B-BBEE Empowerment transaction
Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share Code: ADR
ISIN: ZAE000000139
(‘Adcorp’ or the ‘Company’)
ADCORP BOARD OF DIRECTORS (“BOARD”) RESOLVES TO PURSUE A BROAD BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION
1. Introduction and rationale
1.1. Adcorp implemented its current Broad-Based Black Economic Empowerment (“B-BBEE”) (“2013 B-BBEE Transaction”) during April 2013. Subsequent to the implementation of the 2013 B-BBEE Transaction, Adcorp’s share price has significantly decreased in value resulting in the 2013 BEE Transaction being materially underwater.
1.2. In light of the aforementioned, the Adcorp Board is pleased to announce that it has resolved to pursue a proposed B-BBEE ownership transaction through a newly incorporated wholly-owned South African subsidiary to be named “Adcorp Group SA Proprietary Limited (“SA HoldCo”) in terms of which the new strategic B-BBEE partners will subscribe for 3 542 ordinary shares (“SA HoldCo Ordinary Shares”), comprising 35.42% of SA HoldCo’s total shares (“Proposed B-BBEE Transaction”).
1.3. Implementing the Proposed B-BBEE Transaction will improve the level of B-BBEE ownership in Adcorp’s South African subsidiaries (“Adcorp’s SA Subsidiaries”) which will ultimately also lead to an improved B-BBEE status for all of these entities. Improving the B-BBEE ownership and status of Adcorp’s SA Subsidiaries is critical for the future prospects of the Adcorp group as a whole (“Adcorp Group”) given its exposure to the South African market. As such, the Proposed B-BBEE Transaction is seen as a vital step in repositioning the Adcorp Group to remain competitive in the South African market in order to sustain both current earnings and achieve future growth.
1.4. The Proposed B-BBEE Transaction will reiterate the Adcorp Group’s commitment to sustainable empowerment and transformation. It is intended that the Proposed B-BBEE Transaction will not only increase the B-BBEE ownership of Adcorp’s SA Subsidiaries to at least 51% and its black women ownership to at least 30%, but also increase its broad-based and new entrant ownership via Adcorp Employee Benefit Trust 3 (“AEBT 3”). The Proposed B-BBEE Transaction has been structured to meet the following key objectives:
• create a sustainable funding structure which is not reliant on external bank funding, share price appreciation or dividend payments;
• materially improve Adcorp’s SA Subsidiaries’ B-BBEE ownership credentials;
• complement existing B-BBEE initiatives implemented by the Adcorp Group; and
• preserve value for all shareholders of Adcorp (“Adcorp Shareholders”).
2. Current and new B-BBEE partners
2.1. Since the inception of the first B-BBEE transaction in 2007, the Women Investments Portfolio Holdings Limited (“WIPHOLD”) and Simeka Group Proprietary Limited (“Simeka”) have played an instrumental role, as both shareholders and through their participation on the Board, in the transformation of the Adcorp Group to become B-BBEE compliant. Furthermore, WIPHOLD and Simeka have contributed to the sustainability of the business by promoting and attracting new clients and via their Board participation they have been extremely active at all levels of governance within the Adcorp Group. Furthermore, the establishment of Adcorp Employee Benefit Trust 2 (“AEBT 2”) has allowed Adcorp to incentivise and reward people who are permanently employed in the Adcorp Group. The majority of the AEBT 2’s units were allocated to beneficiaries who were black employees.
2.2. An overview of the Current B-BBEE Partners is set out below:
2.2.1. WIPHOLD
WIPHOLD is an investment and operating company owned and managed by black women. WIPHOLD was established 26 years ago as a company dedicated to the empowerment of women. WIPHOLD’s business is primarily focused on financial services, infrastructure, mining and strategic value investments whose investment portfolio has grown significantly from the initial R500 000 seed capital invested by its pioneering black women founders. WIPHOLD is more than 50% black women owned and has a permanent broad-based shareholding that includes 1 200 direct and 18 000 indirect beneficiaries through the WIPHOLD Investment Trust, and over 200 000 indirect beneficiaries through the WIPHOLD NGO Trust. Over the years, the company has pioneered an innovative business model which integrates development and empowerment into robust business operations. Wiphold Financial Services Number Two Proprietary Limited (“WIP SPV”) is a wholly owned subsidiary of WIPHOLD and is the entity which holds WIPHOLD’s class B Adcorp shares (“B Shares”).
2.2.2. Simeka
Simeka has had a long association with Adcorp that dates back to 1996 and is an active investment holding company which mobilises capital and skills to invest in high growth areas to create winning partnerships with management teams. Simeka has investments in call centre operations through Verge Management Services, business process outsourcing through EuropAssistance and professional services through Gobodo Forensic and Investigative Accounting. Simeka has also expanded into other areas in the South African economy including property through a partnership with Sanlam Properties and has invested in financial services through a 25% interest in Fintech. Mr. Cecil Maswanganyi (“Mr. Maswanganyi”) is the chief executive officer and shareholder of Simeka, who is also the representative of Simeka on the Board. Simeka’s shareholding includes an Education Trust and a Staff Trust for the benefit of employees. Thornbird Trade and Invest 33 Proprietary Limited (“Simeka SPV”) is a wholly owned subsidiary of Simeka and is the entity which holds Simeka’s B Shares.
2.2.3. AEBT 2
AEBT 2 is a trust which was formed for the benefit of Adcorp employees, with the majority of the trust’s vested rights being allocated to beneficiaries who are black employees. Adcorp employees were allocated units by the trustees according to seniority and length of service with the intention of attracting and retaining exceptional candidates into the group. The value is vested directly into the hands of employees over the term and at the end of the 2013 B-BBEE Transaction. Adcorp is entitled to appoint 2 trustees and the Adcorp employees are entitled to appoint 3 trustees of AEBT 2.
2.3. New B-BBEE partners and its beneficiaries
2.3.1. Quest Strategic Partners Proprietary Limited (“Quest Partners”)
Quest Partners is an investment holding company owned and controlled by black women executives of WIPHOLD, where Ms. Gloria Serobe (“Ms. Serobe”), being a non-executive director of Adcorp, is also a 20% shareholder. Quest Partners is the current B-BBEE partner of Quest Staffing Solutions Proprietary Limited (“Quest”), being a subsidiary of Adcorp, whereby Quest Partners currently owns 40% of the issued shares of Quest, an Adcorp Group subsidiary.
For the avoidance of doubt, Ms. Serobe, who is a non-executive director of Adcorp, is only a 20% shareholder of Quest Partners. As such, Ms. Serobe is not defined as a related party in accordance with section 10 of the JSE Listings Requirements (“Listings Requirements”).
2.3.2. AEBT 3
AEBT 3 is a trust in the process of being formed for the primary benefit of women in the permanent employment of the Adcorp SA Subsidiaries. The greater majority of the AEBT 3 units will be allocated to beneficiaries who are black women employees. Adcorp employees will be allocated AEBT 3 units based on, amongst other things, seniority and length of service with the intention of attracting and retaining exceptional candidates into the Adcorp Group.
The trust deed has been finalised and has been submitted to the Master in order for the Master to issue letters of authority for AEBT 3.
AEBT 3 will be structured as an “Employee Ownership Scheme” in terms of the Codes of Good Practice issued under section 9(1) of the Broad-Based BEE Act 53, 2003 (“BEE Codes”) and will accordingly adhere to the requirements set out in Annexe 100 (B), Annexe 100 (C) and Annexe (D) of Statement 100 of the BEE Codes. AEBT 3 will have the following salient features:
(i) Adcorp, as the Trust’s founder, and the Trust’s beneficiaries can each appoint up to 50% of the trustees in line with the BEE Codes (at least 50% independent, at least 50% black, at least 25% black women and the chairperson must be independent but does not have a casting vote);
(ii) The fiduciaries of AEBT 3 (i.e. the trustees) will have no discretion with regards to the identification of the beneficiaries or the proportion of their claims; and
(iii) The principle objectives of AEBT 3 will be to facilitate and promote the BEE ownership of the Adcorp Group.
3. Salient features of the Proposed B-BBEE Transaction
3.1. Internal Restructure
3.1.1. Prior to the implementation of the Proposed B-BBEE Transaction, Adcorp will consolidate its South African operating assets under SA HoldCo (“Internal Restructure”).
3.1.2. In order to facilitate the Proposed B-BBEE Transaction and as part of the Internal Restructure, Adcorp will sell all of its South African operating assets to SA HoldCo in terms of an asset for share transaction, resulting in SA HoldCo holding the ordinary shares in these companies previously owned by Adcorp. Further details of the Internal Restructure will be provided in the circular to be distributed to Adcorp Shareholders as indicated in paragraph 8 below.
3.2. The Repurchase
3.2.1. In terms of the 2013 B-BBEE Transaction, the Company’s current B-BBEE partners, being the Adcorp Employee Benefit Trust 2 (“AEBT 2”), WIP SPV and Simeka (collectively “Current B-BBEE Partners”), were issued 16 822 849 class B Shares at 2.5 cents per share.
3.2.2. As part of the Proposed B-BBEE Transaction, Adcorp will partially unwind the 2013 B-BBEE Transaction by entering into separate repurchase agreements with both WIP SPV and Simeka SPV, in terms of which Adcorp will repurchase:
(i) 5 887 997 B Shares, constituting 35% of the issued B Shares, for a total consideration of R58 879.97 (“WIP Repurchase Agreement”) from WIP SPV; and
(ii) 4 205 712 B Shares, constituting 25% of the issued B Shares, for a total consideration of R42 057.12 (“Simeka Repurchase Agreement”) from Simeka SPV,
(collectively “the Repurchase”).
3.2.3. Post the Repurchase, AEBT 2 will be the sole holder of Adcorp’s issued B Shares. It was decided that AEBT 2 would retain its B Shares until the unwinding of the structure during 2023 to provide the current beneficiaries, who would potentially not participate in AEBT 3, with an opportunity to potentially realise value when the 2013 B-BBEE Transaction unwinds during 2023.
3.2.4. A strategic decision was made by Adcorp to form a new employee incentive vehicle (AEBT 3) to participate in the Proposed B-BBEE Transaction with a larger focus on empowering women ownership and more specifically black women ownership within Adcorp’s SA Subsidiaries. As such, it was decided that AEBT 2 would retain its B Shares until the unwinding of the structure during 2023 to provide the current beneficiaries, who would potentially not participate in AEBT 3, with an opportunity to potentially realise value when the 2013 B-BBEE Transaction unwinds during 2023.
3.3. Subscription mechanism and consideration
3.3.1. Subsequent to the Repurchase:
(i) SA HoldCo will issue cumulative redeemable non-participating no par value preference shares (“Preference Shares”) to Adcorp equal to the equity market value of SA HoldCo (“Market Value”) (“Preference Share Issuance”); and
(ii) Quest Partners, Simeka and AEBT 3 (“New BEE Partners”) will collectively subscribe for approximately 35.42% of SA HoldCo Ordinary Shares at a fair value for a total consideration of R3 542. For the avoidance of doubt, Adcorp will subsequently hold 100% of the Preference Shares and 64.58% of the SA HoldCo Ordinary Shares (“B-BBEE Subscription”).
3.3.2. The B-BBEE Subscription will occur in the following proportions:
(i) Quest Partners will subscribe for 731 SA HoldCo Ordinary Shares, representing 7.31% of the issued share capital of SA HoldCo, for a total consideration of R731;
(ii) Simeka SPV will subscribe for 416 SA HoldCo Ordinary Shares, representing 4.16% of the issued share capital of SA HoldCo, for a total consideration of R416; and
(iii) AEBT 3 will subscribe for 2 395 SA HoldCo Ordinary Shares, representing 23.95% of the issued share capital of SA HoldCo, for a total consideration of R2 395.
4. Conditions to the Proposed B-BBEE Transaction
4.1. The Proposed B-BBEE Transaction is conditional on the fulfilment, inter alia, of the following conditions precedent: The appropriate repurchase and subscription agreements are expected to be concluded as soon as:
4.1.1. the approval by the JSE of the Proposed B-BBEE Transaction documentation and circular to be distributed to Adcorp Shareholders in respect of the Proposed B-BBEE Transaction in accordance with the Listings Requirements is received;
4.1.2. the approval of the Repurchase by the shareholders of the B Shares;
4.1.3.the Takeover Regulation Panel has granted an exemption to the Adcorp in terms of section 119(6) of the Companies Act, No 71 of 2008 (“Companies Act”) in respect of the Repurchase;
4.1.4. the approval by the Adcorp Shareholders of all the necessary ordinary resolutions tabled at the special general meeting of Adcorp Shareholders;
4.1.5. Adcorp, being the sole shareholder of SA HoldCo, approving the issue of the B-BBEE Subscription shares to the New BEE Partners in accordance with sections 41(1) and 41(3) of the Companies Act;
4.1.6. Adcorp having waived its pre-emptive rights, anti-dilution rights and similar rights which it may hold in respect of the issue of the B-BBEE Subscription shares to the New BEE Partners;
4.1.7. the Adcorp Resolutions being accepted and placed on file by the Companies and Intellectual Property Commission (“CIPC”), to the extent required; and
4.1.8. the Master having issued letters of authority to the initial trustees of AEBT 3.
4.2. The trust deed of AEBT 3 has been submitted to the Master and the Subscription Agreements, to which AEBT 3 is a party, shall be signed once the Master issues the relevant letters of authority.
5. Financial effects of the Proposed B-BBEE Transaction
5.1. Save for the transaction costs and an IFRS 2 charge of R2 766 672, at the date of implementation, the Proposed B-BBEE Transaction will have no material financial effects on the statement of financial position or the statement of comprehensive income.
6. Related party considerations and fairness opinion
6.1. Mr. Maswanganyi, who is a non-executive director of Adcorp, is also a shareholder and executive director of Simeka. Consequently, Simeka is an associate as defined in the Listings Requirements and is therefore regarded as a related party.
6.2. Mr. Maswanganyi and his associates will be excluded from voting at the special general meeting of Adcorp Shareholders.
6.3. BDO Corporate Finance Proprietary Limited (“Independent Expert”) has been appointed as the independent professional expert by the Board and provided the Board with a fairness opinion with regard to the Proposed B-BBEE Transaction (“Fairness Opinion”) in which they have advised the Board that they believe that the terms of the Proposed B-BBEE Transaction are fair to Adcorp Shareholders.
6.4. The Fairness Opinion and the independent expert’s report, as required in terms of the Listings Requirements and Companies Act respectively, will be provided in the circular to be distributed to Adcorp Shareholders as described in paragraph 8 below.
7. Opinion and Recommendations
7.1. The Board has considered the terms and conditions of the Proposed B-BBEE Transaction and is of the opinion that the Proposed B-BBEE Transaction is in the best interests of all of Adcorp’s key stakeholders, including customers, suppliers, staff, and shareholders and, accordingly, recommends that the Adcorp Shareholders vote in favour of the resolutions required to implement the Proposed B-BBEE Transaction.
7.2. The directors of Adcorp who directly or indirectly beneficially own Adcorp ordinary shares intend to vote in favour of the resolutions to implement the Proposed B-BBEE Transaction.
8. Circular to Adcorp Shareholders
8.1. The Proposed B-BBEE Transaction would not ordinarily require Adcorp Shareholder approval in terms of the Listings Requirements, however in the interest of transparency and good corporate governance, Adcorp would seek approval from Adcorp Shareholders for the B-BBEE Subscription in accordance with the terms of the Proposed B-BBEE Transaction.
8.2. Consequently, a circular containing the full details of the Proposed B-BBEE Transaction, together with the Fairness Opinion, as well as a notice to convene a general meeting of Adcorp Shareholders in order to consider and, if deemed fit, to pass with or without modification, the resolutions necessary to approve and implement the Proposed B-BBEE Transaction, will be made available to Adcorp Shareholders in due course.
Johannesburg
12 November 2020
Corporate Advisor and Transaction Sponsor
Pallidus Capital Proprietary Limited
Legal Advisor
Baker & McKenzie Incorporated
Sponsor
PSG Capital Proprietary Limited