2007/05/21
WHL - Woolworths - Black Economic Empowerment Transaction [JSE Securities Exchange - SENS]
 
WOWOW                                                                           
WHL - Woolworths - Black Economic Empowerment Transaction                       
Woolworths Holdings Limited                                                     
(Incorporated in the Republic of South Africa)                                  
Registration number 1929/001986/06                                              
Share code:  WHL & ISIN:  ZAE000063863                                          
("Woolworths" or "the Company")                                                 
BLACK ECONOMIC EMPOWERMENT TRANSACTION                                          
1.   INTRODUCTION AND RATIONALE                                                 
   The broad-based black economic empowerment ("BEE") transaction,              
   subject to the conditions precedent set out in paragraph 4 below,            
   will empower eligible Woolworths employees by enabling them to               
   acquire the equivalent of approximately 10% of the ordinary issued           
   share capital of Woolworths before the BEE transaction.                      
    The board of directors of Woolworths ("the board") is committed to          
    the spirit and principles of broad-based BEE and has established            
    empowerment policies and structures throughout the business to              
    facilitate BEE. The board recognises the social and economic                
    imperative to undertake a BEE ownership transaction and following           
    an extensive process, has decided to propose a BEE ownership                
    transaction involving eligible Woolworths employees for the                 
    following reasons:                                                          
    -    eligible Woolworths employees have contributed to the group's          
      progress thus far and will continue to be important in driving the        
      future growth of the group;                                               
-    the eligible Woolworths employees have a sound knowledge of the            
operations and are best positioned to participate and add value from the        
commencement of the BEE transaction;                                            
-    the nature and demographic composition of Woolworths employee base         
(90% black and 85% women) is ideal for an empowerment partner; and              
-    the BEE transaction will align the objectives of the ordinary              
shareholders with those of the eligible Woolworths employees, whose             
efforts have been the origin of the value created over the past years.          
2.   SALIENT FEATURES OF THE BEE TRANSACTION                                    
   2.1 Creation and issue of ESOS Shares                                        
       ---------------------------------                                        
        Woolworths will create a new class of convertible, redeemable,          
        non-cumulative participating preference shares with a par               
        value 0.15 cent each ("ESOS shares"). Woolworths will at                
        appropriate times issue these ESOS shares, up to a maximum of           
        89 400 000 ESOS shares, to the Woolworths Employee Share                
        Ownership Trust ("ESOS trust"). The ESOS trust will hold the            
        ESOS shares for the benefit of the vested beneficiaries for             
        the eight year term of the scheme, following which, and                 
        subject to the provisions of the Woolworths Employee Share              
        Ownership Trust Deed ("trust deed"), the ESOS shares will be            
        distributed to beneficiaries entitled thereto and will convert          
        into ordinary shares on a one-for-one basis.                            
   2.2  Scheme beneficiaries                                                    
        -------------------------------------------                             
        All Woolworths employees who were employed by the Woolworths            
        group ("group") as at 1 May 2007 and who are still employed as          
        at the initial vesting date (expected to be 30 June 2007) will          
        participate in the BEE transaction, with the exception of               
        white managers and white executives who already participate in          
        an existing Woolworths' share ownership scheme. The result is           
        approximately 17 000 employees will participate in the                  
        transaction, of whom 90% are black and 85% are women.                   
        Beneficiaries have been defined into three categories i.e.              
        broad-based beneficiaries, management beneficiaries and                 
        executive beneficiaries. Provision has also been made in the            
        scheme for future black executives.                                     
   2.3  Voting rights                                                           
        ---------------------------                                             
        The ESOS shares will rank pari passu with the Woolworths                
        ordinary shares except for certain economic rights and a right          
        on the winding-up of the Company to receive a return of par             
        value in priority to the ordinary shares. Whilst the ESOS               
        shares will be unlisted, they will have full voting rights, in          
        terms of a dispensation received from the JSE Limited ("JSE").          
        Accordingly, the trustees of the ESOS trust will be entitled            
        to exercise the voting rights of the ESOS shares on items               
        requiring shareholder approval in terms of the Companies Act            
        and the JSE Listing Requirements.                                       
        There will be five trustees of the ESOS trust, at least three           
        of whom will be black and of whom at least two will be black            
        women. The beneficiaries will elect three trustees of whom two          
        will be independent and the Company will appoint two trustees           
        of whom one will be independent. Trustee elections will take            
        place every three years, at which, beneficiaries will be                
        entitled to elect, or re-elect as the case may be,                      
        representatives to act as trustees for their benefit.                   
   2.4  Vesting of the ESOS shares in beneficiaries                             
        --------------------------------------------------------------          
        -----------------------                                                 
        The initial vesting process will recognise a broad-based                
        beneficiary's length of service to the group and accordingly,           
        relatively more ESOS shares will vest in a broad-based                  
        beneficiary employed within the group prior to 1 March 2003             
        than a broad-based beneficiary employed after that date.                
        A beneficiary's entitlement to ESOS shares at the end of the            
        scheme is subject to the beneficiary remaining an employee of           
        the group for a minimum service period, which service period            
        will end three years and 1 day after the date on which the              
        right in the ESOS shares vests in the beneficiary.  If a                
        beneficiary leaves the employment of the group, for reason              
        other than retirement, disability, dismissal or death, after            
        the minimum service period but before the end of the scheme he          
        or she will forfeit his or her vested right to a portion of             
        his or her ESOS shares.                                                 
   2.5  Dividends                                                               
        -------------------                                                     
        The ESOS trust will be entitled to receive the preference               
        share dividend paid on the ESOS shares ("the ESOS payment").            
        The ESOS payment will be equal to a percentage of the ordinary          
        dividend, which percentage will increase over the term of the           
        scheme to 100% in the penultimate year of the scheme.  A                
        beneficiary will be entitled to receive his or her                      
        attributable share of the ESOS payment received by the ESOS             
        trust based on his or her vested right to ESOS shares for as            
        long as he or she remains an employee of the group.                     
        A beneficiary who leaves the employment of the group after the          
        service period, but before the end of the scheme, will forfeit          
        his or her right to receive his or her attributable share of            
        the ESOS payment on the ESOS shares in which they have                  
        retained a vested right.                                                
        There are particular provisions relating to the forfeiting of           
        the ESOS payments for retirement, disability, dismissal and             
        death.                                                                  
   2.6  Distribution and conversion of the ESOS shares                          
        --------------------------------------------------------------          
        -------------------------------                                         
        It is envisaged that the ESOS trust will own the ESOS shares            
        for a period of eight years during which time the                       
        beneficiaries will receive their attributable share of the              
        ESOS payments.                                                          
        At the end of the scheme, a formula determined number of ESOS           
        shares will be distributed to the beneficiaries entitled                
        thereto and the balance of a beneficiary's vested ESOS shares           
        will be forfeited.  Following the distribution, the ESOS                
        shares will convert into ordinary shares, on a one-for-one              
        basis, which the beneficiaries will be entitled to hold or              
        realise.                                                                
        In terms of the formula, a beneficiary will only receive a              
        distribution if the termination date ruling price (being the            
        volume weighted average price of an ordinary share on the JSE           
        for the five trading days prior to the close of business on 30          
        June 2015) exceeds the hurdle rate price on the termination             
        date (being the volume weighted average price of an ordinary            
        share on the JSE for the five trading days prior to the close           
        of business on 30 June 2007 increased by the hurdle rate of             
        10% per annum compounded annually over the period to the close          
        of business on 30 June 2015). However, if the hurdle rate               
        price on the termination date is higher than the termination            
        date ruling price, the beneficiary will forfeit his or her              
        right to a distribution of all of his vested ESOS shares.               
   2.7  Creation of an educational fund                                         
        --------------------------------------------------------------          
        -                                                                       
        Woolworths has undertaken, subject to the provisions of the             
        ESOS trust deed, and provided the termination date share price          
        is higher than the hurdle rate price on the termination date,           
        to set up an educational trust or fund, using an amount equal           
        to the ESOS payments forfeited by the beneficiaries who leave           
        the employment of the group after the service period but                
        before the end of the scheme (described in paragraph 2.5                
        above), for the black employees of the group, employed at the           
        end of the scheme, and/or their dependents.  This will be in            
        addition to the educational expenditure being undertaken by             
        Woolworths in terms of its Corporate Social Investment (CSI)            
        programmes.                                                             
   2.8  Minimum benefit payment to broad-based beneficiaries                    
        --------------------------------------------------------------          
        -----------------------------------------                               
        The nature of the BEE transaction means that beneficiaries              
        will face inherent share price risk.  In order to ensure that           
        its employees will not be disincentivised by reason of the              
        failure to achieve the hurdle rate share price at the end of            
        the scheme and to ensure that its employees will continue to            
        promote the best interests of the group, each employer company          
        has undertaken, in respect of its employees, who are broad-             
        based beneficiaries at the end of the scheme, to make an                
        incentive payment of an amount which will ensure that such              
        broad-based beneficiary will receive at least                           
        R20 000 before taxation at the end of the scheme.                       
3    CONDITIONS PRECEDENT                                                       
   The implementation of the BEE transaction is subject, inter alia,            
   to the fulfilment of the following conditions precedent:                     
    -    the passing of all necessary special and ordinary resolutions by       
      the requisite majority of ordinary shareholders at the general meeting    
      convened to be held on 12 June 2007;                                      
-    the registration of the special resolutions by the Registrar of            
Companies;  and                                                                 
-    the Master of the High Court of South Africa issuing letters of            
authority to the first trustees of the ESOS trust.                              
4    ESTIMATED ECONOMIC COST                                                    
    Woolworths has estimated the economic cost of entering into the BEE         
    transaction for the Company and its shareholders to be                      
    approximately R292 million.  This represents approximately 1.38% of         
    the market capitalisation of approximately R21 107 million as at 26         
    April 2006.                                                                 
    This figure was calculated with reference to the requirements of            
    IFRS 2 -Share Based Payments.                                               
5    FINANCIAL EFFECTS OF THE BEE TRANSACTION                                   
   The unaudited pro forma financial effects illustrate the impact of           
   the BEE transaction on the most recently published interim results           
   as at 31 December 2006 assuming that the transaction took effect on          
   1 July 2006.                                                                 
   The unaudited pro forma financial effects have been prepared for             
   illustrative purposes only and are the responsibility of the                 
   directors. Due to the nature of the unaudited pro forma financial            
   effects, it may not give a fair reflection of Woolworths' financial          
   position, changes in equity, results of operations or cash flows             
   after completion of the BEE transaction. The directors are                   
   responsible for the preparation of the unaudited pro forma                   
   financial information.                                                       
                                                                                
                                                                                
                                                                                
 ------------------------------------------------------------------             
For the 26 weeks ended 31           Before the     Pro forma  Increase/         
December 2006                              BEE     after the (Decrease)         
                                  Transaction           BEE        (%)          
                                                Transaction                     
 ------------------------------------------------------------------             
Earnings per ordinary share               70.5          65.5      (7.1)         
(cents)                                                                         
Headline earnings per ordinary            64.8          59.8      (7.7)         
share (cents)                                                                   
Diluted earnings per ordinary             69.3          63.9      (7.8)         
share (cents)                                                                   
Diluted headline earnings per             63.8          58.4      (8.5)         
share (cents)                                                                   
Net asset book value per ordinary        363.3         361.6      (0.5)         
share ("NAV") (cents)                                                           
Tangible net asset book value per        360.5         358.8      (0.5)         
ordinary share (cents)                                                          
Number of ordinary shares in             800.4         800.4                    
issue (millions)                                                                
Weighted average number of               799.2         799.2                    
ordinary shares in issue                                                        
(millions)                                                                      
 ------------------------------------------------------------------             
                                                                                
    Notes:                                                                      
    1.Earnings are reduced by the IFRS 2 - Share Based Payments                 
      expense as spread over the period of the scheme.  This                    
      represents the estimated initial six months expense.                      
    2.   Key assumptions made in the IFRS 2 valuation:                          
      - Black-Scholes option valuation model utilised;                          
      - Reference share price of R23.31;                                        
      - Share price volatility based on historic experience;                    
      - Dividend yield of 4.2%; and                                             
      - Staff retention rate of 23% for broad-based beneficiaries,              
        29.6% for management beneficiaries and 100% for executive               
        beneficiaries.                                                          
                                                                                
6    Opinion and recommendations                                                
The Standard Bank of South Africa Limited, the independent professional         
expert appointed by the board in terms of the JSE Listings Requirements,        
has considered the terms and conditions of the BEE transaction and is of        
the opinion that such terms and conditions are unfair but reasonable to         
the ordinary shareholders. The full opinion of the independent                  
professional expert is contained in the circular which will be posted to        
Woolworths ordinary shareholders on 21 May 2007.                                
The board has considered the terms and conditions of the BEE transaction        
and the opinion of the independent professional expert and is of the            
opinion that the BEE transaction is in the best interests of Woolworths         
and its shareholders.                                                           
                                                                                
7    SHAREHOLDER APPROVAL                                                       
   The BEE transaction will require that Woolworths ordinary                    
   shareholders approve, inter alia, the following resolutions:                 
    -    special resolutions to amend the authorised share capital of the       
      Company and amend the Articles of Association of the Company to create    
      the ESOS shares; and                                                      
-    ordinary resolutions to approve the ESOS trust deed and place the          
ESOS shares under the control of the directors.                                 
                                                                                
8    IMPORTANT DATES AND TIMES                                                  
------------------------------------------------------------------              
                                                               2007             
------------------------------------------------------------------              
Circular and notice of general meeting                Monday, 21 May            
posted to shareholders on                                                       
Last day for receipt of proxies in                    Friday, 8 June            
respect of the general meeting by 09h00                                         
General meeting of shareholders at 09h00            Tuesday, 12 June            
Results of general meeting published on             Tuesday, 12 June            
SENS on                                                                         
Results of general meeting published in           Wednesday, 13 June            
the Press on                                                                    
Special resolutions lodged with the               Wednesday, 13 June            
Registrar of Companies on or about                                              
------------------------------------------------------------------              
                                                                                
    Notes:                                                                      
    1.   Any material changes to the above dates and times will be published    
       on SENS and in the press.                                                
                                                                                
9    DOCUMENTATION                                                              
   A circular containing the full details of the BEE transaction,               
   including a notice of general meeting, will be posted to Woolworths          
   ordinary shareholders on 21 May 2007. The circular will also be              
   available on our website at www.woolworthsholdings.co.za.                    
                                                                                
Cape Town                                                                       
21 May 2007                                                                     
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Merchant bank and sponsor                                                       
Rand Merchant Bank (A division of FirstRand Bank Limited)                       
Corporate law and Tax advisors                                                  
Taback and Associates (Proprietary) Limited                                     
edward nathan sonnenbergs inc.                                                  
Independent expert                                                              
The Standard Bank of South Africa Limited                                       
Reporting accountants and auditors                                              
Ernst & young Inc.                                                              
Transfer secretaries                                                            
Computershare Investor Services 2004 (Proprietary) Limited                      
Date: 21/05/2007 08:00:01 Produced by the JSE SENS Department.                  
Source: JSE Securities Exchange - SENS
 
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