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Shoprite Checkers Proprietary Limited (a subsidiary of Shoprite Holdings): evergreen B-BBEE employee benefit trust
Shoprite Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1936/007721/06)
JSE share code: SHP
NSX share code: SRH
LuSE share code: SHOPRITE
ISIN: ZAE000012084
("Shoprite Holdings")
SHOPRITE CHECKERS PROPRIETARY LIMITED (A SUBSIDIARY OF SHOPRITE HOLDINGS):
ANNOUNCEMENT OF EVERGREEN B-BBEE EMPLOYEE BENEFIT TRUST
HIGHLIGHTS
- Shoprite Employee Trust ("Employee Trust") established by Shoprite
Checkers Proprietary Limited ("Shoprite Checkers") on a non-vesting,
evergreen basis and funded by Shoprite Checkers primarily on a
notional basis ("Transaction").
- Aimed at recognising the valued contribution of the employees of
Shoprite Holdings and its subsidiaries (collectively, the "Group"),
as well as ensuring their ongoing participation in the continued
growth and success of the Group.
- Transaction structured as a Black Economic Empowerment ("B-BBEE")
transaction and increases effective B-BBEE ownership in Shoprite
Checkers from 13.5% to 19.2%.
- The benefits of the Transaction to accrue in the form of
distributions to the Group's employees in the Republic of South
Africa ("RSA"), (currently c.126 000), with eligibility determined
with reference to minimum years of service and position held
("Beneficiaries").
- Annual financial cost to Shoprite Holdings' shareholders is
anticipated to be c.2.7% of headline earnings (inclusive of RSA and
Non-RSA employees, and as further set out in paragraph 5 below).
1. INTRODUCTION
Shoprite Holdings recognises the valued contribution of its employees
and accordingly, intends implementing a B-BBEE ownership transaction,
at Shoprite Checkers, a subsidiary of Shoprite Holdings through which
the majority of Shoprite Holdings' South African assets are held, in
respect of which the RSA employees of the Group will (subject to the
criteria referred to in paragraph 2) be the sole Beneficiaries.
A trust, named Shoprite Employee Trust has been established for
purposes of the Transaction. The Employee Trust will subscribe for
two separate classes of shares in Shoprite Checkers, namely:
- 4 million class A shares ("Class A Shares"); and
- 36 million class B shares ("Class B Shares"),
(collectively, "Trust Shares").
The Transaction will result in the effective B-BBEE shareholding in
Shoprite Checkers increasing from 13.5% to 19.2%.
Group employees whose primary place of employment is outside the RSA
("Non-RSA Employees"), whilst not Beneficiaries of the Employee
Trust, will benefit in accordance with paragraph 4.
2. RATIONALE AND PRINCIPLES OF THE TRANSACTION
Shoprite Holdings believes that it is important to recognise the
valued role the Group's employees play in terms of its growth and
success. Furthermore, the Group is of the view that improving the
lives of its employees is necessary, especially in the economic
context of the countries in which it operates.
It is with these core values in mind that the benefits of the
Transaction will be allocated to the Group's RSA employees. Of the
c.126 000 RSA employees, approximately 97% are black and
approximately 66% are female, as defined in the B-BBEE Codes of
Good Practice.
Permanent Group employees, whose primary place of employment is in
the RSA and who have been employed in continuous service in the
RSA by a member of the Group for a period of at least 24 calendar
months, qualify as eligible employees ("Eligible Employees") for
purposes of the Transaction. Eligible Employees will exclude those
employees who are entitled to receive any long-term incentives or
short-term incentives which contain a deferred component as part
of their employment.
The Beneficiaries of the Employee Trust are:
- Eligible Employees who qualified as such on the "Effective Date",
being the first business day after the condition precedent, as
described in paragraph 6 ("Condition Precedent"), is fulfilled
("Initial Employee Beneficiaries"); and
- Eligible Employees who, after the Effective Date, meet the
criteria for and qualify as Eligible Employees ("New Employee
Beneficiaries").
The Transaction has the following key attributes:
- the Employee Trust has been established to hold the 40 million
Trust Shares for the benefit of the Beneficiaries of the Employee
Trust;
- the Employee Trust is a non-vesting trust and, subject to
the terms of the notional vendor funding ("NVF") mechanism set
out in paragraph 3.2.2 in respect of the Class B Shares, is
intended to continue as a shareholder in Shoprite Checkers on a
perpetual basis or until the Employee Trust is terminated by
agreement between Shoprite Checkers and the Employee Trust;
- the Employee Trust will have 40 million units available for
allocation to Eligible Employees ("Units");
- a declaration and payment by Shoprite Holdings, after the
Effective Date, of a distribution to its ordinary shareholders
in respect of each ordinary share held by them (the distribution
per ordinary share is hereinafter referred to as the "Qualifying
Dividend") will result in the Employee Trust being entitled
(subject to the compliance with the Companies Act, 71 of 2008) to
receive an equivalent gross distribution per Class A Share and
Class B Share from Shoprite Checkers;
- the Employee Trust becomes obliged on receipt of such a
distribution (or on being informed by Shoprite Checkers that it
is ready to make such a distribution, whichever is the earlier)
to make a corresponding distribution of an amount equal to the
Qualifying Dividend to each of the Beneficiaries in respect of
each Unit allocated to them ("Unitholders"); and
- Unitholders will therefore be entitled to the Qualifying Dividend
per Unit held, aligned to the dividend declared and paid by
Shoprite Holdings to its ordinary shareholders. This will ensure
that the Transaction is transparent and that Beneficiaries
recognise the tangible benefits of the Group continuing to
achieve strong operational and financial results.
3. SALIENT TERMS OF THE TRANSACTION
3.1 Subscription for Trust Shares by the Employee Trust
3.1.1 The Employee Trust and Shoprite Checkers have entered into a:
3.1.1.1 subscription agreement, in terms of which Shoprite
Checkers, subject to the fulfilment of the Condition
Precedent, allots and issues, and the Employee Trust
subscribes for, 4 million Class A Shares ("Class A
Subscription Agreement"); and
3.1.1.2 subscription agreement, in terms of which Shoprite
Checkers, subject to the fulfilment of the Condition
Precedent, allots and issues, and the Employee Trust
subscribes for, 36 million Class B Shares ("Class B
Subscription Agreement").
3.1.2 In terms of the Class A Subscription Agreement and the Class B
Subscription Agreement, and pursuant to the implementation of the
steps described in paragraph 3.2.1 on the Effective Date, Shoprite
Checkers will issue 40 million Trust Shares to the Employee Trust,
comprising of 4 million Class A Shares and 36 million Class B Shares.
3.2 Facilitation of the Transaction
3.2.1 Sources of facilitation
To enable the Employee Trust to subscribe for the Trust Shares,
Shoprite Checkers will provide the following facilitation to the
Employee Trust:
3.2.1.1 an initial donation of R10 000 to establish the Employee
Trust;
3.2.1.2 a capital contribution ("Capital Contribution A") of
R888 million, to enable the Employee Trust to discharge
the subscription price for the Class A Shares. The Capital
Contribution A is equal to the subscription price payable
by the Employee Trust to Shoprite Checkers in respect of
the Class A Shares, being a subscription price per Class
A Share of R222.05, representing the market value of a
Shoprite Holdings ordinary share, calculated with
reference to the 3-day volume weighted average price
per Shoprite Holdings ordinary share at close of trading
on 13 May 2022 ("3-day VWAP Price"); and
3.2.1.3 issue 36 million Class B Shares to the Employee Trust at
a nominal subscription price of R0.0000001 per Class B
Share, which shares will be subject to a NVF mechanism.
The opening balance of the NVF calculation will be
R8 billion, based on the 3-day VWAP Price (as defined
in 3.2.1.2). Shoprite Checkers will undertake to make
the required capital contribution ("Capital Contribution
B") to the Employee Trust to enable the Employee Trust to
discharge the subscription price for the Class B Shares,
being an amount equal to the cash consideration payable in
respect of the Class B Shares.
The below table summarises the facilitation of the Trust Shares:
Sources Rm %
Capital Contribution A and B
from Shoprite Checkers (facilitation) 888(1 and 2) 10.0
NVF opening balance 7 994(3) 90.0
Total 8 882(4) 100.0
Uses Rm %
Subscription for Class A Shares 888(1) 10.0
Subscription for Class B Shares
(nominal value plus NVF opening balance) 7 994(2 and 3) 90.0
Total 8 882(4) 100.0
(1) 3-day VWAP Price (being R222.05 per Shoprite Holdings ordinary
share) multiplied by 4 million Class A Shares.
(2) Nominal subscription price of R0.0000001 per Class B Share
multiplied by 36 million Class B Shares (R3.60) per paragraph
3.2.1.3.
(3) 3-day VWAP Price (being R222.05 per Shoprite Holdings ordinary
share) multiplied by 36 million Class B Shares less the nominal
subscription price (R3.60) per paragraph 3.2.1.3.
(4) The initial donation of R10 000 per paragraph 3.2.1.1 has not
been reflected in the above table.
3.2.2 NVF terms applicable to the Class B Shares
Item Description
Mechanism NVF
Issuer Shoprite Checkers
Subscriber Employee Trust
Shares 36 million Class B Shares
NVF offset Additional Benefit as defined in terms of
paragraph 3.4
NVF escalation rate 3% per annum
Final redemption date Ten years commencing from the Effective
Date ("Transaction Term"), terminating on
the tenth anniversary of the Effective
Date ("Final Redemption Date")
3.3 Employee Trust
Shoprite Checkers (as founder) has established the Employee Trust
for the purpose of holding the Trust Shares. The Employee Trust
will allocate Units to the Initial Employee Beneficiaries and,
thereafter, New Employee Beneficiaries will participate in the
Employee Trust through Units being allocated to them once they meet
the qualifying criteria.
The Units will be allocated to Eligible Employees based on their
respective positions held within the Group. Eligible Employees to
which Units will be allocated will become Unitholders.
Each Unitholder will enjoy one vote per Unit held by it at a
meeting of Unitholders.
3.4 Dividends
The Employee Trust will, subject to compliance with the Companies
Act, 71 of 2008, become entitled to receive the following cash
distributions from Shoprite Checkers after Shoprite Holdings has
declared and paid a Qualifying Dividend:
- the distribution in respect of the Class A Shares held by the
Employee Trust will be an amount equal to the number of Class A
Shares held by the Employee Trust (being 4 million Class A Shares
as at the Effective Date) multiplied by the Qualifying Dividend;
and
- the maximum distribution in respect of the Class B Shares held
by the Employee Trust will be an amount equal to the number of
Class B Shares held by the Employee Trust (being 36 million Class
B Shares as at the Effective date) multiplied by the Qualifying
Dividend,
(collectively, the aggregate of such distributions being referred
to herein as the "Maximum Dividend Entitlement").
The Employee Trust will be required to fund the following amounts
from the Maximum Dividend Entitlement:
3.4.1 firstly, to make a distribution to the Beneficiaries of an
amount equal to the Qualifying Dividend in question per
allocated Unit. Each Unitholder will accordingly receive an
amount equal to the number of Units held multiplied by the
relevant Qualifying Dividend;
3.4.2 secondly, to pay the Employee Trust's expenses; and
3.4.3 thirdly, "Approved Investments", as set out in paragraph 3.6,
(collectively, the "Net Required Cash Distribution").
The Employee Trust will have the ability to elect to receive a
lesser portion of the distribution in respect of the Class B Shares
forming part of the Maximum Dividend Entitlement which the Employee
Trust may elect not to receive in cash, i.e. any portion of the
Maximum Dividend Entitlement in excess of the Net Required Cash
Distribution, will constitute an "Additional Benefit" which will
reduce the NVF. An Additional Benefit may also arise in
circumstances where not all the available 40 million Units are
allocated to Unitholders at the particular point in time or where
the Employee Trust has received income from Approved Investments.
3.5 Initial Distribution payment
Notwithstanding the Effective Date being a date after the record
date for the Shoprite Holdings dividend of 233 cents per ordinary
share ("H1 Dividend") declared on 8 March 2022 for the six months
ended 2 January 2022 ("H1 2022 Record Date"), Shoprite Checkers will
treat the H1 Dividend as a Qualifying Dividend made after the
Effective Date. The Employee Trust will accordingly be entitled to
receive a Net Required Cash Distribution (determined as recorded in
paragraph 3.4) in respect thereof ("Initial Distribution"). It is
anticipated that the Employee Trust will pay a first distribution
to Unitholders in respect of such Initial Distribution following
the fulfilment of the Condition Precedent. The Unitholders that
will be entitled to share in the Initial Distribution will be those
Unitholders who qualified as Eligible Employees on 30 April 2022
("Record Date") of the Initial Distribution. Thereafter, Unitholders
will receive distributions shortly after Shoprite Holdings has
declared and paid dividends in terms of Shoprite Holdings' normal
dividend cycles.
3.6 Approved Investments
In terms of the trust deed establishing the Employee Trust
("Employee Trust Deed"), the trustees shall be entitled to invest
surplus cash, after meeting their obligations under paragraphs 3.4.1
and 3.4.2, in Approved Investments. It is anticipated that "Approved
Investments" will include Shoprite Holdings ordinary shares as well
as co-investments alongside the Group through an investment vehicle
used to develop small and medium enterprises. It is intended,
subject to market conditions and the funds and opportunities
available to the Employee Trust during the Transaction Term, that
the Employee Trust will, at the end of the Transaction Term, have
created sufficient equity value and be invested in assets which will
enable it to continue to deliver meaningful distributions to
Unitholders after the Transaction Term.
3.7 Redemption
The NVF (as reduced by any applicable Additional Benefits during
the Transaction Term) will be extinguished on the Final Redemption
Date through a full or partial redemption of the Class B Shares held
by the Employee Trust ("Redemption"). The number of Class B Shares
("Final Redemption Shares") to be redeemed (by payment of a
redemption amount of R0.0000001 per Class B Share to the Employee
Trust), will be calculated with reference to the NVF on the Final
Redemption Date and the market value of a Shoprite Holdings ordinary
share on the Final Redemption Date. All the rights of the Final
Redemption Shares will lapse on the Final Redemption Date.
Following the Redemption, the Employee Trust will continue to hold
any remaining Trust Shares ("Remaining Trust Shares"), together with
any other assets held by the Employee Trust, for the benefit of
Eligible Employees.
The Employee Trust will, after the Redemption, continue to be
entitled to receive distributions in respect of the Remaining Trust
Shares and any other dividends or income received from Approved
Investments held at such time by the Employee Trust. The Employee
Trust will determine which portion of such distribution must be
retained for expenses and reserves, with the balance to be
distributed to the Units which have been allocated to Beneficiaries
at the time on a pro rata basis in accordance with the terms of the
Employee Trust Deed.
4. NON-RSA EMPLOYEES
In adherence with the ownership principles under the B-BBEE Codes
of Good Practice, Shoprite Holdings will implement the Transaction
at Shoprite Checkers, its subsidiary and through which the majority
of Shoprite Holdings' South African assets are held.
Notwithstanding the fact that the Transaction defines Beneficiaries
of the Employee Trust as RSA Employees, Shoprite Holdings believes
it is imperative to recognise the valued role all employees play in
the Group's success. As such, the Group's Non-RSA Employees will
receive an equivalent payment to that of the RSA Employees, which
will be paid as a cash bonus payment through payroll, subject to
same eligibility criteria and terms as applicable to the
Beneficiaries of the Employee Trust.
5. FINANCIAL INFORMATION
5.1 Financial effects of the Transaction
With reference to the disclosure requirements of Section 9 of the
JSE Limited Listings Requirements ("Listings Requirements"), the
value of net assets ("NAV") of Shoprite Checkers as at 4 July 2021,
being the date of the last audited annual financial statements, was
R16.9 billion.
The audited profit after tax ("PAT") attributable to Shoprite
Checkers for the period ended 4 July 2021, was R5.8 billion, based
on the audited annual financial statements of Shoprite Checkers,
prepared in accordance with International Financial Reporting
Standards.
5.2 Financial impact on the Group
The financial impact of implementing the Transaction for the Group
and its shareholders will be determined in accordance with
International Accounting Standard 19 Employee Benefits ("IAS19"),
which prescribes the accounting treatment of employee benefits,
except those to which IFRS 2 Share-based Payment applies.
The Group intends consolidating the Employee Trust which holds a
6.85% voting interest in Shoprite Checkers. In the Group's
application of IAS19, it will reflect, as an expense, the aggregate
amount of the distributions paid to Unitholders (contemplated in
paragraph 3.4.1), the Employee Trust's expenses (contemplated in
paragraph 3.4.2) and the equivalent benefit paid to Non-RSA
Employees (as contemplated in paragraph 4).
By way of an example, the Group anticipates that the aggregate of
the Initial Distribution (as referred to in paragraph 3.5), for
the 6-month period to 2 January 2022 (which will not include any
investment contemplated in paragraph 3.4.3), together with the
equivalent payment to Non-RSA Employees, will be an amount of
R77 million. This amount is based on estimates of Unitholders and
Non-RSA Employees calculated as at the Record Date. The Initial
Distribution, together with the equivalent payment to Non-RSA
Employees (excluding any potential tax deductions which may be
claimed on the payments to Non-RSA Employees), would have
represented a reduction of the Group's headline earnings from
continuing operations for the 6-month period to 2 January 2022 of
2.7%.
The above example sets out the unaudited financial effects of the
Transaction (including the impact of the benefits to Non-RSA
Employees) on, inter alia, the Group's headline earnings from
continuing operations based on the most recent published interim
results of the Group for the 6-month period ended 2 January 2022.
For the avoidance of doubt, the consolidation of the Employee Trust
and application of IAS19 does not have an impact on the ordinary
shares in issue in Shoprite Holdings.
The unaudited, pro forma financial information contained herein is
the responsibility of the directors of Shoprite Holdings and was
prepared for illustrative purposes only and may not, because of its
nature, fairly present Shoprite Holdings' financial position,
changes in equity and results of its operations or cash flows for
the period then ended. It does not purport to be indicative of what
the financial results would have been, had the Transaction been
implemented on a different date.
6. CONDITION PRECEDENT
The Class A Subscription Agreement, Class B Subscription Agreement
and implementation of the Transaction are subject to the receipt of
confirmation from the Companies and Intellectual Property Commission
("CIPC") that the amendments to the memorandum of incorporation of
Shoprite Checkers submitted to the CIPC have been accepted by the
CIPC.
7. EFFECTIVE DATE
The Effective Date of the Transaction will be the first business
day after the Condition Precedent referred to in paragraph 6 has
been fulfilled.
8. CLASSIFICATION OF THE TRANSACTION
The Transaction will constitute a category 2 transaction in terms
of Listings Requirements and no related parties are involved in the
Transaction.
9. INVESTOR CALL - 15:00 SAST TODAY
Shoprite Holdings will host a webcast conference call for
shareholders and investors today, 18 May 2022, at 15:00 SAST to
discuss the Transaction. The webcast call can be accessed via the
following registration link: https://www.corpcam.com/shoprite18052022
and the presentation slides that accompany the conference call will
be available at the following link:
https://www.shopriteholdings.co.za/content/dam/SENS/shp-may2022.pdf.
Brackenfell
18 May 2022
Financial adviser and transaction sponsor:
Rand Merchant Bank, a division of FirstRand Bank Limited
Legal and tax adviser to Shoprite Holdings:
Werksmans Attorneys
Enquiries:
Shoprite Holdings Limited Tel: 021 980 4000
Pieter Engelbrecht - Chief Executive Officer
Anton de Bruyn - Chief Financial Officer
Natasha Moolman - Group Investor Relations
Date: 18-05-2022 07:05:00
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