MTN
MTN
MTN - MTN Group Limited - Announcement Relating to MTN`S Proposed R8.1
Billion Broad-Based Black Economic Empowerment Transaction and Esop Scheme
MTN Group Limited
(Incorporated in the Republic of South Africa)
Registration number 1994/009584/06
Share code: MTN ISIN: ZAE000042164
("MTN")
ANNOUNCEMENT RELATING TO MTN`S PROPOSED R8.1 BILLION BROAD-BASED BLACK
ECONOMIC EMPOWERMENT TRANSACTION AND ESOP SCHEME
Highlights
- Execution of MTN`s continued commitment to BEE in South Africa through
its local listing
- R8.1 billion BEE transaction consisting of up to 4% equity ownership in
MTN - the largest empowerment transaction in the telecommunications
sector in South Africa to date
- Translates to an additional effective indirect black ownership of up to
29.1% of MTN`s South African operations
- Broadening MTN`s South African effective BEE ownership through a black
public offer to black individuals and groups
- An ESOP, excluding management and directors, requiring no equity
contribution from eligible participants to augment MTN`s South African
BEE initiatives
- Provides exposure to MTN`s diversified operations and growth markets
- Facilitation that is in line with precedent transactions
- MTN to provide additional equity for the MTN BEE Transaction equal to
80% of the equity raised from the black public
- Transaction leveraged through vendor and third party funding
1. Introduction
Since its incorporation in South Africa in 1994, MTN has been at the
forefront of empowerment and remains fully committed to the principles
of broad-based black economic empowerment ("BEE"). MTN also embraces the
principles of BEE enshrined in the Codes of Good Practice on Broad-Based
Black Economic Empowerment ("Codes").
A key pillar of BEE is black equity ownership. Through a comprehensive
strategy, MTN intends to maintain core BEE targets set out in the Codes
in relation to its South African businesses. The proposed MTN BEE
transaction ("MTN BEE Transaction") is designed to provide long-term,
sustainable benefits to participants in the MTN BEE Transaction ("BEE
Participants") and is envisaged to run for a duration of six years from
the date of implementation of the MTN BEE Transaction ("Empowerment
Period"). The MTN BEE Transaction is anticipated to equate to 4% of
MTN`s issued ordinary share capital on a fully diluted basis, but may be
scaled down depending on the level of equity raised from the BEE
Participants. MTN`s South African operations comprise 22.9% of the value
of MTN (based on MTN`s South African operations relative contribution to
MTN`s earnings before interest, tax, depreciation and amortisation
("EBITDA") for the year ended 31 December 2009). Therefore, on an
illustrative basis, using EBITDA contribution as a simple proxy for
value, a BEE transaction in respect of 4% of MTN`s issued ordinary share
capital will effectively equate to 29.1% of MTN`s South African
operations (after adjusting for 40% mandated investments in MTN in terms
of the Codes and assuming 100% flow-through black ownership in the MTN
BEE Transaction). When combined with previous BEE initiatives the
effective indirect ownership in MTN`s South African operations would be
beyond 30%.
In addition to the MTN BEE Transaction, MTN will also issue
approximately 0.1% of its issued ordinary share capital on a fully
diluted basis to an employee share ownership plan ("ESOP"), for the
benefit of eligible MTN employees. Management and directors of MTN will
not participate in this scheme.
2. Rationale for and principles of the MTN BEE Transaction
BEE is integral to the ethos of MTN and MTN believes that broad-based
BEE participation is important to its future success as a Group.
MTN has been guided primarily by the following principles in structuring
the MTN BEE Transaction:
- the vesting of full voting and economic rights to the BEE
Participants from inception;
- achieving a sustainable and robust BEE transaction at a realistic
economic cost (inclusive of any dilution) to MTN`s shareholders;
- broadening MTN`s South African BEE ownership by structuring the MTN
BEE Transaction through an offer to the Black Public (as defined in
paragraph 3.2 below). This initiative will augment the many
initiatives to date including most recently, the Asonge scheme
facilitated by the National Empowerment Fund in 2007; and
- acting as far as possible within the letter and spirit of the Codes
and their requirements for the empowerment of South African
businesses.
3. Salient details of the MTN BEE Transaction
3.1 Background
Until December 2008, MTN in South Africa obtained the majority of
its equity ownership points in terms of the Codes through the
approximately 13% shareholding which the Alpine Trust, through
Newshelf 664 (Proprietary) Limited ("Newshelf"), held in MTN
("Newshelf Structure"). The Newshelf Structure was established
independently of MTN and was always scheduled to unwind in December
2008. In May 2009, MTN shareholders approved a transaction whereby
MTN acquired Newshelf from the Alpine Trust, settled all
outstanding obligations in Newshelf to the Public Investment
Corporation Limited ("PIC"), acting as the authorised
representative of the Government Employees Pension Fund, and
repurchased and cancelled the MTN ordinary shares ("MTN Shares")
owned by Newshelf ("Newshelf Unwind"), the purpose of which was to:
- facilitate the orderly unwind of the Newshelf Structure; and
- reduce the total number of MTN Shares in issue in anticipation
of the MTN BEE Transaction.
The net effect of the Newshelf Unwind was a reduction in the number
of MTN Shares in issue of approximately 1.6%.
The MTN BEE Transaction was not implemented immediately following
the Newshelf Unwind due to the severe constraints in the financial
markets at that time. The board of directors of MTN ("MTN Board")
is now of the view that market conditions have improved
sufficiently in order to implement the MTN BEE Transaction.
3.2 BEE Participants
The aim of the MTN BEE Transaction is to provide as many members of
the Black Public (as defined below), as possible with the
opportunity to acquire MTN Shares. The participants that will be
eligible to make offers to subscribe for shares in the special
purpose vehicle created to effect the MTN BEE Transaction, Aralia
Investments Limited to be re-named MTN Zakhele Limited ("Black
Investment Company" or "BIC"), will be:
- natural persons who are members of the black South African
public (being African, Coloured (including Chinese) and Indian
people who meet specified criteria) ("Black People"); and
- companies and close corporations that meet the specified BEE
qualifying criteria ("Black Companies") and, collectively,
vesting trusts, broad-based ownership schemes and
unincorporated entities or associations, including
partnerships, joint ventures, syndicates or stokvels that meet
specified BEE qualifying criteria ("Black Entities")
(collectively, "Black Groups").
Black Groups and Black People are, collectively, referred to as the
"Black Public" or "BEE Participants".
3.3 MTN BEE Transaction structure
Please refer to MTN`s website (www.mtn.com) for diagrammatic
information regarding the MTN BEE Transaction structure.
MTN intends to implement the proposed MTN BEE Transaction by means
of: (i) a public offering in terms of which the Black Public will
be invited to subscribe for and beneficially own ordinary shares in
the share capital of BIC ("BIC Ordinary Shares"), subject to the
qualification criteria of such offer to be set out in the
prospectus to be published ("Prospectus") in respect of the offer
("the BIC Public Offer"); and (ii) the acquisition of and
subscription for MTN Shares by BIC. BIC will apply the preference
share funding raised by it in terms of the issue of A preference
shares ("A BIC Pref Shares") and B preference shares ("B BIC Pref
Shares") in the issued share capital of BIC (collectively, "BIC
Pref Shares"), the equity raised in the BIC Public Offer, any
equity raised by it from MTN in respect of the MTN Underwrite
Option (see paragraph 4.3 below), the cash donation up to a maximum
of R1.294 billion by MTN ("MTN Donation") to BIC and the notional
vendor finance ("Notional Vendor Finance" or "NVF") from MTN to:
(i) acquire up to a maximum of 35,155,609 MTN Shares from PIC ("PIC
Sale Shares") and (ii) subscribe for new MTN Shares to be issued by
MTN. The MTN BEE Transaction size is anticipated to be 4% of MTN`s
issued ordinary share capital on a fully diluted basis (calculated
as at 9 July 2010 ("Calculation Date")), but may be scaled down
should public subscriptions under the BIC Public Offer not be
sufficient to allow for this. To the extent that the equity raised
from the Black Public in terms of the BIC Public Offer does not
exceed R833.1 million, the MTN BEE Transaction will at MTN`s
election not be implemented.
The MTN Share price at which the MTN BEE Transaction will be
implemented is R107.46, equal to the 20-trading day volume weighted
average price ("VWAP") of an MTN Share, to the Calculation Date
("Transaction Share Price"). The MTN BEE Transaction will be
implemented following the fulfilment or waiver, as the case may be,
of the suspensive conditions in the transaction agreements
concluded regarding each element of the MTN BEE Transaction ("the
Transaction Agreements") via a series of interlinked steps outlined
below:
Step 1 BIC undertakes the BIC Public Offer in respect of BIC
Ordinary Shares to raise up to R1.618 billion of
equity capital. The capital raising exercise is
anticipated to be concluded by BIC within the next
three months;
Step 2 MTN makes the MTN Donation to BIC;
Step 3 BIC subscribes for a maximum of 29,912,900 MTN Shares
at par value ("MTN Tranche 1 Subscription Shares"),
pursuant to an agreement between it and MTN ("the MTN
Tranche 1 Subscription and Call Option Agreement");
Step 4 BIC subscribes for a maximum of 12,045,412 MTN Shares
at the Transaction Share Price ("MTN Tranche 2
Subscription Shares"), pursuant to an agreement
between it and MTN ("the MTN Tranche 2 Subscription
Agreement");
Step 5 Newshelf 1041 (Proprietary) Limited, the special
purpose vehicle created to facilitate the third party
preference share funding for the MTN BEE Transaction
("Black Funding Company" or "BFC"), raises preference
share funding of up to R2.16 billion from the Funders
(as defined in paragraph 3.5.1 below) in the form of A
preference shares ("A BFC Pref Shares") and B
preference shares ("B BFC Pref Shares") in the issued
share capital of BFC (collectively, "BFC Pref
Shares");
Step 6 BIC raises preference share funding of up to R2.16
billion from BFC via the BIC Pref Shares; and
Step 7 BIC purchases the PIC Sale Shares from PIC at the
aggregate purchase price for the PIC Sale Shares,
being the sum of: (a) the Transaction Share Price
multiplied by the number of PIC Sale Shares (the "Base
Purchase Price") plus (b) interest on the Base
Purchase Price calculated daily at 7.39% nominal
annual compounded annually ("NACA") as from 10 July
2010 to the date on which the MTN BEE Transaction is
implemented ("Closing Date") (including the first date
but excluding the last date) pursuant to an agreement
between it and PIC ("PIC Sale Agreement") ("PIC Sale
Shares Purchase Price") (see paragraph 3.7 below).
(Note: These steps are summarised on the basis that the BIC Public Offer
is fully subscribed, and that no adjustments are made as contemplated in
paragraphs 3.5.2, 3.5.3 and 4.3 below. Step 1 occurs prior to the
Closing Date.)
The issue of the MTN Tranche 1 Subscription Shares at par value
represents a discount of approximately 100% to the 30- day VWAP of an
MTN Share to the Calculation Date, being the date the Transaction Share
Price was finalised, and the issue of the MTN Tranche 2 Subscription
Shares at the Transaction Share Price represents a premium of 1.1% to
the 30-day VWAP of an MTN Share to the Calculation Date.
At the end of the Empowerment Period, BIC will be obliged to settle all
funding outstanding under the BIC Pref Shares at that date and, subject
to such amounts being duly paid and following the exercise by MTN of the
NVF Call Option (as described in paragraph 3.6 below) and full discharge
by BIC of its obligations to MTN thereunder, the remaining MTN Shares
held by BIC will be unencumbered and available for distribution to the
registered holders of BIC Ordinary Shares ("BIC Ordinary Shareholders")
if so elected by BIC.
3.4 MTN BEE Transaction funding
Sources of funds (see note 1) R`m
Equity from BIC Public Offer 1,618
A BIC Pref Shares 1,440
B BIC Pref Shares 720
MTN Donation 1,294
Notional Vendor Finance 3,214
Total 8,286
Uses of funds R`m
Upfront costs and overraise (see note 2) 189
PIC Sale Shares at the Transaction Share Price 3,589
MTN Tranche 1 Subscription Shares (reflecting the Initial 3,214
NVF Balance as described below)
(see note 3)
MTN Tranche 2 Subscription Shares at the Transaction Share 1,294
Price
Total 8,286
Notes:
1. Excludes the possible MTN Subordinated Loan and/or other
funding adjustments as detailed in paragraph 3.5.2 below, and
assumes that the BIC Public Offer is fully subscribed and no
such funding adjustments are made.
2. An overraise of R50 million will be held in a BIC cash float
account in accordance with the Transaction Agreements.
3. MTN Tranche 1 Subscription Shares are issued at par value but
the Initial NVF Balance will be the difference between: (i)
the Transaction Share Price multiplied by the MTN Tranche 1
Subscription Shares and (ii) the subscription price paid by
BIC in respect of the MTN Tranche 1 Subscription Shares
("Initial NVF Balance").
3.5 Salient details of the funding terms
3.5.1 A BFC Pref Shares and B BFC Pref Shares
The BFC Pref Shares have been raised in the market from
Rand Merchant Bank, a division of FirstRand Bank Limited,
Absa Capital, a division of ABSA Bank Limited and Nedbank
Limited, acting through its Capital and Corporate Banking
Divisions (the "Funders"), through a competitive bidding
process. The proceeds of the BFC Pref Shares will be
applied by BFC in subscribing for the A BIC Pref Shares
and the B BIC Pref Shares in BIC. The salient terms of
the BIC Pref Shares mirror those of the BFC Pref Shares.
The A BFC Pref Shares (maximum R1,440 million) will be
redeemed six years after issue and earn a fixed dividend
equal to 110% of the interpolated swap curve on the day
before the Closing Date until 30 April 2013 and
thereafter a floating dividend rate of 77% of Prime NACA.
The B BFC Pref Shares (maximum R720 million) will be
redeemed six years after issue and earn a floating
dividend rate of 88% of Prime NACA. As a condition
precedent to advancing the preference share funding, the
total share cover at inception ("Inception Total Share
Cover Ratio") of the subscription for the preference
shares is required to be at least 2.9 times. The
Inception Total Share Cover Ratio is measured as the
market value of MTN Shares held by BIC at the 5-day VWAP
measured 3 business days prior to the Closing Date
("Measurement Date") plus the overraise, divided by the
difference in value between the BFC Pref Shares and the
MTN Subordinated Loan (as described below, if any).
3.5.2 Subordinated loans and/or funding scaling
As stated in paragraph 3.5.1 above, if at the Measurement
Date the Inception Total Share Cover Ratio falls below
2.9 times cover, then the Funders will not advance the
required third party preference share funding to BIC. To
ensure that the Inception Total Share Cover Ratio exceeds
2.9 times, MTN is entitled, but not obliged, to: (i)
advance a subordinated loan to BIC ("MTN Subordinated
Loan") at a market-related interest rate and on such
further terms as are to the satisfaction of the MTN
Board; and/or (ii) increase the Notional Vendor Finance
(by electing to include all or some of a maximum of
1,803,433 MTN Shares to be issued to BIC in terms of the
MTN Tranche 1 Subscription and Call Option Agreement at
their par value ("the NVF Top-up Shares") as part of the
MTN Tranche 1 Subscription Shares; and/or (iii) increase
the Notional Vendor Finance (as described) and decrease
the amount of the third party preference share funding
and/or (iv) to elect that the MTN BEE Transaction will
not proceed; in each case under (i) to (iii) in an amount
or amounts (as the case may be) at least sufficient to
enable BIC to meet the Inception Total Share Cover Ratio.
During the term of the MTN BEE Transaction, if the
relevant total share cover ratio falls below certain
levels then MTN is entitled, but not obliged, to advance
a subordinated loan to BIC at a market-related interest
rate and on such further terms as are to the satisfaction
of the MTN Board to restore such total share cover ratio
to the required minimum levels. This top-up option is
permitted no more than twice over the term of the MTN BEE
Transaction and no more than once in any 12-month period,
unless otherwise agreed with the Funders.
3.5.3 MTN subordination
In terms of the agreement titled "Subordination and
Undertaking Agreement" entered into between the Funders,
BIC, BFC and MTN, MTN has agreed to subordinate its
claims against BIC and BFC in favour of the claims
against such companies by BFC and the Funders. MTN`s
claims against BIC under the various Transaction
Agreements (including under any subordinated loan
agreement and under the MTN Tranche 1 Subscription and
Call Option Agreement) are therefore limited by the
subordination provisions for so long as there remain
amounts outstanding to BFC and/or the Funders.
These subordination provisions impact, among others, the
nature and timing of MTN`s ability to exercise the NVF
Call Option and the amounts in respect of which such
option can be exercised, including as described in
paragraph 3.6 below.
3.6 NVF Call Option
Indivisibly with and as a condition for the subscription by BIC for
the MTN Tranche 1 Subscription Shares, BIC irrevocably grants to
MTN, call options to purchase from it (and to require BIC to sell
and deliver to MTN) at a price of R0.0001 per share (being the par
value of an MTN Share) a variable number of MTN Shares (fractions
rounded down) ("NVF Call Option"). The total number of MTN Shares
as are subject from time to time to the NVF Call Option is defined
as the "Maximum NVF Call Option Shares".
Except in the limited circumstances described in paragraphs 3.6.2
and 3.6.2 below, the NVF Call Option is exercisable by MTN on or
after the NVF Call Option Trigger Date, as described in paragraph
3.6.1 below. MTN shall be entitled to: (i) exercise its rights
under the NVF Call Option through one or more nominees and/or (ii)
cede and/or delegate to any person all or any part of its rights
and/or obligations to a third party thereunder.
3.6.1 Repurchases of MTN Shares after the NVF Call Option
Trigger Date
MTN shall be entitled to exercise the NVF Call Option (or
part thereof) on the later of: (A) the first Business Day
on or after the sixth anniversary of the Closing Date or
such later date and/or dates as: (a) MTN may from time to
time notify BIC in writing prior to such sixth
anniversary (or then current NVF Call Option Trigger
Date, if later than the sixth anniversary), such date
notified by MTN, however not being later than the later
of: (i) six months from the end of the sixth anniversary
of the Closing Date; and (ii) 6 months after the date on
which all the BIC Pref Shares have been redeemed in full
and all post-redemption contingent indemnity amounts, if
any, have been paid into the relevant BIC bank accounts
over which the Funders have a security interest ("BIC
Discharge Date"); and/or (b) MTN and BIC may agree in
writing: and (B) the BIC Discharge Date (or such earlier
date as MTN and the agent of the holders of the BIC Pref
Shares and the Funders, and MTN may agree in writing)
("NVF Call Option Trigger Date"). MTN may also exercise
the NVF Call Option at such time or times prior to the
NVF Call Option Trigger Date as may be permitted pursuant
to paragraphs 3.6.2 and 3.6.3 below.
Where MTN exercises the NVF Call Option in respect of
fewer shares than the Maximum NVF Call Option Shares, the
NVF Balance will be reduced by an amount equal to the
number of NVF Call Option shares so acquired by MTN
multiplied by the 20-day VWAP on the date of exercise of
the NVF Call Option, and the NVF Call Option
(correspondingly resized with a reduced NVF Balance and
reduced Maximum NVF Call Option Shares) will continue to
be exercisable by MTN. The MTN Shares repurchased by MTN
will be cancelled as required under the Companies Act,
1973 (Act 61 of 1973) ("the Companies Act"), and
delisted.
3.6.2 Early exercise of the NVF Call Option
BIC shall be entitled, and in certain circumstances
required, from time to time prior to the NVF Call Option
Trigger Date to offer MTN an early exercise of all or
part of the NVF Call Option. Following receipt of a
notice from BIC, offering to MTN the opportunity to
exercise the NVF Call Option prior to the NVF Call Option
Trigger Date, MTN shall have the right (but no
obligation) to exercise all (or, as applicable, part) of
the NVF Call Option, subject to the limits offered by
BIC.
In this event, MTN may also require BIC to rebalance the
number of MTN Shares held by it by either acquiring MTN
Shares in the open market or by subscribing for cash for
an equal number of MTN Shares as were acquired by MTN
pursuant to its exercise of the NVF Call Option. In the
latter instance, the additional shares will be issued by
MTN at the same reference market price for a MTN Share as
was used in calculating the amount by which the NVF
Balance was decreased (i.e. the then 20-day VWAP of the
MTN Shares).
3.6.3 Acceleration of the right to exercise the NVF Call Option
MTN shall have the right (but no obligation), on written
notice to BIC, to exercise the NVF Call Option (or any
part thereof) at any time while there exists an
unremedied acceleration event (which events include: (i)
an unremedied breach by BIC of any of the undertakings
and warranties in the MTN Tranche 1 Subscription and Call
Option Agreement; (ii) any other unremedied material
breach of any of the terms, conditions, warranties or
representations of undertakings contained in the MTN
Tranche 1 Subscription and Call Option Agreement and
(iii) any acceleration of the funding owing by BIC
following an event of default). The representations and
warranties provided by BIC in terms of the MTN Tranche 1
Subscription and Call Option Agreement are given with a
key purpose of preserving the ringfenced status and
balance sheet of BIC for the period during which the NVF
Call Option remains exercisable.
3.7 Acquisition by BIC of PIC Sale Shares from PIC
In terms of the implementation agreement entered into between MTN,
Newshelf, PIC and the Trustees of the Alpine Trust on or about 26
March 2009 as part of the Newshelf Unwind, MTN and PIC agreed to
discuss in good faith the potential participation by PIC in the MTN
BEE Transaction, including, inter alia, the possibility of PIC
undertaking to make available for sale, MTN Shares owned by PIC to
facilitate the MTN BEE Transaction.
Subsequently, BIC and PIC have entered into the PIC Sale Agreement.
In terms of the PIC Sale Agreement, PIC undertakes to make
available for sale and to sell the PIC Sale Shares at the PIC Sale
Shares Purchase Price. The actual number of MTN Shares acquired by
BIC from PIC will ultimately be determined with reference to the
equity capital raised during the BIC Public Offer (including, if
applicable, the MTN Underwrite Option (as described in paragraph
4.3 below), the preference share funding raised by BIC and an
allocation to the transaction and related costs payable by BIC.
The sale will be implemented on the Closing Date following inter
alia the closing of the BIC Public Offer and the allocation of
shares subscribed for thereunder, and the series of prior steps
described in paragraph 3.3 above.
3.8 ESOP
The ESOP has been structured in terms of section 8B of the Income
Tax Act, 1962 (Act 58 of 1962), as amended. MTN is establishing the
ESOP for the benefit of South African employees of MTN`s South
African operations that do not participate in an existing MTN share
scheme, i.e. level 1 and 2 employees, and have been employed by MTN
or one of its South African subsidiaries for a continuous period of
at least one year at the effective date of the scheme ("Eligible
MTN ESOP Employees"). The ESOP will be effective from a date to be
set by the MTN Board, but which is intended to coincide with the
Closing Date. Participation in the ESOP is being facilitated by
MTN and Eligible MTN ESOP Employees will not be required to
contribute any equity to participate. Eligible MTN ESOP Employees
will be entitled to full voting and dividend rights and will be
granted an allocation of 400 MTN Shares each ("ESOP Shares")
(scaled back if the value, at implementation, exceeds R50 000 per
Eligible MTN ESOP Employee). With limited exceptions (e.g. death),
participants in the ESOP will be required to hold the MTN Shares
awarded to them under the ESOP scheme for a period of at least five
years. The implementation of the ESOP will not be conditional upon
the implementation of the MTN BEE Transaction and Eligible MTN ESOP
Employees will be issued the ESOP Shares, directly, and not through
BIC.
Based on current employee figures available, the indicative number
of MTN Shares that will be issued pursuant to the ESOP is 1,417,600
MTN Shares, which equates to a value of R152 million based on the
Transaction Share Price.
3.9 Estimated economic cost
The economic cost of implementing the MTN BEE Transaction for MTN
and its shareholders is estimated to be approximately R2,277
million. This represents approximately 1.1% of the market
capitalisation of MTN as at Tuesday, 13 July 2010, being the last
practicable date prior to finalisation of this announcement (c.
R204 billion). This figure was calculated with reference to the
requirements of IFRS, including IFRS 2 - Share-Based Payments and
AC 503 - Accounting for Black Economic Empowerment (BEE)
Transactions.
Of the R2,277 million, approximately R983 million (0.5%) arises
from the provision of Notional Vendor Finance by MTN to BIC and the
balance of approximately R1,294 million (0.6%) represents the
facilitation cost associated with the MTN Donation.
These estimates assume that no additional amounts or additional
Notional Vendor Finance are made available under paragraph 3.5.2
above or paragraph 4.3 below.
In addition, the economic cost to shareholders of implementing the
ESOP is R152 million, or approximately 0.1% of the market
capitalisation of MTN.
Transaction costs of approximately R126 million, as a result of the
MTN BEE Transaction and ESOP, will also be incurred.
4. MTN Black Public Invitations
4.1 Introduction
The Black Public could ultimately hold an equity interest of up to
4% of MTN`s issued ordinary share capital on a fully diluted basis
(measured as at the Calculation Date) through their holding of BIC
Ordinary Shares through the BIC Public Offer. It is anticipated
that the BIC Public Offer will be launched on or about Monday, 30
August 2010. Prospectuses containing the details of the BIC Public
Offer will be made available at post office branches and MTN
outlets around South Africa to members of the Black Public who wish
to participate. Presently, the BIC Public Offer is expected to
close on or about Thursday, 14 October 2010, with a period of
approximately six weeks thereafter to finalise the allocations. Any
material changes to the proposed dates will be announced on
Securities Exchange News Service ("SENS") of the JSE Limited
("JSE") and in the South African press.
4.2 Terms for participation by the Black Public
BEE Participants will be invited to subscribe for BIC Ordinary
Shares at a price of R20 per BIC Ordinary Share. The minimum
subscription required for participation in the BIC Public Offer is
R2,000 (i.e. 100 BIC Ordinary Shares), with no maximum on
subscriptions. The basis of allocation of BIC Ordinary Shares by
BIC to the Black Public is required to be satisfactory to MTN
having regard to the allocation methodology and/or guidelines
established by the MTN Board, any allocation methodology and/or
guidelines set out in the Prospectus and MTN`s interest in being
able to optimise its BEE rating under the Codes in respect of BIC`s
shareholding in MTN. It is presently envisaged that, as no maximum
has been set per BEE Participant investing in the BIC Public Offer,
and in order to ensure the broadest possible base of BEE
Participants, the allocation of BIC Ordinary Shares to the Black
Public will be made from the bottom up, starting with applications
for the least number of BIC Ordinary Shares and with a priority for
Black People (i.e. individuals). Should the BIC Public Offer be
oversubscribed and applications for BIC Ordinary Shares in the BIC
Public Offer accordingly exceed 80.9 million BIC Ordinary Shares,
BIC will use its discretion in allocating BIC Ordinary Shares to
applicants. Applicants who are allocated fewer shares than the
number they applied for, will be refunded the excess amount of the
payment made at the time of their applications (together with
interest thereon). Black employees and directors of MTN will be
eligible to participate in the BIC Public Offer; however no
preferential treatment will be given to employees or directors of
MTN. Black individuals who are customers of MTN and have complied
with the Regulation of Interception of Communications and Provision
of Communication-Related Information Act, No 70 of 2002, as amended
("RICA"), requirements will receive preferential allocation in the
allocation process in the event of oversubscription.
With limited exceptions in the event of death, insolvency or
liquidation (as applicable), BEE Participants will be required to
hold their shares in BIC for a period of three years commencing on
the date on which the BIC Ordinary Shares are allotted to the BEE
Participants under the BIC Public Offer, whereafter they will be
entitled to trade with other members of the Black Public until the
end of the Empowerment Period. After the Empowerment Period, there
will be no restrictions on the trading of BIC Ordinary Shares.
Participants that are found to have misrepresented their BEE
credentials or otherwise fail to qualify as part of the Black
Public (or commit other material defaults during the Empowerment
Period) will be forced to sell their BIC Ordinary Shares to MTN or
persons identified by it, at a discounted price as will be further
described in the Prospectus.
4.3 MTN Underwrite Option
In the event that the capital raised from the Black Public pursuant
to the BIC Public Offer is less than R424.9 million then the MTN
BEE Transaction will not be implemented. In the event that the
capital raised from the Black Public pursuant to the BIC Public
Offer is greater than R424.9 million but less than R833.1 million
and if so directed by the MTN Board, in order to facilitate the MTN
BEE Transaction, MTN (or its nominee) through the MTN Underwrite
Option (as defined below) has the right, but no obligation, in
terms of a subscription agreement between it and BIC to subscribe
for such number of BIC Ordinary Shares that would enable BIC to
raise the shortfall up to R408.2 million, or such lesser number as
it may elect (the "MTN Underwrite Option"). The intention is that
MTN will thereafter sell or place these shares with qualifying BEE
Participants in due course.
The MTN Underwrite Option therefore provides MTN with the
flexibility to manage the outcome of the MTN BEE Transaction in the
event that the required equity cannot be raised immediately.
5. Financial effects of the MTN BEE Transaction and ESOP
The table below sets out the unaudited pro forma financial effects of
the MTN BEE Transaction and ESOP on, inter alia, MTN`s net asset value
per share, net tangible asset value per share, audited basic earnings
per share, fully diluted basic earnings per share, headline earnings per
share and adjusted headline earnings per share based on the most
recently published audited results of MTN for the year ended 31 December
2009.
The unaudited pro forma financial information is the responsibility of
the directors of MTN and was prepared for illustrative purposes only and
may not, because of its nature, fairly present MTN`s financial position,
changes in equity and results of its operations or cash flows for the
period then ended. It does not purport to be indicative of what the
financial results would have been, had the MTN BEE Transaction and ESOP
been implemented on a different date.
The MTN BEE Transaction and ESOP will result in an increase in the
weighted average number of shares in issue which has a direct impact on
the marginal decrease in net asset value per share. The impact on
earnings is largely attributable to the once-off, non-cash IFRS 2 Share
based payment charges in respect of the MTN BEE Transaction and ESOP as
explained in the notes below. The financial effects have been calculated
using the Transaction Share Price and are based on the Calculation Date.
For the period ended 31 Before After(se Change
December 2009 e note (%)
7)
Net asset value per share1 SA 3,797.9 3,763.7 (0.9)
cents
Tangible net asset value per SA 1,770.8 1,751.3 (1.1)
share1 cents
Basic earnings per share SA 791.4 649.1 (18.0)
(see note 2 & 3) cents
Diluted earnings per share SA 781.5 633.0 (19.0)
(see note 2 & 4) cents
Headline earnings per share SA 803.2 660.9 (17.7)
(see note 2 & 5) cents
Adjusted headline earnings SA 754.3 612.3 (18.8)
per share (see note 2 & 6) cents
Weighted average number of million 1,851.3 1,864.7 0.7
shares in issue s
Weighted average diluted million 1,860.3 1,894.5 1.8
number of shares in issue s
Number of shares in issue million 1,840.5 1,854.0 0.7
s
Notes:
1. Net asset value per share is computed by dividing total equity
attributable to ordinary shareholders by the weighted average
number of shares in issue. Tangible net asset value per share is
equal to the total equity attributable to ordinary shareholders
minus the sum of Goodwill and Other intangible assets divided by
the weighted average number of shares in issue.
2. Earnings are reduced by the estimated transaction costs of R126
million and the impact of the IFRS 2 charges (Share-based payment -
BEE expense) of R2,429 million in respect of:
- the MTN Donation of R1,294 million and the Notional Vendor
Finance of R983 million provided to BIC. This arose as a
result of the discount on the MTN Shares provided by MTN to
BIC, and is non-recurring; and
- the MTN Shares, valued at R152 million, issued to Eligible MTN
ESOP Employees in terms of the ESOP.
3. Basic earnings per share is computed by dividing net earnings
attributable to ordinary shareholders by the weighted average
number of shares in issue.
4. Diluted earnings per share is computed by dividing net earnings
attributable to ordinary shareholders by the weighted average
diluted number of shares in issue.
5. Headline earnings is calculated in terms of Circular 3/2009 on
Headline Earnings issued by The South African Institute of
Chartered Accountants. Headline earnings per share is computed by
dividing headline earnings attributable to ordinary shareholders by
the weighted average number of shares in issue.
6. Adjusted headline earnings, as published in MTN`s most recently
published annual results for the year ended 31 December 2009, is
calculated based on headline earnings adjusted for the effects of
the reversal of the impact of the Put option in respect of a
subsidiary (R905 million). Adjusted headline earnings per share is
computed by dividing adjusted headline earnings attributable to
ordinary shareholders by the weighted average number of shares in
issue.
7. The financial effects assume that the MTN BEE Transaction took
place to its full extent on 1 January 2009 for the purposes of the
earnings effects and as at 31 December 2009 for the purposes of the
Balance Sheet effects.
8. The net effect of the MTN BEE Transaction on MTN is the IFRS 2
charge (Share-based payment - BEE expense) of R2,429 million in
respect of the issue of new MTN Shares at a discounted value to
BIC, as well as the issue of new MTN Shares to Eligible MTN ESOP
Employees. In addition transactions costs of approximately R126
million will be incurred.
6. Conditions precedent
The implementation of the proposed MTN BEE Transaction is subject to the
fulfilment or (where permitted) waiver of the following conditions
precedent:
- subscriptions in terms of the BIC Public Offer are at least
R424.9 million;
- the opening of bank accounts into and out of which the initial
MTN BEE Transaction proceeds will flow on and immediately
prior to the Closing Date;
- BIC opening a securities account with a Central Securities
Depository Participant acceptable to the Funders, in which the
dematerialised MTN Shares held by BIC will be recorded;
- signing of the Transaction Agreements on behalf of each of the
parties thereto;
- fulfilment or waiver of all the suspensive conditions to -
the Transaction Agreements, as provided for in the
relevant Transaction Agreements;
- MTN being satisfied that the conditions precedent to
subscriptions under the preference share funding agreements
have been met or waived (other than any condition precedent
relating to mechanical implementation steps which are required
to be effected prior to implementation of the preference share
funding agreements in accordance with the agreement entitled
"Implementation Agreement" entered into between, inter alia,
MTN, BIC, BFC, and the Funders, which agreement provides,
inter alia, for the implementation before and on the Closing
Date of the Implementation Agreement and certain of the other
Transaction Agreements ("Implementation Agreement"));
- BIC having adopted a new memorandum and articles of
association in a form and substance satisfactory to MTN;
- BIC approving by special resolution the entry into and due
performance by it of its obligations under the relevant
Transaction Agreements;
- the board of directors of each of BIC and BFC approving the
signature and implementation of the Transaction Agreements to
which they are a party;
- the requisite majority of MTN shareholders approving all the
resolutions required to effect the MTN BEE Transaction and the
ESOP;
- the special resolutions having been duly registered by the
Registrar of Companies;
- the MTN Board having passed a resolution in which it furnishes
the confirmations contemplated in section 38(2A)(a) of the
Companies Act as well as those contemplated in section
44(3)(b) of the Companies Act, 2008 (Act 71 of 2008) ("the New
Companies Act");
- the MTN Board obtaining a fairness opinion from an independent
expert;
- the JSE having consented to the admission to listing of the
MTN Tranche 1 Subscription Shares and the MTN Tranche 2
Subscription Shares;
- BIC not being in unremedied breach of any of the warranties or
undertakings given by BIC to MTN in terms of the Transaction
Agreements or its undertakings in the Implementation
Agreement; and
- if the New Companies Act comes into operation or will come
into operation as contemplated in section 225 of the New
Companies Act at any time prior to the Closing Date, MTN not
having delivered a notice recording that it is of the view
that the BIC Public Offer is or may be adversely affected by
the coming into operation of the New Companies Act.
7. Fairness opinion
A fairness opinion on the terms and conditions of the MTN BEE
Transaction may be required in terms of the Listings Requirements of the
JSE as the directors of MTN, who may participate in the BIC Public
Offer, may - through BIC - be issued MTN Shares which equate to an
effective interest in MTN exceeding 0.25%. MTN has appointed KPMG
Services (Proprietary) Limited as the independent expert to provide such
opinion, which will be included in the circular to the MTN shareholders.
8. Circular and general meeting
The circular to MTN shareholders pertaining to the MTN BEE Transaction
will be posted to MTN shareholders on or about Wednesday, 28 July 2010.
A notice convening a general meeting of MTN shareholders ("Notice") to
be held in the Auditorium, Phase II, 216, 14th Avenue, Fairland,
Roodepoort, 2195, South Africa at 14:00 on Friday, 20 August 2010, will
form part of the circular. The resolutions required to be approved by
MTN shareholders at the general meeting will be set out in the Notice.
Dates and times mentioned in this announcement are subject to change,
and will be released on SENS and published in the South African press.
The circular will also be available on MTN`s website (www.mtn.com).
Fairland
15 July 2010
Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Independent lead sponsor
Deutsche Securities (SA) (Pty) Limited
Joint reporting accountants
PricewaterhouseCoopers Inc.
SizweNtsaluba VSP Inc.
Legal and tax adviser
Webber Wentzel attorneys
Independent expert
KPMG Services (Proprietary) Limited
Date: 15/07/2010 08:05:05 Produced by the JSE SENS Department.
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