Wrap Text
Positioning the South African Operations for growth through enhanced Economic Empowerment
Sanlam Limited
(Incorporated in the Republic of South Africa)
Registration number 1959/001562/06
JSE share code: SLM
NSX share code: SLA
A2X share code: SLM
ISIN: ZAE000070660
(“Sanlam” or “the Company” and with its subsidiaries “the Group” or “the Sanlam Group)
POSITIONING THE SOUTH AFRICAN OPERATIONS FOR GROWTH THROUGH ENHANCED
ECONOMIC EMPOWERMENT
1. INTRODUCTION
Sanlam is pleased to announce to its shareholders (“Shareholders”) that it has reached agreement
in respect of a series of agreements, as detailed below, that would significantly strengthen its South
African operations and position the Company for future growth through enhancing its economic
empowerment credentials.
The Company:
• has entered into an agreement pursuant to which it will, subject to the fulfilment of certain
suspensive conditions, issue 111 349 000 new Sanlam ordinary shares (“Sanlam Shares”)
constituting 5% of the Sanlam ordinary share capital net of Treasury Shares (as defined in
paragraph 9 below) (“Subscription Shares”) to an entity held by new and existing broad based
black economic empowerment (“B-BBEE”) shareholders (“Subscription SPV”) to substantially
broaden the base of Sanlam’s empowerment beneficiaries and has entered into a binding term
sheet pursuant to which it will, subject to the fulfilment of certain suspensive conditions, provide
financial assistance in connection with the subscription for the Subscription Shares (together
the “B-BBEE Transaction”); and
• as a separate transaction to the B-BBEE Transaction, has entered into a binding term sheet
pursuant to which it will, subject to the fulfilment of certain suspensive conditions, grant a
R2 000 000 000 (two billion Rand) facility to Ubuntu-Botho or a wholly owned subsidiary of
Ubuntu-Botho (“Ubuntu-Botho Issuer”) (“Ubuntu-Botho Facility”) enabling Ubuntu-Botho to
invest in certain Sanlam subsidiaries as part of Sanlam’s South African strategy to enhance
Sanlam’s empowerment at an operational (business unit) level and also to invest in financial
services businesses that are complementary to Sanlam’s strategy.
Collectively the B-BBEE Transaction and the Ubuntu-Botho Facility are referred to as the
“Proposed Transactions” and the agreements to give effect to the Proposed Transactions are
referred to as the “Transaction Agreements”.
Sanlam, as a successful diversified pan-African financial services player, has a strong track record
of value creation for all its Shareholders and other stakeholders. Sanlam’s leading pan-African
position was strengthened with the recent successful conclusion of the SAHAM Finances
transaction. Notwithstanding, Sanlam still generates some 70% of its Net Result from Financial
Services from South Africa, and this large South-African contribution is expected to continue for the
foreseeable future. The Proposed Transactions will support Sanlam to grow and consolidate its
position in this important market, whilst also building on the Sanlam philosophy of mutually
beneficial partnerships in pursuit of shareholder value creation.
The International Financial Reporting Standards (“IFRS”) cost relating to the Proposed
Transactions as illustrated in the pro-forma IFRS financial effects in paragraph 9
of this announcement represents a cost of 0.9% of the Company’s market
capitalisation. Based on the Group’s assessment of the economic cost of the Proposed
Transactions rather than IFRS cost, the Proposed Transactions represent a cost of 0.6% of its
market capitalisation. This is considered to be at the lower end of the range of comparable B-BBEE
transactions, with most of the comparable transactions focused only on increasing shareholding at
a Company level. The Proposed Transactions have a wider reach by also introducing strategic B-
BBEE stakes at an operational/business unit level. The Board believes that strengthening the
Group’s empowerment credentials on a Company and subsidiary level will, over time, yield
economic benefits that will outweigh the costs of the Proposed Transactions, ensuring sustainable
value creation for shareholders.
The proceeds from the B-BBEE Transaction will be used to redeem the short-term debt facilities
incurred as partial funding to acquire the 53.37% SAHAM Finances shareholding, enabling Sanlam
to retain its balance sheet flexibility and strength, in line with its prudent balance sheet management
strategy.
From a rating agency point of view, based on Sanlam management’s current projections, the
Proposed Transactions will not have a negative impact on Sanlam’s solvency position or credit
rating. The dividend cover ratio will also remain within the policy range of 1.0x – 1.2x, supporting
dividend growth in line with the 2% - 4% real growth communicated to the market.
This announcement sets out the rationale and the salient terms of the Proposed Transactions,
including the suspensive conditions, effective date, related party considerations, board opinion and
recommendations as well as the pro forma financial effects.
2. RATIONALE FOR THE PROPOSED TRANSACTIONS
Re-enforcing Sanlam’s South African operations
Sanlam, as a successful diversified pan-African financial services player, has a strong track record
of value creation for all its Shareholders and other stakeholders and is consistently looking for ways
to strengthen its market share in South Africa in areas where it is considered underweight relative
to its main competitors, including third party asset management, health administration, employee
benefits and the growing entry level market.
In South Africa, where inclusive economic participation and wealth creation remains a challenge,
public interest and commentary on B-BBEE continues to feature strongly with the need to facilitate
more citizens’ access to economic activity and participation in wealth creation, which will be a
fundamental factor in driving higher and sustained economic growth. The South African financial
services client base, in particular institutional clients, require participants in the industry to contribute
to inclusive wealth creation in a number of ways, including direct B-BBEE ownership. The level of
empowerment, both at listed company level as well as the subsidiary with whom they transact, is
an important consideration for institutional clients in awarding business mandates. Contributions in
excess of the requirements of the Financial Sector Charter (“FSC”) are becoming increasingly more
important. As a result, it is in Sanlam’s business and commercial interest to transform in line with
the needs and preferences of its current and potential clients, key to this is that it is seen to continue
contributing to economic transformation and inclusive wealth creation.
Transformation in South Africa is defined broadly to include, among others: economic
transformation to reduce wealth inequality; transforming our staff to reflect the demographic profile
of our client base and societies where we operate; transforming our distribution channels and
operations in line with technological and regulatory developments; and most importantly,
transforming everything we do in line with the changing needs and preferences of our clients.
Sanlam’s empowerment strategy is based on protecting and enhancing the Group’s leadership
position in South Africa through inter alia a leading empowerment status and appropriate mutually
beneficial partnerships and is also focused on improving black employment equity, building mutually
beneficial partnerships with black owned companies and enhancing black management control,
access to financial services and black enterprise development. This ensures a holistic approach to
transformation in pursuit of sustainable wealth creation, enhanced economic growth, a more
supportive South African business environment and positioning Sanlam favourably from a
competitive perspective.
The Proposed Transactions are a deliberate strategic move to enhance the Group’s empowerment
status and strategic partnerships, both at Group level as well as specific operational business unit
level, in support of long term value creation for all stakeholders. Achieving a clear leadership
position in empowerment by leveraging Sanlam’s partnership business model will position the
Group well in its efforts to gain profitable market share in the identified strategic areas to the benefit
of shareholders.
On completion of the B-BBEE Transaction, Sanlam will be a Level 1 Contributor with a black
economic ownership level (combined direct and indirect), as measured in terms of the FSC, in
excess of 35% and a direct black economic ownership level, as measured in terms of the FSC, of
over 18%. This would place Sanlam in a strong, market leading position in terms of empowerment.
Enhancing Broad Based participation at a group level
The B-BBEE Transaction will extend the benefits of empowerment to include a broad range of
participants, with 80% of the beneficiaries of the B-BBEE Transaction being new broad-based black
empowerment participants in the following categories, which have been identified by Sanlam and
Ubuntu-Botho:
• Professional black women;
• Rural and urban poor black women groups;
• Black youth and black youth groups;
• Black business partners and broad based black groups (including community organisations
and black business partners of Sanlam and Ubuntu-Botho); and
• Employees of the Sanlam Group.
The 80% participation in the B-BBEE Transaction will be held via a trust to be created for the
ultimate benefit of broad based black economic empowerment participants (the “Master Trust”).
Each category of beneficiary will have its own trust which will be entitled to 20% of the benefits
received by the Master Trust, and will be created by the trustees of the Master Trust, on the same
terms, mutatis mutandis, as the Master Trust Deed, as soon as practically possible after the
implementation of the B-BBEE Transaction (the “Beneficiary Trust(s)”).
Ubuntu-Botho, as the anchor empowerment shareholder in Sanlam, has a substantial interest in
ensuring that the B-BBEE Transaction and its composition, benefit and advance Sanlam's long-
term business and commercial interests. Ubuntu-Botho will take the lead and control of the process
of selecting the participants and beneficiaries of the Beneficiary Trusts. Sanlam will also propose
empowerment participants and beneficiaries for Ubuntu-Botho’s consideration.
Ubuntu-Botho Subscriber, a subsidiary of Ubuntu-Botho, will benefit from the remaining 20%,
acknowledging Ubuntu-Botho’s demonstrated commitment to Sanlam as its single largest
shareholder over the last few years.
Enhancing broad based empowerment on key operating subsidiary level and strengthening
and expanding the strategic partnership with Ubuntu-Botho
The strategic partnership between Sanlam and Ubuntu-Botho has been one of the most successful
business relationships in South Africa. Since the maturity of the original empowerment transaction
between Sanlam and Ubuntu-Botho, Ubuntu-Botho has continued to support Sanlam’s strategy in
South Africa, extending and expanding the relationship. To date, over 1 000 000 (one million)
people have benefitted from the disbursement of funds through Ubuntu-Botho and the Sanlam
Ubuntu-Botho Community Development Trust.
As part of Sanlam’s South African strategy and to enhance Sanlam’s empowerment at an
operational (business unit) level, Sanlam is proposing to make available the Ubuntu-Botho Facility
subject to the fulfilment of the Suspensive Conditions detailed in Paragraph 5.
The Ubuntu-Botho Facility is intended to be utilised to strengthen Sanlam’s competitive position,
while also strengthening the strategic, long-standing and mutually beneficial partnership with
Ubuntu-Botho.
Through the Ubuntu-Botho Facility, Sanlam will enable Ubuntu-Botho or its subsidiary to:
• acquire a direct or indirect interest in certain key operating subsidiaries of the Sanlam
Group in areas where Sanlam does not have a leading position, in particular third-party
asset management, and the growing entry level market. This will enhance the
empowerment status and competitiveness of these subsidiaries; and
• invest in financial services companies that will be complementary to the broader Sanlam
Group’s vision and strategy.
The Ubuntu-Botho Facility will be utilised only as and when transactions which meet the
aforementioned criteria are available and will be subject to the terms and conditions of the
agreement supporting the Ubuntu-Botho Facility (the “Ubuntu-Botho Facility Agreement”)
including approval by the Independent Committee, consisting of all non-executive Directors who
are independent of Sanlam and Ubuntu-Botho, to evaluate matters involving the Company and the
Ubuntu-Botho Group, ( the “Independent Committee”) and the Board on a case by case basis.
3. SALIENT TERMS OF THE PROPOSED TRANSACTIONS
3.1. The B-BBEE Transaction
The Subscription Shares will be issued to Subscription SPV at the Subscription Price (defined
below) which will be determined on the Determination Date. The Determination Date will be a date
falling after the fulfilment of all suspensive conditions to the B-BBEE Transaction, and will be agreed
by the Independent Committee and the Ubuntu-Botho Subscriber (having regard to prevailing
market conditions) and approved by the Board, as the date with reference to which the Subscription
Price will be determined.
The 3 day volume weighted average price (“VWAP”) of a Sanlam Share is utilised as a reference
to determine the Subscription Price in order to align the Subscription Price as far as practically
possible with the Standard Bank Funding Package requirement which utilises the 3 day VWAP of
a Sanlam Share to determine the starting share cover ratio. The Standard Bank Funding Package
is defined below.
In agreeing the Determination Date, the Independent Committee will consider the prevailing market
conditions and seek to balance the interest of shareholders and other stakeholders in determining
the optimal pricing, funding mix and timing of the B-BBEE Transaction.
The Independent Committee will not agree a Determination Date where the 3 day VWAP of a
Sanlam Share will be (i) above R86.00, which will cause the Subscription Price to be above R 77.40
(after a discount of 10% to a price of R 86.00), or (ii) below R74.00 which will cause the Subscription
Price to be below R66.60 (after a discount of 10% to a price of R 74.00). The Subscription Date
may, subject to the fulfilment of all relevant suspensive conditions, fall on any date on or prior to 30
June 2019.
Given the length of the period required to fulfil all suspensive conditions to the B-BBEE Transaction,
with an ultimate long-stop date of 30 June 2019, and the possibility of stock market volatility over
this period, the use of a price range allows the Independent Committee to consider relevant share
price movements and the optimal funding mix to enable Subscription SPV to subscribe for the
Subscription Shares when agreeing the Determination Date.
The parties to the B-BBEE Transaction
Subscription SPV
• The sole purpose of Subscription SPV is to acquire and hold the Subscription Shares and
raise funding for the acquisition of the Subscription Shares.
B-BBEE SPV
• B-BBEE SPV is a newly established black economic empowerment entity which will hold
100% of the ordinary shares of Subscription SPV. The sole purpose of B-BBEE SPV is to
(i) hold the ordinary shares in Subscription SPV, to (ii) raise funding pursuant to the issue
of preference shares to The Standard Bank of South Africa Limited (“the First-Ranking
Preference Shares”) and preference shares to Sanlam or one of its subsidiaries (the
“Sanlam SPV Subscriber”) (“the Second-Ranking Preference Shares”) and to (iii)
partially fund Subscription SPV for the purpose of subscribing for the Subscription Shares.
B-BBEE SPV is owned as to 80% by the Master Trust and as to 20% by Ubuntu-Botho
Subscriber.
Collectively the B-BBEE SPV and Subscription SPV are referred to as the “B-BBEE SPV Group”.
The Master Trust and Beneficiary Trusts
• The purpose of the Master Trust and the Beneficiary Trusts will be to create long-term and
sustainable empowerment through a broad-based group of black beneficiaries.
Ubuntu-Botho Subscriber
• Ubuntu-Botho Subscriber is held as to 20% by the Sanlam Ubuntu-Botho Community
Development Trust and 80% as to Ubuntu-Botho.
• Ubuntu-Botho Subscriber will be entitled to appoint the majority of the directors on the board
of B-BBEE SPV and Subscription SPV.
Funding of the B-BBEE Transaction
To enable Subscription SPV to subscribe for the Subscription Shares at the Subscription Price,
Subscription SPV will require an amount of between R7 415 843 400 (seven billion four hundred and
fifteen million eight hundred and forty-three thousand four hundred Rand) and R8 618 412 600 (eight
billion six hundred and eighteen million four hundred and twelve thousand and six hundred Rand). The
B-BBEE SPV Group has secured the funding for the aforementioned amount through:
(i) the Standard Bank Funding Package consisting of first ranking preference shares to be issued
by B-BBEE SPV to Standard Bank (“First Ranking Preference Shares”) and a loan by
Standard Bank or another financial institution to Subscription SPV (“Equity Secured
Funding”); and
(ii) the Second Ranking Preference Shares consisting of second ranking preference shares to be
issued by B-BBEE SPV to Sanlam SPV Subscriber.
The funding requirement will be split 50/50 between the Second Ranking Preference Shares and the
Standard Bank Funding Package. The final mix of the funding will be determined by the Subscription
Price and is estimated to be as follows:
R‘ million Funding Requirement Mix
Lower end of the Upper end of the
range range
3 Day VWAP R 74.00 R 86.00
Subscription Price after a 10% discount to 3
R 66.60 R 77.40
day VWAP
First Ranking Preference Shares R2 451.9 R2 933.3
Equity Secured Funding R1 256.1 R1 375.9
Total Standard Bank Funding Package R3 708.0 R4 309.2
Second Ranking Preference Shares R3 708.0 R4 309.2
Total funding requirement R7 416.0 R8 618.4
The Second Ranking Preference Shares are expected to be funded by Sanlam SPV Subscriber
from a combination of discretionary capital of between R2 808 000 000 (two billion eight
hundred and eight million Rand) and R3 409 200 000 (three billion four hundred and nine million
two hundred thousand Rand) made available by Sanlam, and the issuance of preference
shares in the market as to R900 000 000 (nine hundred million Rand).
The Standard Bank Funding Package will be advanced to the B-BBEE SPV Group, on fulfilment
of all relevant suspensive conditions to the B-BBEE Transaction including fulfilment of a starting
share cover ratio of around 2.5x for the portion representing the First Ranking Preference
Shares and around 1.7x for the portion that represents the Equity Secured Funding.
The final size and split of the Standard Bank Funding Package between the First Ranking
Preference Shares and the Equity Secured Funding is a function of the Subscription Price. In
agreeing the Determination Date, the Independent Committee and the Board will ensure the
most optimal funding mix at the lowest cost whilst also satisfying the starting share cover ratios.
The Standard Bank Funding Package will not exceed R4 309 206 300 (four billion three
hundred and nine million two hundred and six thousand three hundred Rand).
The holder of the First Ranking Preference Shares and the lender under the Equity Secured
Funding will only have recourse to the balance sheets of B-BBEE SPV and Subscription SPV
respectively with no recourse to the Sanlam Group balance sheet.
3.2. The Ubuntu-Botho Facility
Sanlam or a wholly owned subsidiary of Sanlam (“Sanlam Subscriber”) will subscribe for the
preference shares issued by Ubuntu-Botho Issuer (the “Ubuntu-Botho Preference Shares”)
in an amount of up to R2 000 000 000 (two billion Rand) in aggregate, in multiple tranches until
31 December 2020.
There is no set schedule for subscribing for Ubuntu-Botho Preference Shares. The subscription
by Sanlam Subscriber for each tranche of Ubuntu-Botho Preference Shares will be subject to
the terms and conditions of the Ubuntu-Botho Facility Agreement and approval of the
Independent Committee and the Board on a case by case basis.
The Ubuntu-Botho Preference Shares will be redeemable cumulative non-participating
preference shares to be issued by the Ubuntu-Botho Issuer. The dividend in respect of the
Ubuntu-Botho Preference Shares will be calculated at a rate of 85% of the Prime Rate for an
initial period of 7 years after the date on which the first tranche is issued and if refinanced for a
further period of 3 years (at the sole discretion of Sanlam Subscriber) will be at the prevailing
market related rate at refinance date based on the level of security available for the extension
period.
The Ubuntu-Botho Preference Shares will be secured by pledge and cession by African
Rainbow Capital Financial Services (“ARC FS”) of the investments acquired with the proceeds
received from the Ubuntu-Botho Facility and a pledge and cession of investments (which will
preferably be listed investments), acceptable to Sanlam Subscriber. ARC FS will also provide
the Company with financial covenants which will be calculated with reference to the directors’
valuation of investments held by ARC FS relative to the nominal value of the Ubuntu-Botho
Preference Shares not redeemed and any unpaid and accrued dividends thereon.
Given the security package and the strategic nature of the planned investments, Sanlam Board
believes that the terms of the Ubuntu-Botho Facility appropriately reflect an appropriate balance
between financial and strategic benefits to the Sanlam Group.
Utilisation of the Ubuntu-Botho Facility
The details set out below are provided to Shareholders for information purposes only and fall
outside of the scope of the Proposed Transactions. They provide an indication of how the
Ubuntu-Botho Facility will be utilised by Ubuntu-Botho in the future in support of Sanlam’s
strategy for empowerment and transformation.
Sanlam, African Rainbow Capital (“ARC”) and ARC FS have reached in-principle agreement,
subject to the conclusion of definitive agreements, to enter into the potential transactions
described below which will be subject to the JSE listings requirements. A full terms
announcement will be made once definitive agreements have been concluded. In addition to
these potential transactions, Sanlam and Ubuntu-Botho will continue to explore other areas of
cooperation which could potentially lead to synergies for the Sanlam Group and that could
unlock long term value for shareholders by enhancing the competitiveness of its business units.
• Third Party Asset Management: In order to enhance the competitiveness of its third-party
asset management business Sanlam will engage in a restructuring of its South African
businesses and introduce ARC FS as a 25% shareholder in the business (the “Sanlam
Investments Transaction”). Sanlam and ARC FS may jointly explore opportunities for further
transactions with other asset management companies.
• Life Insurance – entry level market: Sanlam is supporting the formation of a new black
managed insurance company that will focus on the underserviced lower to middle income
market segment as well as small and medium sized businesses. Sanlam Life Insurance
Limited (“Sanlam Life”), ARC FS and a consortium comprising key black management (the
“Management Consortium”) have incorporated a new black managed financial services
business named African Rainbow Life. African Rainbow Life will have a significant B-BBEE
shareholding and will be held as to 51% by Sanlam Life, and 49% by ARC FS and the
Management Consortium. African Rainbow Life will be black managed and will focus on
distributing financial services products through work site marketing and by accessing informal
groups.
Should these potential transactions be concluded, Sanlam expects to have broad based black
economic ownership (as measured in terms of the FSC) in excess of 51% at operating business
unit level in these areas.
4. CROSS SHAREHOLDING TRANSACTION
It is envisaged that ARC FS will assist Sanlam in the execution of its South African strategy and
therefore, in addition to providing the Ubuntu-Botho Facility, and to further align the strategic
interests of Sanlam and Ubuntu-Botho, Sanlam and ARC have reached in-principle agreement ,
subject to the conclusion of definitive agreements and such agreements becoming unconditional in
accordance with their terms, for Sanlam or a wholly-owned subsidiary of Sanlam to acquire a 25%
stake in ARC FS from ARC which will inter alia hold the strategic investments acquired via the
Ubuntu-Botho Facility as part of the Sanlam and Ubuntu-Botho business partnership. If definitive
agreements are concluded, a full terms announcement will be made and the transaction will be
subject to the requirements of the JSE Listings Requirements.
5. SUSPENSIVE CONDITIONS
The B-BBEE Transaction is conditional, inter alia, on the fulfilment of the following suspensive
conditions by no later than 30 June 2019:
• the requisite shareholder approval being obtained from Shareholders at the general meeting of
Shareholders to be held on 12 December 2018 (“the General Meeting”);
• B-BBEE SPV Group obtaining the requisite funding pursuant to the Standard Bank Funding
Package and Second Ranking Preference Shares to enable Subscription SPV to subscribe for
the Subscription Shares;
• fulfilment of a starting share cover ratio of around 2.5x under the First Ranking Preference
Shares and around 1.7x under the Equity Secured Funding (based on a 3 day VWAP);
• the Transaction Agreements becoming unconditional; and
• the regulatory approvals in the relevant jurisdictions.
The Ubuntu-Botho Facility will be conditional, inter alia, on the fulfilment of the following suspensive
conditions by no later than 30 June 2019or such later date as may be agreed between Sanlam
Subscriber and Ubuntu-Botho:
• the requisite shareholder approval being obtained from Shareholders at the General Meeting
and
• other customary conditions including, without limitation, ARC FS shareholder approval and
relevant amendments as may be required to the memorandum of incorporation of ARC FS.
6. EFFECTIVE DATE
The Proposed Transactions will become effective subject to the fulfilment of the suspensive
conditions which are anticipated to take place by no later than 30 June 2019.
7. RELATED PARTY CONSIDERATIONS
B-BBEE Transaction
As B-BBEE SPV and Subscription SPV will be controlled by Ubuntu-Botho Subscriber, an associate
of a material shareholder of Sanlam (as contemplated in the JSE Listings Requirements) and a
related person to Dr. Patrice Motsepe, deputy Chair of Sanlam (as contemplated in the Companies
Act), the following related party considerations are applicable in respect of the Proposed
Transactions:
Issue of the Subscription Shares
As Subscription SPV is a related person to Dr. Motsepe as contemplated in the
Companies Act, the issue of the Subscription Shares to Subscription SPV requires
approval by Shareholders by way of special resolution in terms of section 41 of the
Companies Act.
In addition, as:
• Subscription SPV is an associate of Ubuntu-Botho; and
• the Subscription Shares will be issued at a discount to the 30 day VWAP of
the Sanlam Shares to the date on which the Subscription Price is agreed
between the Company and B-BBEE SPV,
the issue of the Subscription Shares requires the approval by Shareholders as a
specific issue for cash under the JSE Listings Requirements which further require the
Board to obtain a fairness opinion. The Board has obtained a fairness opinion from
Deloitte & Touche which will be made available in the circular to be posted to
Shareholders on or about 12 November 2018 that will provide full details of the
Proposed Transactions (the “Circular”).
As a related party whose associates are participating in the specific issue for cash (as
contemplated in the JSE Listings Requirements), Ubuntu-Botho is not entitled to cast
any votes in respect of this special resolution
Provision of funding through subscription for the Second Ranking Preference
Share
As B-BBEE SPV is a related person to Dr. Motsepe as contemplated in the Companies
Act, the provision of financial assistance to B-BBEE SPV pursuant to the Second
Ranking Preference Shares requires the approval of Shareholders by way of special
resolution in terms of section 45 of the Companies Act.
In addition to the approval of Shareholders, the Company is required to obtain a
fairness opinion in terms of the JSE Listings Requirements. The Board has obtained
a fairness opinion from Deloitte & Touche which will be made available in the Circular.
Whilst Ubuntu-Botho is not precluded by the Companies Act or the JSE Listings
Requirements from voting on such resolution, Ubuntu-Botho has informed the
Company that it will not cast any votes on this resolution.
Granting of the Ubuntu-Botho Facility
As Ubuntu-Botho is a related person to Dr. Motsepe as contemplated in the Companies Act,
the provision of financial assistance to Ubuntu-Botho pursuant to the Ubuntu-Botho Facility
Agreements requires the approval of Shareholders by way of special resolution in terms of
section 45 of the Companies Act.
Ubuntu-Botho may utilise some of the proceeds from the issue of the Ubuntu-Botho Preference
Shares to subscribe (directly or indirectly) for shares in certain subsidiaries of the Company. To
the extent that funding is utilised for such purpose, it requires the approval of Shareholders by
way of special resolution in terms of section 44 of the Companies Act.
The Ubuntu-Botho Facility Agreement is deemed to be an agreement with a related party in
terms of the JSE Listings Requirements and accordingly, subject to compliance with the related
party transaction provisions of the JSE Listings Requirements. By virtue of its size it is deemed
a small related party transaction in terms of the JSE Listings Requirements and does not require
the approval of Shareholders under the JSE Listings Requirements. However, the Company is
required to obtain a fairness opinion in terms of the JSE Listings Requirements. The Board has
obtained a fairness opinion from Deloitte & Touche which will be made available in the Circular.
Whilst Ubuntu-Botho is not precluded by the Companies Act or the JSE Listings Requirements
from voting on such resolution, Ubuntu-Botho has informed the Company that it will not cast
any votes on this resolution.
8. BOARD OPINION AND RECOMMENDATIONS
The Board established the Independent Committee, consisting of all non-executive Directors who
are independent of Sanlam and Ubuntu-Botho, to evaluate matters involving the Company and the
Ubuntu-Botho Group which may give rise to conflicts of interest, and following their consideration
of these matters, make recommendations to the Board. The chairman of the Independent
Committee is Mr. SA Nkosi, the lead independent Director. The Independent Committee has
appointed JP Morgan as Independent Financial Advisor to advise it in connection with the Proposed
Transactions.
The Board appointed Deloitte & Touche as Independent Expert to provide the fairness opinion in
respect of the issue of the Subscription Shares by the Company, the subscription for the Second
Ranking Preference Shares by the Company or any of its wholly-owned subsidiaries and the terms
of the Ubuntu-Botho Facility to the related party, Ubuntu-Botho (or its associates). Deloitte & Touche
have concluded that the terms of the B-BBEE Transaction and the Ubuntu-Botho Facility are fair to
Shareholders. Their opinion will be set out in the Circular.
The Board has considered the terms of the Proposed Transactions, together with the fairness
opinion by the Independent Expert and is of the opinion that the terms and conditions thereof are
fair to Shareholders and accordingly recommend that Shareholders vote in favour of the required
resolutions to implement the Proposed Transactions which will be proposed at the General Meeting.
9. PRO FORMA FINANCIAL EFFECTS OF THE PROPOSED TRANSACTIONS
The table below sets out the pro forma financial effects of the Proposed Transactions on:
• Sanlam’s IFRS Financial Information; and
• Sanlam’s Shareholders’ Information;
based on the most recently published reviewed consolidated interim financial results and
Shareholders’ Information of the Sanlam Group for the six months ended 30 June 2018, adjusted
on a pro forma basis for the conclusion of the acquisition of the remaining interest in SAHAM
Finances on 9 October 2018.
The pro forma financial information and the pro forma Shareholders’ Information have been
prepared using IFRS accounting policies and a basis of preparation and presentation of the
Shareholders’ Information respectively that are consistent with those applied in the published
consolidated financial statements and the Shareholders’ Information of Sanlam for the six months
ended 30 June 2018, and the consolidated annual financial statements and Shareholders’
Information for the year ended 31 December 2017, but with specific clarification that the treasury
share adjustment upon consolidation of the Subscription SPV is recognised in the consolidation
reserve which forms part of other reserves in the consolidated Statement of Financial Position.
The actual Sanlam share price and other observable market information at implementation date of
the Proposed Transactions will affect the actual impact of the Proposed Transactions on the
financial information and Shareholders’ Information.
The pro forma financial information and the pro forma Shareholders’ Information is the responsibility
of the directors of Sanlam and was prepared for illustrative purposes only and may not, because of
its nature, fairly present Sanlam’s IFRS financial position and results of its operations or
Shareholders’ Information after the Proposed Transactions. It does not purport to be indicative of
what the financial results would have been, had the Proposed Transactions been implemented on
a different date.
9.1. The Proposed Transactions
The B-BBEE Transaction will be implemented through a series of inter-related steps resulting in
Sanlam issuing the Subscription Shares to Subscription SPV at the Subscription Price. As the
Subscription Price will be determined at a 10% discount to a Sanlam share price within a range of
R74 (seventy-four Rand) to R86 (eighty-six Rand), two scenarios are presented in respect of the
B-BBEE Transaction: a scenario based on the bottom end of the range (“R74-scenario”) as well as
a scenario based on the upper end of the range (“R86-scenario”).
The B-BBEE Transaction meets the requirements of an equity-settled IFRS 2: Share-based
Payment (“IFRS 2”) arrangement and will result in a once-off share-based payment charge. This
once-off charge is recognised in the Consolidated Statement of Comprehensive Income for the six
months ended 30 June 2018 as administration costs.
The following adjustments are made in determining the economic cost of the Proposed
Transactions for purposes of the pro forma Shareholders’ Information for the six months ended 30
June 2018:
• IFRS 2 requires that the cost of the B-BBEE Transaction be measured taking cognisance of
the effective discount of the Subscription Price relative to the prevailing listed price. The B-
BBEE Transaction is an alternative to a general market issuance, similar to the share issuance
conducted by Sanlam in March 2018. Such a comparable market issuance would have
occurred at a discount of around 5%, in the Board’s view, in line with the March 2018
transaction. The economic cost of the B-BBEE Transaction is measured for purposes of the
pro forma Shareholders’ Information after taking into account the difference between a market
related discount of 5% and the effective discount of 10% implied by the Subscription Price.
The economic cost of the B-BBEE Transaction for purposes of the pro forma Shareholders’
Information is commensurately R412 000 000 (four hundred and twelve million Rand) and
R479 000 000 (four hundred and seventy-nine million Rand) lower than the IFRS charge at
the R74-scenario and R86-scenario respectively.
• The Second Ranking Preference Shares funding provided by Sanlam in terms of the B-BBEE
Transaction will be partially funded through the issuance of preference shares by a subsidiary
of Sanlam in the market. Due to Sanlam’s strong balance sheet and credit rating, the cost of
funding relating to these preference shares is lower than the proportional investment return
earned on the Second Ranking Preference Shares. Sanlam will therefore earn a margin on
the portion of the Second Ranking Preference Shares funded through the back-to-back
preference share issuance, with the capitalised value of this margin of R80 000 000 (eighty
million Rand) recognised as part of RoGEV in the Shareholders’ Information at initial
recognition. Capitalisation of this margin at initial recognition is not permitted in terms of IFRS,
with the margin being recognised in the consolidated Statement of Comprehensive Income
over time on an accrual basis.
• The Ubuntu-Botho Facility will be funded through the issuance of preference shares (on a
back-to-back basis) by a subsidiary of Sanlam at a funding cost lower than the yield on the
Ubuntu-Botho Facility. The funding cost is lower due to Sanlam’s strong balance sheet and
credit rating. The capitalised value of this margin (R73 000 000 (seventy three million Rand)
in respect of the portion to be utilised for the Sanlam Investments Transaction) is similarly
recognised as part of RoGEV for purposes of the pro forma Shareholders’ Information.
Capitalisation of this margin at initial recognition is not permitted in terms of IFRS, with the
margin being recognised in the consolidated Statement of Comprehensive Income over time
on an accrual basis.
The IFRS share-based payment charge represents a cost of 0.9% for both the R74-scenario and
R86-scenario of the Sanlam market capitalisation (excluding Treasury Shares), while the economic
cost of the Proposed Transactions for purposes of the pro forma Shareholders’ Information as
described above, represents a cost of 0.6% for the R74-scenario and R86-scenario of the Sanlam
market capitalisation (excluding Treasury Shares). It is estimated that of the IFRS charge, 80% is
associated with new broad based beneficiaries and 20% is associated with the Ubuntu-Botho
Group.
Shareholders also need to be aware that the once-off IFRS charge is presented in the pro
forma financial information in relation to the Group’s consolidated financial statements and
consolidated Shareholder’s Information for the six months ended 30 June 2018. The once-
off IFRS charge will proportionally have a different impact when viewed against the full year
earnings, as opposed to when it is presented against the earnings for the six months.
Based on management’s judgement and application of the control principles contained in IFRS 10:
Consolidated Financial Statements (“IFRS 10”), management concluded that Sanlam will need to
consolidate the B-BBEE SPV Group for IFRS purposes for the initial term of the B-BBEE
Transaction. As a result, the Subscription Shares held by the Subscription SPV in Sanlam will be
treated as treasury shares for IFRS purposes (i.e. it will be excluded from Shares and weighted
average number of Shares for accounting purposes). The treasury shares will be included in the
consolidation reserve that forms part of the IFRS shareholders’ equity in line with the Group’s basis
of presentation. In respect of the Shareholder’s Information, management concluded that
consolidation of the B-BBEE SPV Group does not reflect the economic result of the B-BBEE
Transaction. The B-BBEE SPV Group is commensurately not consolidated for purposes of the
Shareholders’ Information.
PRO FORMA FINANCIAL EFFECTS: R74-SCENARIO
Pro forma Pro forma % change
% change
Before the after the after the from Before
from Before
Proposed Proposed Proposed the Proposed
the Proposed
Transactions Transactions - Transactions - Transactions
Transactions
Scenario A (3) Scenario B (4)
IFRS INFORMATION
Basic earnings per 307.6 229.1 -26 229.2 -25
share (“EPS”) (cents)
Diluted EPS (cents) 304.7 225.8 -26 225.9 -26
Basic headline 246.5 168.1 -32 168.2 -32
earnings per share
(“HEPS”) (cents)
Diluted HEPS (cents) 244.2 165.6 -32 165.7 -32
Distributable earnings 307.6 229.1 -26 229.2 -25
per share (cents)
Net asset value per 3 120.6 3 102.8 -1 3 142.8 1
share (“NAVPS”)
(cents)
Net tangible asset 1 792.6 1 781.9 -1 1 821.9 2
value per share
(“NTAVPS”) (cents)
Number of ordinary 2 090.0 2 101.1 1 2 101.1 1
Shares (million)
Weighted average 2 042.5 2 042.5 - 2 042.5 -
number of Shares at
period end (million)
Weighted average 2 062.3 2 073.4 1 2 073.4 1
number of diluted
Shares (million)
SHAREHOLDERS’
INFORMATION
GEV per share 6 022 6 057 1 6 049 -
(“GEVPS”) (cents)
Annualised RoGEV 14.3 15.3 6 15.2 6
per share
(“RoGEVPS”)
(percentage)
Shareholders’ fund at 3 110 3 287 6 3 325 7
net asset value per
share (cents)
Net result from 227.1 215.6 -5 214.0 -6
financial services per
share (“NRFSPS”)
(cents)
Normalised headline 231.8 209.4 -10 209.5 -10
earnings per share
(“NHEPS”) (cents)
Number of Shares for 2 112.8 2 224.1 5 2 224.1 5
GEVPS and
RoGEVPS (million)
Weighted average 2 081.7 2 193.0 5 2 193.0 5
number of diluted
Shares for NRFSPS
and NHEPS
PRO FORMA FINANCIAL EFFECTS: R86-SCENARIO
Before the Pro forma % change Pro forma % change
Proposed after the from Before after the from Before
Transactions Proposed the Proposed Proposed the Proposed
Transactions - Transactions Transactions - Transactions
Scenario A (3) Scenario B (4)
IFRS INFORMATION
Basic earnings per 307.6 218.9 -29 219.0 -29
share (“EPS”) (cents)
Diluted EPS (cents) 304.7 215.6 -29 215.7 -29
Basic headline 246.5 157.7 -36 157.8 -36
earnings per share
(“HEPS”) (cents)
Diluted HEPS (cents) 244.2 155.4 -36 155.5 -36
Distributable earnings 307.6 218.9 -29 219.0 -29
per share (cents)
Net asset value per 3 120.6 3 102.9 -1 3 142.9 1
share (“NAVPS”)
(cents)
Net tangible asset 1 792.6 1 781.9 -1 1 821.9 2
value per share
(“NTAVPS”) (cents)
Number of ordinary 2 090.0 2 101.1 1 2 101.1 1
Shares (million)
Weighted average 2 042.5 2 042.5 - 2 042.5 -
number of Shares at
period end (million)
Weighted average 2 062.3 2 073.4 1 2 073.4 1
number of diluted
Shares (million)
SHAREHOLDERS’
INFORMATION
GEV per share 6 022 6 111 1 6 103 1
(“GEVPS”) (cents)
Annualised RoGEV per 14.3 16.2 13 16.1 13
share (“RoGEVPS”)
(percentage)
Shareholders’ fund at 3 110 3 341 7 3 379 9
net asset value per
share (cents)
Net result from 227.1 215.6 -5 214.0 -6
financial services per
share (“NRFSPS”)
(cents)
Normalised headline 231.8 208.3 -10 208.4 -10
earnings per share
(“NHEPS”) (cents)
Number of Shares for 2 112.8 2 224.1 5 2 224.1 5
GEVPS and RoGEVPS
(million)
Weighted average 2 081.7 2 193.0 5 2 193.0 5
number of diluted
Shares for NRFSPS
and NHEPS
Notes and assumptions
1. Notes below are applicable to both the R74-scenario and R86-scenario
2. The information reflected in the “Before the Proposed Transactions” column has been extracted
from the reviewed consolidated interim financial results and Shareholders’ Information of Sanlam
for the six months ended 30 June 2018 as published on SENS on 6 September 2018, adjusted on
a pro forma basis for the conclusion of the acquisition of the remaining interest in SAHAM Finances
on 9 October 2018.
3. The Sanlam information reflected in the “Pro forma after the Proposed Transactions – Scenario A”
column has been calculated on the basis that all of the steps to implement the Proposed
Transactions have been completed, but before any drawdowns granted in respect of the Ubuntu-
Botho Facility have occurred.
4. The Sanlam information reflected in the “Pro forma after the Proposed Transactions – Scenario B”
column has been calculated on the basis that all of the steps to implement the Proposed
Transactions have been completed, and that a portion of the Ubuntu-Botho Facility has been
utilised for the Sanlam Investments Transaction.
5. The effects on basic EPS, diluted EPS, HEPS, diluted HEPS, RoGEVPS, NRFSPS and NHEPS
are calculated on the basis that the Proposed Transactions were effective on 1 January 2018, while
the effects on NAVPS, NTAVPS, GEVPS and shareholders’ fund at net asset value per share are
calculated on the basis that the Proposed Transactions were effective on 30 June 2018 for purposes
of presenting the pro forma financial information and the pro forma Shareholder’s Information.
The full pro forma financial information will be set out in the Circular, together with a report from Ernst
& Young Incorporated, the Company’s independent reporting accountant.
10. SALIENT DATES AND TIMES
The salient dates and times in relation to the Proposed Transactions are set out below:
2018
Notice record date, being the date on which Sanlam Shareholders
must be registered in the Sanlam securities register in order to be Friday, 2 November
entitled to receive the Circular and the Notice of General Meeting
Circular to Shareholders posted on or about Monday, 12 November
Last day to trade in Sanlam shares in order to be eligible to attend
Tuesday, 4 December
and vote at the General Meeting
Record date to attend and vote at the General Meeting Friday, 7 December
Forms of Proxy for the General Meeting to be received by 14:00 for
administrative purposes on
(A Form of Proxy may alternatively be handed to the chairperson of Tuesday, 11 December
the General Meeting prior to the commencement of the General
Meeting on Wednesday, 12 December)
General Meeting of Shareholders to be held at 14:00 at the offices
Wednesday, 12
of Sanlam at the CR Louw Auditorium, Sanlam Head Office, 2
December
Strand Road, Bellville, Cape Town
Wednesday, 12
Results of General Meeting released on SENS
December
Results of General Meeting released in the press Thursday, 13 December
Notes:
All times indicated above are local times in South Africa.
11. CIRCULAR
The Circular setting out the full details of the Proposed Transactions will be posted to Shareholders,
who have indicated preference for receiving notices via post, on 12 November 2018. The Circular
will also be made available on the Company’s website at www.sanlam.com and Shareholders will
be notified via SENS once the circular is available on the website.
12. CONFERENCE CALL
A conference call for analysts, investors and the media will take place at 16h00 (South African time)
today. Investors and media who wish to participate in the conference call should register as
indicated below.
Audio dial-in facility
A toll-free dial-in facility will be available. Please register at http://www.diamondpass.net/3668812
for the call. Registered participants will receive their dial-in number upon registration. For
assistance, please contact Sanlam Investors Relations at +2721 947 8455.
Recorded playback will be available for three days after the conference call.
Access Numbers for Recorded Playback:
Access code for recorded playback: 18537
South Africa 010 500 4108
USA and Canada 1 412 317 0088
UK 0 203 608 8021
Australia 073 911 1378
Other Countries +27 10 500 4108
Cape Town
31 October 2018
Lead Financial Advisor and Transaction Sponsor
The Standard Bank of South Africa Limited
Legal Advisor
Glyn Marais Incorporated
Independent Expert
Deloitte & Touche
19
Independent Reporting Accountant
Ernst & Young Inc.
Independent Financial Advisor to the Independent Committee Directors of the Board
JP Morgan
20
Date: 31/10/2018 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,
information disseminated through SENS.
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