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PFG - Pioneer Foods Group Limited - Pioneer Foods Phase II Broad-Based
Black Economic Empowerment Transaction
Pioneer Foods Group Limited
(Incorporated in the Republic of South Africa)
Registration number: 1996/017676/06
Share code: PFG
ISIN code: ZAE 000118279
("Pioneer Foods" or "the Company")
PIONEER FOODS PHASE II BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION
1. INTRODUCTION
1.1 Pioneer Foods is pleased to propose the second phase of its Broad-
based Black Economic Empowerment ("B-BBEE") strategy to increase and
broaden direct black ownership of the Company ("Phase II B-BBEE
Transaction"). The Phase II B-BBEE Transaction will result in an
additional 13.53% black shareholding in the Company post the
implementation of the transaction and will result in an approximate
R565 million cash injection into Pioneer Foods with a further R468.6
million plus preference share dividends accruing to the Company at the
maturity of the Phase II B-BBEE Transaction. The cash injection is
earmarked to accelerate Pioneer Foods` growth strategy. The Phase II B-
BBEE Transaction is structured to be a representative range of black
entities working in a diverse range of communities that benefit the
growth and development of the Company and its corporate social
commitments, including an Education and Community Trust (which value
will equate to R637 million), black members of the board of the
Company and strategic B-BBEE partners which will include broad-based
women`s groupings. The transaction total value is therefore
approximately R1.67 billion.
1.2 In furthering Pioneer Foods` commitment to B-BBEE, the Company is
proposing, subject to the fulfilment, inter alia, of the conditions
precedent set out in paragraph 7 below, to facilitate a subscription
for shares in the issued share capital of Pioneer Foods by black
participants ("the Proposed Phase II B-BBEE Specific Issue"). The
Proposed Phase II B-BBEE Specific Issue will involve the issue of
shares equivalent to 13.53% of Pioneer Foods` ordinary issued share
capital post-implementation of the Proposed Phase II B-BBEE Specific
Issue ("enlarged issued share capital"). The enlarged issued share
capital of Pioneer Foods has been based on the number of shares in
issue prior to the Proposed Phase II B-BBEE Transaction less shares
held by subsidiary companies of Pioneer Foods plus the Proposed Phase
II B-BBEE Specific Issue.
1.3 The Phase II B-BBEE Transaction follows the successful implementation
of the first phase of Pioneer Foods` B-BBEE strategy in 2006 in terms
of which Pioneer Foods issued 10% of its then issued share capital to
a BEE trust for the benefit of employees of wholly-owned South African
subsidiaries of Pioneer Foods ("Phase I B-BBEE Transaction"). The
effective black economic empowerment ("BEE") shareholding in Pioneer
Foods pertaining to the Phase I B-BBEE Transaction currently amounts
to 4.73%. The Phase I B-BBEE Transaction has been highly successful in
creating value for participants. To date, Pioneer Foods has paid more
than R17 million in dividends to the beneficiaries of the Phase I B-
BBEE Transaction, and a further R49.8 million, as a result of the
growth in the share price, to beneficiaries of the Phase I B-BBEE
Transaction who have left the employment of Pioneer Foods.
2. THE PROPOSED PHASE II B-BBEE SPECIFIC ISSUE
2.1 The total value of the Proposed Phase II B-BBEE Specific Issue is
approximately R1.67 billion based on a 30 day volume weighted average
share price ("VWAP") of R60.10 per Pioneer Foods ordinary share
("Ordinary Share") as at the close of trading on Friday, 02 December
2011 ("indicative market price"). The effective market price for the
transaction will be determined based on the 30 day VWAP price of
Pioneer Foods Ordinary Shares as on a future date ("effective market
price").
2.2 It is intended that the Pioneer Foods Ordinary Shares to be issued as
a consequence of the Proposed Phase II B-BBEE Specific Issue, will
comprise approximately 28,670,982 Pioneer Foods Ordinary Shares, being
13.53% of Pioneer Foods` enlarged issued share capital post the
implementation of the Phase II B-BBEE Specific Issue.
2.3 The Proposed Phase II B-BBEE Specific Issue will be made to the
following black participants (collectively, "the BEE Participants"):
2.3.1 The Pioneer Foods Education and Community Trust, a broad-based
ownership scheme in terms of the BEE Codes, which will hold,
10,599,988 Ordinary Shares, being 5.00% of Pioneer Foods enlarged
issued share capital ("the Pioneer Foods Education and Community
Trust" or "PFEC Trust");
2.3.2 The following strategic B-BBEE partners ("the B-BBEE Partners"):
- Thembeka Capital Limited ("Thembeka"), which will hold, through a
ring-fenced special purpose vehicle ("SPV"), 9,326,640 Ordinary
Shares , being 4.40% of Pioneer Foods` enlarged issued share
capital;
- Identity Capital Partners (Pty) Limited ("Identity Partners"),
which will hold, through a ring-fenced SPV 2,755,997 Ordinary
Shares, being 1.30% of Pioneer Foods` enlarged issued share
capital;
- Kwa-Zulu Natal Agribusiness Women`s Trust ("KZN Trust"), which
will hold, through a ring-fenced SPV 2,755,997 Ordinary Shares ,
being 1.30% of Pioneer Foods` enlarged issued share capital;
- Sekunjalo Investments Limited ("Sekunjalo"), which will hold,
through a ring-fenced SPV 1,589,998 Ordinary Shares, being 0.75%
of Pioneer Foods` enlarged issued share capital; and
- Riparian Investments Consortium 1 (Pty) Limited ("Riparian")
which will hold, through a ring-fenced SPV 1,059,999 Ordinary
Shares, being 0.50% of Pioneer Foods` enlarged issued share
capital.
2.3.3 The following current and former black members of Pioneer Foods`
board (collectively referred to as "the Black Directors"), with
all shares to be issued to them in their personal capacity and
beheld through an SPV structure. A collective allocation of
approximately 582,363 Ordinary Shares, being 0.28% of Pioneer
Foods` enlarged share capital has been made to the Black
Directors:
- Mr Zitulele Luke (KK) Combi, the independent non-executive
chairman of Pioneer Foods;
- Mr Andile Hesperus Sangqu, an independent non-executive director
of Pioneer Foods;
- Prof. Abdus Salam Mohammad Karaan, an independent non-executive
director of Pioneer Foods;
- Mrs Nonhlanhla Sylvia Mjoli-Mncube, an independent non-executive
director of Pioneer Foods;
- Dr Mohammed Iqbal Surve, the independent non-executive vice-
chairman of Pioneer Foods; and
- Dr Franklin Abraham Sonn, a former independent non-executive
director of Pioneer Foods.
3. RATIONALE AND PIONEER FOODS BEE STRATEGY
Pioneer Foods is resolute in its commitment to BEE in order to ensure
the transfer of ownership as, inter alia envisaged in the relevant BEE
codes. This has been demonstrated through the successful
implementation of the Phase I B-BBEE Transaction. Building on this
momentum, and should the Phase II B-BBEE Transaction be implemented,
Pioneer Foods would have ensured empowerment of at least 23.50%.
Implementing the Proposed Phase II B-BBEE Specific Issue will
strengthen and broaden the direct black ownership of Pioneer Foods
with a representative range of black entities working in a diverse
range of communities that benefit the growth and development of the
Company and its corporate social commitments. The Proposed Phase II B-
BBEE Specific Issue confirms the Company`s commitment to sustainable
BEE ownership and transformation.
Its successful implementation will improve and sustain the level of
black ownership of the Company and the Company`s BEE status. Pioneer
Foods has been active in strengthening all areas of BEE activity and
is currently ranked as a Level Five BEE Contributor in terms of the
dti Codes.
4. DETAILS OF THE B-BBEE PARTNERS AND THE PIONEER FOODS EDUCATION AND
COMMUNITY TRUST
4.1 Thembeka is a broad-based black-owned and controlled investment
company that focuses on private equity and BEE transactions. It has a
proven track record of adding strategic value to its portfolio of
investment companies. Thembeka`s shareholders include over 500
individual black shareholders and several 100% black broad-based
trusts representing thousands of beneficiaries. The executive
chairman of Thembeka is Mr ZL Combi.
Thembeka has a strong balance sheet with long term investment
objectives. It has investments in numerous sectors of the economy,
including financial services and agricultural related businesses.
4.2 Identity Partners is a black women owned and controlled investment
firm which invests in established and growing businesses primarily in
the following sectors: mining and engineering services, resources and
energy, transport, and agriculture. Identity Partners` objective is to
bring black women into the mainstream of the economy through equity
participation in businesses directly and through consortia and seeks
to be a facilitator for other women and BEE businesses to access
opportunities as professionals and as entrepreneurs. Its financing
activities are carried out through the Identity Development Fund,
which manages two funds focusing on financing youth and women
entrepreneurs. The leading executives and majority shareholders of
Identity Partners are Mmes Sonja Sebotsa and Polo Radebe.
4.3 KZN Trust is a 100% black women owned economic empowerment initiative
formed to pursue opportunities that would benefit previously
disadvantaged women engaged in agriculture and rural development
efforts in KwaZulu-Natal. It consists of two companies and 200
individual women, forming part of some twenty four agricultural co-
operatives, mainly from rural areas of KwaZulu-Natal. The KZN Trust
aims to empower women and to have an impact in the fight against
poverty, through agriculture and other rural development initiatives.
These women are engaged in various agricultural activities including,
inter alia vegetable production and processing, poultry farming, egg
production and meat processing. Apart from agriculture, the KZN
Trust`s women are also engaged in other activities such as handwork,
brick-making and tourism in order to augment their income. While the
KZN Trust represents just over 200 women, the impact of its work will
be far reaching within the families and communities of its members.
4.4 Sekunjalo is a listed majority black-owned and black-controlled
investment holding company. Its major investments are in fishing,
aquaculture, pharmaceuticals, biotechnology, information technology
and telecommunications, financial services, property and enterprise
development supporting broad-based BEE and small, medium and micro
enterprises.
Sekunjalo currently employs over 740 employees directly and over 8 000
people benefit from its investments and associated companies. The
executive chairman and majority shareholder of Sekunjalo is Dr.
Mohammed Iqbal Surve.
4.5 Riparian is a majority black-owned and controlled investment holding
company established by Prof. ASM Karaan. 24% of the economic benefits
of Riparian`s issued share capital is held by two broad-based
ownership schemes as contemplated in the BEE Codes, namely the Fruit
Workers Development Trust and the Green Olive Trust. The beneficiaries
of these trusts include permanent workers on fruit farms. By providing
its beneficiaries with an exposure to shares in Riparian, these
beneficiaries will gain an indirect economic exposure to the Pioneer
Foods shares that are proposed to be issued to Riparian as part of the
Proposed Phase II B-BBEE Specific Issue.
4.6 The Pioneer Foods Education and Community Trust will be created as a
perpetual BEE trust, for the purpose of benefitting black people in
the areas and communities in which Pioneer Foods operates in South
Africa. The objectives of the PFEC Trust is to assist in the provision
of school facilities or equipment for public schools and/or other
educational institutions engaged in public benefit activities and the
provision of scholarships, bursaries, awards and loans for study,
research and teaching.
It is envisaged that the PFEC Trust share issue will ensure black
equity ownership in the Company into perpetuity.
5. DETAILS OF THE PROPOSED PHASE II B-BBEE SPECIFIC ISSUE
5.1 The Proposed Phase II B-BBEE Specific Issue will be implemented
through a specific issue of Ordinary Shares for cash by Pioneer Foods
(equal to 13.53% of Pioneer Foods` enlarged issued share capital).
5.2 The subscription price at which each of the BEE Participants will
subscribe for their respective Ordinary Shares will depend on the
commercial terms and funding structure relevant to that BEE
participant, as set out below.
5.3 THE B-BBEE PARTNERS
5.3.1 The specific issue to the B-BBEE Partners will be made at a 5%
discount to the effective market price (The BP Specific Issue").
The BP Specific Issue will be issued in terms of Pioneer Foods`
articles of association (now referred to as the memorandum of
incorporation in terms of the Companies Act 71 of 2008, as
amended ("MOI")) and on the terms and conditions and with the
rights and restrictions contained in the relevant subscription
agreements ("the BP Subscription Agreements").
5.3.2 The BP Subscription Agreements provide for a lock-in period of 7
years, during which time the B-BBEE Partners will not be entitled
to dispose of the Ordinary Shares subscribed to in terms of the
Proposed Phase II B-BBEE Specific Issue.
5.3.3 The approximate total combined subscription price payable by the
B-BBEE Partners in terms of the BP Specific Issue will amount to
R1 billion based on the indicative market price. Each B-BBEE
Partner will be required to capitalise its SPV with 55% of the
subscription price payable by that B-BBEE Partner. The SPVs will
accordingly be capitalised by a total amount of R550 million
consisting of 10% B-BBEE Partner own funding and 45% third party
funding from Rand Merchant Bank ("RMB") in the form of an A
Preference Share subscription ("A Preference Share
Subscription"). The A Preference Shares will be subscribed for
terms and conditions standard for transactions of this nature
including the following terms:
5.3.3.1 A Preference Share dividends will accrue at an annual rate
amounting to 75% of the prevailing prime interest rate on
the outstanding principal A Preference Share Subscription
amount and outstanding preference share dividends.
5.3.3.2 The A Preference Share Subscription will be structured as a
capital bullet facility with the dividends on the A
Preference Shares being serviced from dividends received by
the B-BBEE Partner SPV in respect of the Pioneer Foods
Ordinary Shares issued under the Proposed Phase II B-BBEE