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Specific issue of shares for cash BEE Transaction
MORVEST BUSINESS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 2003/012583/06)
Share code: MOR ISIN code: ZAE000152567
(“Morvest or the Company”)
BLACK ECONOMIC EMPOWERMENT (“BEE”) TRANSACTION
1. Introduction
Shareholders of Morvest are advised that the Company has entered into agreements by which it is proposing to
implement a BEE transaction in terms of which executive and non-executive directors of Morvest will obtain a
shareholding in Morvest.
2. Rationale
It is envisaged that the implementation of the BEE transaction will significantly improve the company’s BEE
credentials over the long-term and thereby ensure that it will continue to maintain its competitive advantage in
both the private and public sector. The board of directors estimate that the BEE shareholding post the BEE
transaction will be in excess of 52%, resulting in Morvest being black controlled. The BEE transaction
furthermore addresses the impact of legislative requirements, including the Preferential Procurement Policy
Framework Act, Act 5 of 2000 (“PPPFA”), which recognises only BEE ownership in relation to management,
employees and staff who are shareholders and actively involved in the business of the company.
The BEE transaction is designed to secure meaningful BEE credentials for Morvest over an extended period
whilst ensuring that the interests of the “drivers” of the business of Morvest are aligned to that of the company.
The BEE transaction further ensures the empowerment of key members of management and employees and
secures their on-going long-term commitment to the company.
3. The BEE transaction
Morvest has entered into certain agreements with Business Venture Investments No.1690 Proprietary Limited
(“BEECo”) in terms of which, subject to the fulfilment or waiver, as the case may be, of certain conditions
precedent, BEECo will subscribe for and acquire 290 000 000 new Morvest shares, representing 33% of the
post-transaction issued share capital of Morvest, by means of the issue 222 171 121 new Morvest shares to
BEECo by means of a specific issue of shares for cash (“the BEECo issue”) and the acquisition by BEECo of 67
828 879 Morvest treasury shares (“the BEECo acquisition”), respectively.
The BEECo participants in the BEECo issue and BEECo acquisition (collectively “the BEECo transaction”) are
selected key directors of Morvest and the ordinary shareholders of BEECo.
3.1 BEECo Issue
The BEECo issue is governed by the BEECo subscription agreement, in terms of which BEECo will subscribe
for 222 171 121 new Morvest shares (“subscription shares”) in terms of a specific issue of shares for cash at a
subscription price of R35 547 379, or 16 cents per share.
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The subscription shares will be listed on the JSE with effect from the subscription date and will rank pari passu
in all respects with the existing shares in issue.
3.2 The BEECo acquisition
The BEECo acquisition is governed by the BEECo acquisition agreement, in terms of which BEECo will acquire
67 828 879 Morvest shares, currently held in treasury by Morvest Information Communication Technology
Proprietary Limited (“MICT”), a wholly owned subsidiary of Morvest, (“acquisition shares”) for a consideration of
R10 852 621, or 16 cents per share.
The acquisition shares will remain listed on the JSE and will rank pari passu in all respects with the existing
shares in issue.
4. The proposed financing of 90% of the BEE transaction – BEECO class “A” preference shares
BEECo will pay Morvest 10% of the total BEECo transaction consideration, being R4 640 000, in cash. Morvest
has agreed, subject to the fulfilment of the conditions precedent, to provide BEECo with financial assistance to
fund the balance of 90% of the BEECo transaction consideration (“preference share agreement”).
The salient features of the preference share agreement is, inter alia, the following:
- Morvest shall subscribe for the BEECo class “A” preference shares for an amount equal to the
subscription amount of 90% of the BEECo transaction consideration, being R41 760 000;
- the BEECo class “A” preference shares subscription date shall be the date on which BEECo acquires the
subscription shares and acquisition shares from Morvest, which is expected to be on or about 27
September 2013;
- the obligation on Morvest to pay to BEECo the subscription price on the subscription date for the BEECo
class “A” preference shares shall be set off against 90% of the obligation on BEECo to pay to Morvest the
BEECo transaction consideration;
- each BEECo class “A” preference share shall confer on Morvest the right to receive ongoing cumulative
preferential cash dividends at a rate of 75% of the prime rate;
- the redemption date of the preference shares shall be on the seventh anniversary of the subscription
date, unless redeemed earlier in accordance with the BEECo Class "A" preference share terms;
- BEECo shall have no right to defer, withhold or adjust any payment due to Morvest;
- repayment of the BEECo class “A” preference shares shall be funded by BEECo out of dividends and
other distributions received on the Morvest shares and is governed by the Memorandum of Incorporation
of BEECo including, without limitation, the BEECo Class "A" preference share terms; and
- BEECo shall not be entitled to cede any of its rights or delegate any of its obligations under any of the
BEECo agreements without the prior written consent of Morvest.
The obligation on BEECo to make payment to Morvest under these terms and conditions of any amount due to
Morvest shall be in preference and priority to the obligation to make payment to, and the rights to receive
payment of, the holder of any other class of share in the capital of BEECo, including the BEECo class “B”
preference share, the terms of which are set out in paragraph 5.1 below.
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If an event occurs that has the effect that Morvest would be in a worse or better position, in terms of net financial
return and/or net after tax return, than it would have been in had that event not occurred, Morvest shall,
notwithstanding anything to the contrary contained herein, be entitled to give written notice thereof to BEECo,
requiring that BEECo declares an additional dividend or decrease the dividend by such an amount or margin as
to place Morvest in the same position as if that event had not taken place.
All of the components of the BEE transaction are conditional upon one another.
5. Security for performance in terms of the BEE transaction
5.1. Class “B” Preference Share
In terms of the preference share agreement, BEECo will issue a class “B” preference share to Morvest
affording the company, inter alia, the following rights:
- the right to appoint 2 of the 5 directors of BEECo;
- the right to a share of the capital profits of BEECo, such right to reduce on a sliding scale over a
seven year period as follows:
- the BEECo class “B” preference share dividend shall accrue and be accumulated, but shall not be
paid until all of the BEECo class "A" preference shares have been redeemed and all amounts
payable in relation thereto have been paid in full. Thereafter, all available cash held or received by
BEECo from time to time will forthwith be applied by BEECo to pay all accrued and accumulated
BEECo class “B” preference share dividends, and in any event prior to any distributions being paid
on any other class of share in the capital of BEECo.
- in the event of a change in control in Morvest at any time after the subscription date but not due to
the subscription, no further dividends shall accrue on the BEECo class “B” preference share
thereafter, provided that all dividends that accrued on the BEECo class “B” preference share
following a disposal of Morvest subscription shares at any time prior to such change in control
shall continue to be declared and paid. However, should the transaction which results in a change
in control itself result from a disposal of Morvest subscription shares, the formula above shall not
apply, and no BEECo class “B” preference share dividend shall arise.
- on a winding-up of BEECo, the BEECo class "B" preference share in each shall confer on Morvest
the right to payment of a BEECo class "B" preference share redemption amount, provided that
should the winding-up of the company commence in the case of BEECo prior to the seventh
anniversary of the subscription date, BEECo shall be deemed to have disposed of all of the
Morvest subscription shares then held by it on the day immediately preceding the date of the
winding-up at a price per Morvest subscription share of the 30 day VWAP of Morvest shares
calculated up to the date of the deemed disposal and the provisions set out under 6.1.3 above
shall apply. Such payment shall rank after any payment required to be made in respect of the
BEECo class "A" preference shares, but in priority to any payment to the holders of any other
class of share in the capital of BEECo; and
- BEECo shall be obliged to compulsory redeem the BEECo class “B” preference share on the later
of the date upon which all accrued BEECo class “B” preference share dividends have been paid
and the 5th (fifth) anniversary of the date of issue of the BEECo class “B” preference share.
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The Memorandum of Incorporation of BEECo contains such further terms and conditions as are usual for
shareholders’ agreements concluded at arms-length, which includes usual pre-emptive rights and obligations
and other provisions relating to the transfer of shares on, inter alia, the death, retirement, dismissal, resignation
and retrenchment of members.
5.2 Guarantee pledge and cession
BEECo participants furnished Morvest with limited pro rata guarantees for the liabilities of BEECo under and in
terms of the BEECo preference share agreement, the BEECo class “A” preference shares and the BEECo class
“B” preference share, which guarantees are secured by a pledge by each BEECo participant to Morvest of the
BEECo ordinary shares held by such BEECo participant in BEECo. BEECo participants remain entitled to vote
their BEECo shares (“BEECo guarantee pledge and cession”).
6. JSE Limited (“JSE”) Listings Requirements, documentation, shareholder approval and Takeover
Regulations
In terms of the JSE Listings Requirements, the BEECo issue is an issue of shares for cash to related parties. In
terms of Section 10 of the Listings Requirements, the proposed financing of the transaction is deemed to be a
related party transaction with material and/or non-public shareholders, and a fairness opinion on the BEE
transaction is therefore required. Morvest has appointed BDO Corporate Finance (Pty) Limited as an
Independent Professional Expert to provide a fairness opinion as to whether the BEE transaction is fair to
Morvest shareholders. A copy of the fairness opinion will be included in the circular convening a general
meeting of shareholders to approve the BEE transaction which will be posted to Morvest shareholders in due
course.
In terms of the JSE Listings Requirements, the BEECo acquisition of the Morvest treasury shares from MICT
has to comply with all provisions relating to a fresh issue of Morvest shares.
In terms of the JSE Listings Requirements, the BEECo issue, the BEECo acquisition and the preference share
agreement and proposed financial assistance requires approval of ordinary resolutions passed by a 75%
majority of the votes cast by all ordinary Morvest shareholders, excluding shareholders who are related parties
by virtue of their shareholding in BEECo and their associates, present or represented by proxy, at a general
meeting of the Company (“the general meeting”). The related parties are directors MS Varachia and his
associate, S Singh, A Evan, PS Molefe, NB January, N Mhinga and M Papiyana.
As a result of the transaction, MS Varachia, acting alone, and BEECo and related or inter-related persons to
BEECo, will be the beneficial shareholder, directly and indirectly, of in excess of 35% of the ordinary shares of
Morvest. MS Varachia, acting alone, and BEECo and related or inter-related persons to BEECo, therefore
require independent holders, holding not less than 50% of the general voting rights of all issued securities of
Morvest to agree to waive the benefit of a mandatory offer as required in terms of section 123 of the Companies
Act, Act 2008 (Act 71 of 2008) (“the Act”).
7. Conditions precedent
The BEE transaction is subject to the fulfilment or waiver, as the case may be, of, inter alia, the following
conditions precedent by 31 October 2013, or such later date as may be agreed between the parties in
writing:-
- the requisite consent of the shareholders of the company, as contemplated in the JSE Listings
Requirements, is obtained at the general meeting, in respect of the BEECo issue and BEECo acquisition;
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- the passing of a special resolution in terms of section 41(3) of the Act, by Morvest shareholders present or
represented by proxy at the general meeting as the voting power of the Morvest ordinary shares that are to
be issued pursuant to the BEE transaction will be equal to or exceed 30 percent of the voting power of all
the Morvest ordinary shares immediately before the BEE transaction;
- special resolutions as required in terms of section 44(3)(a)(ii)) and section 45(3)(a)(ii) of the Act, authorising
the financial assistance to be provided by Morvest to BEECo and its directors, respectively, are approved at
the general meeting;
- BEECo class “A” preference shares in BEECo are issued to Morvest as detailed in paragraph 4 above;
- BEECo class “B” preference share in BEECo is issued to Morvest as detailed in paragraph 5 above;
- the BEECo guarantee pledge and cession has been entered into, upon terms and conditions acceptable to
Morvest, and has become unconditional in accordance with its terms, save in respect of any condition
requiring that the BEECo preference share subscription agreement becomes unconditional;
- the BEECo acquisition and the BEECo issue have been unconditionally approved by the Competition
Authorities in terms of the Competition Act, or conditionally approved on terms and conditions which each of
BEECo and Morvest confirm in writing to the other to be acceptable to it; and
- Morvest shareholders approve the waiver to MS Varachia, acting alone, and BEECo and related or inter-
related persons to BEECo to not make a mandatory offer as required in terms of section 123 of the Act.
8. Financial information
8.1 Pro forma financial effects
The table below illustrates the unaudited pro forma financial effects of the BEE transaction based on the
published results for the six month interim period ended 30 November 2012. The preparation of the unaudited
pro forma financial effects is the responsibility of the directors of Morvest. The unaudited pro forma financial
effects have been prepared for illustrative purposes only to provide information on how the BEE transaction may
have impacted on Morvest’s results and financial position and, due to the nature thereof, may not give a fair
reflection of Morvest’s results and financial position.
As at 30 November
2012 Pro forma After the
Per Morvest share After the BEE BEE transaction
(cents) Before transaction Change % and Consolidation Change %
Basic earnings -0.62 -0.39 37.7% -1.17 (87.7%)
Fully diluted
-0.49 -0.33 32.3% -0.75 (52.5%)
earnings
Headline earnings 5.20 3.28 (36.9%) 4.65 (10.5%)
Fully diluted
4.08 2.79 (31.5%) 2.97 (27.3%)
Headline earnings
Net asset value 34.71 28.58 (17.6%) 23.47 (32.4%)
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Net tangible asset
5.77 8.89 54.1% 3.77 (34.5%)
value
Weighted average
493,140,984 783,140,984 493,140,984
shares
Diltued weighted
628,140,984 918,140,984 773,140,984
average shares
Number of shares 617,850,000 907,850,000 907,850,000
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Assumptions:
1. The pro forma Statement of Comprehensive Income (“SOCI”) figures illustrate the possible
financial effects if the transaction had taken place on 1 June 2012.
2. The pro forma Statement of Financial Position figures (“SOFP”) have been based on the
assumption that the transaction had taken place on 30 November 2012.
3. The pro forma SOCI and SOFP ("Before" column) are based on the published reviewed
financial information of Morvest for the six month period ended 30 November 2012, as
released on SENS on 21 February 2013.
4. The "BEE transaction" column relates to the following:
- The subscription of 222 171 121 shares in Morvest by BEECo
- The purchase of 67 828 879 shares in Morvest, which were previously held by MICT, by
BEECo
- The creation of intragroup loan between Morvest and MICT
- The total purchase price for the above mentioned shares amounts to R 46 400 000
- 10% of the purchase price being settled in cash amounting to R 4 640 000 ( The cash paid
by BEECo will be received by Morvest and this has a nil effect in the cash and cash
equivalents balance)
- The purchase of 10 000 000 preference shares in BEECo by Morvest amounting to R 41 760
000
5. The "After the BEE transaction" column indicates the pro-forma financial information after the
BEE transaction.
6. The "Consolidation" column relates to the consolidation of Morvest, BEECo and MICT:
- The elimination of intra-group loan between Morvest and MICT
- The elimination of treasury shares held within Morvest and BEECo
- The elimination of preference shares held between Morvest and BEECo
- The elimination of accrued Preference dividends between Morvest and BEECo
- The elimination of shares held within Morvest and BEECo for the weighted average number
of shares calculation
- The total number of shares calculation NAV/NTAV per share includes the BEECo shares
subsrcibed and sold by Morvest
7. The "Pro forma after the BEE transaction and Consolidation" column indicates the pro-forma
financial information after the Bee transaction and the Consolidation entries.
8. Transaction costs of R 1 355 304 have been expensed on the BEE transaction respectively.
These have been assumed to be non tax deductible
9. Interest lost on the reduction in cash balances as a result of the transaction costs will be
calculated at 6% being the yearly average money market rate.
10. IFRS 2 costs amounting to R 492 820 have been expensed in respect of the BEE transaction
respectively and is assumed to be non tax deductible.
11. Preference dividends have been accrued as follows:
- BEECo preference dividends accrue at a 75% of prime per annum on the outstanding capital
balance.
- All preference dividends will accrue but will not be paid out during the pro-forma period.
9.Renewal of cautionary announcement
Shareholders are referred to the cautionary announcement dated 22 July 2013 and are advised to
continue exercising caution when dealing in Morvest’ securities until a further announcement is
made.
By order of the Board
Johannesburg
29 July 2013
Corporate Advisor and Sponsor
Sasfin Capital
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(A division of Sasfin Bank Limited)
Legal Advisor
Cliffe Dekker Hofmeyr Inc.
Reporting Accountants
PKF (Gauteng)
Independent Expert
BDO Corporate Finance
Date: 30/07/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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