Wrap Text
Proposed BEE transaction, share repurchase, changes to exec remuneration,new non-exec fee policy, board restructure
SOVEREIGN FOOD INVESTMENTS LIMITED
Incorporated in the Republic of South Africa
Registration Number 1995/003990/06
JSE Code: SOV
ISIN Number: ZAE000009221
(“Sovereign” or the “Company”)
PROPOSED BLACK ECONOMIC EMPOWERMENT TRANSACTION, SHARE REPURCHASE, CHANGES TO EXECUTIVE REMUNERATION POLICY AND
NEW NON-EXECUTIVE DIRECTOR FEE POLICY; BOARD RESTRUCTURING AND WITHDRAWAL OF CAUTIONARY
1. Introduction
Sovereign shareholders (“Shareholders”) are referred to the cautionary announcement
published on 1 October 2015 (“Cautionary Announcement”) as read together with the
clarification announcement published on 5 October 2015.
Sovereign is pleased to inform Shareholders of the terms and conditions pertaining to the
proposed implementation of:
- an acquisition of approximately 10% (ten percent) of the issued ordinary shares in Sovereign
(“Shares”) from Shareholders by way of a repurchase by Sovereign (“Repurchase”) coupled
with a purchase by Sovereign Food Investments Limited Share Trust (“ESOP Trust”)
(“ESOP Acquisition”), at a cash consideration of R8.50 (eight Rand fifty cents) per Share
(collectively, the “Share Acquisition”);
- a sustainable, long-term Black Economic Empowerment (“BEE”) transaction (“BEE
Transaction”); and
- changes to the Company’s short and long-term incentive scheme policies applicable to
Sovereign’s executive committee (“Exco”) (“New Executive Remuneration Policy”),
collectively, the “Proposed Transactions”.
Implementation of the Share Acquisition, the BEE Transaction and the New Executive
Remuneration Policy will be inter-conditional.
In addition to the Proposed Transactions and following a restructuring of the board of directors of
Sovereign (“Board”) (“Board Restructuring”) which has been implemented (as set out in
paragraph 10 below), Sovereign proposes to implement a new non-executive director fee policy
(“NED Fee Policy”), as more fully set out in this announcement.
2. Status of the Proposed Transactions
Binding legal agreements pertaining to the BEE Transaction and the New Executive
Remuneration Policy have been entered into between Sovereign and the respective parties.
As further detailed in paragraph 6 below, the Repurchase will be implemented by way of a
scheme of arrangement in terms of section 114 of the Companies Act, No. 71 of 2008, as
amended (“Companies Act”) (“Scheme”). Subject to the Company first securing a cash
confirmation (“Cash Confirmation”) to the satisfaction of the Takeover Regulation Panel
(“Panel”) pursuant to the requirements of the Companies Regulations, 2011 (“Regulations”), the
Company will proceed to propose the Scheme to its Shareholders.
The Proposed Transactions will be subject to conditions precedent as further set out in
paragraph 9 below.
3. Objectives and rationale for the Proposed Transactions
3.1. Objectives and rationale for the Share Acquisition
- Returning capital to Shareholders, after due consideration of the Company’s current
and medium term capital and funding requirements, including in respect of the
acquisition of the Tydstroom Abattoir from Quantum Foods Proprietary Limited
(“Tydstroom Acquisition”) (further details of which were published by Sovereign in
announcements dated 11 May and 7 October 2015).
- Ensuring equitable treatment of all Shareholders, by providing all Shareholders with an
opportunity to participate in the Share Acquisition with the flexibility of tendering more
or less Shares, subject to a total of 7 336 168 Shares (“Acquisition Shares”) being
acquired.
- Enhancement of Sovereign’s future earnings per Share.
- Improvement of Sovereign’s balance sheet efficiency by utilising surplus cash reserves
to implement the Share Acquisition whilst ensuring Sovereign has a risk adjusted,
appropriate level of gearing following the implementation of the Tydstroom Acquisition.
- Reducing the effective cost of, and potential future dilution pertaining to, the
implementation of the BEE Transaction, by implementing the Share Acquisition
simultaneously.
3.2. Objectives and rationale for the BEE Transaction
- Establishment of a sustainable BEE shareholding in the Company for a minimum
period of seven years from the date of implementation of the BEE Transaction (“Lock-
in Period”), pursuant to Sovereign’s commitment to transformation and empowerment
and to enhance Sovereign’s competitiveness in the market.
- Assisting Sovereign in meeting and exceeding the minimum ownership requirements
set by the Codes of Good Practice on BBBEE published in terms of the Broad-Based
Black Economic Empowerment Act, No. 53 of 2003.
- Funding the BEE Transaction through a notional loan structure in order to avoid
potential third party financing risk (such as potential default risk) and aligning BEE
value creation with Shareholder value creation over the duration of the Lock-in Period.
- Introducing strategic BEE partners who will actively assist Sovereign in pursuing and
realising the Company’s growth objectives.
3.3. Objectives and rationale for the New Executive Remuneration Policy
- Aligning Exco’s remuneration policy with long-term Shareholder returns and
expectations.
- Providing Shareholders with upfront and long-term certainty in respect of the
remuneration structure and policy applicable to Exco.
- Strengthening Shareholder alignment by procuring a meaningful, long-term equity
investment by Exco through a seven year capital and Share injection as an investment
in support of the BEE Transaction.
4. Objectives and rationale for the NED Fee Policy
The NED Fee Policy will serve to reduce the Company’s corporate expenditure and also to better
align these costs with the size and current market capitalisation of Sovereign.
5. Objectives and rationale for the Board Restructuring
- Enabling the new BEE Trust (defined below) to independently nominate its proposed (future)
Board representatives (as further elaborated upon in paragraph 10.3. below).
- Reducing the number of executive directors serving on the Board and thereby decreasing
the number of non-executive directors required to maintain a balanced Board and the costs
associated with this, in order to align the costs of the Board more appropriately, whilst
maintaining sufficient independence of the Board.
6. Salient terms of the Share Acquisition
6.1. Overview
The Share Acquisition will be implemented on the basis that (i) the ESOP Trust will offer to
purchase up to 750 000 Shares in terms of the ESOP Acquisition and (ii) Sovereign will offer
to repurchase the balance of the Acquisition Shares in terms of the Repurchase, from all
Shareholders other than Exco members, the ESOP Trust and Crown Chickens Proprietary
Limited (“Crown Chickens”) (“Participating Shareholders”). The Share Acquisition will
result in approximately R62 million of capital being returned to Shareholders.
6.2. Share Acquisition Consideration
Participating Shareholders will receive R8.50 in cash per Share (“Share Acquisition
Consideration”) acquired by Sovereign or the ESOP Trust in terms of the Share
Acquisition. The Share Acquisition Consideration represents a 7.3% premium to the 30 day
volume weighted average trading price (“VWAP”) of a Share up to and including the date of
the Cautionary Announcement.
6.3. ESOP Acquisition
In terms of the ESOP Acquisition, the ESOP Trust will offer to acquire up to 750 000 Shares
from Participating Shareholders, constituting 0.98% of the current total Shares in issue. In
the circumstances, the ESOP Acquisition will not constitute an “affected transaction” as
defined in the Regulations.
The total maximum consideration payable by the ESOP Trust in terms of the ESOP
Acquisition amounts to R6.4 million. Sovereign will advance an interest free loan to the
ESOP Trust in order to fund the ESOP Acquisition.
The constituent elements of the Proposed Transactions are inter-conditional and accordingly
the ESOP Acquisition is conditional upon the implementation of the Repurchase and the
BEE Transaction. If the Proposed Transactions are not implemented, the ESOP Trust will
purchase Shares in the market in the ordinary course in accordance with the ESOP Trust
deed.
6.4. Repurchase
In terms of the Repurchase, Sovereign will acquire the Acquisition Shares less the Shares
purchased by the ESOP Trust pursuant to the ESOP Acquisition, representing no less than
6 586 168 Shares (representing 8.6% of total current Shares in issue) and no more than
7 336 168 Shares (representing 9.6% of total current Shares in issue).
The total consideration payable by Sovereign in terms of the Repurchase amounts to no
less than R55 million (in the event that the ESOP purchases all 750 000 Shares in terms of
the ESOP Acquisition) and no more than R63 million (in the event that the ESOP does not
purchase any Shares in terms of the ESOP Acquisition).
The Repurchase will be implemented by way of the Scheme and in accordance with the
requirements of section 48(8)(b) as read with section 114 of the Companies Act. The Board
will proceed to propose the Scheme once the Cash Confirmation is secured to the
satisfaction of the Panel.
The constituent elements of the Proposed Transactions are inter-conditional and accordingly
the Repurchase is conditional upon the implementation of the BEE Transaction.
6.5. Tender process
The Repurchase and the ESOP Acquisition will be implemented on the basis that
Participating Shareholders will be entitled to elect whether or not to sell all or any of their
Shares. If a Participating Shareholder wishes to sell Shares, then such Participating
Shareholder will be required to tender such Shares (“Tender Shares”) to Sovereign and the
ESOP Trust jointly and severally (“Tender”).
In the event that the total Tender Shares are equal to the Acquisition Shares, then the
ESOP Trust and Sovereign will each acquire 750 000 Shares and 6 586 168 Shares
respectively.
In the event that the total Tender Shares exceed the Acquisition Shares, then such excess
Tender Shares will be excluded from the Share Acquisition in a manner which will ensure
the equitable treatment of all Participating Shareholders.
In the event that the total Tender Shares are less than the Acquisition Shares, Sovereign will
invoke the provisions of the Scheme in order to acquire the remaining Shares from all
Participating Shareholders, irrespective of whether they Tendered Shares or not,
proportionate to the number of Shares held.
Further details of the manner in which excess Tender Shares will be treated and how
Shares will be acquired in terms of the Scheme, including the calculation formulas, will be
set out in the transaction circular to be distributed to Shareholders pertaining to the
Proposed Transactions (“Transaction Circular”) in due course.
7. Salient terms of the BEE Transaction
7.1. Overview
A new special purpose trust (“BEE Trust”) will be established to house the collective
interests of the following beneficiaries:
- Sovereign’s strategic BEE partners as further detailed in paragraph 7.3 below
(“Strategic Partners”);
- all employees of Sovereign and its group companies, other than Exco members,
facilitated through the establishment of an employee trust (“Employee Trust”);
- communities resident in the broader Uitenhage region, facilitated through the
establishment of a community trust (“Community Trust”); and
- Exco members,
collectively, the “BEE Trust Beneficiaries”.
The BEE Trust will subscribe for 23 877 355 new Shares which will be notionally funded by
Sovereign (“Notionally Funded Shares”). Furthermore, Exco members will collectively
contribute 1 300 795 Shares currently held by them (“Contributed Shares”) to the BEE
Trust together with an amount of approximately R6.4 million in cash (“Contributed Cash”),
in order to enable the BEE Trust to subscribe for an additional 758 031 Shares at R8.50 per
Share (“Exco Funded Shares”).
After implementation of the Share Acquisition and the BEE Transaction, the BEE Trust will
hold approximately 28.2% of Sovereign’s total Shares in issue, excluding treasury shares
held by Crown Chickens and the ESOP Trust (collectively, “Treasury Shares”).
7.2. Participation in the BEE Trust
The BEE Trust will house the interests of the BEE Trust Beneficiaries and their participation
in the BEE Trust will be facilitated through the allocation of 25 936 181 notional units in the
BEE Trust (“Trust Units”). Each Trust Unit will represent one underlying Notionally Funded
Share, Contributed Share or Exco Funded Share, as further detailed below.
The Trust Units will be allocated as follows:
- 14 264 894 Trust Units will be allocated to the Strategic Partners, Employee Trust and
Community Trust (collectively, “BEE Parties”) for no consideration, as follows:
- 10 374 472 Trust Units to the Strategic Partners (“A Units”); and
- 3 890 422 Trust Units to the Employee Trust and Community Trust (“C Units”).
- Exco members will collectively be allocated:
- 5 187 235 Trust Units (“B1 Units”);
- 1 300 795 Trust Units in settlement of the purchase consideration for the
Contributed Shares and 758 031 Trust Units in exchange for the Contributed Cash
(collectively, “B2 Units”); and
- approximately 2.15 additional Trust Units for each B2 Unit allocated, amounting to
4 425 226 Trust Units (“B3 Units”).
Capital gains tax or income tax payable by Exco members as a result of the disposal of the
Contributed Shares to the BEE Trust will be reimbursed by Sovereign, subject to a
maximum of R500 000 in aggregate and prior to deducting any income tax payable pursuant
to such reimbursement.
The Exco Funded Shares and Contributed Shares will be represented by the B2 Units and
the Notionally Funded Shares will be represented by the A Units, B1 Units, B3 Units and C
Units. Accordingly, following the implementation of the BEE Transaction, the BEE Trust
Beneficiaries will hold the following interests in the BEE Trust and see-through interests in
Sovereign:
BEE Percentage Effective see-through Effective see-through
Trust held in interest percentage of
Beneficiary the BEE Trust (number of Shares) Sovereign Shares*
Strategic Partners 40% 10 374 472 11.3%
Employee Trust 12% 3 112 336 3.4%
Community Trust 3% 778 086 0.8%
Exco members 45% 11 671 287 12.7%
Total 100% 25 936 181 28.2%
* Reflected as a percentage of the total number of Shares in issue less Treasury Shares,
following the implementation of the Proposed Transactions.
7.3. Strategic Partners
The Strategic Partners are Mr Litha Mveliso Nyhonyha, Professor Mziwakhe Phinda Madi,
Mr Tshililo Ronald Ramabulana and Mr Wanda Sowazi. Mr Nyhonyha and Professor Madi
are previous non-executive directors of Sovereign. Further information regarding the
Strategic Partners will be set out in the Transaction Circular.
7.4. Exco members
Exco comprises Messrs Christopher Coombes (CEO), Grant Lawrence Coley (CFO), Gerald
Godfrey Walter (Executive: Group Marketing), Blaine Justin van Rensburg (Executive:
Products), Ettienne du Preez (Executive: Agriculture) and Thuto Maepa (Executive: Human
Resources).
7.5. Specific issue of Shares
The BEE Trust will subscribe for the Exco Funded Shares and the Notionally Funded
Shares, collectively amounting to 24 635 386 Shares (“Subscription Shares”), at a price of
R8.50 per Subscription Share (“Subscription Price”) and constituting a total subscription
consideration of approximately R209 million. The Subscription Price represents a 7.3%
premium to the 30 day VWAP of a Share up to and including the date of the Cautionary
Announcement.
The issue of the Subscription Shares constitutes –
- a specific issue of shares for cash by Sovereign, in terms of paragraph 5.51 of the
Listings Requirements;
- an issue of Shares in excess of 30% of the issued share capital of Sovereign, as
contemplated in section 41(3) of the Companies Act; and
- an issue of Shares to a person related or inter-related to the Company, as
contemplated in section 41(1) of the Companies Act.
All Shares held by the BEE Trust, comprising the Contributed Shares, Exco Funded Shares
and Notionally Funded Shares, shall rank pari passu in all respects with all other Shares in
issue.
7.6. Settlement of the Subscription Price and notional funding
The BEE Trust will settle the subscription proceeds for the Exco Funded Shares by utilising
the Contributed Cash.
Sovereign will notionally fund the subscription proceeds for the Notionally Funded Shares
through an issue of notional preferent units in the BEE Trust to Sovereign (“Notional
Loan”). The Notional Loan will amount to approximately R203 million (“Notional Loan
Amount”) and will accrue interest at the prime rate less 150 basis points.
The Notional Loan constitutes the provision of financial assistance in terms of sections 44
and 45 of the Companies Act.
The Notional Loan and interest will be repaid out of dividends received by the BEE Trust
during the Lock-in Period as further detailed in par 7.7 below. The Notional Loan will be
repayable on the earlier of (i) expiry of the Lock-in Period and (ii) the occurrence of a
change of control in respect of Sovereign (“Notional Funding Settlement Date”).
Settlement of the Notional Loan will be implemented by way of a repurchase by Sovereign
of Notionally Funded Shares from the BEE Trust at the end of the Lock-in Period
(“Redemption Repurchase”). In terms of the Redemption Repurchase Sovereign will
repurchase, at a nominal amount, such number of Notionally Funded Shares from the BEE
Trust as is necessary to settle the Notional Loan together with any unpaid interest.
In accordance with the provisions of section 48(8)(b) as read with section 114 of the
Companies Act, the Redemption Repurchase will be implemented as a scheme of
arrangement.
7.7. Participation in dividends by the BEE Trust Beneficiaries
In the event that Sovereign pays a dividend to its Shareholders, the dividend received by the
BEE Trust will be allocated as follows:
- the dividend in respect of the Exco Funded Shares and the Contributed Shares will
accrue and be distributed to the Exco members; and
- the dividend in respect of the Notionally Funded Shares will be utilised:
- firstly, to pay or provide for any tax liabilities (if any) which have accrued as a
result of the dividend in respect of the Notionally Funded Shares;
- thereafter, 10% of the remaining available cash will be distributed to the BEE Trust
Beneficiaries;
- thereafter, to pay the interest on the Notional Loan; and
- thereafter, to settle the Notional Loan Amount.
7.8. Voting rights and restrictions in respect of Shares held by the BEE Trust and
Trust Units
The BEE Trust will not be entitled to dispose of the Shares held until expiry of the Lock-in
Period, save to the extent that an Exco member elects to dispose of B2 Units as more fully
set out below. On expiry of the Lock-in Period, the Trust Units will be redeemed in exchange
for Shares held by the BEE Trust as further detailed below.
Subject to the restrictions below, the BEE Trust Beneficiaries will be entitled to vote the
Shares held by the BEE Trust in proportion to the number of Trust Units held.
7.8.1. Exco
- Until the Notional Funding Settlement Date, each Exco member will:
- not be entitled to dispose of or encumber their B1 Units and B3 Units
represented by Notionally Funded Shares;
- not be entitled to encumber their B2 Units;
- be entitled to dispose of their B2 Units in exchange for the underlying
Contributed Shares and Exco Funded Shares, subject to a pre-emptive right
in favour of the BEE Trust, in which event the Exco member will forfeit all B1
Units and B3 Units held; and
- not be entitled to vote any of the Shares represented by their Trust Units
other than in respect of an offer which will result in a change of control of
Sovereign.
- After the Notional Funding Settlement Date, each Exco member will be entitled to:
- redeem their B2 Units represented by Contributed Shares and Exco Funded
Shares in exchange for such Shares; and
- redeem their B1 Units and B3 Units represented by Notionally Funded Shares
in exchange for a proportional amount of the remaining Notionally Funded
Shares following settlement of the Notional Loan by way of the Redemption
Repurchase.
- In the event that an Exco member leaves the employ of the Sovereign group prior
to the expiry of the Lock-in Period:
- at the election of the Exco member, B2 Units represented by Contributed
Shares and Exco Funded Shares will be redeemed for such Shares; and
- “good” and “bad” leaver provisions will apply with respect to B1 Units and B3
Units represented by Notionally Funded Shares, further details of which will
be set out in the Proposed Transactions Circular.
In the event that a member of Exco breaches the provisions of the Proposed
Transactions set out in the relevant agreements, the independent directors of
Sovereign shall be entitled to require that B2 Units are redeemed in exchange for the
Contributed Shares and Exco Funded Shares and that the B1 Units and B3 Units be
forfeited.
7.8.2. BEE Parties
Until expiry of the Lock-in Period, the BEE Parties will be entitled to vote Notionally
Funded Shares represented by their A Units and C Units but will be prohibited from
disposing of or encumbering such Trust Units.
On expiry of the Lock-in Period, the BEE Parties will be entitled to have all their Trust
Units redeemed in exchange for a proportional amount of the remaining Notionally
Funded Shares following settlement of the Notional Loan by way of the Redemption
Repurchase.
If, prior to the Notional Funding Settlement Date, a BEE Party breaches the provisions
of any agreement pertaining to the BEE Transaction, the independent directors of
Sovereign may require that all Trust Units held by such BEE Party be forfeited.
8. Details of the New Executive Remuneration Policy
8.1. New Executive Remuneration Policy
The New Executive Remuneration Policy comprises:
- the termination of the Company’s existing long-term incentive scheme (“LTIS”) and
Exco’s participation therein, including in respect of all historical, current and future
unvested allocations and all participation rights;
- the termination of the Company’s current short-term incentive scheme; and
- the creation of a new short-term incentive scheme (“New STIS”) in order to significantly
reduce the potential costs to be incurred by Sovereign in respect of short-term
incentives and to better align future costs with Shareholder value creation and more
relevant performance criteria.
The New Executive Remuneration Policy will be effected upon implementation of the
Proposed Transactions. In order to implement the New Executive Remuneration Policy it is
necessary to make various amendments to each Exco member’s employment contract
(“Employment Contract Amendments”). All the Exco members have entered into their
respective Employment Contract Amendments, which will become unconditional upon the
implementation of the Proposed Transactions.
8.2. Salient terms of the New STIS
The Salient terms of the New STIS are as follows:
- The maximum amount payable to each member of Exco will be capped at 30% of the
relevant Exco member’s annual total cost to company (Sovereign’s current short-term
incentive scheme allows a maximum payment of 100% of the relevant Exco member’s
annual total cost to company).
- Sovereign’s Human Resource and Remuneration Committee (“HR&R Committee”),
comprising only independent non-executive directors, will, in its sole discretion, set the
performance and any other conditions applicable to the New STIS, from time to time.
- Regardless of whether the performance conditions are fulfilled, payments under the
New STIS will be made at the HR&R Committee’s sole discretion.
- Payments in relation to the STIS will be made in cash and no restrictions will apply on
the application of such cash.
- The terms listed above may not be changed without prior approval by Shareholders.
9. Details of the NED Fee Policy
The introduction of the NED Fee Policy is independent of the Proposed Transactions. In terms of
the NED Fee Policy, fees payable to non-executive directors will be reduced to the following:
Role / position Annual base fee Meeting fee (per Aggregate
meeting) annual cap
Chairman New: New: New:
R300 000 R15 000 R375 000
Previously: Previously: Previously:
R525 000 R36 500 No cap
Non-executive New: New: New:
director (serving as R225 000 - R10 000 (sub- R275 000
a sub-committee committee meeting
chairman) acting as chairman); Previously:
or
No cap
- R8 000 (any other
Board / committee
meeting)
Previously:
- R17 000 (A&R
Committee chair);
- R13 000 (HR&R
Committee chair);
- R9 000 (S&E
Committee chair)
Non-executive New: New: New:
director (not serving R200 000 R8 000 R240 000
as a sub-committee
chairman) Previously: Previously: Previously:
- R158 000 (board R19 500 No cap
member)
- R 85 000 (A&R
Committee member)
- R74 000 (HR&R
Committee member)
- R33 000 (S&E
Committee member)
In respect of any particular non-executive Director who holds more than one position, the
aggregate annual cap referred to above shall be inclusive of all fees payable to such non-
executive director, regardless of the number of positions held and shall, in respect of the first
financial year, be pro-rated from 1 October 2015 to the end of the current financial year.
The NED Fee Policy will be applicable for a period of three years, from the date on which
Shareholders approve the NED Fee Policy, and shall not be amended without prior approval
from Shareholders. The NED Fee Policy shall be subject to Shareholder approval every two
years in accordance with the Companies Act. Amounts payable in terms of the NED Fee Policy
will escalate annually at CPI.
10. Details of the Board Restructuring
The Board Restructuring has been implemented and is independent of the Proposed
Transactions.
Pursuant to the provisions of paragraph 3.59 of the JSE Limited Listings Requirements
(“Listings Requirements”), Shareholders are informed of the changes to the Board set out
below.
10.1. Retirement of the chairman of the Board
Mr Charles Peter Davies has informed the Board of his intended retirement as a Board
member, in order to pursue family and personal interests, which retirement will take effect
on 29 February 2016.
Having notified the Board of his intention to retire, Mr Davies opted to retire as chairman of
the Board (“Chairman”) with effect from 10 October 2015 in order to facilitate the election of
Mr Thomas (Tom) Pritchard as new Chairman (as set out below), thereby ensuring a
smooth transition following the Board Restructuring.
Mr Davies will continue to serve as an independent non-executive director until his
retirement in order to assist Sovereign with a smooth transition, also in consideration of the
impact of the other elements of the Board Restructuring on the composition of the Board
and the relevant committees, as set out below in more detail.
Mr Davies has made an invaluable contribution to Sovereign during his tenure as Chairman
and member of the Board. The Board wishes him continued success and would like to
extend its sincere appreciation for his leadership and unwavering support to the Company
over the past approximately 10 years.
10.2. Election of a new Chairman
Mr Tom Pritchard has been appointed as Chairman with effect from 10 October 2015.
Mr Pritchard, a chartered accountant (SA), has served as a director of Sovereign since
1 November 2010 and has extensive experience in the poultry industry, in addition to having
several years of experience in private equity and consumer goods.
Mr Pritchard has in-depth knowledge of Sovereign and, combined with his sector knowledge
and experience, is well placed to lead the Board post the Board Restructuring.
10.3. Resignation of non-executive directors
Two of the Strategic Partners selected to participate in the BEE Transaction, namely Mr
Litha Mveliso Nyhonyha and Professor Mziwakhe Phinda Madi, have been Board members
since 2007.
In order to enable the BEE Trust to consider and nominate its own representatives to serve
on the Board upon implementation of the BEE Transaction, Mr Nyhonyha and Professor
Madi have voluntarily elected to step down from the Board, with effect from 9 October 2015.
Until their respective resignations, Mr Nyhonyha served as chairman of the Audit and Risk
Committee and Professor Madi served as the chairman of the HR&R Committee.
Mr Nyhonyha and Professor Madi recused themselves from all decisions pertaining to the
BEE Transaction and other elements of the Proposed Transactions, as a result of the
interconditional structure of the Proposed Transactions. Their resignations became effective
prior to the Board approving the Proposed Transactions.
The Board wishes to extend its sincere appreciation to Mr Nyhonyha and Professor Madi for
their approximately eight years of dedicated service to the Company and Sovereign is
looking forward to welcoming them back as strategic partners participating in the BEE
Transaction.
10.4. Resignation of executive directors
Following the resignation of Mr Nyhonyha and Professor Madi and in order to maintain the
balance between non-executive directors and executive directors, including ensuring an
outright majority of non-executive directors serving on the Board, Messrs Gerald Walter and
Blaine van Rensburg have volunteered to step down from the Board, with effect from
9 October 2015.
Messrs Walter and van Rensburg remain employees of the Company and members of
Exco.
10.5. Appointment of further independent Board members
Pursuant to the impending retirement of Mr Davies, the Board will proceed to search for a
suitable replacement. Furthermore, it is the Board’s intention to invite representatives of the
BEE Trust to serve on the Board upon implementation of the BEE Transaction.
Shareholders will be notified of such changes to the Board pursuant to the provisions of the
Listings Requirements.
10.6. Sub-committee membership
As a result of the Board Restructuring, various changes to the constitution of Sovereign’s
sub-committees have been implemented. The following changes have been made with
effect from 9 and 10 October 2015, respectively:
10.6.1. Audit and Risk Committee (“A&R Committee”)
- Mr Litha Nyhonyha resigned as chairman on 9 October 2015;
- Mr John Bester, a current member of the A&R Committee, has been appointed as
the chairman with effect from 10 October 2015; and
- Mr Charles Davies has been appointed as a member of the A&R Committee, with
effect from 10 October 2015, until the earlier of 29 February 2016 or the
appointment of another independent non-executive director to his position by the
Company.
10.6.2. Human Resource and Remuneration Committee (HR&R Committee)
- Professor Phinda Madi resigned as chairman on 9 October 2015;
- Mr John Bester, a current member of the HR&R Committee, has been appointed
as the interim chairman of this committee with effect from 10 October 2015, until
the earlier of 29 February 2016 or the appointment of another non-executive
director to his position, whereas it is the intention of the Board to secure a new
chairman for this position in due course, in order to further promote the
independence of the HR&R Committee;
- Mr Tom Pritchard has been appointed as a member of the HR&R Committee with
effect from 10 October 2015; and
- Mr Charles Davies, a current member of the HR&R Committee, will remain as a
member of this committee until the earlier of 29 February 2016 or the appointment
of another independent non-executive director to his position.
10.6.3. Social and Ethics Committee (“S&E Committee”)
- Professor Phinda Madi resigned as chairman on 9 October 2015;
- Mr Tom Pritchard has been appointed as a member of the S&E Committee with
effect from 10 October 2015;
- Mr John Bester, a current member of the S&E Committee, has been appointed as
the interim chairman until the earlier of 29 February 2016 and the appointment of
another independent non-executive director to his position; and
- Mr Charles Davies, a current member of the S&E Committee, will remain as a
member until the earlier of 29 February 2016 or the appointment of another
independent non-executive director to his position.
11. Conditions Precedent
11.1. The Repurchase
Upon the Board proceeding to propose the Scheme, the Repurchase will be subject to the
fulfilment of inter alia the following conditions precedent:
- the issue of the Transaction Circular to Shareholders;
- Shareholders passing a special resolution in terms of section 48(8) as read with
sections 114 and 115 of the Companies Act authorising the Scheme at a general
meeting of Shareholders convened for purposes of considering and, if deemed fit,
approving the resolutions required to approve the Proposed Transactions (“General
Meeting”);
- the receipt of unconditional approvals, consents or waivers from all regulatory bodies,
or to the extent that any such approvals, consents or waivers are subject to
conditions, such conditions being satisfactory to Sovereign;
- the Panel issuing a compliance certificate in respect of the Repurchase; and
- fulfilment of the BEE Transaction conditions set out in paragraph 11.2 below, other
than the condition relating to the implementation of the Repurchase.
11.2. The BEE Transaction and the New Executive Remuneration Policy
The BEE Transaction and the New Executive Remuneration Policy are subject to the
fulfilment or waiver (where applicable) of inter alia the following conditions precedent:
- implementation of the Repurchase;
- Shareholders approving, at the General Meeting:
- the allotment and issue of the Subscription Shares to the BEE Trust pursuant to
paragraph 5.51(g) of the Listings Requirements and in terms of sections 41(3)
and 41(1) of the Companies Act;
- the granting of financial assistance by Sovereign to the BEE Trust in terms of
sections 44 and 45 of the Companies Act;
- the Redemption Repurchase by way of a scheme of arrangement in terms of
section 48(8) as read with sections 114 and 115 of the Companies Act; and
- the execution of certain of the agreements pertaining to the Proposed Transactions by
the BEE Trust, the Employee Trust and the Community Trust and such agreements
becoming unconditional in accordance with their terms.
11.3. The NED Fee Policy
The NED Fee Policy is subject to Shareholders approving, at the General Meeting, a
special resolution in accordance with section 66(9) of the Companies Act.
12. Pro forma financial information
The table below sets out the summary pro forma financial effects of the Proposed Transactions
and the introduction of the NED Fee Policy on Sovereign’s basic earnings, headline earnings,
diluted earnings, diluted headline earnings, net asset value and net tangible asset value per
Share, both inclusive and exclusive of once-off costs. Once-off costs include a BEE share based
payment charge in terms of IFRS 2: Share-based payment and transaction costs.
The summary pro forma financial effects have been prepared to illustrate the impact of the
Proposed Transactions and the introduction of the NED Fee Policy on the audited, published
financial information of Sovereign for the year ended 28 February 2015, had the Proposed
Transactions and the introduction of the NED Fee Policy occurred on 1 March 2014 for purposes
of the statement of comprehensive income and on 28 February 2015 for purposes of the
statement of financial position.
The summary pro forma financial effects have been prepared using the accounting policies that
comply with International Financial Reporting Standards and are consistent with those applied in
the audited, published financial statements of Sovereign for the year ended
28 February 2015.
The summary pro forma financial effects set out below are the responsibility of the Board and
have been prepared for illustrative purposes only and because of their nature may not fairly
present the financial position, changes in equity and results of operations or cash flows of
Sovereign after the Proposed Transactions and the introduction of the NED Fee Policy.
The pro forma financial effects contain a preliminary estimate of the recognition of transaction
costs and the measurement and recognition of the IFRS 2 charges associated with the Proposed
Transactions based on the Board’s best estimate. The measurement and recognition of the IFRS
2 charge and costs pertaining to the Proposed Transactions are subject to review by the
reporting accountants and Sovereign’s auditors.
Before the After the
Proposed Proposed
Transactions Transactions
and After post and
introduction balance After the introduction
of the NED sheet Proposed of the NED Overall %
Fee Policy events % change Transactions % change Fee Policy % change change
(Actual) (Pro forma) (Pro forma) (Pro forma) (Pro forma) (Pro forma) (Pro forma) (Pro forma)
Notes 1 2 3 4 5 6 7 8
Excluding once-off costs
Earnings per Share excluding once-off costs
(cents) 101.9 103.3 1.3% 132.4 28.3% 134.4 1.5% 31.9%
Diluted earnings per Share excluding once-off
costs (cents) 101.9 103.3 1.3% 132.4 28.3% 134.4 1.5% 31.9%
Headline earnings per Share excluding once-off
costs (cents) 103.3 104.7 1.3% 134.0 28.0% 136.0 1.5% 31.6%
Diluted headline earnings per Share excluding
once-off costs (cents) 103.3 104.7 1.3% 134.0 28.0% 136.0 1.5% 31.6%
Net asset value per Share excluding once-off
costs (cents) 941.5 943.4 0.2% 1 004.1 6.4% 1 006.0 0.2% 6.8%
Net tangible asset value per Share excluding
once-off costs (cents) 941.5 943.4 0.2% 1 004.1 6.4% 1 006.0 0.2% 6.8%
Including once-off costs
Earnings per Share (cents) 101.9 103.3 1.3% 100.2 (3.0%) 101.8 1.6% (0.1%)
Diluted earnings per Share (cents) 101.9 103.3 1.3% 100.2 (3.0%) 101.8 1.6% (0.1%)
Headline earnings per Share (cents) 103.3 104.7 1.3% 101.8 (2.7%) 103.5 1.6% 0.1%
Diluted headline earnings per Share (cents) 103.3 104.7 1.3% 101.8 (2.7%) 103.5 1.6% 0.1%
Net asset value per Share (cents) 941.5 943.4 0.2% 980.2 3.9% 981.7 0.2% 4.3%
Net tangible asset value per Share (cents) 941.5 943.4 0.2% 980.2 3.9% 981.7 0.2% 4.3%
Number of Shares in issue 76 222 266 76 222 266 94 271 484 94 271 484
Number of Shares in issue less Treasury
Shares 75 647 266 74 662 466 66 025 503 66 025 503
Weighted average number of Shares in issue 76 128 079 75 143 279 66 506 316 66 506 316
pg. 15
Notes:
1 The “Before the Proposed Transactions and introduction of the NED Fee Policy” basic earnings,
headline earnings, diluted earnings, diluted headline earnings per Sovereign Share have been
extracted without adjustment from the audited, published financial statements of Sovereign for the
year ended 28 February 2015. The “Before the Proposed Transactions and introduction of the
NED Fee Policy” net asset value and net tangible asset value per Sovereign Share have been
calculated from the financial information presented in the audited, published financial statements
of Sovereign as at 28 February 2015.
2 The financial information included in the “After post balance sheet events” column has been
prepared based on Sovereign’s audited, published financial statements for the year ended
28 February 2015 and taking into account the following:
a. The acquisition by ESOP Trust of 350 000 Shares as detailed in the SENS announcement
published on 18 May 2015.
b. The acquisition by Crown Chickens of 634 800 Shares.
c. Recognition of taxation at a rate of 28%.
3 The percentage change is measured as the difference between the “After post balance sheet
events” column and the “Before the Proposed Transactions and introduction of the NED Fee
Policy” column as a percentage of the “Before the Proposed Transactions and introduction of the
NED Fee Policy” column.
4 The financial information included in the “After the Proposed Transactions” column has been
prepared based on Sovereign’s audited, published financial statements for the year ended
28 February 2015, adjusted for those adjustments set out in point 2 above and taking into account
the following:
a. The repurchase of 6 586 168 Shares by Sovereign and a cash payment of R55 982 428, from
Sovereign’s cash reserves, to Participating Shareholders in terms of the Share Acquisition.
b. The acquisition of 750 000 Shares by the ESOP Trust and a cash payment of R6 375 000,
funded by Sovereign from Sovereign’s cash reserves, to Participating Shareholders in terms
of the ESOP Acquisition.
c. The acquisition by the BEE Trust of 1 300 795 Contributed Shares, which Shares will be
recognised as Treasury Shares.
d. The subscription by the BEE Trust of 758 031 Exco Funded Shares, which Shares will be
recognised as Treasury Shares, and cash receipt of an amount of R6 443 264 by the BEE
Trust in terms of the Contributed Cash.
e. The subscription by the BEE Trust of 23 877 355 Notionally Funded Shares, which Shares
will be recognised as Treasury Shares, funded through the subscription by Sovereign for
23 877 355 preferent units in the BEE Trust, in terms of the Notional Loan and the
consolidation of the BEE Trust in terms of IFRS 10: Consolidated Financial Statements.
f. Termination of the LTIS and the consequent reversal of costs and an accrual relating thereto
in an amount of R12 227 000, arising in terms of the LTIS awards which vested on
28 February 2015, which adjustment is expected to have a continuing effect on the financial
information of Sovereign.
g. Amendment to the STIS as it relates to Exco by reversing costs and an accrual relating
thereto in an amount of R11 976 000 and recognising costs and an accrual of R4 042 500
(based on the New STIS cap, applied in aggregate, i.e. a maximum of 30% of the total cost to
company of each Exco member), which adjustments are expected to have a continuing effect
on the financial information of Sovereign.
h. Recognition of a once-off BEE share based payment charge of R14 011 349 and a recurring
share based payment charge of R1 854 600 in terms of IFRS 2: Share-Based Payments. The
recurring share based payment charge will have a continuing effect on the financial
information of Sovereign. A valuation of the share based payment charge is currently being
performed and will be finalised in due course.
i. Payment of once-off transaction costs attributable to the Proposed Transactions amounting to
R16 745 390, of which R8 372 695 is expensed and R8 372 695 is deducted from equity in
terms of IAS 32: Financial Instruments - Presentation.
j. Payment in cash of a maximum of R500 000 in respect of capital gains tax or income tax
payable by Exco members as a result of the disposal of the Contributed Shares.
k. Deduction of interest received of an amount of R3 020 856 in respect of the net cash amount
paid out pursuant to the Proposed Transactions.
l. Recognition of taxation at a rate of 28%.
m. Recognition of securities transfer tax at a rate of 0.25%.
5 The percentage change is measured as the difference between the “After the Proposed
Transactions” column and the “After post balance sheet events” column as a percentage of the
“After post balance sheet events” column.
6 The financial information included in the “After the Proposed Transactions and introduction of NED
Fee Policy” column has been prepared based on Sovereign’s audited, published financial
statements for the year ended 28 February 2015, adjusted for those adjustments set out in points
2 and 4 above and taking into account the following:
a. Deduction of the fees paid to non-executive directors in an amount of R3 104 000 and the
recognition of amounts paid to non-executive directors of R1 405 000 pursuant to the NED
Fee Policy, which adjustments are expected to have a continuing effect on the financial
information of Sovereign.
b. Payment of once-off transaction costs attributable to the introduction of the NED Fee Policy
amounting to R300 000 of which the total amount is expensed.
c. Recognition of interest received of an amount of R123 920 pursuant to the introduction of the
NED Fee Policy.
d. Recognition of taxation at a rate of 28%.
e. Recognition of securities transfer tax at a rate of 0.25%.
7 The percentage change is measured as the difference between the “After the Proposed
Transactions and introduction of NED Fee Policy” column and the “After the Proposed
Transactions” column as a percentage of the “After the Proposed Transactions” column.
8 The percentage change is measured as the difference between the “After the Proposed
Transactions and introduction of NED Fee Policy” column and the “Before the Proposed
Transactions and introduction of the NED Fee Policy” column as a percentage of the “Before the
Proposed Transactions and introduction of the NED Fee Policy” column.
The financial effects of the Redemption Repurchase has not been included in the above
summary pro forma financial information, however if the Redemption Repurchase were to be
implemented in the future, the effect would be a total cash payment of R1 for all Notionally
Funded Shares repurchased by Sovereign and the reduction in the number of Shares in issue by
such number of Notionally Funded Shares repurchased in terms of the Redemption Repurchase.
The summary pro forma financial effects have not been reviewed or reported on by the reporting
accountants and auditors of Sovereign.
Sovereign will be publishing interim results for the 6 month period ended 31 August 2015 on
SENS on or about 12 October 2015. Accordingly, revised pro forma financial information will be
provided to Sovereign Shareholders in due course.
13. Related parties
Mr Christopher Coombes, Mr Grant Coley, Mr Gerald Walter, Mr Blaine van Rensburg, Mr Litha
Nyhonyha and Professor Phinda Madi are directors or past directors of Sovereign and
Mr Ettienne du Preez (Executive: Agriculture) and Ms Thuto Maepa (Executive: Human
Resources) are principal executive officers of Sovereign (collectively, “Related Parties”) and will
participate in the BEE Transaction through the Trust Units held by each of them in the BEE Trust.
Accordingly, the Related Parties are considered related parties to Sovereign in terms of
paragraph 10.1(b)(ii) of the Listings Requirements and as a result the BEE Trust is considered a
related party to Sovereign in terms of paragraph 10.1(b)(vii) of the Listings Requirements.
14. Independent expert opinions
The Repurchase will be classified as an “affected transaction” in terms of section 117 of the
Companies Act. Accordingly, in anticipation of the Board proposing the Scheme, Sovereign has
convened an independent board of directors (“Independent Board”) comprised of Mr Tom
Pritchard, Mr John Bester and Mr Charles Davies to consider the terms of the Scheme.
In accordance with section 114(2) of the Companies Act, regulation 110 of the Regulations and
the Guidance Letter dated 11 November 2011 of the Listings Requirements, the Independent
Board has appointed Mazars Corporate Finance Proprietary Limited as the independent expert
(“Independent Expert”) to provide the Independent Board and the Board with external advice in
relation to the Scheme, the specific issue of shares contemplated by the BEE Transaction and
the Redemption Repurchase.
The report of the Independent Expert as well as the recommendation to the Board and the
Independent Board will be included in the Transaction Circular to be sent to Shareholders.
15. Irrevocable undertakings
Each of the Shareholders set out in the table below, who collectively hold 53.2% of the Shares
eligible for voting at the General Meeting, have irrevocably undertaken to attend the General
Meeting and vote in favour of all resolutions required to implement the Proposed Transactions
and the NED Fee Policy (“Irrevocables”):
Shareholder Number of Shares held at Percentage of
the date of providing the eligible Shares
Irrevocables
Prudential Investment Managers 15 446 776 21.1%
Sanlam Investment Management 9 350 000 12.7%
RECM/Calibre 8 646 024 11.8%
Old Mutual Investment Group 5 572 741 7.6%
Total 39 015 541 53.2%
16. Salient dates and times and other important information
Once the Company has secured the Cash Confirmation and the Company is ready to proceed
with the Repurchase, a further announcement will be published to Shareholders.
Further details relating to the Proposed Transactions and the NED Fee Policy, posting of the
Proposed Transactions Circular and the related salient dates and times will be published on
SENS in due course.
17. Withdrawal of Cautionary Announcement
Shareholders are advised that caution is no longer required to be exercised when dealing in the
Company’s securities.
Port Elizabeth
12 October 2015
Corporate advisor and Sponsor
One Capital
Attorneys to Sovereign
Cliffe Dekker Hofmeyr Inc.
pg. 19
Date: 12/10/2015 08:19:00 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
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