|1.||BACKGROUND AND INTRODUCTION|
|1.1||Exxaro was established in November 2006 through the combination of the assets of Kumba Resources Limited (“Kumba Resources”) with Eyesizwe Mining Proprietary Limited (“Eyesizwe Mining”) and the subsequent unbundling of Kumba Iron Ore Limited and the relisting of Kumba Resources and Eyesizwe Mining assets as Exxaro.|
|1.2.||As part of the establishment of Exxaro, Main Street 333 Proprietary Limited (“MS333”) was created and introduced as the controlling black economic empowerment (“BEE”) shareholder of Exxaro (the “Existing BEE Transaction”). MS333 currently owns 50.19% of the issued ordinary shares of Exxaro (the “Exxaro Shares”).|
|1.3||In terms of the Existing BEE Transaction, certain restrictions were placed on MS333’s ability to dispose of its shareholding in Exxaro (the “BEE Restrictions”) up until 28 November 2016 (the “Final Date”), including that:|
|1.3.1.||MS333 was obliged to own more than 50% of the Exxaro Shares; and|
|1.3.2.||direct and indirect shareholders of MS333 undertook to retain their status as historically disadvantaged South Africans, as defined in the Mineral and Petroleum Resources Development Act, 28 of 2002 (“HDSA”).|
|1.4.||The Existing BEE Transaction was implemented as a ten year structure and the BEE Restrictions expire on the Final Date. After the Final Date, and in terms of the Existing BEE Transaction, MS333 must distribute its shareholding in Exxaro to its shareholders in exchange for each such shareholder’s shares in- and claims against MS333 (the “MS333 Unwind”). The MS333 Unwind must be procured by the shareholders of MS333 as soon as possible after the Final Date. It has been agreed in an implementation agreement (the “Implementation Agreement”) that the MS333 Unwind will be procured as described in paragraph 3.1.|
|1.5.||On Tuesday, 22 November 2016, the following agreements were entered into in order to coordinate the MS333 Unwind:|
|1.5.1.||the Implementation Agreement between Exxaro, MS333 and the direct shareholders of MS333 (the “MS333 Shareholders”), setting out:|
|22.214.171.124.||the indicative terms and principles of a replacement BEE transaction (the “Replacement BEE Transaction”);|
|126.96.36.199||the regulation and coordination of the MS333 Unwind, specifically governing the terms of any placement of Exxaro Shares in the market as the result of the MS333 Unwind; and|
|188.8.131.52.||the in-principle terms for the Specific Repurchase (as defined below);|
|1.5.2.||a share repurchase implementation agreement (the “Repurchase Implementation Agreement”) between Exxaro and MS333, setting out the terms on which Exxaro will propose a scheme of arrangement to its shareholders in terms of section 114 of the Companies Act, 71 of 2008 (the “Companies Act”) between Exxaro and MS333 in terms of which Exxaro will repurchase and cancel a certain number of Exxaro Shares to the value of R3 524 433 434 from MS333 (the “Specific Repurchase”).|
|1.6.||The Implementation Agreement contains the salient terms of the Replacement BEE Transaction and the MS333 Unwind, however both the Replacement BEE Transaction and the MS333 Unwind is subject to the conclusion of detailed transaction agreements. In terms of the Implementation Agreement, the MS333 Unwind will be implemented by no later than three months from the earlier of: i) agreement of the detailed transaction agreements; or ii) 30 April 2017, or such other date as agreed to in writing between Exxaro and MS333. The detailed terms of the Replacement BEE Transaction will be announced once the transaction agreements have been finalised and agreed (the “Replacement BEE Transaction Announcement Date”).|
|1.7.||The Exxaro board of directors (the “Exxaro Board”) established an independent board sub-committee (the “Independent Board Sub-Committee”) to actively engage with MS333 on the MS333 Unwind, the terms of the Replacement BEE Transaction and the Specific Repurchase.|
|2.||OVERVIEW OF THE TERMS OF THE REPLACEMENT BEE TRANSACTION|
|Exxaro, MS333 and the MS333 Shareholders have agreed high level terms governing the Replacement BEE Transaction in the Implementation Agreement. It is the intention to implement the Replacement BEE Transaction after the Specific Repurchase, partially using the mechanism of the MS333 Unwind to enable direct and indirect shareholders of MS333 to reinvest into the Replacement BEE Transaction structure. While high level terms have been agreed with MS333, detailed transaction agreements required to implement the Replacement BEE Transaction are still to be negotiated and finalised.|
|2.2.||Rationale for the Replacement BEE Transaction|
|Since inception, Exxaro has grown into one of the largest black controlled companies in the South African mining sector. Exxaro is aware of the current uncertainty around the legislative requirements for BEE in the South African mining sector and specifically the uncertainty created by the current court process to determine the legal status of the “once empowered, always empowered” principle. However, the Independent Board Sub-Committee is of the opinion that Exxaro’s empowerment status is a significant part of its strategy and provides a competitive advantage. Remaining empowered is an essential part of Exxaro’s strategy to not only maintain sustainable relationships with critical stakeholders and ensure ongoing compliance with specific customer requirements, but also to further the imperative for transformation in South Africa. Accordingly, Exxaro wishes to pursue and implement the Replacement BEE Transaction.
Exxaro considers BEE holistically. In addition to other empowerment commitments in terms of the Mining Charter, broad-based BEE includes duly empowering each of the following groupings:
Exxaro’s Mpower and Mpower 2012 employee share ownership schemes provides for all of the employees of Exxaro, other than those employees that already participate in management share incentive schemes, with equity participation in Exxaro. The Mpower scheme was wound up in 2011 and resulted in a pay-out of over R1 billion to its participants, whereas Mpower 2012 was put in place in 2012 and resulted in each participant being allocated Exxaro Shares to the value of R70 000. The majority of Mpower 2012 participants are HDSAs thereby further contributing to Exxaro’s empowerment status.
In addition to the Replacement BEE Transaction, Exxaro continues to consider the empowerment requirements of all relevant regulations.
|2.3.||Key terms of the Replacement BEE Transaction|
|2.3.1||Transaction structure and participants|
|Below show the shareholding structure of the Replacement BEE Transaction after its implementation:|
|A new special purpose vehicle (“NewBEECo”) will be incorporated for the purpose of being the new empowerment vehicle for Exxaro. It is the intention that NewBEECo will ultimately own 30% (the “Targeted BEE Percentage”) of the Exxaro Shares.
All of the existing direct and indirect shareholders of MS333 (excluding the Industrial Development Corporation (the “IDC”) (the “Reinvesting MS333 Shareholders”) will be invited to participate in the Replacement BEE Transaction by reinvesting all or some of the Exxaro Shares received as part of the MS333 Unwind (the “MS333 Reinvestment”).
The IDC, which currently owns approximately 15% of the ordinary shares of MS333, has separately agreed to reinvest in the Replacement BEE Transaction by investing some of the Exxaro Shares received as part of the MS333 Unwind (the “IDC Reinvestment”).
NewBEECo will have two shareholders, being a newly formed special purpose vehicle to house the MS333 Reinvestment (“BEE SPV”) and the IDC. BEE SPV will own 75.8% and the IDC will own 24.2% of NewBEECo.
Exxaro will invest equity into BEE SPV (the “Exxaro Equity Investment”) in order to provide funding so that Reinvesting MS333 Shareholders have outright control of NewBEECo, and the Targeted BEE Percentage is achieved.
The BEE SPV shareholders will be Reinvesting MS333 Shareholders and Exxaro, with Reinvesting MS333 Shareholders owning 62.3% and Exxaro owning 37.7% of BEE SPV.
In addition to the equity funding introduced into the Replacement BEE Transaction through the MS333 Reinvestment, the IDC Reinvestment and the Exxaro Equity Investment, Exxaro will provide facilitation, in a form still to be agreed, to the Replacement BEE Transaction (the “Exxaro Facilitation”).
The balance of funds required by NewBEECo to invest into Exxaro pursuant to the Replacement BEE Transaction will be raised through third party bank funding. The IDC has also agreed to provide a debt guarantee in favour of the third party funders up to a maximum value of the present value of R700 000 000 (the “IDC Guarantee”) over the term of the Replacement BEE Transaction.
|2.3.2.||Detailed terms of the Funding of the Replacement BEE Transaction|
|The detailed terms of the Replacement BEE Transaction will be communicated to the market on the Replacement BEE Transaction Announcement Date. The Replacement BEE Transaction value will only be determined on the implementation of the Replacement BEE Transaction, which is expected to be towards the end of H1 2017, and will be calculated as the Targeted BEE Percentage multiplied by the market valuation of Exxaro at the date of implementation of the Replacement BEE Transaction (“Replacement BEE Transaction Value”).
The Replacement BEE Transaction Value will be funded as follows:
|2.3.3.||Detailed transaction mechanics|
|184.108.40.206.||Exxaro will subscribe for ordinary shares in BEE SPV pursuant to the Exxaro Equity Investment. This subscription will result in Exxaro holding 37.7% of the issued ordinary shares in BEE SPV.|
|220.127.116.11.||The Reinvesting MS333 Shareholders will subscribe for ordinary shares in BEE SPV. This subscription will result in the Reinvesting MS333 Shareholders collectively holding 62.3% of the issued ordinary shares of BEE SPV.|
|18.104.22.168.||BEE SPV will use the proceeds of the subscriptions referred to in paragraphs 22.214.171.124 and 126.96.36.199 above to subscribe for ordinary shares in NewBEECo. This subscription will result in BEE SPV holding 75.8% of the issued ordinary shares of NewBEECo (after the implementation of the IDC Reinvestment contemplated in paragraph 188.8.131.52 below).|
|184.108.40.206.||The IDC will subscribe for ordinary shares in NewBEECo. This subscription will result in the IDC holding 24.2% of the issued ordinary shares of NewBEECo.|
|220.127.116.11.||NewBEECo will subscribe for Exxaro Shares which will result in NewBEECo holding the Targeted BEE Percentage of the Exxaro Shares.|
|18.104.22.168.||All the shareholding percentages are fixed in order for the Exxaro Facilitation to benefit Reinvesting MS333 Shareholders and the IDC.|
|2.3.4.||Term and liquidity mechanisms|
|The term of the Replacement BEE Transaction will be seven years. During this term restrictions will be placed on the NewBEECo shareholders’ ability to dispose of their shares in the Replacement BEE Transaction structure. It is envisaged that there will be certain mechanisms to create interim liquidity for NewBEECo shareholders. These mechanisms will be structured so as not to alter Exxaro’s empowerment status in any way.|
|2.3.5.||Governance of the Replacement BEE Transaction
|MS333 will be able to nominate representatives of NewBEECo (the “NewBEECo Representatives”) to represent the Reinvesting MS333 Shareholders, BEE SPV and NewBEECo in negotiating the final terms of the Replacement BEE Transaction. The detailed terms of the Replacement BEE Transaction will be negotiated between the Independent Board Sub-Committee and the NewBEECo Representatives. NewBEECo may remove and replace any NewBEECo Representatives after its incorporation. Exxaro and the IDC will be able to rely on the engagements with the NewBEECo Representatives in relation to the abovementioned negotiations.
Exxaro will be represented by the Independent Board Sub-Committee, which will report to the Exxaro Board.
|2.3.6||Conditions for the Replacement BEE Transaction to be implemented|
|The implementation of the Replacement BEE Transaction will be subject to the following conditions precedent:
|3.||MS333 UNWIND AND REGULATED PLACEMENT|
|MS333 will not be retained as the empowerment vehicle for the Replacement BEE Transaction. The MS333 Unwind will therefore apply to all the Exxaro Shares owned by MS333 after the Specific Repurchase.
The terms of the Existing BEE Transaction allows MS333 shareholders to determine the fiscally most efficient manner to effect the MS333 Unwind. Detailed terms for the MS333 Unwind are still to be negotiated and finalised. The detailed terms of the MS333 Unwind will be announced to the market once the detailed transaction agreements have been finalised and agreed. In terms of the Implementation Agreement, it was agreed that the MS333 Unwind will be implemented by no later than three months from the earlier of: i) agreement of the detailed transaction agreements; or ii) 30 April 2017, or such other date as agreed to in writing between Exxaro and MS333.
It is anticipated that, as part of the MS333 Unwind, the indirect shareholders of MS333 will be entitled to elect whether to:
Exxaro recognises its responsibility to all Exxaro shareholders to maintain an orderly market in Exxaro Shares, particularly in respect of the MS333 Unwind, which could result in a large number of Exxaro Shares being placed in the market. As such Exxaro will continue to explore all options to ensure a coordinated exit of MS333’s shareholding in Exxaro upon the MS333 Unwind, which may include market placements, sales to third parties or further share repurchases, subject to the requisite approvals.
|3.2.||MS333 indirect shareholder election|
|As described above, in order to enable the MS333 Unwind and Replacement BEE Transaction, the indirect shareholders of MS333 will be entitled to elect whether to:
|3.3.||Regulated placement and coordination|
|The Implementation Agreement governs the regulated sale of Exxaro Shares by MS333 or any direct or indirect MS333 shareholder pursuant to the MS333 Unwind.
Due to the potential for a negative impact on shareholder value for all Exxaro shareholders (including MS333) if a large number of Exxaro Shares were to come onto the market simultaneously, the Implementation Agreement provides that MS333 and all its direct shareholders are, and will procure that all indirect shareholders are, bound by the following:
|4.||THE SPECIFIC REPURCHASE|
|4.1.||Overview of the Specific Repurchase|
|In terms of the Repurchase Implementation Agreement, Exxaro has undertaken to repurchase and cancel a certain number ,being more than 5%, of Exxaro Shares to the value of R3 524 433 434 from MS333 (the “Repurchase Scheme”). As such, the Specific Repurchase is to be effected in accordance with, inter alia, section 114 of the Companies Act and will require the passing of a special resolution of Exxaro shareholders, the preparation of an independent fair and reasonable opinion on the terms of the Repurchase Scheme and giving rise to shareholders’ appraisal rights in terms of section 115 of the Companies Act.|
|4.2.||Rationale for the Specific Repurchase|
|The arrangements regulating the Existing BEE Transaction will come to an end on the Final Date. As a result of this termination, it is anticipated that a large number of Exxaro Shares could be placed in the market by MS333.
In addition, the funding procured by MS333 in order to finance its participation in the Existing BEE Transaction matures in the first quarter of 2017. The implementation of the Repurchase Scheme is intended to contribute to the orderly disposal by MS333 of its Exxaro Shares, and would reduce the potential for an Exxaro Share overhang in the market. Holistically, the Repurchase Scheme results in a superior outcome for Exxaro by offering greater flexibility, a lesser impact on the market price of Exxaro’s shares as well as less management commitment, given that any potential market placement will be reduced by the Specific Repurchase.
Furthermore, Exxaro intends to enter into the Replacement BEE Transaction in 2017 to achieve its desired level of HDSA ownership. The Replacement BEE Transaction will necessitate the issue of new Exxaro Shares which would be dilutive for all Exxaro Shareholders. Therefore the Repurchase Scheme is also an anti-dilutive measure in anticipation of the Replacement BEE Transaction that would be in the best interest of Exxaro and its shareholders.
|4.3.||Terms of the Specific Repurchase|
|The consideration to be offered by MS333 in terms of the Specific Repurchase will be a cash consideration per Exxaro share at a price equal to an 8% discount to the 20-day weighted average traded price (“WATP”) per Exxaro Share repurchased as at the last business day preceding the general meeting at which the Specific Repurchase is to be considered (the “General Meeting”).
MS333 will utilise the proceeds from the Specific Repurchase to settle its funding liabilities, which funding liabilities are expected to total R3 524 433 434, as at 31 January 2017 (“MS333 Funding Liabilities”). R486 613 206 of the MS333 Funding Liabilities represent a loan from Exxaro which will be repaid from the proceeds of the Specific Repurchase. The net cash outflow from Exxaro as a result of the Specific Repurchase will therefore be R3 037 820 229.
The Specific Repurchase will be funded from a combination of internal cash resources and the contributed tax capital of Exxaro.
The Exxaro Shares repurchased will immediately be cancelled and there is thus no effect on Exxaro’s treasury shares as a result of the Specific Repurchase.
|4.4.||Related Party Considerations|
|MS333 is a material shareholder of Exxaro, and is therefore considered a related party under paragraph 10.1(b)(i) of the Listings Requirements. In terms of paragraph 5.69(b) of the Listings Requirements, a special resolution must be passed by Exxaro shareholders in order to implement the Specific Repurchase.
The votes of MS333 and its associates will not be taken into account in determining whether a quorum of Exxaro shareholders is present at the General Meeting, nor will it be taken into account in determining the results of the voting at the General Meeting.
|4.5.||Specific Repurchase Conditions Precedent|
|The Specific Repurchase is subject to fulfillment of the following conditions precedent:
|4.6.||Posting of circular and notice of General Meeting of Exxaro shareholders|
|The circular to Exxaro shareholders containing the details of the Specific Repurchase, incorporating a notice of General Meeting and a form of proxy will be posted on Tuesday, 29 November 2016 (the “Circular”). Exxaro shareholders are advised that the Circular is immediately available on Exxaro’s website: www.exxaro.com. The General Meeting of Exxaro shareholders will be convened, in terms of the notice of General Meeting forming part of the Circular, to vote on the Specific Repurchase. The General Meeting will be held at Exxaro Corporate Centre, Roger Dyason Road, Pretoria West, at 10h00 on Friday,30 December 2016.|
|4.7.||Salient dates and times relating to the Specific Repurchase|
|Set out below are the salient dates and times relating to the approval and implementation of the Specific Repurchase:|
|A dial-in teleconference call on the details of this announcement will be held on Thursday, 24 November 2016 at 16h30 South African time (Internet broadcast: www.exxaro.com).
Dial-in teleconference numbers
A playback will be available until 30 November 2016. To access the playback, dial one of the following numbers using the playback code 54777#:
|Exxaro shareholders are advised that the Company has entered into the Implementation Agreement that will govern negotiations relating to the MS333 Unwind and the Replacement BEE Transaction which, if successfully implemented, may have a material effect on the Company’s securities. Accordingly, Exxaro shareholders are advised to exercise caution when dealing in the Company’s securities until a detailed announcement relating to the MS333 Unwind and Replacement BEE Transaction is made.|
Group Company Secretary
22 November 2016
Financial advisor and transaction sponsor to Exxaro
Rand Merchant Bank, a division of FirstRand Bank Limited
Legal advisor to Exxaro
Norton Rose Fulbright South Africa
Company sponsor to Exxaro
Absa Bank Limited, acting through its corporate and investment bank division
Tax advisor to Exxaro
Cliffe Dekker Hofmeyr Incorporated
Financial advisor to MS333
Legal advisor to MS333
KPMG Services Proprietary Limited
Exxaro Resources Limited
(Incorporated in the Republic of South Africa)
Registration number: 2000/011076/06
JSE share code: EXX
ADR code: EXXAY
(“Exxaro” or the “Company” or the “Group”)