Wrap Text
Terms announcement: ESOP transaction
Alexander Forbes Group Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 2006/025226/06)
JSE share code: AFH
ISIN: ZAE000191516
(“Alexander Forbes” or “the Company” or “Alexander Forbes Group”)
DETAILED TERMS ANNOUNCEMENT RELATING TO ALEXANDER FORBES’ PROPOSED 2.9%
EMPLOYEE SHARE OWNERSHIP PLAN TO BE ESTABLISHED FOR THE BENEFIT OF THE
ELIGIBLE EMPLOYEES (“ESOP TRANSACTION”) TO FACILITATE BROAD-BASED BLACK
ECONOMIC EMPOWERMENT EQUITY OWNERSHIP
Highlights
- Alexander Forbes will issue 39,070,700 ordinary shares (representing approximately 2.9% of the
issued ordinary capital of the Company after the share issuance) (the “Alexander Forbes Ordinary
Shares”) to a trust that will hold the shares on behalf of eligible employees (“ESOP Trust”);
- in terms of the trust deed of the ESOP Trust (the “ESOP Trust Deed”), Black women beneficiaries
shall, between them, be entitled to receive 70% of the net distributions made by the ESOP Trust
(representing an indirect interest of approximately 2% of the Alexander Forbes Ordinary Shares).
At inception, approximately 82% of the beneficial interest in the ESOP Trust will be held by Black
South Africans; and
- notional vendor facilitation from Alexander Forbes to ensure sustainability of the ESOP
Transaction, with minimal dilution of dividends to existing shareholders of Alexander Forbes
(“Alexander Forbes Shareholders”).
1. Introduction and rationale
Alexander Forbes supports the South African government’s broad-based black economic
empowerment (“BEE”) initiatives and recognises the importance of sustainable and meaningful
participation by Black people in the mainstream economy. Alexander Forbes is committed to the
implementation and success of broad-based BEE throughout the Alexander Forbes Group and
has already implemented a number of internal initiatives relating to employment equity, skills
development, preferential procurement, enterprise development and socio-economic
development. Maintaining its current BEE status is an essential component for ongoing business
success.
The Financial Sector Code (“FSC”) and the Department of Trade and Industry’s Codes of Good
Practice on Broad-Based Black Economic Empowerment (the “Codes”) allow for a company to
obtain, on an ongoing basis, recognition on the ownership portion of the BEE scorecard for shares
previously held by Black People (as defined in the Codes) which have been subsequently
disposed of, albeit that this cannot contribute more than 40% of the score on the ownership
scorecard. Alexander Forbes has the advantage of recognising the continuing consequences that
relate to the disposal by certain former BEE shareholders of their equity during the listing of the
Company in July 2014 in its BEE equity ownership measurement until September 2021.
However, specific ownership points are allocated under the Codes and the FSC for Black women
ownership and Alexander Forbes needs to address a shortfall in equity ownership by Black
women. The ESOP Transaction seeks to advance Alexander Forbes’ empowerment objective of
increasing participation by Black people and, specifically, Black women.
Furthermore, Alexander Forbes recognises the benefit of aligning the interests of its employees
with those of the Alexander Forbes Shareholders by providing sustainable equity-based
participation in the Alexander Forbes Group for the benefit of all current or future permanent
employees employed by the Group in South Africa and who do not participate in Alexander
Forbes’ other equity-based, long term incentive plans (“Eligible Employees”).
In the light of the imperatives identified above, and in line with the Broad-Based Black Economic
Empowerment Act, 53 of 2003 (the “B-BBEE Act”), the Codes and the FSC, Alexander Forbes has
established the ESOP Trust in order to implement the ESOP Transaction.
The sustainability and growth prospects of Alexander Forbes will be enhanced through the ESOP
Trust by:
- demonstrating Alexander Forbes’ commitment to transformation and empowerment in the
country;
- obtaining a BEE ownership status which contributes to Alexander Forbes’ overall BEE
scorecard. This, in turn, should enable the Alexander Forbes Group to win and retain
business in an environment where empowerment is a key criteria, not only for government
and parastatal business but all South African business, and allow its clients to gain
preferential procurement points;
- improving Alexander Forbes’ ability to attract and retain talented employees and
managers (particularly Black employees and managers); and
- aligning the interests of Alexander Forbes’ employees and Alexander Forbes
Shareholders and recognising and rewarding Eligible Employees who have contributed to
the success of the Company.
The purpose of this announcement is to provide Alexander Forbes Shareholders with the salient
terms of the ESOP Transaction.
2. Details of the ESOP Transaction
2.1 Specific issue of Alexander Forbes ordinary shares
Alexander Forbes will issue 39,070,700 Alexander Forbes Ordinary Shares (“Subscription
Shares”) at a nominal value of R0.01 (one cent) per share (“Subscription Price”) to the ESOP
Trust, facilitated by Alexander Forbes through a notional vendor facilitation mechanism (“NVF” or
“NVF Mechanism”). The Alexander Forbes Ordinary Shares to be issued to the ESOP Trust will
represent approximately 2.9% of Alexander Forbes’ increased issued ordinary capital (post
dilution).
For illustrative purposes, the ESOP Transaction is valued at R387 million, calculated with
reference to a similar number of Alexander Forbes Ordinary Shares and the 30-day volume
weighted average price (“VWAP”) of R9.90 per Alexander Forbes Ordinary Share to Friday, 17
April 2015, being the last practicable date prior to the finalisation of this announcement.
The Subscription Shares will be issued to the ESOP Trust, for the benefit of the Eligible
Employees, subject to the rights, restrictions and suspensions set out in the subscription and
relationship agreements (“Transaction Agreements”) and to be held subject to the terms of the
ESOP Trust Deed. Alexander Forbes will, in aggregate, contribute R390 707 (three hundred and
ninety thousand seven hundred and seven Rand) (“Subscription Amount”) in cash to the ESOP
Trust in order to enable the ESOP Trust to subscribe for the Subscription Shares.
The ESOP Transaction will be implemented upon the fulfilment of the conditions precedent set out
in paragraph 4 below (“Effective Date”).
2.2 Specific repurchase of Alexander Forbes ordinary shares
Pursuant to the NVF Mechanism, Alexander Forbes will be entitled to repurchase, at a nominal
value, a number of Subscription Shares held by the ESOP Trust as calculated in accordance with
the repurchase formula set out in the Transaction Agreements (“Specific Repurchase”). Whilst the
ESOP Trust is designed to be evergreen, the Specific Repurchase can be accelerated by
Alexander Forbes in the event of a delisting of the Alexander Forbes Ordinary Shares, a change in
control of Alexander Forbes, upon the happening of other relevant corporate actions at the
discretion of Alexander Forbes, or any time after the sixth anniversary of the Effective Date (when
the current continuing consequences expire). It can also be accelerated in the event of Alexander
Forbes exercising its call option under the Transaction Agreements. Alexander Forbes will have a
call option in terms of which it may first exercise its repurchase right under the subscription
agreement and then require the ESOP Trust to sell its remaining shares to Alexander Forbes. If
there is a negative change in the BEE rating of Alexander Forbes, the ESOP Trust will be afforded
the opportunity to take reasonable steps to address the issue, failing which Alexander Forbes will
have a call option to acquire the ESOP Trust’s remaining shares, after having first exercised its
repurchase right under the subscription agreement.
Notwithstanding the above, Alexander Forbes does not currently anticipate executing the Specific
Repurchase within 10 years of the Effective Date.
2.3 Allocation of units
The Company will, from time to time and in accordance with the ESOP Trust Deed, apply the
allocation criteria determined by the Alexander Forbes remuneration committee in order to
determine the number of units to be allocated to each Eligible Employee. The allocation criteria
will be based on an Eligible Employee’s position, seniority and years of services or tenure within
the Alexander Forbes Group. Pursuant to the terms of the ESOP Trust Deed, Black women
beneficiaries shall between them be entitled to receive 70% of the net distributions made by the
ESOP Trust. At inception, approximately 82% of the beneficial interest in the ESOP Trust will be
held by Black South Africans.
2.4 Dividends and other distributions
An amount equal to 30% of any dividends or distributions declared and paid by Alexander Forbes
and attributable to the Subscription Shares will be paid to the ESOP Trust (“Trickle Dividends”)
and, in turn, be distributed to the employee beneficiaries, net of any administration costs and less
any dividends tax. The ESOP Trust will receive the benefit of the balance of any dividends or
distributions through the reduction of the notional loan in terms of the NVF Mechanism.
2.5 Capital
The Subscription Shares (i.e. the capital assets of the ESOP Trust) shall be registered in the
name of the ESOP Trust or the ESOP Trust Trustees (as defined below) for the time being, in
their capacity as ESOP Trust Trustees.
The Eligible Employees shall have no vested rights or entitlements to the capital assets of the
ESOP Trust other than to the net surplus (if any) of the proceeds of the sale of the Subscription
Shares upon termination of the ESOP Trust.
2.6 Voting
The ESOP Trust will be entitled to exercise all voting rights attached to the Subscription Shares of
which it is the registered owner, in accordance with the instructions of the ESOP Trust
beneficiaries (for which purposes the ESOP Trust Deed entitles Black women beneficiaries to
direct the exercise of 70% of the voting rights attributable to the Alexander Forbes Ordinary
Shares held by the ESOP Trust). The Subscription Shares will not be voted (including for any
purposes contemplated in the JSE Listings Requirements) until such time as the ESOP Trust
Trustees elected by the Eligible Employee beneficiaries have been appointed.
2.7 Appointment of ESOP Trust Trustees
The ESOP Trust and trust property will be managed by five trustees (“ESOP Trust Trustees”).
Three of the ESOP Trust Trustees will be elected by the Eligible Employees and two of the ESOP
Trust Trustees will be appointed by Alexander Forbes.
2.8 Administration
Alexander Forbes will be entitled to select an administrator for the ESOP Trust and to instruct the
ESOP Trust Trustees to appoint the selected administrator to administer the ESOP Trust. The
costs and expenses of the administration of the ESOP Trust will be borne by the ESOP Trust.
2.9 Estimated economic cost
The economic cost of implementing the ESOP Transaction for Alexander Forbes Shareholders will
be the Trickle Dividends paid over the term of the ESOP Transaction (noting the ultimate potential
dilution to Alexander Forbes Shareholders would be a function of the net value to the ESOP Trust
in the event of a Specific Repurchase). The cost will be expensed as employee benefit expenses
in accordance with the IAS 19 Employee Benefits standard.
3. Unaudited pro forma financial effects of the Transaction
The unaudited pro forma financial effects of Alexander Forbes presented below are the
responsibility of the directors and are based on the most recently published unaudited interim
results of Alexander Forbes for the 6 months ended 30 September 2014. The accounting policies
of Alexander Forbes for the 6 months ended 30 September 2014 have been used in preparing the
unaudited pro forma financial effects.
The unaudited pro forma financial effects were prepared for illustrative purposes only and may,
due to the nature thereof, not fairly present Alexander Forbes’ financial position, changes in equity
and results of its operations or cash flows as at the relevant reporting date. It does not purport to
be indicative of what the financial results would have been, or will be, had the ESOP Transaction
been implemented on a different date.
The unaudited pro forma financial effects of the ESOP Transaction are as follows:
For the six months ended 30 Unaudited Unaudited Net %
September 2014 pro forma pro forma Impact change
before the after the
ESOP ESOP
Transaction Transaction
Earnings per share (cents) 9.5 9.0 (0.5) (5.9)
Diluted Earnings per share (cents) 9.5 9.0 (0.5) (5.9)
Headline earnings per share (cents) 11.5 11.0 (0.5) (4.9)
Diluted Headline earnings per share 11.5 11.0 (0.5) (4.9)
(cents)
Net asset value (NAV) per share 401.4 401.0 (0.4) (0.1)
(cents)
Tangible net asset value (TNAV) per 12.6 12.2 (0.4) (3.1)
share (cents)
Weighted average number of shares in 1 236 1 236 - 0.0
issue (million)
Diluted weighted average number of 1 236 1 236 - 0.0
shares in issue (million)
Notes and assumptions to the unaudited pro forma financial effects:
- Extracted from the published unaudited interim financial results of Alexander Forbes
Group Holdings Limited for the six months ended 30 September 2014.
- The adjustment reflects the impact of the ESOP Transaction:
- A R2million cost representing the Trickle Dividend on a normalised basis calculated
based on the company’s expected dividend cover ratio of between 1.5 and 2
times. The cost is expensed as an employee benefit expense in accordance with
the IAS 19 Employee Benefits standard.
- Transaction costs associated with the implementation of the ESOP Transaction
amounting to R5million, which are non-recurring in nature.
- The weighted average number of shares in issue and the diluted weighted average
number of shares are unchanged as the shares held by the trust are treated as
treasury shares in accordance with IFRS.
- The financial effects of the ESOP Transaction in terms of International Financial
Reporting Standards reflect the dividends paid to the beneficiaries as employee costs in
terms of IAS19, this treatment is due to the non-vesting nature of the share plan.
4. Conditions precedent
The ESOP Transaction is subject to the Company obtaining all relevant shareholder approvals as
set out in the circular to be sent to Alexander Forbes Shareholders.
Mercer Africa Limited, which owns 34.0% of the Ordinary Shares of the Company has provided
written notice to the Company that it will vote in favour of the ESOP Transaction and has waived
any and all rights which it may have in terms of the Mercer Relationship Agreement (or otherwise)
to subscribe for any additional Alexander Forbes Ordinary Shares as a result of, or in connection
with, the ESOP Transaction.
5. Documentation
Alexander Forbes Shareholders are advised that, in accordance with the JSE Listings
Requirements, a circular to Alexander Forbes Shareholders, together with a notice of a general
meeting to Alexander Forbes Shareholders, will be issued in due course.
Sandton
20 April 2015
For enquiries
Janice Salvado (Group Company Secretary)
Alexander Forbes Group Holdings Limited
Telephone +27 11 269 0000
Email Salvadoj@aforbes.co.za
Financial adviser and sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Empowerment adviser
Carvel Capital
Legal adviser
Bowman Gilfillan Inc.
Independent reporting accountants and auditors
PricewaterhouseCoopers Inc.
Date: 20/04/2015 08:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
