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Detailed Terms of PPC’s Top-Up Black Economic Empowerment Transaction and Withdrawal of Cautionary
PPC Ltd
(Incorporated in the Republic of South Africa)
(Company registration number: 1892/000667/06)
JSE and ZSE Code: PPC
ISIN: ZAE000170049
("PPC" or the "Company")
DETAILED TERMS OF PPC’S TOP-UP BLACK ECONOMIC EMPOWERMENT TRANSACTION AND
WITHDRAWAL OF CAUTIONARY
1. Background
PPC shareholders are referred to the detailed cautionary SENS announcement
dated 14 December 2017, and its renewal on 29 January 2018, wherein
shareholders were advised of the proposed top-up black economic empowerment
(“BEE”) transaction (“PPC Phakama Transaction”).
As outlined in the aforementioned announcements, PPC is implementing the PPC
Phakama Transaction in compliance with the Mineral and Petroleum Resources
Development Act, 28 of 2002 and the Broad-Based Socio-Economic Empowerment
Charter for the South African Mining and Minerals Industry, published under
Government Notice 838 in the Government Gazette 33573, as amended, and its
prospective amendment and commitments (“Mining Charter”). This transaction
is also aligned to PPC’s long term sustainable value creation strategy.
PPC previously implemented two BEE transactions (“BEE 1 Transaction” and
“BEE 2 Transaction”) which resulted in a BEE shareholding of 20.8% at a
listed company level, and deemed to be equivalent to 26% in respect of PPC’s
South African operations.
As a consequence of the rights offer process concluded in September 2016 and
the maturity of the BEE 1 Transaction on 15 December 2016, PPC’s BEE
shareholding fell below the required 26%.
As such, the PPC Phakama Transaction is critical in addressing the current
non-compliance with the Mining Charter and enables PPC to compete on an
equivalent BEE equity level with its industry peers.
2. Purpose of Announcement
PPC shareholders are hereby advised that the Company has finalised the terms
which will give effect to the PPC Phakama Transaction. The purpose of this
announcement is to provide PPC shareholders with an overview of the terms of
the PPC Phakama Transaction.
3. The PPC Phakama Transaction Structure
As previously stated in the aforementioned announcements, the PPC Phakama
Transaction will be implemented as a “top-up” transaction at the level of
PPC’s wholly-owned South African subsidiary, PPC South Africa Holdings
Proprietary Limited (“PPC SA”), and will result in PPC achieving an effective
30.0% BEE equity shareholding in respect of its South African operations.
PPC’s effective 30% BEE equity shareholding will comprise the following
elements:
(i) the existing residual parts of the BEE 1 Transaction, which was
implemented by PPC in December 2008;
(ii) the BEE equity shareholding as a result of the existing residual
BEE 2 Transaction, which was implemented by PPC in 2012. The BEE 1
Transaction and the BEE 2 Transaction will jointly continue to
indirectly contribute an effective 4.6% BEE equity shareholding in
PPC SA; and
(iii) the PPC Phakama Transaction.
In the announcement released by PPC on 14 December 2017, it was stated that
the PPC Phakama Transaction will result in an equity shareholding of 24.6%
directly into PPC SA. The PPC Board of Directors (the “Board”) has
subsequently resolved that PPC will no longer take into account a portion of
the BEE 1 Transaction’s residual shareholding, as it has vested. Therefore,
the “top-up” BEE shareholding which is required for PPC to achieve an
effective 30% BEE equity shareholding has been increased from 24.6% to 25.4%.
The PPC Phakama Transaction will result in PPC’s equity shareholding in PPC
SA being reduced from 100% to 74.6%.
As with the BEE 1 Transaction and the BEE 2 Transaction, the PPC Phakama
Transaction will be broad-based in nature from inception, comprising eligible
employees, communities and black entrepreneurs.
4. Components of the PPC Phakama Transaction
The PPC Phakama Transaction caters for three categories of shareholders
(collectively, the “PPC SA BEE Shareholders”), namely:
4.1 PPC SA Employee Trust
All eligible employees of PPC’s South African operations and subsidiaries
will participate in the transaction through a trust (“PPC SA Employee
Trust”), which will endure for a ten year period. The PPC SA Employee Trust
will hold a 9.8% equity shareholding directly in PPC SA. The PPC SA Employee
Trust will be a fully vesting trust and all initial participants will
participate equally.
Mr Johan Claassen, PPC’s Chief Executive Officer, Ms Tryphosa Ramano, PPC’s
Chief Financial Officer and Mr Jaco Snyman, PPC’s Company Secretary will
also participate in the aforementioned allocation.
30% of the PPC SA BEE Shares (as defined below) held in the PPC SA Employee
Trust will be reserved for allocation on a diminishing proportional basis to
future qualifying employees of PPC SA’s operations and subsidiaries, who
become employees during the initial 36 month period of the PPC Phakama
Transaction.
4.2 PPC SA Community Development Trust
Participants in the community trust (“PPC SA Community Development Trust”),
which will be perpetual in nature, will consist of communities residing
adjacent to and/or impacted by the existing and any future operations of PPC
SA. The identified communities will have an indirect 8.0% equity shareholding
in PPC SA, housed in the PPC SA Community Development Trust. The PPC SA
Community Development Trust will not be a vesting trust and the communities
will derive benefits from the PPC SA Community Development Trust through
dividends paid to it by PPC SA.
4.3 The BEE Special Purpose Vehicle
A special purpose vehicle (“BEE SPV”) has been incorporated for purposes of
holding a 7.6% equity shareholding directly in PPC SA for a period of ten
years on behalf of eligible black entrepreneurs identified through a private
selection process (“Black Entrepreneurs”).
The selection of participants falling within the category of Black
Entrepreneurs (“Black Entrepreneur Participants”) is still being finalised
and the Company will issue a further announcement once the Black Entrepreneur
Participants have been finalised.
5. Related Party Transaction and Fairness Opinion
The aggregate participation by PPC directors may be in excess of 0.25% (but
not equal to or greater than 5%) of the total 25.4% transaction size and may
therefore be classified as a “small related party transaction” in terms of
the Listings Requirements of the JSE Limited (“Listings Requirements”). As
a small related party transaction, the PPC Phakama Transaction does not
require PPC shareholder approval but does require the Board to obtain a
fairness opinion on its terms (“Fairness Opinion”).
In light of the above, KPMG was appointed by the Board as the independent
expert to provide the Fairness Opinion (“Independent Expert”). The
Independent Expert is of the opinion that the terms and conditions of the
PPC Phakama Transaction are fair as far as PPC shareholders are concerned.
The Board has been advised accordingly, and the Fairness Opinion is available
for inspection at the Company’s Registered Office (PPC Building, 148
Katherine Street, Sandton, Johannesburg) for a period of 28 days following
the publication of this announcement. The Fairness Opinion will also be
available on the Company’s website: www.ppc.co.za.
6. Directors Opinion
The Board has considered the Fairness Opinion of the Independent Expert as
outlined above, and the Board is therefore of the opinion that the PPC Phakama
Transaction is fair and is in the best interests of all PPC shareholders.
7. General Terms and Conditions of the PPC Phakama Transaction
7.1. Specific Issue of PPC SA Shares
7.1.1 The PPC SA Employee Trust, the PPC SA Community Development Trust and
the BEE SPV have been established for the purpose of, inter alia, subscribing
for, holding and administering new PPC SA shares (“PPC SA BEE Shares”) on
behalf of the PPC BEE Shareholders, subject to the rights, restrictions and
suspensions stipulated in the relevant subscription agreements.
The PPC Phakama Transaction will be implemented through the specific issue
of PPC SA BEE Shares and facilitated through a notional vendor funding
mechanism (“NVF Mechanism”). The PPC SA BEE Shares to be issued to the PPC
SA BEE Shareholders will rank pari passu with other PPC SA ordinary shares,
save that they will be subject to the rights, restrictions and suspensions
contained in the various subscription agreement.
For the avoidance of doubt, the suspensions and restrictions under the
subscription agreements are contractual in terms of the issue of the PPC SA
BEE Shares and do not affect the ranking of the PPC SA BEE Shares in relation
to other PPC SA ordinary shares.
7.1.2 PPC SA will make a cash contribution to the PPC SA BEE Shareholders in
an amount equal to the subscription amount in order to enable the PPC SA BEE
Shareholders to subscribe for the PPC SA BEE Shares. The PPC SA BEE Shares
will be issued at a nominal value of 0.1 cents per PPC SA BEE Share
(“Subscription Price”).
7.2 Implementation Mechanism
The PPC Phakama Transaction will be facilitated by PPC SA through the NVF
Mechanism over a ten year period (“NVF Period”).
In terms of the NVF Mechanism, PPC SA will issue the PPC SA BEE Shares to
the PPC SA BEE Shareholders at the Subscription Price and will be entitled,
at the end of the NVF Period, to repurchase a certain number of PPC SA BEE
Shares in accordance with the relevant repurchase formula (“Repurchase
Formula”) as outlined in the subscription agreements.
The contribution by PPC SA to enable the PPC SA BEE Shareholders to subscribe
for the PPC SA BEE Shares constitutes the provision of financial assistance
by PPC SA in terms of section 44 of the Companies Act, 71 of 2008. In addition
the facilitation through the NVF mechanism to the BEE vehicle may constitute
the provision of financial assistance by PPC SA.
The Board may not authorise the provision of financial assistance unless
amongst other things the particular provision of financial assistance is
pursuant to a special resolution. PPC SA’s shareholder, being PPC will pass
the special resolution in terms of the condition precedent of the transaction
as outlined in paragraph 10.
7.3 Vesting and Lock-In Period
The PPC SA BEE Shareholders may not dispose of or encumber their PPC SA BEE
Shares during the NVF Period, and in the case of the PPC SA Community
Development Trust, it may not dispose of or encumber its PPC SA BEE Shares
indefinitely as it is perpetual.
7.4 Dividends and Distribution Period
7.4.1 During the NVF Period;
7.4.1.1 an amount equal to 20% of any cash dividends will flow to the PPC SA
BEE Shareholders (“Trickle Dividend”), and in turn be distributed to the PPC
SA BEE Shareholders net of any taxes and any other related costs;
7.4.1.2 the Trickle Dividend relating to the PPC SA Employee Trust and the
BEE SPV will be used to purchase unencumbered PPC ordinary shares at
prevailing market prices; and
7.4.1.3 the balance of 80% of any cash dividend or 100% of any other
distribution which would have accrued to the PPC SA BEE Shareholders had the
suspensions not been imposed on the PPC SA BEE Shares, will be suspended and
taken into account in determining the number of PPC SA BEE Shares to be
repurchased by PPC SA in terms of the Repurchase Formula at the end of the
NVF Period.
7.4.2 From the end of the NVF Period, the PPC SA BEE Shareholders will be
entitled to 100% of the cash dividends and any other distributions
attributable to the remaining PPC SA BEE Shares.
7.5 Voting
The PPC SA BEE Shareholders will be entitled to exercise all voting rights
attached to the PPC SA BEE Shares.
7.6 Corporate Actions
In the event of any corporate action at PPC SA, PPC and PPC SA will be
entitled, at their discretion, to give notice to the PPC SA BEE Shareholders
to accelerate the NVF Period. Any such acceleration of the NVF Period will
be factored into the Repurchase Formula as provided for in the subscription
agreements.
8. Transaction Structure Rationale
The reasons for structuring the PPC Phakama Transaction as set out in
paragraphs 3, 4 and 7 are as follows:
8.1 The PPC Phakama Transaction is based on an intrinsic value, rather
than a market price of listed shares which are susceptible to normal market
volatility. The BEE 1 Transaction and the BEE 2 Transaction were negatively
impacted by the market price of the shares held in PPC, resulting in the
transactions being “underwater” and transferring negligible value to the BEE
beneficiaries.
8.2 As the PPC Phakama Transaction will be implemented at a subsidiary
level, there will be no restriction on PPC’s ability to raise equity from
its shareholders with no resultant impact on its BEE shareholding, as was
the case with the BEE 1 Transaction and the BEE 2 Transaction that were
implemented at PPC level and when the Company implemented its rights issue
in September 2016.
8.3 The NVF Mechanism does not create any liability, contingent or
otherwise, on the balance sheets of either PPC, PPC SA or the PPC SA BEE
Shareholders.
8.4 The PPC Phakama Transaction creates a sustainable structure that will
provide PPC with guaranteed BEE credentials for its South African operations
for at least ten years.
8.5 The PPC Phakama Transaction will not directly dilute the shareholding
of PPC shareholders in PPC. However, PPC shareholders will receive lower
earnings from PPC SA as a result of PPC’s reduced shareholding in PPC SA.
9. Economic Transaction Value, Costs and Listings Requirements Categorisation
The economic value of the PPC SA BEE Shares was determined by PPC management,
and approved by the Board, with reference to a discounted cash flow valuation
of PPC SA based on forecast cash flows of all operating entities under PPC
SA. The intrinsic equity value of PPC SA is equal to R10.17 billion. The
value of the PPC Phakama Transaction is determined as R2.148 billion
(“Transaction Value”), after taking into account adjustments made to the
intrinsic equity value for an unlisted minority shareholding. The Transaction
Value is equivalent to 16.91% of PPC’s market capitalisation as at 13 March
2018.
In terms of the Listings Requirements, an issue of shares for cash by a
subsidiary of a listed company requires such issue to be categorised in
accordance with Section 9 of the Listings Requirements as if it were a
transaction concluded by the listed company. As such, the PPC Phakama
Transaction is a Category 2 transaction for PPC in terms of the Listings
Requirements, which does not require PPC shareholder approval.
The estimated accounting charge of the PPC Phakama Transaction, determined
in accordance with International Financial Reporting Standards (“IFRS”) 2:
Share Based Payments (“IFRS 2 Charge”), is approximately R484 million as at
the announcement date. The IFRS 2 Charge will be allocated to the PPC SA BEE
shareholders as follows:
• R272 million to the PPC SA Employee Trust and is to amortised over the
NVF Period; and
• R212 million relating to the BEE SPV is to be expense in full on the
effective date.
This represents approximately 3.8% of the market capitalisation of PPC on
the announcement date (approximately R12.7 billion).
The IFRS 2 Charge is in line with market precedents for similar transactions
of this nature and size.
10. Conditions Precedent
The PPC Phakama Transaction will become effective upon:
10.1 the completion of all administrative matters common for transactions
of this nature, including the execution of all the transaction agreements
giving effect to the PPC Phakama Transaction (“Transaction Agreements”)and
the Transaction Agreements becoming unconditional in accordance with their
terms and conditions; and
10.2 approval of the PPC Phakama Transaction by regulatory authorities, as
may be required.
11. Warranties and Indemnities
PPC confirms the warranties and indemnities applicable to the PPC Phakama
Transaction are normal for transactions of this nature and size.
12. Withdrawal of Cautionary Announcement
As the detailed terms of the PPC Phakama Transaction have been finalised and
published, PPC shareholders are advised that they no longer need to exercise
caution when dealing in securities of PPC.
Sandton
15 March 2018
Financial Advisor and Transaction Sponsor to PPC
Nedbank Limited, acting through its Corporate and Investment Banking Division
Legal Advisor to PPC
Tshisevhe Gwina Ratshimbilani Inc.
Tax Advisor to PPC
Cliffe Dekker Hofmeyr Inc.
Independent Expert
KPMG
Sponsor to PPC
Merrill Lynch South Africa (Pty) Ltd
Investor contacts:
PPC:
Anashrin Pillay
Group Manager Investor Relations
Tel: +27 (0)11 386 9000
Anashrin.Pillay@ppc.co.za
Siobhan McCarthy
Group Manager Corporate Affairs
Tel: +27 (0)11 386 9000
Financial Communications Advisor:
Instinctif Partners
Gift Dlamini
Mobile: +27 (0)11 050 7536
Date: 15/03/2018 07:05:00 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,
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