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AFE/AFEP - AECI Limited - Announcement relating to the terms of the
proposed B-BBEE transaction and withdrawal of cautionary announcement
AECI LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1924/002590/06)
JSE ordinary share code: AFE
JSE preference share code: AFEP
JSE ordinary share ISIN: ZAE000000220
JSE preference share ISIN: ZAE000000238
("AECI" or "the Group")
ANNOUNCEMENT RELATING TO THE TERMS OF THE PROPOSED B-BBEE TRANSACTION AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
AECI shareholders ("Shareholders") are referred to the detailed
cautionary announcement released on the Securities Exchange News
Service ("SENS") on Tuesday, 26 July 2011, and published in the
press on Wednesday, 27 July 2011, which referred to the proposed
Broad-based Black Economic Empowerment ("B-BBEE") Transaction ("the
proposed B-BBEE Transaction") and the further cautionary
announcement released on SENS on Tuesday, 6 September 2011, and
published in the press on Wednesday, 7 September 2011.
AECI concluded the relevant trust deeds on Thursday, 6 October 2011
and subscription agreements on Wednesday, 12 October 2011
(collectively, "the Transaction Agreements") between AECI and
respectively the trustees for the time being of the AECI Employees
Share Trust ("the EST") and the trustees for the time being of the
AECI Community Education and Development Trust ("the CST").
Post the implementation of the proposed B-BBEE Transaction and the
small related party transaction between AECI and an empowerment
consortium led by Kagiso Tiso Holdings Proprietary Limited, of which
details were released on SENS on Tuesday, 26 July 2011 and published
in the press on Wednesday, 27 July 2011 ("the proposed KTH
Transaction"), 11,5% of AECI`s issued share capital (including the
AECI B Ordinary Shares but excluding treasury shares) ("Net Enlarged
Issued Share Capital") will be held by a broad base of black people
("Black"), as defined in the Department of Trade and Industry`s
Broad-Based Black Economic Empowerment Codes of Good Practice
("Codes").
The total value of the proposed B-BBEE Transaction is R1,1 billion,
based on R75,82 per AECI ordinary share ("the Notional Issue
Price"), being the volume weighted average price per AECI ordinary
share on the JSE Limited ("JSE") for the 60 days up to and including
Friday, 7 October 2011.
Post the implementation of the proposed B-BBEE Transaction and the
proposed KTH Transaction, it is expected that
AECI will have an effective 27,4% B-BBEE equity ownership when
applying the principles as defined in the Codes.
2. Strategic rationale
AECI supports the South African government`s B-BBEE initiatives and
recognises the importance of these in achieving a sustainable
economic and political environment in South Africa through
meaningful participation by Black people in the mainstream economy.
AECI is committed to the implementation and success of broad-based
empowerment throughout the Group and has already implemented a
number of initiatives relating to Employment Equity, skills
development, preferential procurement, enterprise development and
corporate social investment, including the initial empowerment of
AEL Mining Services Limited which introduced a Black strategic
equity partner in 2004.
AECI`s customers in the mining sector are increasingly making it a
condition of their procurement from the Group that it has at least a
26% effective B-BBEE equity ownership. The proposed B-BBEE
Transaction will complement the proposed KTH Transaction and it will
ensure that AECI exceeds the B-BBEE ownership target being set for
it by the customers who generate most of its business revenues.
The proposed B-BBEE Transaction will also advance AECI`s empowerment
objective of increasing Black participation in the Group by
transferring long-term economic benefits of its success to a broad
spread of Black South Africans, more specifically the Group`s
eligible employees, as set out in paragraph 3.1 below, and, through
the CST, to Black communities in areas in South Africa surrounding
the operations of the Group or areas in which the Group has an
interest ("Affected Areas").
The proposed B-BBEE Transaction and the proposed KTH Transaction
will ensure that AECI maximises its equity ownership scorecard in
terms of the Codes and the Amended Broad-Based Socio-Economic
Empowerment Charter for the South African Mining and Minerals
Industry, for the benefit of the Group.
The inclusion of employees is intended to spread a significant
portion of the benefits of the proposed B-BBEE Transaction among
AECI`s permanent employees. The sustainability and growth prospects
of AECI will be enhanced by:
* improving AECI`s ability to attract, incentivise and retain
Black employees and managers;
* aligning the interests of employees and Shareholders; and
* recognising and rewarding employees who have enabled the
success of the Group.
The inclusion of Black communities in Affected Areas in the proposed
B-BBEE Transaction is aimed at uplifting and developing skills
pertinent to AECI`s businesses, and to South Africa as a whole, in
those communities. Mathematics and science education will be a
particular focus.
3. Mechanics of the proposed B-BBEE Transaction
The proposed B-BBEE Transaction will be implemented through:
* the creation and the specific issue of 10 117 951 unlisted
redeemable convertible B ordinary shares ("AECI B Ordinary
Shares") to the EST, constituting 8% of the Net Enlarged Issued
Share Capital; and
* the specific issue of 4 426 604 AECI ordinary shares to the CST
("CST Ordinary Shares"), constituting 3,5% of the Net Enlarged
Issued Share Capital.
3.1 The EST
The beneficiaries of the EST ("Eligible Employees") will be:
* current and future permanent, Black employees and Black
managers employed by AECI`s South African operations; and
* current and future permanent, non-Black employees employed
by AECI`s South African operations who do not participate,
nor will be ineligible to participate, in any of the
Group`s existing long-term share incentive schemes.
The Group currently has about 3 900 Eligible Employees of whom
approximately 72% are Black and 12% of these are Black women.
Once the proposed B-BBEE Transaction has been approved by AECI
ordinary shareholders and becomes unconditional, the EST
beneficiaries will be entitled to elect four trustees while the
board of directors of AECI ("the Board") will be entitled to
appoint one trustee to the EST.
The EST will subscribe for 10 117 951 AECI B Ordinary Shares
for no cash consideration. The AECI B Ordinary Shares issued to
the EST will have a market value of approximately R767 million
("EST Equity Value"), using the Notional Issue Price. The EST
Equity Value will be funded by a notional loan from AECI ("EST
Notional Loan"), to be settled at the end of seven years ("the
EST Transaction Term").
The EST Transaction Term may be extended by up to one year
should market volatility result in there being no value to the
EST and its beneficiaries at the end of the initial seven year
term. The EST Transaction Term may also be anticipated in order
to facilitate an offer which, if accepted, would result in an
affected transaction as defined in the Companies Act, No. 71 of
2008 ("Companies Act").
The EST Notional Loan in respect of each Beneficiary will carry
a notional interest rate equivalent to 85% of the prime lending
rate (compounded monthly in arrears) and will be reduced by the
difference between the aggregate value of the distributions
that would have been paid to that Beneficiary had he held AECI
ordinary shares instead of AECI B Ordinary Shares and the
aggregate value of the distributions paid on the AECI B
Ordinary Shares held by him over the EST Transaction Term. At
the end of the EST Transaction Term, the outstanding notional
funding and any administrative costs of the EST paid by AECI
will be settled through the redemption of AECI B Ordinary
Shares for no consideration according to a redemption formula.
The AECI B Ordinary Shares remaining after the redemption to
settle the notional loan and administrative costs will convert
into new AECI ordinary shares and will be distributed to the
Eligible Employees.
3.1.1 Allocation and forfeiture
Allocation of the AECI B Ordinary Shares to eligible
Black and non-Black employees will be based on their
years of service and allocations to Black managers
will be linked to their annual basic salary.
Approximately 10% of the total number of AECI B
Ordinary Shares issued to the EST will be reserved
for allocation to future Eligible Employees during
the EST Transaction Term.
AECI B Ordinary Shares allocated to Eligible
Employees will be subject to a forfeiture profile
depending on the reason for Eligible Employees
leaving the employ of the Group during the EST
Transaction Term.
3.1.2 Salient terms of the AECI B Ordinary Shares
Subject to the provisions of the EST:
* the AECI B Ordinary Shares will be unlisted
redeemable convertible B ordinary shares of no
par value in the share capital of AECI and will
carry the same voting rights as AECI ordinary
shares;
* the AECI B Ordinary shares will be taken into
consideration when determining a quorum at any
general meeting of AECI Shareholders and the
Trustees (in accordance with the instructions of
the Eligible Employees in respect of the AECI B
Ordinary Shares vested in the Eligible
Employees) will be entitled to vote on any or
all resolutions proposed at any general meeting,
for so long as the AECI B Ordinary Shares are
registered in the name of the EST;
* the EST and its beneficiaries will, if declared
by the Board, be entitled to receive
distributions on the AECI B Ordinary Shares
provided that such distributions will not in any
financial year exceed 100% of the distributions
paid per AECI ordinary share. It is expected
that the AECI B Ordinary Shares will attract 10%
of the distributions declared on the AECI
ordinary shares; and
* the AECI B Ordinary Shares remaining after
redemption will convert into AECI ordinary
shares on a one-for-one basis.
3.2 The CST
The CST will among other things focus on improving
education in Black communities where AECI operates or has
an interest. The CST will complement AECI`s existing
initiatives to uplift and develop skills pertinent to
AECI`s businesses, and to South Africa as a whole. The
trust deed of the CST stipulates that at least 85% of the
economic benefit accruing to the CST will benefit Black
people and at least 30% will benefit Black women.
The CST will have five trustees ("CST Trustees") who will be
entitled to exercise all voting rights attached to the CST
Ordinary Shares. For as long as the majority of Trustees are
not independent, the Trust will not be entitled to vote the CST
Ordinary Shares. Of the five CST Trustees, at least three will
be Black, at least two will be Black women and at least three
will be independent trustees. At least one of the independent
trustees will be required to have a financial background. AECI
will have the right to appoint and remove two of the CST
Trustees.
The CST will participate in the proposed B-BBEE Transaction by
subscribing for 4 426 604 AECI ordinary shares at a par value
of R1,00 per share for a total consideration of R4 426 604,
funded by a once-off grant from AECI ("the CST Grant"). The
AECI ordinary shares issued to the CST will have a market value
of approximately R336 million, based on the Notional Issue
Price.
The difference between the market value of R335 625 115 and the
subscription consideration of R4 426 604, being R331 198 511,
will be funded as a notional loan ("CST Notional Loan"), to be
settled at the end of 10 years ("CST Transaction Term") through
a future repurchase, for no consideration, and subsequent
cancellation of AECI ordinary shares, determined in accordance
with a share cancellation formula. The CST Ordinary Shares
remaining after the repurchase and cancellation will be
retained by the CST.
The CST Transaction Term may be anticipated in order to
facilitate an offer which, if accepted, would result in an
affected transaction as defined in the Companies Act.
The CST will be entitled to receive all dividends in specie but
only 60% of cash dividends declared on the AECI ordinary shares
during the CST Transaction Term. After the CST Transaction
Term, the CST will receive 100% of dividends on AECI ordinary
shares retained by the CST.
The CST Notional Loan will carry an interest rate of 85% of the
prime lending rate (compounded monthly in arrears) and will be
reduced by the difference between the aggregate value of the
dividends declared and paid on 4 426 604 AECI ordinary shares
and the aggregate value of the dividends actually received by
the CST on the CST Ordinary Shares over the CST Transaction
Term.
4. Economic cost
AECI has estimated the economic cost of implementing the proposed B-
BBEE Transaction to be approximately R257 million. This figure has
been calculated in accordance with International Financial Reporting
Standards ("IFRS"), specifically IFRS 2 - Share-Based Payments, and
includes both transaction costs and the CST Grant.
5. Conditions precedent
The proposed B-BBEE Transaction is subject, inter alia, to the
fulfilment of the following conditions precedent:
* the passing of all requisite special and ordinary resolutions
by the requisite majority of votes at a general meeting of AECI
ordinary shareholders;
* the filing and registration of any special resolution with the
Companies and Intellectual Property Commission, to the extent
required; and
* the Master of the High Court of South Africa having issued
letters of authority to the initial trustees of the EST and the
CST to act as such.
6. Fairness opinion
The JSE does not ordinarily allow unlisted securities to be taken
into account in determining either a quorum or for the approval of
any resolution considered at shareholder meetings. However, in the
interests of B-BBEE legislation, and subject to a fairness opinion
on the terms of the AECI B Ordinary Shares, the JSE has agreed that
the AECI B Ordinary Shares can be taken into account in determining
a quorum and for the approval of any resolution considered at any
Shareholder meeting.
Ernst & Young Advisory Services Limited ("E&Y"), the independent
professional expert appointed by the Board in terms of the Listings
Requirements of the JSE, has considered the terms and conditions of
the AECI B Ordinary Shares and is of the preliminary opinion that
such terms and conditions are fair to Shareholders ("the preliminary
E&Y Opinion").
7. Opinion and recommendation of the Board
The Board has considered the terms and conditions of the proposed B-
BBEE Transaction and the preliminary E&Y Opinion and is of the
opinion that the proposed B-BBEE Transaction is in the best
interests of AECI and Shareholders and recommends that Shareholders
vote in favour of the resolutions to be proposed at the General
Meeting.
8. Unaudited pro forma financial effects
The unaudited pro forma financial effects set out below have been
prepared to assist Shareholders to assess the impact of the proposed
B-BBEE Transaction on the earnings per share ("EPS"), headline
earnings per share ("HEPS"), net asset value per share ("NAV") and
tangible net asset value per share ("TNAV").
The unaudited pro forma financial effects are presented for
illustrative purposes only and because of their nature may not
fairly present AECI`s financial position, changes in equity, results
of operations or cash flows after the proposed B-BBEE Transaction.
It has been assumed for purposes of the pro forma financial effects
that the proposed B-BBEE Transaction took place with effect from 1
January 2011 for statement of comprehensive income purposes and at
30 June 2011 for statement of financial position purposes.
The Board is responsible for the preparation of the unaudited pro
forma financial effects.
Before Effects of After the Percentage
the B-BBEE change
B-BBEE Transaction (%)
Transaction
EPS (cents) 275 (127) 148 (46)
HEPS (cents) 265 (128) 137 (48)
NAV (cents) 4 186 0 4 186 0
TNAV per share 3 184 0 3 184 0
(cents)
Notes:
1. The "Before" column has been extracted without adjustment from
the condensed consolidated unaudited interim financial results
for the half-year ended 30 June 2011.
2. The "After the B-BBEE Transaction" EPS and HEPS have been
adjusted to include the IFRS2 charge of the EST (R14,7 million)
and the CST (R120,2 million), as well as implementation
expenses of R2,0 million. The charge relating to the EST is
spread over the vesting period and varies from year to year
whilst the charge relating to the CST is recognised
immediately. The weighted average number of shares in issue has
been adjusted to exclude the 10,1 million shares issued to the
EST as these shares are treasury shares and have not been
issued to external parties. The weighted average number of
shares in issue has been adjusted further to exclude the 4,4
million shares relating to the CST as these shares are
contingently returnable and are treated as not outstanding
until the date they are no longer subject to cancellation.
3. The "After the B-BBEE Transaction" NAV and TNAV have been
adjusted to include the IFRS2 charge of the CST, though this
has no effect on the NAV or TNAV. The weighted average number
of shares in issue has been adjusted to exclude the 10,1
million shares issued to the EST as these shares are treasury
shares and have not been issued to external parties. The
weighted average number of shares in issue has been adjusted
further to exclude the 4,4 million shares relating to the CST
as these shares are contingently returnable and are treated as
not outstanding until the date they are no longer subject to
cancellation.
9. Circular and salient dates and times
A circular setting out the full terms of the proposed B-BBEE
Transaction ("the Circular"), and including the E&Y Opinion, will be
posted to Shareholders on or about Wednesday, 26 October 2011.
A general meeting ("the General Meeting") of AECI ordinary
shareholders will be convened in terms of the notice of General
Meeting attached to and forming part of the Circular, on Thursday,
24 November 2011 at 13h00 at AECI Place, Ground Floor, 24 The
Woodlands, Woodlands Drive, Woodmead, Sandton whereat AECI ordinary
shareholders will be requested to consider and, if deemed fit, pass
with or without modification the resolutions required to implement
the proposed B-BBEE Transaction.
Salient dates and times:
2011
Record date, as determined by the Board, in
accordance with Section 59 of the Companies
Act, for AECI ordinary shareholders to be
eligible to receive the Circular and notice of Friday, 21 October
General Meeting
Last day to trade AECI ordinary shares on the
JSE in order to be recorded in the share
register on the record date to be eligible to Friday, 11 November
vote at the General Meeting
Record date to be eligible to vote at the
General Meeting Friday, 18 November
Last day to lodge forms of proxy for the
General Meeting by 13h00 on Tuesday, 22 November
General Meeting of AECI ordinary shareholders Thursday, 24 November
to be held at 13h00 on
Results of General Meeting released on SENS Thursday, 24 November
Results of General Meeting published in the
South African press Friday, 25 November
Expected listing of the new AECI ordinary
shares on the JSE on or about Friday, 2 December
Notes:
* All times shown are South African local times.
* These salient dates and times are subject to change. Any
material changes will be released on SENS and published in the
South African press.
10. Withdrawal of cautionary announcement
Shareholders are advised that as a result of the full terms of the
proposed B-BBEE Transaction having now been released, Shareholders
no longer need to exercise caution when dealing in their AECI shares
in relation to the proposed B-BBEE Transaction.
Woodmead
13 October 2011
Investment bank and Attorneys and tax Reporting accountants
transaction sponsor advisers and auditors
The Standard Bank of KPMG Inc.
South Africa Limited Webber Wentzel
Accounting advisers Programme and Independent
implementation managers professional expert
Barnstone Corporate
Deloitte Services Proprietary Ernst & Young Advisory
Limited Services Limited
Corporate sponsor
Rand Merchant Bank (a
division of FirstRand
Bank Limited)
Date: 13/10/2011 10:00:01 Supplied by www.sharenet.co.za
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