. Net asset value per share is computed by dividing total equity
attributable to ordinary shareholders by the number of
shares in issue. Tangible net asset value per share is
equal to the total equity attributable to ordinary
shareholders minus the
sum of Goodwill and Other intangible assets divided by
the weighted average number of shares in issue
2. Earnings are reduced by the Securities Transfer Tax incurred
as part of the Newshelf Acquisition.
3. Basic earnings per share is computed by dividing net earnings
attributable to ordinary shareholders by the weighted average
number of shares in issue.
4. The diluted earnings per share is computed by dividing net
earnings attributable to ordinary shareholders by the weighted
average diluted number of shares in issue.
5. Headline earnings is calculated in terms of Circular 8/2007 on
Headline Earnings issued by the South African Institute of
Chartered Accountants. Headline earnings per share is computed by
dividing headline earnings attributable to ordinary shareholders by
the weighted average number of shares in issue.
6. Adjusted headline earnings is calculated based on headline
earnings adjusted for the Nigeria pioneer status deferred tax
reversal and PUT option. Adjusted headline earnings per share is
computed by dividing headline earnings attributable to ordinary
shareholders by the weighted average number of shares in issue.
7. The weighted average number of ordinary shares in issue was
1,865.0 million for the period ended 30 June 2008 and following the
implementation of the Newshelf Acquisition was 1,835.4 million for
the period ended 30 June 2008.
8. The weighted average diluted number of ordinary shares in
issue was 1,878.0 million for the period ended 30 June 2008 and
following the implementation of the Newshelf Acquisition was
1,848.7 million for the period ended 30 June 2008.
9. The number of ordinary shares in issue as at 30 June 2008 was
1,865.4 million and following the implementation of the Newshelf
Acquisition was 1,835.7 million for the period ended 30 June 2008.
10. The assumed effective acquisition price for Newshelf`s MTN
shares held by Newshelf is R100.01.
11. The financial effects assume that the Newshelf Acquisition
took place to its full extent on 1 January 2008 for the purposes of
the Income Statement for the period ended 30 June 2008 and as at 30
June 2008 for the purposes of the Balance Sheet.
Shareholders` attention is drawn to the fact that this will
change upon implementation of the BEE Transaction.
5. Conditions precedent
The implementation of the Newshelf Acquisition will be subject
to, inter alia, the following conditions:
- obtaining MTN shareholder approval for the Newshelf
Acquisition effected by way of the specific issue of shares in
acquisition or settlement of the liabilities in Newshelf and the
specific repurchase of Newshelf`s MTN Shares. For the purposes of
this approval both Newshelf and PIC will be precluded from voting
as they are related parties (as defined in the JSE Listings
Requirements);
- the conclusion of a due diligence investigation by MTN in
respect of Newshelf to MTN`s satisfaction;
- the conclusion and implementation of the requisite legal
agreements;
- obtaining the requisite JSE approvals and other regulatory
approvals, to the extent required; and
- obtaining the approval of the South African competition
authorities for the Newshelf Acquisition.
6. Fairness opinion
The Newshelf Acquisition will constitute a related party
transaction (as defined in the JSE Listings Requirements).
Accordingly, an independent professional expert will be
appointed by MTN to opine on whether the terms and conditions
of the Newshelf Acquisition are fair to MTN shareholders.
7. Further announcement and documentation
A further announcement will be made in late January 2009 that
will provide the final terms of the Newshelf Acquisition based
on actual MTN share prices. It is envisaged that a circular
to MTN shareholders will be posted during February 2009.
Fairlands
15 December 2008
Merchant bank and transaction sponsor
Rand Merchant Bank (a division of FirstRand Bank Limited)
Legal and tax adviser
Webber Wentzel
Legal adviser to MTN`s independent directors
Werksmans Attorneys
Joint reporting accountants
PricewaterhouseCoopers Inc.
SizweNtsaluba VSP
Sponsor
Merrill Lynch South Africa (Pty) Limited
Date: 15/12/2008 08:47:25 Supplied by www.sharenet.co.za
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