Johannesburg - Barloworld's R2.4bn empowerment deal, announced on Thursday, meets its objective of benefiting as broad a cross-section of society as possible.
The handicapped, women, youth, small business, existing business partners, staff (of all races), and specifically black managers and non-executive directors are beneficiaries.
Despite this, a few familiar names like Bridgette Radebe, Hixonia Nyasulu and Sipho Pityana have been included.
The deal amounts to 10% at holding company level, which added to existing black holdings in local operating subsidiaries takes the theoretical BEE stake in local operations up to 29%.
How this is calculated is complicated, but Barloworld is confident that the transactions more than satisfy both the letter and spirit of the DTI codes of good practice.
And, as chairperson Dumisa Ntsebeza says, successful broad-based black empowerment is essential to the success of the SA economy.
It's also managed to keep the cost to itself at an IFRS-calculated R682m, or 3.2% of its market cap, which CEO Clive Thomson says is well within the range of 2%-4% that the company's major shareholders indicated would be acceptable. About R428m of this will be charged against the current financial year's profits.
Terms vary according to the participants' circumstances and merit, ranging from effective gifts to some of the charitable beneficiaries to full-price purchase (set at the recent 30-day weighted average of 10 387c) to be repaid from dividends received over seven years.
Barloworld stresses that this won't affect its dividend policy. Among those who will get their shares - 87 000 in all, which amounts to just 0.04% of the 10% - effectively for free are non-executive directors Ntsebeza, Selby Baqwa and Bongi Mkhabela.
This may seem anomalous, as they could surely afford to pay, but Thomson says that after much discussion it was decided that this was the best way to minimise their potential conflict of interest at those board meetings when dividends are discussed.
Well, that's as maybe. It'll still be in their interest to press for as high dividends as possible.
Another non-executive, Nyasulu, is excluded from this category as she's a member of one of the participating consortia.
Barloworld divides the beneficiaries into four categories: strategic black partners, who will get 5.88% of the equity or 13.3m shares worth R1.38bn; employees (including black non-executive directors and the still-to-be-formed black management trust) 2.39%, 5.4m shares, R562m; the education trust 0.78%, 1.8m shares, R184m; and community services groups 0.9%, R2.2m shares, R223m.
Current internal strategic partners include group executives Dominic Sewela, CEO of Barloworld Equipment SA; Litha Nkombisa, CEO of Barloworld Motor Retailing; and Ciko Thomas, marketing director of Barloworld Automotive.
An additional internal strategic partner will probably be constituted from the fleet services business. Then there are the family trusts of Yunus Akoo and his wife Jubada, whose motor retail joint venture with Barloworld in KZN employs 1 000 people and claims a turnover of R3bn.
External partners are Ayavuma, Nyasulu's body; Moty Capital, which has been put together by Sibiya; and Izingwe, led by Pityana.
Of the total funding of R2.3bn, R1.5bn will be funded by new loans (facilitated by Standard Bank) which will have little impact on Barloworld's balance sheet, as they will largely replace existing short-term debt, but will assist participants to raise finance at competitive rates; R45m will come from participants' equity contributions; R504m will be provided by Barloworld to the black managers and education trusts; and R245m will be a cash contribution to the general staff and black non-executive directors' trusts.
As Thomson says, it was a detailed and complex process, reflecting great credit on Peter Surgey, who heads the company's BEE committee. The schedule is to put the proposal to shareholders at an extraordinary general meeting on 12 August, with 29 August as the effective date and listing of the new shares.
The market obviously likes the plan, as by mid-afternoon the share price was up 390c on the day, or 4.5%, to 8 989c. Reflecting current volatile markets, though, that's still less than the recent price used for the deal. It puts the share on a historic earnings multiple of 8.3 and yield of 5.5%, also indicative of the state of the market.
The breadth of social interests covered shows just how broad BBBEE can be, if the search for deserving causes is determined enough. While it will take seven years to realise any capital gains, Thomson indicated that the charities will receive some - though presumably only a small portion - of their accrued dividends from the start.
And if the share price performs so badly that there are no capital gains after seven years, and the deals can't be refinanced or renegotiated, it's not only the participants who'll lose out; they will be minor casualties in what must have turned out to be a disastrous period for the economy.
However, there's no need to worry about that just yet.
- Fin24.com