Gold Fields : Vodacom Group in ground-breaking R17.5bn BEE ownership transaction.

Vodacom Group in ground-breaking R17.5bn BEE ownership transaction.

Monday, 11 June 2018

• Largest ever BEE transaction in the ICT sector that includes all our existing BEE partners & a new staff scheme
• YeboYethu to remain listed on the BEE segment of the JSE
• 5.8% - 6.25% deal that consolidates the BEE shareholding, through YeboYethu, at Vodacom Group level
• Transaction delivers circa R7.5bn of value to existing BEE shareholders, 6.7x the original capital investment
• R3.0bn special dividend to current BEE shareholders, representing circa 2.7 times their original equity contribution
• Will increase Vodacom Group's effective BEE ownership to c.20%

Vodacom Group, its existing BEE partners and a newly formed staff scheme today announced a broad-based BEE transaction of up to R17.5 billion that will see the BEE partners exchange their current shareholding in Vodacom South Africa (Vodacom SA) for a shareholding of between 5.8% and 6.25% in Vodacom Group as enlarged by the transaction. Vodacom Group has agreed terms with Royal Bafokeng Holdings (RBH), Thebe Investment Corporation (Thebe), YeboYethu (existing BEE partners) and a newly formed staff scheme, whose combined interests will be consolidated into a new YeboYethu BEE structure that will own shares in Vodacom Group.

Vodacom Group is the largest mobile network operator in South Africa with significant operations in Lesotho, Tanzania, the Democratic Republic of the Congo, Mozambique and Kenya, through Safaricom.

This transaction, which remains subject to regulatory and shareholder approvals, will be the largest ever broad-based BEE transaction in the telecommunication industry. It will replace and build on the R7.5 billion Vodacom SA BEE ownership scheme that was concluded in 2008 and anticipated to unwind on 8 October 2018, ten years after its implementation. The existing transaction, comprising a 6.25% shareholding in Vodacom SA held by YeboYethu, RBH and Thebe has delivered meaningful value to its participants benefitting over 102,000 YeboYethu investors and 8,500 current and past Vodacom SA employees.

The new BEE transaction, in which the YeboYethu shareholding will be substantially increased, will be funded through a combination of third party and vendor financing, reinvested equity of R4.5 billion from the existing BEE partners and facilitation from Vodacom Group. The new transaction has a 10-year funding term, extending the relationship between Vodacom Group and YeboYethu, as its BEE partner, for at least the next 10 years, with the possibility to extend beyond that period.

A critical component of the transaction will be Vodacom SA employees, 4,637 of whom will participate in a new staff scheme funded by Vodacom Group to the value of R3.5 billion. Through this vehicle, employees will own approximately 20% of YeboYethu.

Shameel Joosub, the CEO of the Vodacom Group, said: 'It was crucial for us to retain our empowerment shareholding but at the same time, go one step further. Our intention was always to move our BEE investors from being shareholders in Vodacom South Africa to a shareholding at the Group level thereby giving them exposure to the broader local and international markets in which Vodacom Group trades. YeboYethu's shareholding in Vodacom Group will increase to around 6.25%, giving Vodacom Group an effective BEE shareholding of c.20%.

'Our original BEE deal has delivered significant value to our BEE partners. Its unwind will deliver approximately R7.5 billion of value, or 6.7x the original capital our BEE partners invested into the 2008 transaction. This is considered one of the most profitable and successful value realisations by any BEE transaction concluded in South Africa to date. A shareholder that invested the minimum R2,500 in 2008 will unlock approximately R16,000 of value through this deal.

'Part of this value will be returned to our existing BEE shareholders in the form of an upfront special dividend of R3 billion, which provides substantial liquidity for our partners and amounts to 2.7x the original capital they invested into the 2008 deal. A shareholder that invested the minimum R2,500 in 2008 will receive circa R6,000 in cash.

Our new BEE transaction goes further still. It is a resolute commitment by our broader Group to deliver a broad-based, inclusive, well-governed and highly transparent empowerment process. Importantly, YeboYethu shareholders can continue to trade their YeboYethu shares at any point, and will now own a more liquid and tradeable share given YeboYethu's shareholding in Vodacom Group.'

Structuring the new YeboYethu deal

The new BEE transaction will see the Vodacom SA BEE shareholders settle their outstanding vendor funding. RBH and Thebe will then exchange their shareholding in Vodacom SA shareholding for shares in YeboYethu. Post this consolidation of the BEE shareholding in YeboYethu, YeboYethu will declare a R3 billion special dividend, or circa R67 per YeboYethu share, to its shareholders. A new staff scheme, funded by a R1.05 billion contribution from Vodacom Group, will acquire YeboYethu shares from the existing Vodacom SA ESOP and subscribe for additional YeboYethu shares.

YeboYethu will then exchange its shareholding in Vodacom SA for shares in Vodacom Group. YeboYethu will issue R5.8 billion preference shares to third party banks and R4.7 billion preference shares to Vodacom Group and use the proceeds to subscribe for new shares in Vodacom Group. The R10.5 billion of preference shares funding that YeboYethu raises carries a very attractive pricing - approximately 69% of prime.

Following the transaction, Vodacom Group's BEE shareholding will be consolidated in a reconstituted YeboYethu structure, which will remain listed on the BEE segment of the JSE.

The transaction will be priced using the 60-day VWAP of a Vodacom Group share on the pricing date. For illustrative purposes, this is assumed to be R152.50. It is expected that the final pricing of the transaction will be confirmed in early July 2018 and the transaction implemented in September 2018.

Says Zarina Bassa, chairperson of the YeboYethu board of directors: 'We welcome the consultative process that Vodacom and its partners followed to structure the new YeboYethu transaction.

'These are exciting times for YeboYethu shareholders as we continue to invest in the next 10 years, building on what we have already achieved over the last 10 years with an increased involvement as Vodacom Group's BEE partner, in the largest BEE transaction in the ICT sector. The board is unanimously supportive of the transaction as it creates immediate value now for the more than 82 800 black investors through the cash dividend and, importantly, an opportunity to reinvest on favourable terms in the Vodacom Group.'

Vodacom and empowerment

Vodacom is one of the pioneers of social transformation through ICT and is a Level 3 B-BBEE contributor.

Vodacom established YeboYethu in 2008. YeboYethu issued 14.4 million YeboYethu ordinary shares at R25 each and, as a result of the public offer, more than 102 000 qualifying black investors bought a stake in Vodacom SA. At the time, it was one of the largest empowerment schemes in the telecommunications industry. In August 2016, YeboYethu listed its ordinary shares on the JSE's Empowerment Segment.

Over the past 18 years, Vodacom Group has spent over R1 billion to transform the lives of people through the Vodacom Foundation.

During the 2017/2018 financial year, Vodacom Group invested R30.8 billion with broad based BEE suppliers, of which R2.8 billion was spent on black-owned small, medium and micro enterprises (SMMEs). R9.8 billion was spent on > 51% black-owned suppliers and R8.2 billion on >30% black women-owned suppliers. During the same period, Vodacom Group invested R248 million in employee skills development.

In 2014, Vodacom Group established The Innovator Trust, which helps develop small black-owned businesses. This five-year, R750 million investment provides a tailored development programme for selected, established small businesses in the sector. Through training, mentorship, networking and infrastructure support, the Innovator Trust is helping to create ICT leaders of the future. From 18 SMMEs in the first year, the programme currently has grown to 60.