Wrap Text
Announcement Relating To The Proposed Amendment To Value Group’s 2010 Black Economic Empowerment Transaction
Value Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/002203/06)
Share code: VLE ISIN:ZAE000016507
(“Value Group” or “the company”)
ANNOUNCEMENT RELATING TO THE PROPOSED AMENDMENT TO VALUE GROUP’S 2010
BLACK ECONOMIC EMPOWERMENT TRANSACTION
1. INTRODUCTION
Shareholders of Value Group (“Value Group Shareholders”) are referred to the Broad-Based Black
Economic Empowerment (“B-BBEE”) transaction implemented by Value Group in 2010 ("the 2010
B-BBEE Transaction), the effective date of which was 23 July 2010 (“the Effective Date”), and are
advised that Value Group has reached agreement with the participants in the 2010 B-BBEE
Transaction regarding a proposed 5 year extension of its maturity date from the originally envisaged
7th anniversary of the Effective Date to the proposed 12th anniversary thereof. (“the Proposed B-BBEE
Transaction Amendment”).
In terms of the Listings Requirements of the JSE Limited (“JSE”), the Proposed B-BBEE Transaction
Amendment is deemed material in relation to the terms of the 2010 B-BBEE Transaction as previously
approved by Value Group Shareholders. Accordingly, approval by Value Group Shareholders for the
Proposed B-BBEE Transaction Amendment is required.
Full details of the Proposed B-BBEE Transaction Amendment will be set out in the circular to Value
Group shareholders (“the Circular”) to be issued on or about 22 June 2017. The salient dates and times
of the general meeting of Value Group shareholders (“the General Meeting”) to approve the Proposed
B-BBEE Transaction Amendment, are set out in paragraph 6 below.
Value Group has been advised by the JSE that the Proposed B-BBEE Transaction Amendment
requires approval by 75% or more of Value Group Shareholders present or represented by proxy at the
General Meeting and entitled to exercise voting rights on the relevant resolutions. Parties related or
deemed to be related to the Proposed B-BBEE Transaction Amendment and their associates, will not
be entitled to cast any votes in relation to the resolutions to be proposed at the General Meeting, in
accordance with the Listing Requirements of the JSE (“the Listings Requirements”).
2. THE 2010 B-BBEE TRANSACTION
The 2010 B-BBEE Transaction consisted of the following two components:
- the facilitation of strategic empowerment shareholdings in Value Group of 7% by Dr. Nakedi
Mathews Phosa (“Dr. Phosa”), a non-executive director of Value Group and 3% by Mano
Padiyachy, an executive director of Value Group (“the Strategic Empowerment
Shareholding”); and
- an employee empowerment scheme which facilitated the empowerment of qualifying black
Value Group employees by enabling them through the Value Group Empowerment Trust, to
acquire economic interests and voting rights of up to 5% in Value Group’s issued share
capital (“the Employee Empowerment Scheme”).
2.1 Strategic Empowerment Shareholding
The Strategic Empowerment Shareholding was implemented through:
- the specific issue of 14 600 614 Value Group ordinary shares to a special purpose vehicle
wholly owned by the Dr. Phosa Family Trust, the family trust of Dr. Phosa (“Phosa SPV”), at
a subscription price of R3.50 per Value Group ordinary share;
- the specific issue of 6 257 406 Value Group ordinary shares to a special purpose vehicle
wholly owned by the Padiyachy Family Trust, the family trust of Mano Padiyachy
(“Padiyachy SPV”) at a subscription price of R3.50 per Value Group ordinary share.
“the specific issues to Phosa SPV and Padiyachy SPV”.
The specific issues to Phosa SPV and Padiyachy SPV were entirely funded through the subscription by
Value Logistics Limited (“Value Logistics”), a wholly owned subsidiary of Value Group, for variable
rate cumulative redeemable preference shares in the capital of Phosa SPV and Padiyachy SPV (“the
Phosa SPV and Padiyachy SPV preference shares”), the salient terms of which are summarised below:
- Preference dividends accrue at 72% of the prevailing prime rate, are cumulative in respect of
accrued but unpaid dividends, and are compounded annually in arrears.
- Phosa SPV and Padiyachy SPV are obliged to, on each date Value Group distributions are
received in respect of the Value Group ordinary shares held by the Phosa SPV and Padiyachy
SPV, declare and pay preference dividends equal to the Value Group distributions so
received after deducting taxes and reasonable expenses.
- The Phosa SPV and Padiyachy SPV preference shares are redeemable on 23 July 2017 (“the
Preference Share Redemption Date”) being the 7th anniversary of the Effective Date.
If the Phosa SPV and Padiyachy SPV preference shares are not redeemed on the Preference Share
Redemption Date, Value Logistics can, at its election, require Phosa SPV and Padiyachy SPV to sell
their Value Group ordinary shares to settle their outstanding obligations to Value Logistics
(“Redemption Rights”).
In terms of the 2010 B-BBEE Transaction, Phosa SPV and Padiyachy SPV are subject to a 7-year
lock-in period (“the Lock-in Period”) during which they are not allowed to dispose of (or encumber)
any of their Value Group ordinary shares, other than with the written consent of Value Group.
2.2 Employee Empowerment Scheme
The Employee Empowerment Scheme was implemented in July 2010 through the specific issue of 10
429 010 A Shares, a class of convertible shares in the capital of Value Group created specifically to
facilitate the Employee Empowerment Scheme, to the Value Group Empowerment Trust at an issue
price of R0.001 per A Share (“the Specific Issue of A Shares”).
Only current or future black employees of Value Group nominated by the board who fall within the C
and D Peromness bands and who satisfy a set of objective criteria set by the board qualify as
participants in the Employee Empowerment Scheme (“the Beneficiaries”). The Value Group
Empowerment Trust created an aggregate of 10 429 010 units (“the Units”), being one for every issued
A Share. Units are allocated to Beneficiaries by the board. Each beneficiary is required to remain in
the employ of the Group at all times from the date Units have been allocated to the Beneficiary until
the 7th anniversary of the Effective Date (“the Employment Service Requirement”).
The specific issue of A Shares was funded through a notional loan with an initial value of R36 501 535
(being 10 429 010 A Shares at a deemed loan of R3.50 per A Share) (“the Notional Loan”). At the end
of each year, the Notional Loan is:
- increased by an accrual for notional interest, calculated daily and compounded annually in
arrears;
- at the election of the board, increased by the amount of expenditure incurred by Value Group
on behalf of the Value Group Empowerment Trust; and
- decreased by an amount equal to any notional distributions.
If the Notional Loan is not fully repaid by 23 July 2017 being the 7th anniversary of the Effective Date
(“the Calculation Date”), Value Group will be entitled to repurchase issued A Shares equivalent to the
notional loan balance at the Calculation Date dividend by the volume weighted average price per
Value Group ordinary share over the 30 trading days prior to the Calculation Date (“the A Share
Repurchase Right”).
The remaining A Shares will be automatically converted into Value Group ordinary shares on a one-
for-one basis and will be transferred to Beneficiaries who have met the Employment Service
Requirements, in proportion to the respective number of Units held by the Beneficiaries against
payment of any taxes due by the Beneficiaries.
3. PROPOSED AMENDMENT TO THE 2010 B-BBEE TRANSACTION
3.1 Rationale
The 2010 B-BBEE Transaction recognised the importance of B-BBEE as a key driver of sustainable
economic growth and positive transformation in South Africa. Value Group continues to support South
Africa’s B-BBEE initiatives and aims to play an active role in the transformation of the South African
logistics industry.
Due to Value Group’s depressed share price, the funding liabilities attached to the 2010 B-BBEE
Transaction are highly likely to exceed the equity value thereof. The board believes that if Value
Group and Value Logistics were to enforce the Redemption Rights and the A Share Repurchase Right,
it would result in a significant impairment in value for Phosa SPV, Padiyachy SPV and Value Group
Empowerment Trust. The Board believes that this is not aligned with the spirit in which Value Group
undertook the 2010 B-BBEE Transaction.
3.2 Proposed B-BBEE Transaction Amendment
The board, subject to the requisite approval by Value Group shareholders, proposes a 5 year extension
to the 2010 B-BBEE Transaction through the extension of:
- The Preference Share Redemption Date from the initial 7th anniversary to the 12th
anniversary thereof;
- the lock-in period to the later of the:
o 12th anniversary of the Effective Date; and
o the date on which all Phosa SPV’s or Padiyachy SPV’s (as the case may be)
liabilities to Value Logistics and Value Group are discharged; and
- the Calculation Date from the initial 7th anniversary to the 12th anniversary of the Effective
Date.
The remaining terms of the 2010 B-BBEE Transaction will remain unchanged.
3.3 Proposed amendment to MOI
In addition to the above a special resolution will be proposed at the General Meeting to implement a
minor amendment to Value Group’s Memorandum of Incorporation in relation to the A Shares, the
purpose of which is to clarify that the rights and restrictions attached to the A Shares will be deemed
not to be directly or indirectly adversely affected by the creation, issue or repurchase of ordinary
shares or other classes of shares by Value Group.
3.4 Specific issue to related parties
Dr. Phosa and Mano Padiyachy are related parties to Value Group by virtue of their positions as
directors of Value Group, while the Value Group Empowerment Trust is an interested party in the
Proposed B-BBEE Transaction Amendment. The Proposed B-BBEE Transaction Amendment is
deemed to be a specific issue of Value Group shares to related parties in terms of the Listings
Requirements. The Phosa SPV, Padiyachy SPV, the Value Group Empowerment Trust and their
associates, will not be allowed to vote on any of the resolutions to be proposed at the General Meeting.
Value Group has appointed Mazars Corporate Finance Proprietary Limited as Independent
Professional Expert (“IPE”) to provide a fairness opinion as to whether the Proposed B-BBEE
Transaction Amendment is fair to Value Group shareholders (“the Fairness Opinion”).
4. OPINION AND RECOMMENDATION
The IPE has considered the terms and conditions of the Proposed B-BBEE Transaction Amendment
and is of the opinion that such terms and conditions are fair to Value Group shareholders. The Fairness
Opinion will be included in the Circular.
The board has considered the terms and conditions of the Proposed B-BBEE Transaction Amendment
and the Fairness Opinion and is of the opinion that the Proposed B-BBEE Transaction Amendment is
fair and in the best interests of Value Group and its shareholders. The board therefore recommends
that Value Group shareholders who are entitled to do so, vote in favour of the resolutions to be
proposed at the General Meeting. The board members who are entitled to do so, intend to vote their
Value Group shares in favour of the resolutions to be proposed at the General Meeting.
5. PRO FORMA FINANCIAL EFFECTS
The table below illustrates the impact of the Proposed B-BBEE Transaction Amendment on the
earnings per share, headline earnings per share, net asset value per share and tangible net asset value
per share of Value Group for the twelve months ended 28 February 2017.
The pro forma financial effects are presented in accordance with the provisions of the Listings
Requirements 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 directors.
The pro forma financial effects are presented in a manner consistent with the basis on which the
historical financial information of Value Group has been prepared and in terms of Value Group’s
accounting policies applied for the 28 February 2017 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 Value Group’s financial position, changes in equity or results of operations post the
implementation of the Proposed B-BBEE Transaction Amendment.
It has been assumed for purposes of the pro forma financial effects that the Proposed B-BBEE
Transaction Amendment took place with effect from 1 March 2016 for statement of comprehensive
income purposes, and on 28 February 2017 for statement of financial position purposes.
Before(1) After(2) % Change
Earnings per share (cents) 57.2 45.2 (21.0)
Headline earnings per share (cents) 61.9 49.8 (19.5)
Diluted earnings per share (cents) 57.2 45.2 (21.0)
Diluted headline earnings per share (cents) 61.9 49.8 (19.5)
Net asset value (cents) 522.5 521.9 (0.1)
Net tangible asset value (cents) 501.2 500.6 (0.1)
Number of shares in issue ('000)(3) 154,146 154,146
Weighted number of shares in issue ('000)(3) 154,389 154,389
Diluted number of shares in issue (‘000)(3) 154,389 154,389
Notes:
(1) Extracted from the reviewed financial results of Value Group for the year ended 28 February 2017.
(2) The economic substance of the 2010 B-BBEE Transaction for accounting purposes was the granting of a call
option on Value Group ordinary shares. On initial recognition, the derivative liability was measured at fair
value using the Black Scholes Option Valuation Model and treated for accounting purposes in terms of
Financial Reporting Guide 2 – Accounting for B-BBEE transactions, as issued by SAICA. The Proposed B-BBEE
Transaction Amendment has the effect of increasing the fair value of the derivative liability. The incremental fair
value of the beneficial amendment to the option terms has been determined in accordance with paragraph
B43(a) of IFRS 2 Share Based Payments using the Black Scholes Option Valuation Model. The inputs to this
model have been based on the market information and pricing statistics as at the last practicable date. The
incremental fair value attributable to the Phosa SPV component of the Proposed B-BBEE Transaction
Amendment has been estimated at R15.167 million. Since there is no service condition linked to the Phosa SPV
component, this amount has been expensed immediately in terms of Financial Reporting Guide 2 – Accounting
for B-BBEE transactions, as issued by SAICA. The incremental fair value attributable to the Padiyachy SPV
component of the Proposed B-BBEE Transaction Amendment and the Employee Empowerment Scheme has been
estimated at R13.291 million. Since Mano Padiyachy and the Employee Empowerment Scheme are subject to
service conditions, the incremental fair value will be amortised over 5 years in accordance with Financial
Reporting Guide 2 – Accounting for B-BBEE transactions, as issued by SAICA. This combined amount so
amortised (relating to the Padiyachy SPV and employee empowerment scheme) has been estimated at R2.658
million for the year ended 28 February 2017.
Transaction costs associated with the Proposed B-BBEE Transaction Amendment have been expensed.
(3) The Phosa SPV, Padiyachy SPV and the Value Group Empowerment Trust are consolidated by Value Group in
accordance with the provisions of IFRS 10: Consolidated Financial Statements. Accordingly, the number of
shares in issue and the weighted number of shares in issue were not impacted by the 2010 B-BBEE Transaction
and will also not be impacted by the Proposed B-BBEE Transaction Amendment.
(4) The option value attributable to the Phosa SPV component of the Proposed B-BBEE Transaction Amendment,
which has been estimated at R15.167 million and immediately expensed in terms of Financial Reporting Guide 2
– Accounting for B-BBEE transactions, as issued by SAICA as well as transaction costs, will not have a
continuing effect on the results of Value Group. All other adjustment will have a continuing effect over the
ensuing 5 years.
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:
2017
Record date to determined which Value Group shareholders are Thursday 15 June
eligible to receive the circular
Circular and notice of general meeting posted to Value Group
shareholders, on Thursday 22 June
Last day to trade in order to be eligible to vote at the general Tuesday 11 July
meeting
Record date to be eligible to vote at the general meeting Friday 14 July
Last day to lodge proxy forms for general meeting (by 11:00), on Friday 21 July
General meeting to be held (11:00), on Friday 21 July
Results of general meeting released on SENS, on Friday 21 July
Notes:
1. The above dates and times are subject to change. Any such change will be released on SENS. All times are South
African standard times.
By order of the board.
Johannesburg
15 June 2017
Sponsor Attorneys to Value Group Auditors and reporting accountants
Investec Bank Limited Bowman Gilfillan Inc. Baker Tilly SVG
Independent professional expert Corporate adviser
Mazars Corporate Finance Proprietary HJLConsult
Limited
Date: 15/06/2017 08:50:00 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 
