Wrap Text
Announcement relating to MTN's proposed R9.9 billion Broad-Based Empowerment Transaction
MTN Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1994/009584/06)
Share code: MTN ISIN: ZAE000042164
(“MTN” or the “Company” or the “MTN Group”)
ANNOUNCEMENT RELATING TO MTN’S PROPOSED R9.9 BILLION BROAD-BASED
EMPOWERMENT TRANSACTION
Highlights
- Execution of MTN's continued commitment to BEE in South Africa
- Structured unwind of MTN’s existing empowerment vehicle, MTN Zakhele, due to the
maturing of its third party funding in November 2016
- R9.9 billion new BEE transaction, MTN ZAKHELE FUTHI, consisting of up to
approximately 4% equity ownership in MTN (“2016 MTN BEE Transaction”)
- The 2016 MTN BEE Transaction, together with the continuing contribution of the MTN
Zakhele empowerment transaction, translates to an effective indirect “see-through”
black ownership in excess of 30% of MTN's South African operations
- Broadening MTN's South African effective BEE ownership through a black public offer
to black individuals and groups and an opportunity for MTN Zakhele shareholders to re-
invest in MTN ZAKHELE FUTHI as part of the structured unwinding of MTN Zakhele
- Provides exposure to MTN's geographically diversified operations, earnings and growth
markets
- Facilitation by MTN that is in line with precedent South African transactions
- MTN to provide an effective transaction discount of 20%, through additional equity in
the structure
- Transaction leveraged through vendor and third party funding
- A new employee share ownership plan (“ESOP”), excluding management and directors,
requiring no equity contribution from eligible participants to augment MTN's South
African BEE initiatives
1. INTRODUCTION
Since its incorporation in South Africa in 1994, MTN has been at the forefront of empowerment
and remains fully committed to the principles of broad-based black economic empowerment
(“BEE”). MTN also embraces the principles of BEE enshrined in the Codes of Good Practice on
Broad-Based Black Economic Empowerment (“Codes”) and relevant industry transformation
charters.
A key pillar of BEE is black equity ownership. In 2010, MTN implemented a BEE transaction
(“MTN Zakhele BEE Transaction”) in terms of which, inter alia, (i) MTN Zakhele (RF) Limited
(“MTN Zakhele”), a special purpose vehicle, issued MTN Zakhele ordinary shares (“MTN
Zakhele Shares”) to qualifying members of the black public; and (ii) MTN Zakhele acquired
and/or subscribed for MTN ordinary shares (“MTN Shares”) at a discount, up to a maximum of
4% of the then issued share capital of MTN (using a combination of equity funding, vendor
facilitation through a donation from MTN, notional vendor finance from MTN and third-party
preference share funding (“MTN Zakhele Pref Shares”)). The MTN Zakhele BEE Transaction is
proposed to be unwound on 24 November 2016 (“MTN Zakhele Unwind”) when the MTN
Zakhele Pref Shares and the notional vendor finance mature, through either the structured
unwinding of MTN Zakhele (i) in the event that the 2016 MTN BEE Transaction is implemented
(“MTN Zakhele Integrated Unwind”) or (ii) in the event that the 2016 MTN BEE Transaction is
not implemented (“MTN Zakhele Standalone Unwind”).
Following the MTN Zakhele Unwind, MTN is required intends to maintain core BEE targets as
set out in the Information and Communication Technology Sector Code (“ICT Charter”) in
relation to its South African businesses by proposing and implementing the new BEE transaction
outlined in this announcement (“2016 MTN BEE Transaction” or “Transaction”) together with
the MTN Zakhele Integrated Unwind. The MTN Zakhele Integrated Unwind is thus, for reasons
set out in paragraph 3.1 below, inextricably linked to the proposed 2016 MTN BEE Transaction.
If, however, the 2016 MTN BEE Transaction is for any reason not implemented at the time of
the MTN Zakhele Unwind (whether it be due to the non-fulfilment of any of the conditions
precedent to the Transaction (“Transaction Conditions Precedent”), or otherwise), then MTN
Zakhele proposes to implement the MTN Zakhele Standalone Unwind.
The 2016 MTN BEE Transaction is designed to offer the opportunity for long-term, sustainable
benefits to the participants in the 2016 MTN BEE Transaction (“Black Participants”) during its
proposed eight year duration (“Empowerment Period”). It is sized to ensure that, together with
the continuing contribution of the MTN Zakhele BEE Transaction, if fully subscribed, it
immediately translates to an effective indirect black ownership in excess of 30% of MTN's South
African operations under relevant industry transformation charters.
In addition to the 2016 MTN BEE Transaction, the MTN board of directors (“MTN Board”)
proposes to establish a new employee share ownership plan (“2016 ESOP”) for the benefit of
eligible MTN employees. Pursuant to the implementation of the 2016 ESOP, MTN will issue, in
total, approximately 0.1% of its current fully diluted issued ordinary share capital (excluding the
repurchase described in paragraph 3.2 below) to be held in a trust for the benefit of eligible
MTN employees (pending vesting). Management and directors of MTN will not participate in
the 2016 ESOP.
2. RATIONALE FOR AND PRINCIPLES OF THE 2016 MTN BEE TRANSACTION
BEE is integral to the ethos of MTN and MTN believes that broad-based BEE participation is
important to its future success as a group. Following the MTN Zakhele Unwind in November
2016, MTN intends to maintain its core BEE ownership targets through the proposed
implementation of the 2016 MTN BEE Transaction.
MTN has been guided primarily by the following principles in structuring the 2016 MTN BEE
Transaction:
- affording existing participants in the MTN Zakhele BEE Transaction the opportunity to
re-invest in the 2016 MTN BEE Transaction as part of the MTN Zakhele Integrated
Unwind;
- the vesting (through a new company, MTN Zakhele Futhi (RF) Limited (“MTN Zakhele
Futhi”)) of full voting and economic rights to the Black Participants from inception;
- achieving a sustainable and robust BEE transaction at a realistic economic cost (inclusive
of any dilution) to MTN shareholders;
- broadening MTN’s South African BEE ownership by structuring the 2016 MTN BEE
Transaction to include an offer to the black public; and
- giving effect to the terms and spirit of the Codes and relevant industry transformation
charters and their requirements for the empowerment of MTN’s South African
businesses.
3. THE MTN ZAKHELE UNWIND
3.1 Background
MTN Shareholders are referred to the announcement published by MTN Zakhele on SENS on
22 August 2016, simultaneously with this announcement, for further information on the MTN
Zakhele Unwind.
The MTN Zakhele BEE Transaction was established as a 6-year scheme, with the requirement
for MTN Zakhele ordinary shareholders (“MTN Zakhele Shareholders”) to be (and remain)
qualifying black persons and groups to endure until, and for the third party preference share
funding and notional vendor finance from MTN to mature on, 24 November 2016, being the
6th anniversary of the start of the scheme.
A key common element in both the MTN Zakhele Integrated Unwind and the MTN Zakhele
Standalone Unwind is the possibility for MTN Zakhele to be efficiently and effectively unwound
through a scheme of arrangement (pursuant to section 114 of the Companies Act, 2008 (No.
71 of 2008), as amended (“Companies Act”)) facilitated by MTN (“MTN Zakhele Unwinding
Scheme”). In broad terms, under the MTN Zakhele Unwinding Scheme, MTN Zakhele will
repurchase and cancel all of the MTN Zakhele Shares from MTN Zakhele Shareholders (save
for a single share to be acquired by Mobile Telephone Networks Holdings Limited (“MTN
Holdings”) and any shares held by dissenting MTN Zakhele Shareholders) in exchange for three
consideration options in respect of each MTN Zakhele Shareholders' proportionate interest in
such number of MTN Shares as remain in MTN Zakhele after taking into account, paying and/or
providing for, all liabilities, costs/provisions and associated taxes of and incidental to the MTN
Zakhele Unwind (“MTN Zakhele's Net Assets”).
The following three options (or a combination thereof) are available for election by MTN
Zakhele Shareholders in consideration for the disposal of their MTN Zakhele Shares to MTN
Zakhele (subject to rounding and certain minimum election thresholds):
Option 1
- A cash amount equal to the proceeds (net of all realisation costs and Securities
Transfer Taxes (“STT”)) on disposal of their MTN Shares comprising their
proportionate interest in MTN Zakhele's Net Assets.
Option 2
- A number of MTN Shares equal to their proportionate interest in MTN Zakhele's Net
Assets (net of STT).
In addition, should the 2016 MTN BEE Transaction proceed, MTN Zakhele Shareholders will be
offered an additional option, as follows:
Option 3
- A re-investment alternative (“Re-investment Option”) in terms of which MTN Zakhele
Shareholders will be given the option to elect to re-invest a portion (or, if applicable,
all) of their proportionate interest in MTN Zakhele's Net Assets in the 2016 MTN BEE
Transaction (“MTN Zakhele Re-investment” or “MTN Zakhele Re-investment Offer”),
such that the re-investing MTN Zakhele Re-investment Shareholders will (subject to
applicable scaling principles and subsequent allocations) receive from MTN Zakhele a
number of MTN Zakhele Futhi ordinary shares (“MTN Zakhele Futhi Ordinary Shares”)
in consideration for, and equivalent to the value, of their proportionate interest in
MTN Zakhele's Net Assets (valued at the 30 trading day volume weighted average
price (“VWAP”) of an MTN Share as at 17 November 2016 (“Repurchase Share
Price”)). The Re-investment Option effectively allows MTN Zakhele Shareholders to
elect to re-invest the “proceeds” received from the sale of their MTN Zakhele Shares
to MTN Zakhele in MTN Zakhele Futhi Ordinary Shares.
Following the implementation of the MTN Zakhele Unwinding Scheme (both in the event of
the implementation of MTN Zakhele Integrated Unwind or the MTN Zakhele Standalone
Unwind, as the case may be), MTN Zakhele will become a wholly-owned subsidiary of MTN
Holdings and MTN Holdings will undertake and manage the orderly unwinding and
deregistration of MTN Zakhele in due course.
If MTN Zakhele Shareholders do not approve the resolutions required to give effect to the
MTN Zakhele Unwinding Scheme (or, for any other reason, the MTN Zakhele Unwinding
Scheme fails to become operative), neither the MTN Zakhele Integrated Unwind nor the
MTN Zakhele Standalone Unwind will proceed and none of the above unwind options will be
available to MTN Zakhele Shareholders. However, to enable an orderly redemption by MTN
Zakhele of the MTN Zakhele Pref Shares and related liabilities, the MTN Zakhele Specific
Repurchase, as such term is defined in paragraph 3.2 below, will still be implemented should
the 2016 MTN BEE Transaction proceed.
3.2 MTN Zakhele Specific Repurchase
The specific repurchase of MTN Shares by MTN from MTN Zakhele (“MTN Zakhele Specific
Repurchase”) is an integral part of the 2016 MTN BEE Transaction and is also one of the
conditions to the third party funding of the 2016 MTN BEE Transaction. The MTN Zakhele
Specific Repurchase will only occur if the 2016 MTN BEE Transaction proceeds.
Under the agreement governing the MTN Zakhele Specific Repurchase, MTN will repurchase
from MTN Zakhele such number of MTN Shares (“MTN Repurchase Shares”) at the
Repurchase Share Price that will (i) enable MTN Zakhele to redeem the MTN Zakhele Pref
Shares and pay or provide for other specified unwinding liabilities (settled in cash
(“Repurchase Cash”)); and (ii) in the event the MTN Zakhele Unwinding Scheme and the 2016
MTN BEE Transaction proceed, facilitate the MTN Zakhele Re-investment (settled on loan
account (“MTN Loan Claim”)).
The number of MTN Shares repurchased for the MTN Loan Claim (“Repurchase Loan Shares”)
will depend on the extent to which MTN Zakhele Shareholders elect the Re-investment Option,
and on the levels of allocations made in respect thereof.
The maximum aggregate number of MTN Repurchase Shares is 44,068,683 MTN Shares,
representing approximately 2.4% of MTN's present fully diluted share capital (excluding the
MTN Zakhele Specific Repurchase).
4. SALIENT DETAILS OF THE 2016 MTN BEE TRANSACTION
4.1 MTN Zakhele Futhi Public Offer and the MTN Zakhele Re-investment Offer
MTN intends to implement the proposed 2016 MTN BEE Transaction, through MTN Zakhele
Futhi, by means of the following core elements: (i) a public offering in terms of which black
participants will be invited to subscribe for and beneficially own MTN Zakhele Futhi Ordinary
Shares, subject to the qualification criteria set out in the prospectus to be published on or
about 12 September 2016 (“Prospectus”) in respect of the offer (“MTN Zakhele Futhi Public
Offer”); (ii) the MTN Zakhele Re-investment Offer, if the MTN Zakhele Unwinding Scheme
proceeds; (iii) MTN Zakhele Futhi raising third party finance through the issue of preference
shares (“MTN Zakhele Futhi Pref Shares”); (iv) MTN providing MTN Zakhele Futhi with funding
and vendor facilitation through, among others, notional vendor finance and the transaction
discount provided by it; and (v) the subscription for MTN Shares by MTN Zakhele Futhi using
the funding raised through these sources. (The MTN Zakhele Futhi Public Offer and the MTN
Zakhele Re-investment Offer are, together, the “MTN Zakhele Futhi Offer”).
The scheme is structured as an 8 year scheme, with the initial shareholders being locked-in for
3 years, following which the shareholders may trade among other members of the black
public.
The 2016 MTN BEE Transaction is sized to ensure that, if fully subscribed and together with
the continuing contribution of the MTN Zakhele BEE Transaction, it translates to an effective
indirect black ownership in excess of 30% of MTN's South African operations under relevant
industry transformation charters. It may be scaled down should public subscriptions under the
MTN Zakhele Futhi Public Offer and/or the number of MTN Zakhele Shares in respect of which
MTN Zakhele Shareholders elect the Re-investment Option not be sufficient. To the extent
that the aggregate equity raised from (i) the black public in the MTN Zakhele Futhi Public Offer;
and (ii) the level of the MTN Zakhele Re-investment under the MTN Zakhele Re-investment
Offer is less than R1,234.1 million (representing an approximate 2% shareholding in MTN), the
2016 MTN BEE Transaction will not be implemented.
The MTN Share price at which the 2016 MTN BEE Transaction will be implemented is a 20%
discount to the 10 day VWAP per MTN Share to 17 August 2016 of R128.50 (“Transaction
Share Price”) i.e. R102.80.
4.2 Transaction funding
Sources of funds R’m
Equity from MTN Zakhele Futhi Public Offer and MTN Zakhele Re- 2,468.3
investment Offer
MTN discount (20%) 1,974.7
MTN Zakhele Futhi Pref Shares 2,418.5
Notional vendor finance (“NVF”) from MTN 3,051.2
Total 9,912.7
Uses of funds R’m
Upfront costs and working capital 39.5
MTN Tranche 1 Subscription Shares (reflecting the initial NVF balance) 3,051.2
MTN Tranche 2 Subscription Shares (reflecting the equity raised from the 5,353.7
black public through the MTN Zakhele Futhi Public Offer, the MTN Zakhele
Pref Shares and the 20% discount)
MTN Tranche 3 Subscription Shares to settle the MTN Loan Claim 1,468.3
(reflecting the Re-investment Offer)
Total 9,912.7
Note:
1. The size of the MTN Zakhele Re-investment Offer component is indicative only and is
provided merely for illustrative purposes. The portion available for re-investment is not
presently fixed or subject to a minimum or maximum allocation. Any amounts not
subscribed for through the MTN Zakhele Re-investment Offer will be available to the black
public for subscription in the MTN Zakhele Futhi Public Offer.
5. MTN ZAKHELE FUTHI PUBLIC OFFER
The black public (including members of the black public participating via the MTN Zakhele Re-
investment Offer) could ultimately have an economic interest in up to approximately 4% of
MTN’s issued ordinary share capital on a fully diluted basis (excluding the MTN Zakhele Specific
Repurchase) through their holding of MTN Zakhele Futhi Ordinary Shares through the MTN
Zakhele Futhi Offer. It is anticipated that the MTN Zakhele Futhi Offer will be launched on or
about 12 September 2016. The Prospectus, containing the details of the MTN Zakhele Futhi
Public Offer, will be made available at participating Nedbank branches and MTN stores around
South Africa to members of the black public who wish to participate. Presently, the MTN
Zakhele Futhi Offer is expected to close on or about 21 October 2016, with a period of
approximately 4 weeks thereafter to finalise the allocations.
Only “black people” (or comparable term), as defined from time to time under relevant BEE
legislation, and “black groups” (being black majority owned and majority controlled companies
or entities) (collectively, “Black Public”) are eligible to participate in the MTN Zakhele Futhi
Offer (“Black Participants”). Participants who are found to have misrepresented their BEE
status or otherwise fail to qualify as part of the Black Public (or commit other material defaults
during the Empowerment Period) may, at MTN's election, be forced to sell their MTN Zakhele
Futhi Ordinary Shares to MTN, or persons identified by it, at a potentially significantly
discounted price. In addition, Black Participants who are found to have misrepresented their
BEE status may be guilty of a criminal offence (fraud).
6. THE 2016 ESOP
The purpose of the 2016 ESOP is to attract, motivate, reward and retain persons who contribute
to the performance of the MTN Group on a basis which aligns their interests with those of the
MTN Shareholders.
MTN proposes to establish the 2016 ESOP for the benefit of eligible MTN employees (excluding
management and directors). It is intended that the 2016 ESOP will be effective on or about 24
November 2016. Participation in the 2016 ESOP is being facilitated by MTN and/or the relevant
employer companies within the MTN group) and eligible MTN employees will not be required
to contribute any funds to participate in allocations made to them.
7. PRO FORMA FINANCIAL EFFECTS OF THE MTN ZAKHELE INTEGRATED UNWIND, 2016 MTN BEE
TRANSACTION AND 2016 ESOP
The table below sets out the pro forma financial effects of the MTN Zakhele Integrated Unwind,
the 2016 MTN BEE Transaction and the 2016 ESOP on, inter alia, MTN’s net asset value per
share, tangible net asset value per share, basic loss per share, diluted loss per share, headline
loss per share and diluted headline loss per share, based on the most recently published
reviewed condensed consolidated interim financial results of MTN for the 6 months ended 30
June 2016.
The pro forma financial information is the responsibility of the MTN directors and was prepared
for illustrative purposes only and may not, because of its nature, fairly present MTN’s financial
position, changes in equity and results of its operations or cash flows. The pro forma financial
information illustrates how the MTN Zakhele Integrated Unwind, the 2016 MTN BEE Transaction
and the 2016 ESOP may have impacted the condensed consolidated statement of financial
position and the condensed consolidated income statement of MTN assuming that the MTN
Zakhele Integrated Unwind, the 2016 MTN BEE Transaction and the 2016 ESOP had occurred on
30 June 2016 for purposes of the pro forma condensed consolidated statement of financial
position and on 1 January 2016 for purposes of the pro forma condensed consolidated income
statement. It does not purport to be indicative of what the financial results would have been,
had the MTN Zakhele Integrated Unwind, the 2016 MTN BEE Transaction and the 2016 ESOP
been implemented on a different date.
The pro forma financial effects presented below have not been reported on by a reporting
accountant. However, PricewaterhouseCoopers Inc. has been appointed to report on the
compilation of the pro forma financial effects to be included in the circular to be posted to MTN
shareholders (“Circular”), in due course, which Circular will contain their reasonable assurance
report therein.
For the 6 months ended 30 June 2016 Before the After the Percentage
MTN MTN change
Zakhele Zakhele (%)
Integrated Integrated
Unwind, Unwind,
2016 MTN 2016 MTN
BEE BEE
Transaction Transaction
and 2016 and 2016
ESOP ESOP
Net asset value per MTN Share cents 6,401.5 6,347.3 (0.85)
Tangible net asset value per MTN Share cents 3,538.9 3,444.4 (2.67)
Basic loss per MTN Share cents (301.2) (489.8) (62.63)
Diluted loss per MTN Share cents (301.2) (489.8) (62.63)
Headline loss per MTN Share cents (270.6) (458.7) (69.55)
Diluted headline loss per MTN Share cents (270.6) (458.7) (69.55)
Weighted average number of MTN millions 1,822.5 1,797.3
Shares in issue
Weighted average diluted number of millions 1,822.5 1,843.6
MTN Shares in issue
Number of MTN Shares in issue (net of millions 1,822.7 1,797.5
treasury shares and MTN Shares held by
MTN Zakhele)
Note:
1. MTN Shareholders are referred to the pro forma condensed consolidated statement of
financial position and the pro forma condensed consolidated income statement of MTN and
underlying assumptions which will be presented in the Circular for a full appreciation of the
above pro forma financial effects.
8. SALIENT DATES AND TIMES
Set out below are the salient dates and times pertaining to the implementation of the 2016
MTN BEE Transaction (assuming an MTN Zakhele Integrated Unwind):
2016
Record date for MTN Shareholders to be recorded in the register Friday, 2 September
to receive the Circular and notice of general meeting
Circular and notice of general meeting posted to MTN Thursday, 8 September
Shareholders
MTN Zakhele scheme circular, together with the Prospectus, Monday, 12 September
posted to MTN Zakhele Shareholders on or before
MTN Zakhele Futhi Offer opens at 09:00 on Monday, 12 September
Last day to trade in order for MTN Shareholders to be recorded in Tuesday, 27 September
the register in order to be eligible to vote at the general meeting
Record date in order for MTN Shareholders to be recorded in the Friday, 30 September
register in order to be eligible to vote at the general meeting
Last day for receipt of forms of proxy for the general meeting by Wednesday, 5 October
the transfer secretaries, Computershare Investor Services
Proprietary Limited, by 14:00 (or may be handed in to the
Chairman of the general meeting before the meeting commences)
on
General meeting to be held at the Registered Office of MTN, being Friday, 7 October
216 – 14th Avenue, Fairland, Gauteng, South Africa, at 14:00 on
Results of the general meeting released on SENS Friday, 7 October
Results of the general meeting published in the South African press Monday, 10 October
MTN Zakhele scheme meeting to approve the MTN Zakhele Tuesday, 11 October
Unwinding Scheme at the Sandton Convention Centre, 161 Maude
Street, Sandton, Johannesburg at 14:00 on
MTN Zakhele Futhi Offer closes at 16:00 on Friday, 21 October
MTN Zakhele Futhi Ordinary Shares allocated Wednesday, 23 November
These dates and times are subject to amendment. Any such amendment will be released on
SENS and published in the South African press.
By order of the Board of Directors of MTN Group Limited
22 August 2016
Investment bank, corporate advisor and transaction sponsor to MTN
Nedbank Corporate and Investment Banking
Legal and tax advisor to MTN, MTN Zakhele and MTN Zakhele Futhi
Webber Wentzel
Investment bank, corporate advisor, arranger and bookrunner to MTN Zakhele Futhi
Nedbank Corporate and Investment Banking
Independent Expert
KPMG
Independent Reporting Accountant
PricewaterhouseCoopers
Co-funders to MTN Zakhele Futhi
Nedbank Corporate and Investment Banking
Rand Merchant Bank
Absa Bank
Legal advisor to the co-funders to MTN Zakhele Futhi
ENSafrica
Independent legal advisors to MTN Zakhele Futhi and MTN Zakhele
Prinsloo, Tindle & Andropoulos
Beja Incorporated
Corporate advisor to MTN Zakhele
Tamela
Broker to MTN
Nedgroup Securities
Distribution agent
Nedbank
Date: 22/08/2016 08:00:00 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.
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