BAT - BRAIT S.A. Societe Anonyme - Buy-Back of 26% interest in Brait South
BAT
BRAIT
BAT - BRAIT S.A.,Societe Anonyme - Buy-Back of 26% interest in Brait South
Africa Limited ("BSAL") held by Sitogo Holdings Proprietary Limited
("SITOGO"), Brait`s Black Economic Empowerment ("BEE") Partner
BRAIT S.A.,Societe Anonyme
(incorporated in Luxembourg)
(RC Luxembourg B-13861)
("Brait") or ("the Company")
JSE Code: BAT
Issuer code: BRAIT
ISIN code: LU 0011857645
BUY-BACK OF 26% INTEREST IN BRAIT SOUTH AFRICA LIMITED ("BSAL") HELD BY SITOGO
HOLDINGS PROPRIETARY
LIMITED ("SITOGO"), BRAIT`S BLACK ECONOMIC EMPOWERMENT
("BEE") PARTNER
1. BACKGROUND
Brait has successfully completed the buy-back of its 26% in BSAL sold to
Sitogo in September 2004 as part of its BEE transaction. This was in line
with the planned liquidity mechanism provided for in the initial
transaction agreements. Sitogo acquired its original interest based on a
Tangible Net Asset Value ("TNAV") formulation, and had a put option on
substantially the same terms as at 31 March 2010. Sitogo exercised this
put option on 22 June 2009. Upon conclusion of this buy back, the Company
owns 100% of BSAL.
Shareholders are referred to SENS announcement dated 25th May 2010 where
they were advised that Sitogo had exercised its put
option to Brait, and
that Brait intended to settle the BEE shareholders through the issue of
new shares as this would be accretive to current shareholders.
In a further SENS announcement on 28th July 2010 which published the
Results of Brait`s Annual General Meeting ("AGM"), the Company indicated
that it had received shareholder approval authorising the Board of
directors to generally and unconditionally issue sufficient shares to
settle Sitogo for their 26% interest in BSAL in line with 31st March 2010
final agreed TNAV values. Directors can now confirm that the buy-back was
achieved through the issue and placement of 8.5 million Brait SA shares.
2. ORIGINAL OBJECTIVES OF THE BEE TRANSACTION
Brait concluded its BEE transaction with Sitogo in September 2004 in
terms of which Brait sold 26% of its equity and loan claims in BSAL for a
consideration of R123.8 million, as outlined in the SENS announcement
released on 19th August 2004. The purchase consideration was paid in cash
and fully funded by the direct capital contributions of Sitogo (R5
million) with the balance being funded by the financiers to the
transaction, namely Old Mutual Life Assurance Company (South Africa)
Limited (`Old Mutual`) and Brait.
The shareholders of Sitogo (and their effective interest in BSAL)
comprised the following four entities:
- Norho Financial Services (Proprietary) Limited (`Norho`) with 7.25%.
Norho is headed by Bheki Sibiya and includes several successful business men
and
women, and entrepreneurs, namely, Swazi Tshabalala, Bobby Malabie, Owen
Maubane
and Moeketsi Setai;
- Africa Vanguard Capital (Proprietary) Limited (`Africa Vanguard`) with
7.25%.
This group is lead by Sandile Zungu and includes Sindi Mabaso and Geoffrey
Nzau
who are all successful entrepreneurs and business people. The group also
consists of community investors in The Mfundo Vanguard Social Development
Trust,
The Africa Vanguard Rural Development Trust, the Africa Vanguard Education
Trust
and The National Association of People Living with HIV/AIDS;
- Representative Investments (Proprietary) Limited (`Representative`)
with
5%.
Mandla Ngcobo represents these participants who include Professor Charles
Okeahalam and Sello Mahlangu. All are respected business leaders; and.
- Orono Trading 25 (Proprietary) Limited, which subsequently changed its
name to
Usante Capital (Proprietary) Limited (`Usante`) with 6.5%.
Vivian Reddy, Kagiso Chikane and Pinky Moabi are the lead investors in this
group who include a large block of professionals in industry, regional
government, as well as broader community beneficiaries. Emakhaya Investments
(Pty) Ltd is also an investor and represents some twenty female professionals.
The intended benefits of the transaction for Brait are considered to have
been substantially met. Brait has further developed its proud record of
BEE transactions
which it has facilitated in its private equity and other
businesses, created new partnerships and forged new relationships. It has
also materially contributed to achieving an Empowerdex A or level 4
rating. It is also pleasing that, having concluded the transaction on
achieving one of its important original goals of delivering an
unencumbered asset at the end of the six year period, as a result of
strong underlying cash flows in Brait.
3. TERMS OF THE BUY-BACK
3.1 Purchase Consideration
The term of the Sitogo exit arrangements were laid out in the original
agreement entered into in September 2004. The put option would be
exercised based on a TNAV formulation.
As a result of this formulation, the parties agreed to a
net cash amount
payable to Sitogo of R102 000 000 after the payment of R68 500 000 to Old
Mutual as the primary financiers. The Company issued 8.5 million Brait
shares to Sitogo on 24th August 2010 as the estimated shares required to
settle the R170.5 million cash liability. On Thursday 2nd September 2010,
Deutsche Bank placed the 8.5 million under an accelerated book build and
achieved a price per share of R19.75. The total net proceeds from the
placement was R165.5 million, with Brait contributing a further R5
million to settle the cash liability of R170.5 million. Following the
completion of the placement, the Sitogo shares were listed on Monday 6th
September 2010 with the simultaneously transfer to the investors who
bought the shares from the placement being booked on the same day. The
cash settlement date for Sitogo and Old Mutual is set for Friday 10th
September 2010.
4. FINANCIAL IMPACT ON BRAIT
The financial impact on Brait of the BEE transaction is on two levels,
namely, a review of the six year impact of the transaction on Brait`s
financial position, as well as the proforma financial effects going
forward.
4.1 A summary of the six year impact on Brait is as follows:
Sep-04 Sep-
10
Rm Rm
Total consideration for the 26% interest in BSAL in Sept 123.8
2004
Less: Brait contribution
as financier (25% IRR return) -40 83.1
Net Cash injection into Brait operation 83.8 448.4
Brait funded the BEE deal by contributing R40 million as the secondary
financiers (Old Mutual were the primary financiers). Under the terms of
the transaction, financiers were guaranteed a minimum return of 14.78%
IRR and maximum return of 25% IRR, depending on the performance of
Sitogo`s investment in Brait. Both financiers achieved a 25% IRR on their
investment, with Brait`s initial R40 million invested translating into
gross receipts of R83.1 million over the six years.
Of the R83.8 million net cash injected into Brait`s operation in
September 2004, Brait`s NAV per share grew from R5.59 per
share in March
2004 to R29.91 per share in March 2010 (the latter value includes the
dividends paid out during that period compounded at prime rate of
interest). At this growth rate, Brait was able to grow the R83.8 million
cash injection to R448.4 million of shareholder value in six years,
further illustrating that the transaction was beneficial to both Sitogo
and Brait shareholders.
4.2 PRO FORMA FINANCIAL EFFECTS
Set out in the table below are the unaudited pro forma financial effects
of the buy-back transaction based on the audited financial results of
Brait for the year ended 31 March 2010. The unaudited pro forma financial
effects have been prepared for illustrative purposes only to provide
information on how the Transaction may have impacted on the results and
financial
position of Brait. Because of their nature, the pro-forma
financial effects may not give a true picture of, or fairly present,
Brait`s financial position, changes in equity, results of operations or
cash flows after the Transaction.
The existing accounting policies of Brait have been used in calculating
the pro forma financial information. The directors of Brait are
responsible for the preparation of the pro forma financial effects.
Actual Adjustments Proforma Change
before the after the (%)
transaction transaction
(ZAR cents) (ZAR cents)
Basic earnings per share (Note 174.8 - 174.8 -
1)
Diluted earnings per share (Note 173.2 - 173.2 -
1)
Headline earnings per share 174.8 - 174.8 -
(Note 1)
Diluted headline earnings per 173.2 - 173.2 -
share (Note 1)
Net asset value per share (note 1 302.3 22.6 1 324.9 2%
2)
Notes:
1. The impact of the transaction on earnings of Brait will be
positive going forward as the BSAL operations contributed over
90% of the Group`s
R185.6 million earnings to the year ended
31st March 2010. However, the adjustments to earnings above
would not be representative as the Sitogo transactions was
accounted on a catch up basis on 31st March 2010 to reflect the
expected final settlement position. The after transaction
position has therefore been left showing a neutral position.
2. The amounts in the "Before the Transaction" column represent
the net asset value per share as disclosed in the published
audited financial results for the year ended 31 March 2010. The
amounts in the "After the Transaction" column represent the net
asset value per share based on the published audited financial
results for the year ended 31 March 2010 adjusted for the
Transaction, had it been effected on 31 March 2010.
3. The unaudited
pro forma financial effects are based on the
following assumptions:
- Shares in issue include the 8.5 million newly issued
shares.
- The adjustments for the reserves include the placement
costs and discounts on the issue of the 8.5 million
shares.
5. OTHER CONSIDERATIONS
The directors would like to advise the shareholders of the following
other matters flowing from the conclusion of the Sitogo BEE transaction:
5.1 Brait`s BEE status and plans
Brait has been advised by empowerment rating agency that it will be
credited with ownership points for a period of two years following
Sitogo`s exit. However, directors are committed to a timely completion of
a new empowerment transaction. Shareholders will be advised as soon as
this has been finalized.
5.2 Dividend Policy
Brait does not believe that the above transaction, with the issue of an
additional 8.5 million shares, will have any impact on its stated
dividend policy.
Luxembourg
06 September 2010
Sponsor
Deloitte & Touche Sponsor Services (Proprietary) Limited
(Incorporated in the Republic of South Africa)
(Registration number
1996/000034/07)
Date: 06/09/2010 15:00:01 Produced by the JSE SENS Department.
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