Value Group to amend its 2010 BEE transaction
Value Group Limited referred shareholders to the Broad-Based Black Economic Empowerment (“B-BBEE”) transaction implemented by Value Group in 2010 ("the 2010 B-BBEE Transaction), the effective date of which was 23 July 2010 (“the Effective Date”), and are advised that Value Group has reached agreement with the participants in the 2010 B-BBEE Transaction regarding a proposed 5 year extension of its maturity date from the originally envisaged 7th anniversary of the Effective Date to the proposed 12th anniversary thereof. (“the Proposed B-BBEE Transaction Amendment”).
In terms of the Listings Requirements of the JSE Limited (“JSE”), the Proposed B-BBEE Transaction Amendment is deemed material in relation to the terms of the 2010 B-BBEE Transaction as previously approved by Value Group Shareholders. Accordingly, approval by Value Group Shareholders for the Proposed B-BBEE Transaction Amendment is required.
Full details of the Proposed B-BBEE Transaction Amendment will be set out in the circular to Value Group shareholders (“the Circular”) to be issued on or about 22 June 2017. The salient dates and times of the general meeting of Value Group shareholders (“the General Meeting”) to approve the Proposed B-BBEE Transaction Amendment, are set out in paragraph 6 below.
Value Group has been advised by the JSE that the Proposed B-BBEE Transaction Amendment requires approval by 75% or more of Value Group Shareholders present or represented by proxy at the General Meeting and entitled to exercise voting rights on the relevant resolutions. Parties related or deemed to be related to the Proposed B-BBEE Transaction Amendment and their associates, will not be entitled to cast any votes in relation to the resolutions to be proposed at the General Meeting, in accordance with the Listing Requirements of the JSE (“the Listings Requirements”).
The 2010 B-BBEE Transaction consisted of the following two components:
- the facilitation of strategic empowerment shareholdings in Value Group of 7% by Dr. Nakedi Mathews Phosa (“Dr. Phosa”), a non-executive director of Value Group and 3% by Mano
Padiyachy, an executive director of Value Group (“the Strategic Empowerment Shareholding”); and
- an employee empowerment scheme which facilitated the empowerment of qualifying black Value Group employees by enabling them through the Value Group Empowerment Trust, to
acquire economic interests and voting rights of up to 5% in Value Group’s issued share capital (“the Employee Empowerment Scheme”).
Strategic Empowerment Shareholding
The Strategic Empowerment Shareholding was implemented through:
- the specific issue of 14 600 614 Value Group ordinary shares to a special purpose vehicle wholly owned by the Dr. Phosa Family Trust, the family trust of Dr. Phosa (“Phosa SPV”), at a subscription price of R3.50 per Value Group ordinary share;
- the specific issue of 6 257 406 Value Group ordinary shares to a special purpose vehicle wholly owned by the Padiyachy Family Trust, the family trust of Mano Padiyachy at a subscription price of R3.50 per Value Group ordinary share.
“the specific issues to Phosa SPV and Padiyachy SPV”.
The specific issues to Phosa SPV and Padiyachy SPV were entirely funded through the subscription by Value Logistics Limited (“Value Logistics”), a wholly owned subsidiary of Value Group, for variable rate cumulative redeemable preference shares in the capital of Phosa SPV and Padiyachy SPV (“the Phosa SPV and Padiyachy SPV preference shares”), the salient terms of which are summarised below:
- Preference dividends accrue at 72% of the prevailing prime rate, are cumulative in respect of accrued but unpaid dividends, and are compounded annually in arrears.
- Phosa SPV and Padiyachy SPV are obliged to, on each date Value Group distributions are received in respect of the Value Group ordinary shares held by the Phosa SPV and Padiyachy
SPV, declare and pay preference dividends equal to the Value Group distributions so received after deducting taxes and reasonable expenses.
- The Phosa SPV and Padiyachy SPV preference shares are redeemable on 23 July 2017 (“the Preference Share Redemption Date”) being the 7th anniversary of the Effective Date.
If the Phosa SPV and Padiyachy SPV preference shares are not redeemed on the Preference Share Redemption Date, Value Logistics can, at its election, require Phosa SPV and Padiyachy SPV to sell their Value Group ordinary shares to settle their outstanding obligations to Value Logistics(“Redemption Rights”).
In terms of the 2010 B-BBEE Transaction, Phosa SPV and Padiyachy SPV are subject to a 7-year lock-in period (“the Lock-in Period”) during which they are not allowed to dispose of (or encumber) any of their Value Group ordinary shares, other than with the written consent of Value Group.
Employee Empowerment Scheme
The Employee Empowerment Scheme was implemented in July 2010 through the specific issue of 10 429 010 A Shares, a class of convertible shares in the capital of Value Group created specifically to facilitate the Employee Empowerment Scheme, to the Value Group Empowerment Trust at an issue price of R0.001 per A Share (“the Specific Issue of A Shares”).
Only current or future black employees of Value Group nominated by the board who fall within the C and D Peromness bands and who satisfy a set of objective criteria set by the board qualify as participants in the Employee Empowerment Scheme (“the Beneficiaries”). The Value Group Empowerment Trust created an aggregate of 10 429 010 units (“the Units”), being one for every issued A Share. Units are allocated to Beneficiaries by the board. Each beneficiary is required to remain in the employ of the Group at all times from the date Units have been allocated to the Beneficiary until the 7th anniversary of the Effective Date (“the Employment Service Requirement”).
The specific issue of A Shares was funded through a notional loan with an initial value of R36 501 535(being 10 429 010 A Shares at a deemed loan of R3.50 per A Share) (“the Notional Loan”). At the end of each year, the Notional Loan is:
- increased by an accrual for notional interest, calculated daily and compounded annually in arrears;
- at the election of the board, increased by the amount of expenditure incurred by Value Group on behalf of the Value Group Empowerment Trust; and
- decreased by an amount equal to any notional distributions.
If the Notional Loan is not fully repaid by 23 July 2017 being the 7th anniversary of the Effective Date (“the Calculation Date”), Value Group will be entitled to repurchase issued A Shares equivalent to the notional loan balance at the Calculation Date dividend by the volume weighted average price per Value Group ordinary share over the 30 trading days prior to the Calculation Date (“the A Share Repurchase Right”).
The remaining A Shares will be automatically converted into Value Group ordinary shares on a one-for-one basis and will be transferred to Beneficiaries who have met the Employment Service Requirements, in proportion to the respective number of Units held by the Beneficiaries against payment of any taxes due by the Beneficiaries.
The 2010 B-BBEE Transaction recognised the importance of B-BBEE as a key driver of sustainable economic growth and positive transformation in South Africa. Value Group continues to support South Africa’s B-BBEE initiatives and aims to play an active role in the transformation of the South African logistics industry.
Due to Value Group’s depressed share price, the funding liabilities attached to the 2010 B-BBEE Transaction are highly likely to exceed the equity value thereof. The board believes that if Value Group and Value Logistics were to enforce the Redemption Rights and the A Share Repurchase Right, it would result in a significant impairment in value for Phosa SPV, Padiyachy SPV and Value Group Empowerment Trust. The Board believes that this is not aligned with the spirit in which Value Group undertook the 2010 B-BBEE Transaction.
Proposed B-BBEE Transaction Amendment
The board, subject to the requisite approval by Value Group shareholders, proposes a 5 year extension to the 2010 B-BBEE Transaction through the extension of:
- The Preference Share Redemption Date from the initial 7th anniversary to the 12th anniversary thereof;
- the lock-in period to the later of the:
o 12th anniversary of the Effective Date; and
o the date on which all Phosa SPV’s or Padiyachy SPV’s (as the case may be)
liabilities to Value Logistics and Value Group are discharged; and
- the Calculation Date from the initial 7th anniversary to the 12th anniversary of the Effective Date.
The remaining terms of the 2010 B-BBEE Transaction will remain unchanged.