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BELL EQUIPMENT LIMITED - Black Economic Empowerment Transaction and Withdrawal of Cautionary

Release Date: 11/12/2019 09:40
Code(s): BEL     PDF:  
 
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Black Economic Empowerment Transaction and Withdrawal of Cautionary

BELL EQUIPMENT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1968/013656/06)
ISIN: ZAE000028304
Share Code: BEL
(“Bell” or “the Company”)


BLACK ECONOMIC EMPOWERMENT TRANSACTION AND WITHDRAWAL OF CAUTIONARY


BELL EQUIPMENT LIMITED CONCLUDES BLACK ECONOMIC EMPOWERMENT TRANSACTION
INVOLVING ITS SUBSIDIARIES BELL EQUIPMENT COMPANY SA (PTY) LTD AND BELL EQUIPMENT
SALES SOUTH AFRICA LTD

1)       BACKGROUND AND RATIONALE FOR THE BEE TRANSACTION

Bell Shareholders are referred to the cautionary announcement released on 16 October 2019 and
updated on 21 November 2019 (“the Cautionary”), advising Shareholders that the Company was
engaged in discussions aimed at the introduction of Black Economic Empowerment (“BEE”)
shareholders into the manufacturing subsidiary of the Company. The BEE Transaction has now been
concluded on the basis outlined in this announcement (“the BEE Transaction”).

In demonstrating its ongoing commitment to transformation and broad-based BEE ownership in
South Africa in ways that are sustainable, credible and of benefit to all its stakeholders, the
Company’s subsidiaries, Bell Equipment Company SA (Pty) Ltd (“BECSA”) and Bell Equipment Sales
South Africa Limited (“BESSA”), will as a result of the BEE Transaction both be 51% (fifty one percent)
Black people owned companies.

To this end, the board of the Company approved the BEE Transaction together with the restructure
of the Bell Equipment Group to facilitate the BEE Transaction.

The Company identified as its preferred shareholders (“the BEE shareholders”) in the BEE
Transaction:

     •   key Black executives in the Bell Equipment group, who together are a well-balanced and
         highly qualified team with years of institutional knowledge, bringing the necessary
         manufacturing expertise, new business development focus, sales and distribution skills and
         are able to continue to spearhead interactions with the private and public sector; and

     •   the current BESSA BEE shareholders, SIBI, (“SIBI”) a 100% Black women owned and managed
         company, whose ultimate shareholders are Sindisiwe Koyana-Mabaso and Bharti Harie, as
         well as the Bell Foundation Trust (“the Foundation”) the beneficiaries of which are Black
         women.

The BEE shareholders will actively assist the Company in achieving both its growth and
transformation objectives and focus on the Company’s continued contribution to the South African
economy and manufacturing sector.

The BEE Transaction results in Black people holding an effective 51% (fifty one percent) ownership
interest in BECSA and BESSA for the duration of a 10 year lock-in period.
2)      DESCRIPTION OF THE BUSINESS CARRIED ON BY THE BELL GROUP

Bell, listed on the Johannesburg Stock Exchange, is a proudly South African company, and through
the various members of the Bell group, a leading global manufacturer, distributor and exporter of a
wide range of heavy equipment for the construction, mining, quarrying, sugar, forestry and waste
handling industries worldwide.

BECSA

BECSA is currently wholly-owned by the Company. With effect from 1 January 2020, and following
an internal restructure, BECSA will be a contract manufacturer appointed by Bell Equipment Group
Services Proprietary Limited (“BEGS”) a wholly owned subsidiary of Bell, to manufacture products
determined by BEGS from time to time, which would currently be material handling equipment,
including articulated dump trucks for the South African and certain international markets.

BESSA

During 2017 , BESSA undertook a BEE transaction, as a result of which 30% of BESSA’s ordinary shares
are held by BEE shareholders (22.5% held by SIBI which in turn is held by investor SIBI Capital
Proprietary Limited) and 7.5% by the Foundation. This qualified BESSA as a 30% Black women owned
entity. The Company currently holds the remaining 70% of the ordinary shares in BESSA.

Following the BEE Transaction, BESSA will continue to provide sales and aftermarket support for Bell
designed and manufactured products as well as strategic alliance partner products in South Africa.


3)      PARTICULARS OF THE BEE TRANSACTION

The BEE Transaction

The key features of the BEE Transaction are as follows:

1.   A 51% Black ownership in BECSA and BESSA will be achieved using the flow through principle;
2.   The new BEE shareholders are aligned to the Company’s strategy and interests;
3.   The Company shall continue to consolidate Bell Equipment SA Holdings Limited (“BHL”), BECSA
     Holdings Limited (“BECSA Holdings”), BECSA and BESSA.

The salient terms and conditions of the BEE Transaction, as set out in the various agreements that
have been concluded between the parties on 10 December 2019 (collectively “the Agreements”) are
summarised below-

1.   A new South African holding company, BHL has been incorporated. After the implementation of
     the Transaction:

      a.   The Company will hold 70% of the issued shares of BHL, and through BHL and BHL’s
           shareholding in BECSA Holdings an effective 49% shareholding in each of BECSA and
           BESSA.

      b.   A newly incorporated BEE Management company (“BEE Manco”), the shareholders of
           which will be five BEE employees at management level of the Bell Equipment group, being
           Avishkar Goordeen, Duncan Mashika, Dominic Chinnappen, Niraj Andhee and Bruce
           Ndlela (“the Managers”), as well as the Foundation, will hold 30% of the issued shares of
             BHL and through BHL and BHL’s shareholding in BECSA Holdings an effective 21%
             shareholding in each of BECSA and BESSA.

2.   Another new South African intermediate holding company, BECSA Holdings, has been
     incorporated. The percentage holding of the ordinary shares in BECSA Holdings will be as
     follows:
              a. BHL will hold 70%;
              b. BEE Manco will hold 15%;
              c. The Foundation will hold 7.5%;
              d. SIBI will hold 7.5%.

     SIBI , the Foundation and BEE Manco will collectively hold 30% of the issued ordinary shares of
     BECSA Holdings, resulting in an effective 30% shareholding in BECSA. In addition, BEE Manco
     will have an effective 21% shareholding in BECSA through its 30% shareholding in BHL.

3.   BECSA Holdings will acquire 100% of the share capital of BECSA from the Company for
     R360 000 000 (three hundred and sixty million Rand) in consideration for which BECSA Holdings
     will pay to the Company R10 000 000 (ten million Rand) in cash, issue to the Company 1 (one)
     adjustable BECSA Holdings Preference Share (“the preference share”) for an issue price of
     R350 000 000 (three hundred and fifty million Rand). The preference share will have a coupon
     rate of 72% of prime plus 3% (prime plus 3% multiplied by one minus the corporate tax rate at
     the time). The redemption value of the preference share will be determined annually based on
     the lower of:

     a.    The issue price of R350 000 000 (three hundred and fifty million Rand) plus coupon less
           redemption and coupon payments to date; or
     b.    An amount guaranteed to give full net value points (such that the BEE Shareholders
           collectively have a 25% unencumbered share in BECSA Holdings at year 9). This is based on
           the formula (equity value x (1-(50% x BEE Graduation Factor)).

     At year 10 the preference share will be redeemed at the lower of the value calculated in formula
     a and formula b above.

4.   The scheduled redemption date of the preference share is 31 December 2029.

5.   Distributions received by BECSA Holdings from BECSA, after provision for administration
     expenses and taxes, will be split as to:

          a. of every distribution received, a fixed 5% trickle dividend to the ordinary shareholders;
             and
          b. the balance to Bell as the holder of the preference share.

6.   BHL will acquire 70% of the entire issued share capital of BESSA from the Company for
     R84 000 000 (eighty four million Rand) in consideration for which BHL will pay to the Company
     R3 000 000 (three million Rand) in cash and issue to the Company 1 000 cumulative redeemable
     preference shares for an issue price of R81 000 000 (eighty one million Rand). Those preference
     shares will have a coupon rate of 72% of prime plus 3% (prime plus 3% multiplied by one minus
     the corporate tax rate at the time). The general terms of these preference shares are standard
     and in accordance with general market practice.

4)       THE PURCHASERS

BECSA

The purchase price of R5 100 000 (five million one hundred thousand Rand) for the effective 51%
Black shareholding in BECSA through BECSA Holdings and BHL comprises of:

BEE Manco through BHL                                            – 21%  (R2 100 000)
BEE Manco (directly)                                             – 15% (R 1 500 000)
SIBI                                                             – 7.5%   (R750 000)
The Foundation                                                   – 7.5%   (R750 000)


BESSA

The purchase price of R900 000 (nine hundred thousand Rand) for the effective 21% Black
shareholding in BESSA through BHL comprises of:

BEE Manco through BHL                                            – 21%


5)       CONSIDERATIONS PAYABLE INCLUDING LOAN FUNDING BY THE BELL GROUP TO ENABLE
         SOME OF THE PURCHASERS TO PAY THE SALE AND/OR SUBSCRIPTION CONSIDERATION

BEE Manco:

1.   The consideration is R450 000 for every 10% of BEE Manco.

2.   Interest-bearing loans at prime plus 5% have been entered into between BEGS and each of
     Avishkar Goordeen, Duncan Mashika, Dominic Chinnappen, Bruce Ndlela and Niraj Andhee in
     terms of which, inter alia, BEGS will lend to each of Avishkar Goordeen, Duncan Mashika and
     Dominic Chinnappen R900 000 (nine hundred thousand Rand) for the subscription of their
     respective 20% shareholdings in BEE Manco and to each of Bruce Ndlela and Niraj Andhee,
     R450 000 (four hundred and fifty thousand Rand) for the subscription of their respective 10%
     shareholdings in BEE Manco.

3.   An interest free loan of R900 000 (nine hundred thousand Rand) has been entered into between
     BEGS and the Foundation for purposes of funding the Foundation’s subscription of a 20%
     shareholding in BEE Manco.

SIBI :

The consideration is R750 000 (seven hundred and fifty thousand Rand) payable in cash for purposes
of subscribing for 7.5% of the shares in BECSA Holdings.

The Foundation:

An interest free loan of R750 000 (seven hundred and fifty thousand Rand) has been entered into
between BEGS and the Foundation for purposes of the Foundation acquiring 7.5% of the shares in
BECSA Holdings.
6)       THE VALUATIONS OF THE ENTITIES THAT ARE THE SUBJECT OF THE BEE TRANSACTION

BECSA:

The independent equity valuation of 100% of BECSA was undertaken based on the discounted cash
flow methodology and was determined as R360 000 000 (three hundred and sixty million Rand).

BESSA:

The independent equity valuation of 100% of BESSA was undertaken based on the discounted cash
flow methodology and was determined as R120 000 000 (one hundred and twenty million Rand).

7)       THE PROFITS ATTRIBUTABLE TO THE NET ASSETS THAT ARE THE SUBJECT OF THE BEE
         TRANSACTION

For the six months ended 30 June 2019, BECSA, prior to the restructure referred to above,
generated revenue of approximately R2 750 000 000 (two billion seven hundred and fifty million
Rand) and profit after tax of approximately R68 200 000 (sixty eight million two hundred thousand
Rand).

For the six months ended 30 June 2019, BESSA generated revenue of approximately
R1 650 000 000 (one billion six hundred and fifty million Rand) and a loss after tax of approximately
R22 200 000 (twenty two million two hundred thousand Rand).

8)       THE APPLICATION OF THE SALE PROCEEDS

Except for the acquisition of shares by SIBI for cash, the subscriptions and acquisitions are funded by
loans to the respective parties and thus, on a net basis, do not generate cash sale proceeds.


9)    THE EFFECTIVE DATE

The BEE Transaction will become effective with effect from 1 January 2020.


10)   CATEGORISATION

The BEE Transaction is categorised as a Category 2 transaction and accordingly no shareholder
approval is required in terms of the JSE Listings Requirements.


11)   WITHDRAWAL OF CAUTIONARY

The Cautionary to shareholders to exercise caution when dealing in the Company’s securities is
hereby withdrawn.

Richards Bay
11 December 2019

Sponsor
Investec Bank Limited

Transactional Advisors
Transcend Capital (Pty) Ltd

Date: 11-12-2019 09:40:00
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