Wrap Text
EXX - Update on the unwind of existing BEE Transaction; Terms of replacement BEE Transaction; Renewal of Cautionary
Exxaro Resources Limited
(Incorporated in the Republic of South Africa)
Registration number: 2000/011076/06
JSE share code: EXX
ISIN: ZAE000084992
ADR code: EXXAY
(“Exxaro” or the “Company”)
UPDATE ON THE UNWIND OF EXXARO’S EXISTING BEE TRANSACTION, TERMS OF
REPLACEMENT BEE TRANSACTION AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. BACKGROUND AND INTRODUCTION
1.1. Exxaro shareholders are referred to the SENS announcement released by the Company on 22
November 2016 (the “Initial Announcement”), relating to the unwind of Exxaro’s existing BEE
transaction (the “Existing BEE Transaction”) and the proposed implementation of a replacement
BEE transaction (the “Replacement BEE Transaction”) with amongst others, the direct and/or
indirect shareholders of Main Street 333 Proprietary Limited (“MS333”).
1.2. Since the Initial Announcement, significant progress has been made through engagement between
Exxaro, MS333 and other Exxaro shareholders, to reach agreement on the optimal unwind of the
Existing BEE Transaction (the “MS333 Unwind”) as well as agreeing to the key terms of the
Replacement BEE Transaction.
1.3. On Sunday, 25 June 2017, Exxaro, MS333, the Industrial Development Corporation (the “IDC”) and
two special purpose vehicles (“BEE SPV and New BEECo”, separately defined below) incorporated
for the purposes of holding ordinary shares in Exxaro (“Exxaro Shares”) pursuant to the
Replacement BEE Transaction, entered into the following agreements (together, the “Signed
Agreements”):
1.3.1. a framework agreement setting out the framework within which the MS333 Unwind and the
consequential implementation of the Replacement BEE Transaction will take place; and
1.3.2. a relationship agreement detailing the terms and restrictions of the Replacement BEE
Transaction over the transaction term.
1.4. The implementation of the Replacement BEE Transaction remains subject to various conditions precedent,
including those set out in paragraph 2.3.6, which include the finalisation and agreement of the remaining
suite of agreements required to implement the Replacement BEE Transaction and the MS333
Unwind (the “Detailed Transaction Agreements”).
1.5. The purpose of this announcement is to provide Exxaro shareholders with an overview of the key
terms of the Replacement BEE Transaction and the way forward with regards to implementing the
MS333 Unwind and the Replacement BEE Transaction.
2. OVERVIEW OF THE TERMS OF THE REPLACEMENT BEE TRANSACTION
2.1. Introduction
Exxaro, MS333 and the IDC have agreed the key terms relating to the Replacement BEE
Transaction and the MS333 Unwind which are set out in the Signed Agreements, excluding the
outstanding matters described in paragraph 2.3.5 (the “Outstanding Matters”) which will be agreed
in the Detailed Transaction Agreements. The reinvestment of Exxaro Shares by MS333
shareholders, including the IDC, required to effect the Replacement BEE Transaction will be
enabled by the MS333 Unwind.
2.2. Rationale for the Replacement BEE Transaction
Since inception, Exxaro has maintained its status as one of the largest Black controlled companies
in the South African mining sector. Exxaro is aware of the current uncertainty around the legislative
requirements for BEE in the South African mining sector. However, the independent sub-committee
of the Exxaro board of directors (the “Independent Board Sub-Committee”) firmly believes that
Exxaro’s empowerment status and ownership is a significant part of its strategy and is an
imperative for the sustainability of Exxaro’s operations. Remaining empowered is essential for
Exxaro to maintain sustainable relationships with critical stakeholders in the industry and to ensure
ongoing compliance with customer requirements, as well as to further the imperative for
transformation in South Africa.
The recent release of the Reviewed Broad-Based Black Economic Empowerment Charter for the
South African Mining and Minerals Industry has created increased uncertainty for South African
mining companies. However, as Exxaro has been pursuing the Replacement BEE Transaction for
more than 18 months, it firmly believes the implementation of the Replacement BEE Transaction to
be appropriate as it will further contribute to transformation in the South African mining industry in a
responsible manner.
2.3. Key terms of the Replacement BEE Transaction
2.3.1. Salient features of the Replacement BEE Transaction
a. Exxaro and MS333 have agreed that Exxaro will repurchase 22 684 767 Exxaro
Shares from MS333 (the “Second Repurchase”) at a 5% discount to the Reference
Price (defined in paragraph 2.3.5 below), still to be determined, as part of the
implementation of the Replacement BEE Transaction, in order to reduce its dilutionary
impact, subject to Exxaro shareholder approval. The Second Repurchase will only be
implemented on the final implementation date and will be conditional on the
Replacement BEE Transaction being approved and implemented.
b. A new special purpose vehicle, incorporated for the purpose of being the
empowerment vehicle which will hold Exxaro Shares (“New BEECo”) will ultimately
own 30% of the Exxaro Shares, after the implementation of the Replacement BEE
Transaction. This 30% will be acquired as follows:
- certain MS333 direct and/or indirect shareholders, excluding the IDC (the
“Reinvesting MS333 Shareholders”) will reinvest a minimum of 26 623 276
Exxaro Shares into New BEECo through a separately incorporated special
purpose vehicle (“BEE SPV”) (the “MS333 Reinvestment”);
- the IDC will reinvest 12 337 616 Exxaro Shares (the “IDC Reinvestment”); and
- New BEECo will subscribe for additional Exxaro Shares (the “New Exxaro Share
Issue”) at an agreed discount which will be equal to 22.6% of the Replacement
BEE Transaction value (the “Exxaro Facilitation Discount”), using the cash raised
as described in paragraph 2.3.2.e.
c. The net dilution to Exxaro shareholders, after the implementation of the Second
Repurchase and the Replacement BEE Transaction will be 7.4%, based on the
Exxaro value per share.
d. For illustrative purposes, the table below shows the potential change in Exxaro’s
market value as a result of the Second Repurchase and the New Exxaro Share Issue:
Illustrative
Exxaro market value Exxaro Shares (m) Exxaro share
(ZAR’bn) price (ZAR)
Before Second 27.1 314.2(1) 86.41(2)
Repurchase and
New Exxaro Share
Issue
Second Repurchase (1.9) (22.7)(3) 82.09(4)
New Exxaro Share 3.6(5) 69.3(6) 51.77
Issue
After Second 28.9 360.7 80.03(7)
Repurchase and
New Exxaro Share
Issue
Percentage 6.3% (12.9%) (7.4%)
dilution/(accretion)
Notes:
1. Current Exxaro Shares.
2. Exxaro share price at 23 June 2017.
3. Exxaro Shares repurchased pursuant to Second Repurchase.
4. 5% discount to Exxaro share price at 23 June 2017.
5. New cash funding raised. Explained further below in paragraph 2.3.2.e.
6. Additional Exxaro Shares required to be issued in order for New BEECo to own 30% of
the Exxaro Shares post implementation of the Replacement BEE Transaction.
7. Pro-forma Exxaro share price assuming the Second Repurchase and the Replacement BEE Transaction
are implemented on 23 June 2017.
2.3.2. Transaction structure and participants
a. New BEECo will ultimately own 30% of the Exxaro Shares, after the implementation of
the Replacement BEE Transaction.
b. New BEECo will have three shareholders:
- BEE SPV, which will own a minimum of 51% of the ordinary shares in New
BEECo;
- Exxaro, through the investment described in paragraph (e) below; and
- the IDC, which has the option to reinvest an agreed number of its Exxaro Shares,
received through the MS333 Unwind, directly into New BEECo or indirectly into
New BEECo through (as a shareholder of) BEE SPV.
c. The Reinvesting MS333 Shareholders will reinvest a minimum of 26 623 276 Exxaro
Shares into New BEECo pursuant to the MS333 Reinvestment:
- Reinvesting MS333 Shareholders have the option to reinvest additional Exxaro
Shares over and above the minimum required; and
- the final number of Exxaro Shares that Reinvesting MS333 Shareholders reinvest
remains subject to a formal election process to be conducted by MS333 (the
“MS333 Election Process”), after the finalisation of all other Outstanding Matters.
d. The IDC will reinvest 12 337 616 Exxaro Shares pursuant to the IDC Reinvestment.
The IDC Reinvestment will be made either directly into New BEECo or indirectly into
New BEECo, through BEE SPV. The level at which the IDC Reinvestment occurs is at
the discretion of the IDC and will be confirmed before the finalisation of the Detailed
Transaction Agreements.
e. In addition to the MS333 Reinvestment and the IDC Reinvestment, New BEECo will
subscribe for Exxaro Shares pursuant to the New Exxaro Share Issue at the Exxaro
Facilitation Discount, funded through:
- raising third party funding (“Third Party Funding”); and
- Exxaro subscribing for ordinary shares in New BEECo (the “Exxaro Equity
Investment”).
f. Some of the New BEECo ordinary shares which Exxaro will own as a result of the
Exxaro Equity Investment will be “warehoused” for allocation to relevant employees
and communities of Exxaro. The exact form, size and identity of participation in this
regard will be finalised after implementation of the Replacement BEE Transaction.
g. The Replacement BEE Transaction capital structure is summarised below:
Percentage Indicative value
of post
Replacement implementation
Funding BEE Comment Number of of the
source Transaction Exxaro Replacement
capital Shares (m) BEE Transaction
structure (ZAR’bn) (1)
Equating to 30%
Total funding 100.0% of Exxaro Shares 108.2 8.7
Exxaro 22.6% Fixed percentage 24.5 2.0
Facilitation
Discount
Percentage varies
Reinvestments: 36.0% with MS333 38.9 3.1
Reinvestment
Variable
MS333 percentage, with
Reinvestment 24.6% 24.6% being the 26.6 2.1
(2) minimum
percentage
IDC
Reinvestment 11.4% Fixed percentage 12.3 1.0
(3)
Percentage varies
New cash with Third Party
funding: 41.4% Funding 44.8 3.6
Exxaro Equity
Investment 19.9% Fixed percentage 21.5 1.7
Third Party Variable
Funding (2, 4) 21.5% percentage, with 23.3 1.9
21.5% being the
maximum
percentage which
is reduced by the
percentage by
which the MS333
Reinvestment
exceeds 24.6%
Notes:
1. Based on a ZAR80.03 Exxaro share price post the Second Repurchase and New
Exxaro Share Issue. Refer to the table in paragraph 2.3.1.c.
2. The 24.6% MS333 Reinvestment represents 26 623 276 Exxaro Shares reinvested.
Should the MS333 Reinvestment exceed 24.6% of the Replacement BEE
Transaction’s capital structure, the Third Party Funding will be reduced by the
percentage by which the MS333 Reinvestment exceeds 24.6%.
3. The 11.4% IDC Reinvestment represents 12 337 616 Exxaro Shares reinvested.
4. The IDC has principally agreed to provide a partial debt guarantee in favour of the new
third party funders, guaranteeing the obligations of NewBEECo, with a maximum value
of R700 000 000 over the term of the Replacement BEE Transaction (the “IDC
Guarantee”). The IDC Reinvestment can occur either directly into New BEECo, or
indirectly into New BEECo through BEE SPV.
2.3.3. Term and liquidity mechanisms
The period during which Exxaro Shares owned by New BEECo cannot be disposed of, will
be staggered between seven and ten years, with the Exxaro Shares reinvested by
Reinvesting MS333 Shareholders and the IDC vesting on the 7th anniversary of the
Replacement BEE Transaction and the remaining Exxaro Shares held by New BEECo
becoming unrestricted equally at the end of the 8th , 9th and 10th anniversary of the
Replacement BEE Transaction.
2.3.4. The Second Repurchase
Exxaro and MS333 have agreed the high-level terms of the Second Repurchase, including
the size (22 684 767 Exxaro Shares) and the pricing mechanism (5% discount to the
Reference Price). The rationale for the Second Repurchase is that it will reduce the
dilutionary impact and ultimate economic cost of implementing the Replacement BEE
Transaction.
The detailed terms of the Second Repurchase, including the Reference Price, will be
negotiated as part of a repurchase implementation agreement which forms part of the
Detailed Transaction Agreements and will be subject to Exxaro shareholder approval.
2.3.5. The Outstanding Matters
The following material terms and related matters pursuant to the Replacement BEE
Transaction, the Second Repurchase and the MS333 Unwind are subject to agreement and
finalisation, which, once agreed in the Detailed Transaction Agreements, will be announced
in a separate announcement (the “Terms Announcement”):
- the terms of the Third Party Funding;
- the reference price at which the Replacement BEE Transaction (before the Exxaro
Facilitation Discount) and the Second Repurchase (before to the 5% discount) will be
effected. The reference price of the Replacement BEE Transaction and the Second
Repurchase will be the same price (the “Reference Price”);
- parameters of the MS333 Election Process. The MS333 Election Process will take
place after the Terms Announcement has been released and the outcome thereof will
be captured in a finalisation announcement as well as in a circular which will be sent
to Exxaro shareholders in order to approve the Replacement BEE Transaction and the
Second Repurchase; and
- finalisation and signing of the Detailed Transaction Agreements
2.3.6. Conditions for the Replacement BEE Transaction and Second Repurchase to be
implemented
The implementation of the Replacement BEE Transaction and the Second Repurchase will
be subject to the fulfilment of various conditions precedent, including the following:
- the Replacement BEE Transaction resulting in NewBEECo holding 30% of the Exxaro
Shares;
- Reinvesting MS333 Shareholders reinvesting at least 26 623 276 Exxaro Shares
pursuant to the MS333 Reinvestment and the IDC reinvesting 12 337 616 Exxaro
Shares pursuant to the IDC Reinvestment;
- the Independent Board Sub-Committee approving the remaining terms to be agreed,
as will be captured in the Detailed Transaction Agreements, as well as being satisfied
that the shareholder composition of the Replacement BEE Transaction is sufficiently
broad-based;
- the Detailed Transaction Agreements being duly executed by the parties thereto and
becoming unconditional in accordance with their terms;
- the relevant funding agreements, pursuant to the Third Party Funding and the IDC
Guarantee, being duly executed by the parties thereto and becoming unconditional in
accordance with their terms;
- the Exxaro shareholders (excluding MS333) passing the necessary resolutions
required to approve the implementation of the Replacement BEE Transaction and the
Second Repurchase; and
- the receipt of all other necessary regulatory approvals.
3. MS333 UNWIND AND REGULATED PLACEMENT
3.1. MS333 shareholding in Exxaro
3.1.1. Reconciliation of current MS333 shareholding in Exxaro with its shareholding as at
implementation of the Existing BEE Transaction:
MS333
Number of Exxaro shareholding
Shares owned by Total Exxaro Shares percentage
MS333 (million) (million) in Exxaro
Initial shareholding 186.6 358.1 52.1%
as at 31 December 2015
Sale of shares in the (6.8) -
market during 2016
to alleviate debt
Shares sold in (17.4) -
December 2016 as
part of the Anglo
American placement
Specific repurchase (43.9) (43.9)
by Exxaro in
January 2017
Current 118.4 314.2 37.7%
shareholding
3.1.2. It is anticipated that MS333’s shareholding in Exxaro will reduce as illustrated in the below
table, due to the Second Repurchase and the Replacement BEE Transaction:
MS333
Number of Exxaro shareholding
Shares owned by Exxaro Shares (m) percentage
MS333 (m) in Exxaro
Current 118.4 314.2 37.7%
shareholding
Second Repurchase (1) (22.7) (22.7)
Minimum MS333 (26.6) -
Reinvestment (2)
IDC Reinvestment (3) (12.3) -
New Exxaro Share - 69.3
Issue
MS333 remaining 56.8 360.7 15.7%
shareholding in
Exxaro
Notes:
1. 22 684 767 Exxaro Shares to be repurchased pursuant to the Second Repurchase,
subject to Exxaro shareholder approval.
2. Assuming Reinvesting MS333 Shareholders reinvest 26 623 276 Exxaro Shares
pursuant to the MS333 Reinvestment to contribute 24.6% of the Replacement BEE
Transaction capital structure.
3. 12 337 616 Exxaro Shares are reinvested pursuant to the IDC Reinvestment to
contribute 11.4% of the Replacement BEE Transaction capital structure.
4. Additional Exxaro Shares required to be issued in order for New BEECo to own 30% of
the Exxaro Shares post implementation of the Replacement BEE Transaction.
3.1.3. The remaining 56.8 million Exxaro Shares owned by MS333 will be subject to the following:
a. it may be reduced if MS333 shareholders elect to reinvest more than 26 623 276
Exxaro Shares;
b. subject to the MS333 Election Process, some MS333 shareholders may elect to retain
some of these Exxaro Shares outside of the Replacement BEE Transaction structure
(It has been agreed that these shareholders will not be able sell their retained
Exxaro Shares for at least 90 days after any sale of Exxaro Shares by MS333 as
contemplated in paragraph (c) below); and
c. the balance of these Exxaro Shares will be sold in the market over time:
- MS333 has indicated its intention to sell, to the extent possible, up to 40
million Exxaro Shares prior to the implementation of the MS333 Unwind and the
Replacement BEE Transaction; and
- Any sale of Exxaro Shares will be subject to the conditions imposed on MS333
in accordance with the regulated sale of Exxaro Shares as described in
paragraph 3.3.
3.2. The MS333 Unwind explained
MS333 will not be retained as the empowerment vehicle for the Replacement BEE Transaction.
The MS333 Unwind will therefore apply to all the Exxaro Shares owned by MS333 after taking into
account the effect of the Second Repurchase and the Exxaro Shares reinvested into the
Replacement BEE Transaction structure.
The terms of the Existing BEE Transaction allow MS333 shareholders to determine the most
efficient manner to effect the MS333 Unwind. Detailed terms of the MS333 Unwind will be agreed
in the Detailed Transaction Agreements.
3.3. Regulated sale of Exxaro Shares
As communicated in the Initial Announcement, the sale of Exxaro Shares by MS333 and/or any of
its direct or indirect MS333 shareholders pursuant to the MS333 Unwind is overseen by the joint
advisory committee that has been established between Exxaro and MS333 to regulate any sales of
Exxaro Shares in the market.
4. TIMING AND WAY FORWARD
4.1. Exxaro and MS333 will seek to finalise and agree the Outstanding Matters in the Detailed
Transaction Agreements, after which the Terms Announcement will be released and a detailed
circular will be sent to Exxaro shareholders in order to consider and approve the Second
Repurchase and the Replacement BEE Transaction.
4.2. It is anticipated that the Second Repurchase and the Replacement BEE Transaction will be
concluded in Q4 2017.
5. INVESTOR CALL
A dial-in teleconference call on the details of this announcement will be held on Monday,
26 June 2017 at 13:00 South African time.
Live call access numbers for participants
Country Access number
Other Countries - International +27 11 535 3600
Other Countries - International +27 10 201 6800
South Africa - Johannesburg Neotel 011 535 3600
South Africa - Johannesburg Telkom 010 201 6800
UK - Toll-Free 0808 162 4061
USA and Canada - Toll Free 1 855 481 5362
Playback access numbers
Playback code: 14615#
Country Access number
Australia - Toll Free 1 800 091 250
Other Countries - International +27 11 305 2030
South Africa 011 305 2030
UK - Toll Free 0 808 234 6771
USA and Canada - Toll Free 1 855 481 5363
6. CAUTIONARY ANNOUNCEMENT
Further to the renewal of the cautionary announcement issued on 14 June 2017, Exxaro
shareholders are advised that the Company has entered into the Signed Agreements to bring into
effect, subject to agreement of the Outstanding Matters in the Detailed Transaction Agreements,
the MS333 Unwind, the Second Repurchase and the Replacement BEE Transaction which, if
successfully concluded, may have a material effect on the Company’s securities. Accordingly,
Exxaro shareholders are advised to continue to exercise caution when dealing in the Company’s
securities until the Terms Announcement is made.
CH Wessels
Group Company Secretary
Pretoria
26 June 2017
Financial advisor and transaction sponsor to Exxaro
Rand Merchant Bank, a division of FirstRand Bank Limited
Legal advisor to Exxaro
Norton Rose Fulbright South Africa
Company sponsor to Exxaro
Absa Bank Limited, acting through its corporate and investment banking division
Tax advisor to Exxaro
Cliffe Dekker Hofmeyr Incorporated
Financial advisor to MS333
Tamela
Legal advisor to MS333
Fasken Martineau
Date: 26/06/2017 07:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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