Wrap Text
Announcement relating to proposed amendments to Barloworld's 2008 Broad-Based Black Economic Empowerment Transaction
Barloworld Limited
(Incorporated in the Republic of South Africa)
(Registration number 1918/000095/06)
(JSE Share code: BAW)
(JSE ISIN: ZAE000026639)
(Share code: BAWP)
(JSE ISIN: ZAE000026647)
(Namibian Stock Exchange share code: BWL)
(“Barloworld” or “the Company”)
ANNOUNCEMENT RELATING TO PROPOSED AMENDMENTS TO BARLOWORLD’S 2008 BROAD-BASED BLACK ECONOMIC EMPOWERMENT
TRANSACTION
1. Introduction
Shareholders of Barloworld (“Shareholders”) are referred to the Broad-Based Black Economic
Empowerment (“B-BBEE”) transaction implemented by Barloworld in September 2008 ("the
2008 B-BBEE Transaction") and are advised that Barloworld has reached agreement with the
strategic black partner and community service group participants in the 2008 B-BBEE
Transaction relating to certain amendments to the terms of the said transaction (“the Proposed
Amendments”).
In terms of the Listings Requirements of the JSE Limited (“JSE”), the Proposed Amendments
are deemed material in relation to the terms of the 2008 B-BBEE Transaction as previously
approved by Shareholders. Accordingly, Shareholder approval for the Proposed Amendments
is required.
Full details of the Proposed Amendments will be set out in the circular to Shareholders (“the
Circular”) to be issued on or about 15 May 2015 and which will provide the full terms of the
Amendments. The salient dates and times of the general meeting of Shareholders (“the
General Meeting”) to approve the Proposed Amendments, are set out in paragraph 6 below.
2. The 2008 B-BBEE Transaction
In September 2008, Barloworld implemented the 2008 B-BBEE Transaction in terms of which
participants subscribed for ordinary shares in Barloworld, representing in aggregate 9.56% of
Barloworld’s increased issued ordinary shares after the implementation of the 2008 B-BBEE
Transaction.
The 2008 B-BBEE Transaction comprised four components, namely an employee component
(including black non-executive directors), which acquired an aggregate 2.71% of Barloworld’s
ordinary shares, an educational trust component, which acquired an aggregate 0.47% of
Barloworld’s ordinary shares, a community service group component (the “CSGs”), which
acquired an aggregate 0.95% of Barloworld’s ordinary shares and a strategic black partner
component (the “SBPs”), which acquired an aggregate 5.44% of Barloworld’s ordinary shares.
The relevant salient terms of the 2008 B-BBEE Transaction, insofar as they relate to the SBPs
and CSGs (together “the B-BBEE Participants”), are set out below:
- The B-BBEE Participants contributed equity of R44.9 million in aggregate to their respective
ring-fenced special purpose vehicles incorporated by the B-BBEE Participants for purposes
of acquiring their Barloworld ordinary shares and the loans referred to below (“Funding
SPVs”).
- The Funding SPVs entered into loan agreements for the raising of an aggregate of R1 171
million (“SPV Loans”). The Funding SPVs in turn used the proceeds of these loans,
together with a portion of their equity contributions, to advance a seven year fixed interest
rate bullet loan of R1 207 million, in aggregate, to Barloworld (“Barloworld Loans”).
- The Funding SPVs subscribed for an aggregate of 14,485,013 Barloworld ordinary shares
(“Subscription Shares”) at their par value of R0.05 per share (representing 6.40% of
Barloworld’s issued ordinary shares after the implementation of the 2008 B-BBEE
Transaction), and have been entitled to dividends and full voting rights on those shares.
- Prior to 31 December 2014, the B-BBEE Participants were not entitled to sell the shares in
their respective structures and the shares which are held in Barloworld. Between 31
December 2014 and 31 December 2017, the B-BBEE Participants will, subject to certain
restrictions, be entitled to sell the shares in their respective structures and the shares which
are held in Barloworld. One of these restrictions is that any disposal may not result in a loss
by Barloworld of its B-BBEE credentials.
- Prior to 31 December 2017, the B-BBEE Participants were not entitled to encumber the
shares in their respective structures and the shares which are held in Barloworld.
Should the 2008 B-BBEE Transaction progress in the ordinary course (i.e. in the absence of
any breach of the 2008 B-BBEE Transaction agreements by a B-BBEE Participant, for
instance), then after the twentieth business day after the seventh anniversary of the date on
which the Funding SPV of a B-BBEE Participant makes its first drawdown under the relevant
loan agreements (the seventh anniversary being 22 September 2015):
- Barloworld has the right to repurchase all of the Subscription Shares of such Funding SPV
from it, at their par value of R0.05 per share;
- Such Funding SPV will be obliged to subscribe for such number of Barloworld ordinary
shares as is equal to the number of Subscription Shares subscribed for by it (“Maturity Date
Subscription Shares”) at a subscription price which was determined by a formula and
which would be R179.69 per share (“the Subscription Price”), if the subscription were to
occur on 22 September 2015. If the subscription occurs after 22 September 2015 (which is
expected to happen), the Subscription Price will escalate at a rate of 10.98% per annum
(“the Predetermined Factor”). The Subscription Price as escalated by the Predetermined
Factor is hereinafter referred to as “the Compulsory Subscription Price”; and
- If the Funding SPV of a B-BBEE Participant is not able to pay the total Subscription Price for
the Barloworld ordinary shares which it is obliged to subscribe for, on the date that it is
obliged to do so, then, provided it is not in breach of its obligations under certain of the 2008
B-BBEE Transaction agreements, the Funding SPV will be obliged to subscribe and pay for
that number of Barloworld ordinary shares as is equal to the cash available to the Funding
SPV on the date that it is obliged to subscribe for the shares divided by the Compulsory
Subscription Price. The Funding SPV will then be afforded a period ending on 31 August
2016 to subscribe and pay for, at the Compulsory Subscription Price escalated at the prime
interest rate plus 2%, the balance of the shares. If, by 31 August 2016, all of the shares that
the Funding SPV is obliged to subscribe for have not been subscribed and paid for, then
Barloworld will be entitled to claim from the Funding SPV specific performance, without
prejudice to any other rights which Barloworld may have in that regard.
At the time of implementation of the 2008 B-BBEE Transaction, the Barloworld board of
directors (“the Board”) believed that the transaction would embrace the spirit of empowerment,
while achieving the requirements of the Department of Trade and Industry’s Codes of Good
Practice on B-BBEE, as gazetted in Government Gazette No. 29617 (“the DTI Codes”) and the
goals of Barloworld’s overarching B-BBEE strategy.
The 2008 B-BBEE Transaction was implemented just prior to the impact of the global financial
crisis on South Africa which resulted in a decline in the Barloworld share price, and lower than
expected dividends accrued to the B-BBEE Participants during the term of the 2008 B-BBEE
Transaction. Due to these factors, the current position is that it is highly unlikely that the B-
BBEE Participants or their Funding SPVs will be able to finance the subscription of all of the
Barloworld ordinary shares which they are obliged to subscribe for either on the date on which
they are obliged to subscribe for such shares or by 31 August 2016. The Board believes that if
Barloworld were to enforce its rights to claim specific performance from the Funding SPVs of
the B-BBEE Participants, any value created for the B-BBEE Participants by the 2008 B-BBEE
Transaction would be lost, including their initial equity contribution.
The Board believes that this is not aligned with the spirit in which Barloworld undertook the
2008 B-BBEE Transaction.
3. Proposed Amendments to the 2008 B-BBEE Transaction
The Board has considered various alternatives to conclude the 2008 B-BBEE Transaction in a
fair and equitable manner for the SBPs, the CSGs, Barloworld and Shareholders. The relevant
salient terms of the Proposed Amendments, for which Shareholder approval will be sought by
way of three resolutions (“B-BBEE Resolutions”) at the General Meeting, are set out below:
- On the date on which the Funding SPVs of the B-BBEE Participants are required to
subscribe for the Maturity Date Subscription Shares, they will be obliged to subscribe,
at the Subscription Price (which will be R179.69 per share), for only so many shares
which their Funding SPVs can afford from available cash resources. Thereafter, their
rights and obligations to subscribe for further shares in Barloworld, which rights and
obligations, but for the amendment, would have subsisted for another year whether or
not the Funding SPVs could fund the subscription, will terminate.
- After the Funding SPVs of the B-BBEE Participants have subscribed for the shares
referred to above, all restrictions imposed upon them relating to those shares and the
shares in the respective structures of the B-BBEE Participants will terminate. The effect
is that those restrictions which would ordinarily have subsisted until 31 December 2017
will terminate approximately two years earlier.
- To further the objective of increasing black ownership in Barloworld, the Company
proposes to issue 450 000 Barloworld shares (“the Additional Shares”) to the B-BBEE
Participants (or their applicable entities) pro-rata to the respective shareholdings of the
B-BBEE Participants’ Funding SPVs in Barloworld, for a subscription price equal to the
par value of R0.05 per Barloworld Share, which Additional Shares will be subject to a
lock-in period of 12 months from the date of issue.
The estimated cash that would be available to the Funding SPVs as at the Last Practicable
Date (being 30 April 2015) is R269.88 million. This amount includes accrued interest on the
SPV Loans and interest receivable on the Barloworld Loans. The estimated cash is based on
the difference between the Barloworld Loans and the SPV Loans and will therefore only
materialise into cash on the maturity date of 22 September 2015. It must be noted that the cash
available to the Funding SPVs will change prior to the maturity date of 22 September 2015 as a
result of future dividends, interest and capital payments. For illustrative purposes, if the
Proposed Amendments are implemented and the Funding SPVs of the B-BBEE Participants
were able to use the R269.88 million to subscribe for ordinary shares in Barloworld at the
Subscription Price, they would be entitled to subscribe for 1,501,901 ordinary shares, being
0.66% of Barloworld’s current issued ordinary shares excluding treasury shares, which they
would hold free of restrictions. If the B-BBEE Participants choose to sell these shares,
Barloworld will still claim B-BBEE ownership points under the “continued recognition” key
measurement principle in terms of the Revised DTI Codes gazetted in Government Gazette
36928 for this estimated 0.66% shareholding for a further period equal to the duration of the
2008 B-BBEE Transaction (i.e. seven years).
The B-BBEE Participants (or their applicable entities) would also be entitled to subscribe for the
450 000 Additional Shares at the par value of R0.05 per share, representing 0.20% of
Barloworld’s current issued ordinary shares excluding treasury shares, which will be subject to
a lock-in period of 12 months. Barloworld will claim B-BBEE ownership points in respect of the
Additional Shares for so long as the B-BBEE Participants (or their applicable entities) hold
these shares, and B-BBEE ownership points under the “continued recognition” key
measurement principle in terms of the Revised DTI Codes for the same period thereafter.
The Proposed Amendments will result in a once off International Financial Reporting Standards
2 charge of approximately R198.11 million.
Barloworld intends to repurchase on the open market such number of Barloworld shares as is
equal to the Barloworld shares subscribed for by the Funding SPVs of the B-BBEE Participants
(or, in the case of the Additional Shares, the applicable entities of the B-BBEE Participants)
pursuant to the Proposed Amendments in order to minimise the dilution to Shareholders. The
Subscription Price to be paid by the Funding SPVs of the B-BBEE Participants will be sufficient
to fund the cost of such repurchase.
The Board has considered the terms and conditions of the Proposed Amendments and is of the
unanimous opinion that they provide the most equitable solution for the SBPs, the CSGs,
Barloworld and Shareholders, taking into account the equity risk taken by the SBPs and CSGs,
the share price of Barloworld, and the objective of increasing black ownership in Barloworld.
4. Suspensive Conditions
The Amendments are subject to the fulfilment of the suspensive condition that, by 30 June
2015, they are approved by Shareholders. The notice of the General Meeting, which forms part
of the Circular, will set out the B-BBEE Resolutions. Each of these resolutions must be
supported by 75% or more of the voting rights exercised on the resolution by Shareholders
present or represented by proxy at the General Meeting and entitled to exercise voting rights on
the resolutions. The votes of the Funding SPVs, their associates, and, in the case of the
resolution for the Additional Shares, the applicable entities of the B-BBEE Participants, and
their associates, shall be excluded from voting.
5. Pro forma financial effects of the Proposed Amendments
The pro forma financial effects which illustrate the impact of the Proposed Amendments on the
earnings per share (“EPS”), headline earnings per share (“HEPS”), net asset value per share
(“NAV”) and tangible net asset value (“TNAV”) of Barloworld for the twelve months ended 30
September 2014, are set out below.
The pro forma financial effects are presented in accordance with the provisions of the Listings
Requirements of the JSE and the Guide on Pro Forma Financial Information issued by the
South African Institute of Chartered Accountants. These pro forma financial effects are the
responsibility of the Board.
The pro forma financial effects are presented in a manner consistent with the basis on which
the historical financial information of Barloworld has been prepared and in terms of Barloworld’s
accounting policies applied for the 30 September 2014 financial year.
The pro forma financial effects have been presented for illustrative purposes only and, because
of their nature, may not give a fair reflection of Barloworld’s financial position, changes in equity
or results of operations post the implementation of the Proposed Amendments.
It has been assumed for purposes of the pro forma financial effects that all of the Proposed
Amendments took place with effect from 1 October 2013 for statement of comprehensive
income purposes, and on 30 September 2014 for statement of financial position purposes.
Column A B C D
Additional
impact of
% % Additional %
repurchase
Before the Impact of the change change impact of change
and
Proposed Proposed between between potential between
compulsory
Amendments Amendments Columns Columns share buy Columns
subscription
A and B A and C back A and D
for shares at
R179.69
1 012 914 (9.7%) 928 (8.3%) 937 (7.4%)
EPS (cents)
Diluted EPS
1 008 910 (9.7%) 924 (8.3%) 933 (7.4%)
(cents)
883 784 (11.1%) 799 (9.4%) 807 (8.6%)
HEPS (cents)
Diluted HEPS
878 781 (11.1%) 795 (9.4%) 803 (8.5%)
(cents)
NAV per share
7 941 7 922 (0.2%) 7 992 0.6% 7 978 0.5%
(cents)
TNAV per
6 511 6 495 (0.2%) 6 575 1.0% 6 548 0.6%
share (cents)
Net shares in
issue (exclude
Treasury
212 585 213 035 0.2% 214 536 0.9% 212 585 0.0%
shares)
Weighted
average
number of
shares in issue
for EPS
calculation
211 669 212 119 0.2% 213 621 0.9% 211 669 0.0%
('000)
Adjusted
weighted
average
number of
shares in issue
for diluted EPS
calculation
212 680 213 130 0.2% 214 632 0.9% 212 680 0.0%
('000)
Net asset value
16 882 16 877 (0.0%) 17 146 1.6% 16 960 0.5%
(Rm)
Tangible net
asset value
13 841 13 836 (0.0%) 14 105 1.9% 13 919 0.6%
(Rm)
Notes:
1. Column A has been derived without adjustment from Barloworld's audited consolidated results for the
year ended 30 September 2014.
2. Column B illustrates the impact of the IFRS 2 charges, transaction costs and issue of the Additional
Shares arising as a result of the Proposed Amendments:
a. A once-off IFRS 2 charge of R155.31 million, arising from the termination of the obligation to
subscribe for further shares contemplated in paragraph 3, calculated using a Monte Carlo
simulation model using the following model inputs and assumptions:
i. Last Practicable Date 30 April 2015
ii. Primary maturity date 21 October 2015
iii. Initial Subscription Shares 14 485 013
iv. Share price on Last Practicable Date R95.10 per share
v. Maturity strike price R179.69 per share
vi. Risk free rate Swap curve
vii. Expected dividend yield 3.0%
viii. Expected volatility 25%
ix. Scheme value before amendment R182 568
x. Scheme value after amendment R155 495 942
b. The issue of 450 000 Additional Shares to B-BBEE Participants at par value of R0.05 per share
equal to R22 500;
c. A once-off IFRS 2 charge of R42.8 million related to the issue of the Additional Shares as
contemplated in paragraph 3, calculated as the difference between the Barloworld share price
as of the Last Practicable Date and the par value of R0.05 per share, multiplied by the number
of Additional Shares; and
d. Once-off transaction costs amounting to R5.19 million have been expensed.
3. Column C illustrates the additional impact of the exercise by Barloworld of its option to repurchase
14 485 013 Barloworld shares from the B-BBEE Participants at par value pursuant to the 2008 B-BBEE
Transaction on the assumption that such option will be exercised and the result of the subscription and
payment by the Funding SPVs of the B-BBEE Participants at R179.69 per share for so many shares as
they can afford from available cash resources (being 1,501,901 shares based on the cash available to
the Funding SPVs of the B-BBEE Participants as of the Last Practicable Date) and includes the impact
of Column B.
4. Column D is not a direct outcome of any of the Proposed Amendments, but Barloworld intends to
repurchase Barloworld shares on the open market to minimise the dilution of the cash subscription of
shares set out in Column C. The column illustrates the additional impact of Barloworld repurchasing
1,951,901 shares in the market at a price of R95.10 per share (as of the Last Practicable Date) and
includes the impact of Column B and C.
6. Salient dates and times
The salient dates and times in relation to the posting date of the Circular and the General
Meeting are set out below:
2015
Record date to determine which Shareholders are eligible to receive the
Circular, including the Notice of General Meeting and Form of Proxy on Friday, 8 May
Circular, including the Notice of General Meeting and Form of Proxy,
posted to Barloworld Shareholders on or about Friday, 15 May
Last day to lodge Forms of Proxy for the General Meeting by 12:00 on Wednesday, 17 June
General Meeting to be held in the Tokyo Meeting Room, Barloworld Friday, 19 June
Corporate Office, 180 Katherine Street, Sandton at 12:00 on
Results of the General Meeting released on the Stock Exchange News
Service (“SENS”) of the JSE on Friday, 19 June
Results of the General Meeting to be published in the South African
Monday, 22 June
press on
Notes:
1. All times shown in this SENS announcement are South African local times.
2. These dates and times are subject to change. Any changes will be released on SENS and published in
the South African press.
Johannesburg
12 May 2015
Investment Bank and Transaction Sponsor
The Standard Bank of South Africa Limited
Legal advisors
Bowman Gilfillan Inc.
Independent Reporting Accountants and Auditors
Deloitte & Touche
Public Relations Firm
Instinctif
Date: 12/05/2015 02:00:00 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 
