Nov 24, 2006
The board of food retailer Shoprite Holdings has accepted a buy-out offer from Brait Private Equity that involves restructuring the company and terminating its listing on the JSE. The transaction will be funded by a combination of equity and debt. All existing shareholders will have the opportunity to re-invest in the new entity, alongside Brait, a new broad-based black economic empowerment (BBBEE) consortium and management.
Shoprite chairman Dr Christo Wiese said the new structure would not only facilitate the introduction of a BBBEE partner, but also enable more members of senior management to own equity in the business.
“Against the background of the growing urgency for increased black participation in the economy we have identified a broad-based consortium able to contribute substantially to our retail business. The new capital structure will greatly simplify the accommodation in the shareholder base of such a consortium, which includes a Shoprite workers’ trust.
“With the continuing skills drain from South Africa, Shoprite is finding it increasingly difficult to recruit talented young professionals and to retain experienced senior managers who have become an easy target for international retail groups. To retain their services it has thus become imperative to find mechanisms enabling management to achieve a greater involvement in the financial fortunes of the business,” Wiese said.
In terms of the proposal and as a first step, Shoprite will transfer its business, including its assets and liabilities, to New Retail, a recently created private subsidiary of Shoprite that in time will be converted into a public company. New Retail in turn owns 100% of a subsidiary provisionally known as New Opco in which all the operating companies in the group will be housed.
New Retail will acquire these assets and liabilities for R13,2bn. It will be capitalised with R9,5bn of debt sourced from domestic and international markets while the residual will be subscribed for in equity by Brait, the BBBEE consortium, management, re-investing shareholders and the underwriters. Once delisted from the JSE, Shoprite Holdings will be liquidated.
Shareholders will receive a New Retail class B share for each Shoprite share held, valued at R26. This will be followed by a cash distribution of R25,99 on each of these shares. Shareholders can take the cash or elect to re-invest in New Retail. Those preferring the latter will, for every 10 New Retail class B shares (equal to 10 Shoprite shares), receive one New Retail A share at a price of R25,56, one New Opco debenture at a price of R28,49 and R205,85 in cash, a total of R259,90 (equal to R25,99 per Shoprite share). The offer is the same for all shareholders. Wiese has indicated that he will be re-investing.
Payments are expected to be made to shareholders during March 2007 once all the conditions precedent have been fulfilled. Shareholders who wish to reinvest in New Retail are cautioned not to trade in their shares from the announcement date.
The proceeds are based on the assumption that Section 44 of the Income Tax Act will apply and that STC will not be payable. However, if Section 44 does not apply, then the cash components of each option will effectively reduce by R2,69 per Shoprite share.
As part of the transaction, but separate to the New Retail capital reduction, Rand Merchant Bank will extend a standby offer of R25,50 per Shoprite share to all shareholders. This effectively provides a cash underpin of R25,50 to all shareholders participating in the transaction.
Commenting on the offer Wiese said it was interesting to note that despite investors being advised to exercise caution in trading in Shoprite shares, since the cautionary date 38% of shares in issue had traded at a volume-weighted average price (VWAP) per share of R24,62.
Brait executive director John Gnodde said Brait would be subscribing for R850m in the new entity. This would give it a shareholding of about 21%. After the restructuring but prior to the introduction of the BBBEE consortium (anticipated to hold 12%), management is expected to hold about 12%, with the remaining 67% in the hands of the re-investing shareholders or the underwriters. The transaction will be jointly underwritten by Old Mutual and certain companies owned by Wiese.
“The transaction provides an opportunity for Shoprite to implement a new capital structure which will result in current shareholders being able to realise value while also having the opportunity to re-invest. The nature of the Shoprite business and character of the management team bode well for a solid private equity deal,” Gnodde said.
“Furthermore, the private equity model fosters entrepreneurial talent by allowing more layers of management to participate in ownership on exactly the same longer-term risk-aligned basis as other shareholders.”
ABSA Bank, appointed by the Shoprite board to undertake an independent evaluation of the proposal, has found that, based on current economic and financial market conditions, the offer, when taken together with the RMB standby offer, was favourable. A copy of the bank’s report will be attached to the circular to be mailed to shareholders towards the end of the month.
The first of two general meetings of shareholders will be held on 15 January 2007 to approve the transaction and the subsequent delisting of Shoprite Holdings. A vote of 50% plus one share will be required to pass the resolutions. Wiese has already committed himself to the transaction. With the endorsement already received from other shareholders, the transaction at this stage has the support of 49% of the shareholders.
Shoprite ordinary shares acquired between the announcement date and the record date will not be eligible for the New Retail Capitalisation Right. Likewise, should a shareholder on the record date hold fewer Shoprite ordinary shares than on the announcement date, such a shareholder will also not be eligible for the New Retail Capitalisation Right. Shoprite shareholders wishing to elect the New Retail Capitalisation Right are therefore advised not to trade in their Shoprite shares after the announcement date.
Note to editors
Share-price movements of Shoprite and its major competitors
1. An analysis of the 90-day volume-weighted average price (VWAP) before and after the cautionary date of 11 April for the shares of all major participants in the local food retail market shows the following price movements:
Pick n Pay -3,1%
Shoprite’s share price therefore increased 24,2% versus an average decrease of 4,2% for its peers during the same period, creating a gap of 28,4% between Shoprite and its main competitors.
2. If the shares of all major participants in the local food retail market is taken as 100 on 11 April, the day Shoprite issued its first cautionary, then the following movements have taken place to date:
Pick n Pay 102,2
ISSUED BY: De Kock Communications (DKC) ON BEHALF OF Shoprite Holdings
DATE: Friday, 24 November 2006
MEDIA ENQUIRIES: Christo Wiese, chairman, Shoprite, 021 933 5137
John Gnodde, Brait Private Equity, 011 507 1532 / 082 389 9821
John Braithwaite, director, Javelin Capital, 021 671 2788
Ben de Kock, DKC, 021 422 2690 /076 390 7725