19th Apr 2005 07:30
Old Mutual PLC19 April 2005 Old Mutual plc ISIN code: GB0007389926 JSE share code: OML NSX share code: OLM Issuer code: OLOML ("Old Mutual plc") Nedcor Limited (Incorporated in the Republic of South Africa) (Registration number: 1966/010630/06) JSE share code: NED ISIN code: ZAE000004875 ("Nedcor") Old Mutual (South Africa) Limited (Incorporated in the Republic of South Africa) (Registration number: 1998/012276/06) ("Old Mutual (SA)") Mutual & Federal Insurance Company Limited (Incorporated in the Republic of South Africa) (Registration number: 1970/006619/06) JSE share code: MAF NSX share code: MTF ISIN code: ZAE000010823 ("Mutual & Federal") Overview Rationale "Old Mutual plc is a very significant participant in the South African economy through its three subsidiaries Old Mutual (SA)(our life assurance and asset management businesses), Nedcor and Mutual & Federal. Our strategy is to create a powerful international financial services company using our strong South African businesses. The strength of those businesses and the growth of our customer base requires the normalisation of South African society and the establishment of successful black participation in the economy. Accordingly, Old Mutual plc has been actively addressing various aspects of Black Economic Empowerment ("BEE") over the past few years. Today we announce a crucial milestone on this journey. We are proposing three separate but inter-dependent transactions designed under a common set of principles, which will introduce new broad-based black ownership into each of our South African subsidiaries. Proposal We propose to issue new ordinary shares to black controlled entities beneficially owned by our black employees (39%), clients and distributors (27%), communities (10%) and our Black Business Partners (24%) to the value of: -13.48% of the value of Old Mutual (SA)(Old Mutual plc shares) -11.50% of the value of Nedcor's South African business (Nedcor shares) -11.00% of Mutual & Federal(Mutual & Federal shares) For Old Mutual plc as a whole, shares to the value of 12.75% of the value of its South African business will be placed under direct black ownership. The total value of all the shares to be issued under this proposal is R7.2bn of which R7.1bn will be to black shareholders. Internal funding arrangements are proposed for each South African subsidiary to allow them to acquire the shares. The total number of shares to be issued under this proposal will amount to (as a percentage of the enlarged share capital of each entity): - 5.64% of Old Mutual plc - 9.47% of Nedcor - 11.14% of Mutual & Federal Financial Impact The financial impact of these proposals is a reduction in the embedded value of Old Mutual plc of 3.1p (33c) per share (2.2%) and a 3.3% and 5.7% dilution in adjusted and basic earnings per share respectively. The impact at Nedcor is a 0.10% accretion in NAV per share and a 0.14% dilution in headline earnings per share. At Mutual & Federal, there will be a 0.28% dilution in NAV per share and a 1.05% accretion in headline earnings per share. There will be an additional dilutive impact from the effects of share based payments which will be more apparent when accounts are prepared under new IFRS conventions. The economic cost for each South African subsidiary is as follows: Economic costs as a Economic costs as a % of the value of % of the value of South African indicative market business capitalisation The OMSA Transaction 3.15% - The Nedcor Transaction 3.66% 3.28% The Mutual & Federal Transaction 3.13% 3.13% Old Mutual plc(effect of three transactions) 3.31% 2.49% We are confident that the cost of this proposal will be amply repaid over its ten year life. Very Broadly Based As a result of this proposal, all of our South African employees will have share interests in our companies with the incentivisation that share ownership provides. Uniquely, many of our clients and distributors will also acquire an interest in our shares which will support our strategy greatly. Quality Partners with Detailed Performance Agreements We believe that our Black Business Partners will add value to our business and we are extremely pleased to have the WIPHOLD and BRIMSTONE Consortia becoming shareholders in our businesses, was well as Mtha and Mutual & Federal. All are leading entrepreneurial BEE groupings with wide spread beneficial ownership. Our agreements with the Black Business Partners include detailed measurable performance agreements with significant financial incentives for delivery, and require a substantial commitment of time and energy. Summary In summary, our proposals today, form a transformational deal that secures future returns for all our stakeholders. The breadth of involvement means that over 500 000 South African's across all nine provinces, amongst all our stakeholders - employees, clients, distributors, communities, will have an interest in our success. And our proposals are good business sense - they build our customer base, incentivise our employees, and add the strength of our partners towards the achievement of our strategy. These transactions are an important investment in our future. Jim Sutcliffe Chief Executive, Old Mutual plc A Strong Foundation, A New Future Empowering the Old Mutual Group Transaction summary The Old Mutual Group (which comprises Old Mutual plc, its subsidiaries, joint ventures and associates) proposes three separate but inter-dependent transactions which will introduce new direct broad-based black ownership in each of its South African subsidiaries which equates to: -13.48% of Old Mutual (SA) which includes all of Old Mutual plc's South African businesses with the exception of its investments in Nedcor and Mutual & Federal, through the issue of new ordinary share capital of Old Mutual plc which will amount to 5.58% of the enlarged issued share capital of Old Mutual plc. Shareholders will be requested to approve the issue of 5.98% of Old Mutual plc's current issued share capital; -11.50% of Nedcor's South African businesses, through the issue of new ordinary share capital of Nedcor which will amount to 9.33% of the enlarged issued share capital. Shareholders will be requested to approve the issue of 10.46% of Nedcor's current issued share capital; and -11.00% of Mutual & Federal, through the issue of new ordinary share capital of Mutual & Federal which will amount to 11.00% of the enlarged issued share capital. Shareholders will be requested to approve the issue of 12.54% of Mutual & Federal's current issued share capital, collectively the "Group Transactions". Based on Old Mutual plc's effective interest in each of these subsidiaries, the Group Transactions will result in the introduction of direct black ownership worth 12.75% of the value of Old Mutual plc's South African businesses and are subject to the various conditions precedent set out in this announcement which includes shareholder, regulatory and various other approvals. Total value of OLD MUTUAL PLC direct black shareholding OLD MUTUAL NEDCOR MUTUAL&FEDERAL (SA businesses) Rm % Rm % Rm % Rm Employees & management 1 689 6.66 680 2.57 357 6.00 2 725 Clients & Distributors 288 1.14 1 593 6.03 30 0.50 1 911 Non-executive directors - - 59 0.22 - - 59 Communities 576 2.27 118 0.45 30 0.50 724 Black Business Partners 864 3.41 590 2.23 238 4.00 1 692 3 417 13.48 3 040 11.50 655 11.00 7 112 (1) Percentage of value of South African business value Rationale for the Group Transactions Old Mutual plc is an international financial services group with significant business interests in Africa, the United States and the United Kingdom. South Africa is the core of the business and, through clients' savings, the Old Mutual Group (or the "Group") is a significant financial participant in the South African economy. It is, therefore, important that Old Mutual plc's shareholders' long-term interests are aligned with the success of South Africa as a country. We believe that Black Economic Empowerment ("BEE") is a key requirement for the promotion of sustainable economic growth and social development in South Africa and is therefore fundamental to the interests of our employees, clients and shareholders. As an active participant in the development of the Financial Sector Charter ("FSC"), the Old Mutual Group is committed to the goals and targets set out in the FSC. Along with the South African Insurers Association, the Life Offices Association and the Banking Association amongst others, the Old Mutual Group is a signatory to the FSC signed on the 17 October 2003 and views the FSC as setting minimum standards for financial sector participants. The Group Transactions have been designed to complement the Group's overall strategy towards implementing broad-based empowerment in its businesses. The Group Transactions are truly broad-based and include staff and management, clients, distributors, black trade union members, professional bodies, entrepreneurs, women's and community groupings throughout South Africa. The owners of shares to be issued in the Group Transactions are set out below: -Employees and Management - The Group recognises the importance of creating an employee and management complement that is representative of South Africa's demographics. Acknowledging that the Group is not fully representative and that transformation comes from within, the Group proposes to set aside shares with a market value of R2 726m to recruit, retain and incentivise black employees and management. These shares will initially be distributed to an estimated 29 260 Group employees of which approximately 17 500 are black. -Clients and Distributors - Part of the Group's strategy is to focus on black clients. An aggregate of R1 911m worth of shares have been set aside for clients and distributors throughout South Africa. R288m worth of Old Mutual plc shares have been assigned to develop black distributors in underserved markets. R1 593m of Nedcor shares will be made available to black retail and corporate banking clients and R30m of Mutual & Federal shares have been set aside to support black people wishing to develop broker businesses. -Communities - Since 1994, the Group has invested over R750m in community development around South Africa. As part of the Group Transactions, an additional R148m will be allocated to black communities and charitable organisations in every province throughout South Africa. In addition R576m of Old Mutual plc shares have been assigned to assist with the education of black members of unions who do business with Old Mutual (SA). -Black Business Partners - The WIPHOLD and BRIMSTONE Consortia (in the case of Old Mutual (SA) and Nedcor) and the WIPHOLD Consortium and Mtha-we-Mpumelelo ("Mtha") (in the case of Mutual & Federal) have been chosen as active Black Business Partners to assist in growing the business and driving transformation. Principles of the Group Transactions In designing the Group Transactions, the Group developed a set of principles aimed at sustainable, broad-based empowerment. These principles include: -Transformation - The Group has designed the Group Transactions to accelerate operational transformation. This extends to employment equity, particularly at the management level, client acquisition, strategies for underserved markets, profiling the Group and community involvement. The Group Transactions are being implemented as part of the Group's comprehensive, overarching approach to rapid transformation. -Broad-based approach - The Group Transactions are designed to directly or indirectly benefit more than half a million black South Africans across the country, including employees and management, clients and women's groupings, black trade union members, entrepreneurs and communities. The Group has sought to achieve an equitable balance between individuals that are internal and external to the Group. In the process, the ultimate beneficiaries of the Group Transactions have been reviewed to ensure that no individual benefits unduly. Employees and management will be the prime beneficiaries of the Group Transactions. -Alignment of value added to benefits received - No one individual or ultimate beneficiary will be rewarded out of proportion to the value that they add. -Performance agreements (in the form of binding memoranda of understanding) have been negotiated with the Black Business Partners to ensure mutually beneficial, enduring partnerships. The performance agreements have been designed to incentivise the Black Business Partners by aligning their rewards which they receive under the performance agreements to the value that they add to the businesses; -The Group Transactions aim to balance the economic participation by internal and external individuals, the consequence of which is that no single external individual benefits more than the Group's most highly paid South African employee; and -The Group Transactions seek to ensure that benefits are earned incrementally over the term of the agreements. -Full economic benefits and voting rights - From the inception of the Group Transactions, shareholders and beneficiaries must have the full benefits of the voting rights and the economic benefits attached to equity ownership. Trusts, which have been or will be formed to acquire and hold Old Mutual plc, Nedcor or Mutual & Federal shares, have been or will be structured so as to comply with the ownership and control requirements of the FSC in that the majority of trustees will be independent black people and beneficiaries will be black people. -Estimated benefits to exceed the estimated costs of the Group Transactions - In designing the Group Transactions, the Group sought to ensure that over time the commercial benefits of implementing the Group Transactions would outweigh the costs, and that the costs are in line with BEE transactions concluded in the financial sector to date. -Existing black shareholding to be excluded from the calculation of black ownership in terms of the Group Transaction - Old Mutual plc had 1.46% (at 1 January 2004) existing black shareholding which translates into 3.50% of the value of Old Mutual (SA). In calculating the black ownership in Old Mutual (SA) post the implementation of the Group Transactions, existing black shareholding has not been taken into account. -Maximising long-term shareholder value - The overall cost of the Group Transactions equates to approximately 3.31% of the value of the Group's South African businesses. The initial impact is a reduction in embedded value per share of 2.2%. Initial costs associated with implementation of the Group Transactions have been excluded from adjusted operating profit such that the impact on adjusted operating earnings per share of 3.3% results from costs associated with managing the schemes and the dilution of the Old Mutual Group's holdings in Nedcor and Mutual & Federal. While the Group Transactions are dilutive to earnings and embedded value per share in the short term, they will reposition the Old Mutual Group in the longer term enabling it to transform and grow within South Africa. The Group expects the benefits of the different elements of the Group Transactions to significantly outweigh the costs over the longer term. Transaction Summary Subject to the fulfilment of the conditions precedent set out in paragraphs 3.14, 4.15 and 5.11 below, which include, inter alia, the approval of Old Mutual plc, Nedcor and Mutual & Federal shareholders, the Old Mutual Group proposes to facilitate three separate but inter-dependent transactions that will result in direct black ownership worth over 10% of each of its South African subsidiaries namely Old Mutual (SA), Nedcor and Mutual & Federal. The Group Transactions, as defined below, include: -the issue of 5.98% of Old Mutual plc's current issued share capital with resulting of black shareholding worth 13.48% of Old Mutual (SA)(the "Old Mutual (SA) Transaction"); - the issue of 10.46% of Nedcor's current issued share capital with resulting black shareholding worth 11.50% of Nedcor's South African business (the "Nedcor Transaction"); and -the issue of 12.54% of Mutual & Federal's current issued share capital with resulting black shareholding worth 11.00% of Mutual & Federal's South African businesses (the "Mutual & Federal Transaction"). As part of this process, Old Mutual plc has signed various legal agreements and binding Memoranda of Understanding ("MoUs") with the WIPHOLD and BRIMSTONE Consortia with respect to the Old Mutual (SA) Transaction. Further, detailed, binding MoUs have been entered into between Nedcor and the WIPHOLD and BRIMSTONE Consortia respectively and between Mutual & Federal and the WIPHOLD Consortium and Mtha respectively, setting out the terms of their participation as well as related performance criteria together with the implications of not meeting or exceeding those criteria. It is expected that the MoUs will be replaced by final legal agreements prior to the posting of the required circulars to Old Mutual plc, Nedcor and Mutual & Federal shareholders. In summary, the table below sets out the number and value of shares which, will be issued through the Group Transactions. Summary of the Group Transactions Total deal % of shares issued pre Number of the Group shares Transactions Value of shares m Rm GBPm Old Mutual (SA) Transaction 230.6 5.98% 3,448 296 Nedcor Transaction 41.3 10.46% 3,085 265 Mutual & Federal Transaction 31.1 12.54% 663 57 7,196 618 Black ownership portion Value as a % of South African % of shares businesses Number issued post post of the Group issue of shares Transactions Value of shares shares m % Rm GBPm Old Mutual (SA) Transaction 228.5 5.58% 3,417 293 13.48% Nedcor Transaction 40.7 9.33% 3,040 261 11.50% Mutual & Federal Transaction 30.7 11.00% 655 56 11.00% 7,112 610 This announcement sets out the details and financial effects of the Old Mutual (SA) Transaction, the Nedcor Transaction and the Mutual & Federal Transaction and the combined financial effects for Old Mutual plc shareholders. 1. Impact of the Group Transactions on Old Mutual plc Shareholders 1.1. Accounting Treatment of the Group Transactions In accordance with the rules of the UK Listing Authority ("UKLA") and the JSE Securities Exchange South Africa ("JSE"), the underlying accounting treatment is in accordance with the accounting policies set out in the last published audited financial information. In presenting the consolidated impact for Old Mutual plc of the Group Transactions, information is to be presented in accordance with UK GAAP as it existed at 31 December 2004. The accounting treatments adopted may require transactions to be accounted for in a different manner to their legal substance and form. The accounting treatment described below has been determined based on accounting advice and emerging interpretations. Effective 1 January 2005, the Old Mutual Group will prepare its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). It has therefore been necessary to consider the accounting treatments under both bases of reporting. Restated 31 December 2004 results on an IFRS basis will be published by Old Mutual plc on 3 May 2005. The following accounting principles are applicable: -Consolidation of Special Purpose Vehicles ("SPVs") - where control is deemed to remain within the Old Mutual Group, the entities established to support the Group Transactions are regarded as subsidiaries. The acquisition of Old Mutual plc shares by the consolidated SPVs are regarded as issues of treasury shares, resulting in a reduction in equity within the consolidated financial statements. -Earnings per share - the weighted average number of shares is impacted by the Group Transactions only to the extent that any issue of shares is not regarded as treasury shares for the purpose of the consolidated financial statements. -Embedded value per share - the number of shares in issue will increase to include the Old Mutual plc shares acquired by all SPVs. Where deferred consideration is to be received for the issue of the shares, an adjustment to the embedded value is required to represent the discounted present value of the consideration. 1.2. Combined Pro forma Financial Effects for Old Mutual plc Shareholders The pro forma financial effects of the Group Transactions for the financial year ended 31 December 2004 are set out in the table below to assist Old Mutual plc shareholders to assess the impact of the Group Transactions on adjusted operating earnings per share ("Adjusted EPS"), basic earnings per share ("Basic EPS") and adjusted embedded value per share ("Adjusted EV per share"). The pro forma financial effects have been prepared in accordance with UK GAAP as it existed at 31 December 2004. They are provided for illustrative purposes only. Due to the unaudited pro forma nature of the information, it may not give a true reflection of the Group's financial position after completion of the Group Transactions, nor the effect on the Group's future earnings. Before the After the Group Transactions and Group Transactions and change the issue of shares the issue of shares (%) United Kingdom pence Adjusted EPS(1) 15.3 14.8 (3.3) Basic EPS(1) 14.1 13.3 (5.7) Adjusted EV per share(2) 139.1 136.0 (2.2) Before the After the Group Transactions and Group Transactions and change the issue of shares the issue of shares (%) South African cents Adjusted EPS(1) 181.1 175.7 (3.0) Basic EPS(1) 166.2 156.8 (5.7) Adjusted EV per share(2) 1 508.0 1 475.0 (2.2) Notes: (1) The "Before the Group Transactions and issue of shares" column reflects the audited earnings and adjusted earnings per Old Mutual plc share for the year ended 31 December 2004. The "After the Group Transactions and issue of shares" column reflects the earnings adjusted for the financial effects of the various Group Transactions based on the assumption that the Group Transactions were implemented on 1 January 2004. The financial effects on earnings include the initial impact of entering into the Group Transactions of £10m (R120m) and the first year of annual impact of £18m (R203m). The initial impact is excluded from the adjusted operating profit, and hence Adjusted EPS. As a result of the Group Transactions, Old Mutual plc's interests in its subsidiaries Nedcor and Mutual & Federal will be reduced. The financial effects take into account a reduction in the Group's share of earnings from these subsidiaries accordingly. (2) The "Before the Group Transactions and issue of shares" column reflects the audited Adjusted EV per Old Mutual plc share at 31 December 2004. In determining Adjusted EV per share, the total number of shares in issue as at 31 December 2004 of 3 854m includes 383m treasury shares, consisting of 92m shares held in ESOP Trusts and 291m shares held in policyholder funds. The "After the Group Transactions and issue of shares" column reflects the adjusted EV per share after the considerations received from the various scheme and an enlarged number of shares based on the assumption that the Group Transactions were implemented on 31 December 2004. In determining the Adjusted EV per share, the number of shares in issue of 4 085m includes all Old Mutual plc shares issued under the Group Transactions. The financial effects on embedded value "After the Group Transactions and issue of shares" include the initial consideration received on the issue of Old Mutual plc shares to SPVs which are considered external to the Old Mutual Group. Embedded value is unchanged for the initial consideration received in respect of treasury shares issued to consolidated SPVs. A pro forma uplift adjustment is included to reflect the discounted present value of the deferred consideration to be received from external parties in respect of all schemes. (3) The weighted average number of shares in issue remains unchanged. Shares issued to consolidated SPVs are to be excluded as they are accounted for as treasury shares. Shares issued to unconsolidated SPVs are excluded due to the restricted nature of the issue. The weighted average number of shares in issue used in calculating Basic EPS as at 31 December 2004 was 3 432m. The weighted average number of shares in issue used in calculating Adjusted EPS, after allowing for shares held in policyholders' funds, was 3 748m. IFRS financial effects The accounting treatment under IFRS differs from the accounting treatment under UK GAAP as it existed at 31 December 2004 to the extent that IFRS 2 "Share based payments" applies to the Group Transactions. As the additional IFRS 2 costs incurred are in respect of equity settled share based payment transactions, the charge to the profit and loss account will result in a corresponding credit to an equity reserve and, therefore, has no impact on the embedded value. There are no other differences in the calculation of Adjusted EV per share. 1.3. Opinions and Recommendations 1.3.1. Opinion of the Old Mutual plc board The board of Old Mutual plc, together with its advisors, has structured the direct black ownership initiative in an attempt to ensure that it is in line with the BEE strategy of the Old Mutual Group. Although not required in terms of the UKLA Listing Rules, nor the JSE's Listings Requirements, the board of Old Mutual plc appointed Deutsche Securities (SA) (Proprietary) Limited ("Deutsche Securities") to consider the terms of the Group Transactions from a financial point of view. Deutsche Securities in giving their financial advice to the director's of the board of Old Mutual plc have relied upon the board of Old Mutual plc for the commercial assessment of the Group Transactions. The board of Old Mutual plc, having received this advice, considers the terms and conditions of the Group Transactions to be fair and reasonable. Accordingly, the board recommends that ordinary shareholders vote in favour of the resolutions to approve the Group Transactions. In respect of their personal holdings in Old Mutual plc, the board members currently intend to vote in favour of the proposed resolutions. 2. Black shareholder groupings 2.1. Employee and Management schemes Current and future employees are a critical component of the Group's transformation strategy. By reserving a significant portion of shares for the benefit of current and future black managers and employees, the Group Transactions will assist in transforming and creating a dynamic, effective workforce. To this end, each of the Group Transactions incorporates a broad-based component which allows for an award of shares to the value of R7 500 to employees who have not participated in any other employee and management share scheme of the Group. The employee and management schemes also provide the Group with sufficient resources to meet the ongoing employment equity targets of the FSC. 2.2. Client and Distributor schemes In the spirit of broad-based empowerment, current and future Clients and Distributors, where appropriate, will be invited to participate in the Group Transactions. To this end, Old Mutual (SA), Nedcor and Mutual & Federal have designed specific Client and Distributor schemes. Old Mutual (SA) has created a trust to support the emergence of new black distributors as set out in paragraph 3.4.1 Nedcor has designed specific schemes for its corporate and retail clients detailed in paragraphs 4.4.1 and 4.4.2 below. Mutual & Federal has established a Black Broker Trust to support black people wishing to develop broker businesses as detailed in paragraph 5.5 below. 2.3. Community Schemes Community Schemes enhance the broad-based nature of the Group Transaction and supplement existing community social initiatives undertaken by the Group. 2.4 Black Business Partners 2.4.1 Overview of the Black Business Partner selection process The Old Mutual Group has selected the WIPHOLD and BRIMSTONE Consortia as its Black Business Partners. The selection process involved the assessment of the potential Black Business Partners against the following criteria: -Empowerment credentials and broad-based criteria - an assessment of the shareholding and the ultimate beneficiaries of the Black Business Partners with the specific objective of ensuring that potential partner companies are black-owned and controlled companies, representing a broad-base of beneficiaries. Consideration was also given as to whether directors and management of the potential Black Business Partners comprised predominantly black people, as defined in the FSC. -Leadership and values - an assessment of whether the potential Black Business Partners had strong, clear leadership and shared the Group's values. Regard was also given as to whether the leadership of the potential Black Business Partners would be able to commit sufficient time and resources to focus on business development and transformation. -Experience - an assessment of whether the potential Black Business Partners had a demonstrable track record of transformational ability as well as financial services sector experience. -Risk and reward philosophy - an assessment of whether the potential Black Business Partners would be able to place their own capital at risk and therefore make a capital contribution of 2.5% of the transaction value. A further assessment of each of the potential Black Business Partners' ability to assist Old Mutual (SA), Nedcor and Mutual & Federal with each of the following objectives was undertaken: -the retention of existing business and the attraction of additional business; -the strategic and holistic transformation of the Group in response to a changing business environment; and -improving the corporate profile and image of the Group in the market and helping to position the business. This process assisted the Group to determine the level of participation of each of the Black Business Partners in the Group Transactions. 2.4.2. Performance agreements The Black Business Partners have each concluded performance MoUs (referred to hereinafter as "performance agreements") with the relevant Group companies, which will govern the relationship with and performance and remuneration of the Black Business Partners. It is intended that on an annual basis the Black Business Partners will meet with each of the business units of Old Mutual (SA), Nedcor and Mutual & Federal, as appropriate, in order to detail the specific tasks to be performed in the following twelve month period. The Black Business Partners have agreed the first set of performance criteria with the Group which will benchmark future performance agreements in terms of the type and the amount of work required and which will apply to the eighteen month period from 1 July 2005. In terms of the performance agreements, the WIPHOLD and BRIMSTONE Consortia will commit substantial time and resources to the business units of Old Mutual (SA), Nedcor and Mutual & Federal in order to meet the requirements of their respective performance agreements. Progress will be monitored semi-anually. The Black Business Partners will be paid an annual performance fee that will be linked to performance targets achieved in terms of the performance agreements. The annual fee will range between Rnil and R36.5m,Rnil and R25m and Rnil and R10m for Old Mutual (SA),Nedcor and Mutual & Federal respectively. A portion of this performance fee will be used to cover pre- agreed working capital requirements of the Black Business Partners. The balance in the case of Old Mutual (SA) will be applied to satisfy the amounts remaining due in respect of the Old Mutual shares issued to the relevant SPV. In the case of Nedcor and Mutual & Federal, the balance will be utilised to acquire new Nedcor and Mutual & Federal shares as detailed in the paragraphs dealing with the funding arrangements in the separate Old Mutual (SA), Nedcor and Mutual & Federal sections below. 2.4.3. Key terms of the Group's agreements with the Black Business Partners Subject to the terms of the subscription agreements the Black Business Partners: -Must remain black companies as defined in the FSC during the 10 year lock-in period; -May not dispose of Old Mutual plc, Nedcor and/or Mutual & Federal shares acquired as a result of the Group Transactions during such lock-in period; -May not enter into equity transactions or substantial relationships with any of the Old Mutual Group's competitors; and -May not take up any directorships with any of the Old Mutual Group's competitors. 2.4.4. The Women Investment Portfolio Holdings Limited ("WIPHOLD") Consortium: The WIPHOLD Consortium will acquire: -0.71% of the enlarged issued share capital of Old Mutual plc, which equates to 1.70% of Old Mutual (SA); -0.91% of the enlarged issued share capital of Nedcor; and -3.50% of the enlarged issued share capital of Mutual & Federal. ORGANOGRAM - REFER TO MEDIA ANNOUNCEMENT The WIPHOLD Consortium is led by WIPHOLD (82.0% of the WIPHOLD Consortium) - WIPHOLD was founded 10 years ago by four successful women executives as an organisation dedicated to women's empowerment. With 1 200 direct beneficiaries and 18 000 indirect beneficiaries through the WIPHOLD Investment Trust, and over 300 000 indirect beneficiaries through the WIPHOLD NGO Trust, whose constituent Non-Government Organisations ("NGOs") span all nine provinces, WIPHOLD is one of the most genuinely broad-based black empowerment companies in South Africa. WIPHOLD is a majority black owned company, with in excess of 50% of the shareholding in the hands of women. All shareholdings are direct and unencumbered. As at December 2003, the WIPHOLD Investment Trust had distributed R46m to its beneficiaries. Old Mutual (SA), has an effective 32.5% stake in WIPHOLD, demonstrating the strength of its existing relationship. WIPHOLD's current business activities are focused in three areas: -Financial services (advisory, asset management, stockbroking, treasury services); -Ownership of infrastructure assets; and -Diversified investments (in telecommunications, tourism, manufacturing and power & automation). The directors of WIPHOLD include two of the original founding members, Louisa Mojela, CEO of WIPHOLD and Gloria Tomatoe Serobe, CEO of Wipcapital (Pty) Limited. Wendy Luhabe (2% of WIPHOLD's 82% in the WIPHOLD Consortium), one of the other original founding members of WIPHOLD, will be contributing her experience in the areas of financial services and human resource development as a further operational value-add by the WIPHOLD Consortium. WIPHOLD has also included Sphere Holdings (Proprietary) Limited ("Sphere") in its consortium (15% of the WIPHOLD Consortium). Sphere is a new generation empowerment company, comprised of experienced individuals with a proven track record in private equity, investment banking and asset management. Sphere's ownership structure promotes broad-based empowerment whilst incentivising founder shareholders and management. Sphere's directors and management include Itumeleng Kgaboesele, CEO, Executive Directors Pulane Kingston and Aadil Carim and Associate Director, Marang Denalane. Directors and management hold the majority shareholding of Sphere (57%). 17.5% of Sphere's shareholding is reserved for broad-based groupings that have a particular focus on education and the economic upliftment of black women. These groups include Ditikeni Investment Company Limited (an investment vehicle for 24 NGOs involved in education and training, health (HIV/AIDS), housing and rural development) and the Student Sponsorship Programme (a non-profit organisation offering scholarships to previously disadvantaged students) to which shares have already been allocated. Nedbank Limited owns 13% of Sphere. The remaining 3% of the WIPHOLD Consortium's stake will be held by the WIPHOLD NGO Trust. The WIPHOLD NGO Trust was established in 2004 with the aim of further enhancing the black and female profile of WIPHOLD, as well as its broad-base of beneficiaries. Louisa Mojela and Gloria Tomatoe Serobe serve as trustees. A majority of independent trustees will be appointed. The Trust has two primary objectives: - To empower and support NGOs whose primary focus is development programmes pertaining to black women and/or children; and - The inclusion of NGOs with the ability to contribute strategically to the activities of WIPHOLD. The ten organisations that currently form part of the WIPHOLD NGO Trust are: The Democratic Nursing Organisation of South Africa; the South African Democratic Teachers Union (women's chapter); National Baptist Church, Kwa Drabo Trust; People Opposing Women Abuse; the Thusanang Development and Training Project; Tshwarangang Legal Advocacy Centre; Tshepang Educare Trust; Young Women's Christian Association and the Thandanani Association. 2.4.5. The Brimstone Investment Corporation Limited ("BRIMSTONE") Consortium: The BRIMSTONE Consortium will acquire: - 0.71% of the enlarged issued share capital of Old Mutual plc, which equates to 1.70% of Old Mutual (SA); and - 0.91% of the enlarged issued share capital of Nedcor. Mtha, a 33% shareholder in the BRIMSTONE Consortium, will acquire 0.50% of the enlarged issued share capital of Mutual & Federal. ORGANOGRAM - REFER TO MEDIA ANNOUNCEMENT - The BRIMSTONE Consortium is led by BRIMSTONE (67.0% of the BRIMSTONE Consortium) - BRIMSTONE was incorporated in South Africa on 2 October 1995 as an investment vehicle for black South Africans and listed in the "Investment Companies" sector of the JSE in 1998. The company's mission is to be profitable, empowering and to have a positive social impact on the businesses and individuals with whom it is involved, including shareholders, employees, suppliers, customers and the community. BRIMSTONE currently has a market capitalisation of approximately R240 million. The directors of BRIMSTONE include two of its original founding members, Mustaq Brey, Chief Executive Officer, and Fred Robertson, Executive Deputy Chairman, both of whom have long and extensive experience across the financial services sector. BRIMSTONE's board is chaired by Professor Jakes Gerwel, former Director General in the Office of President Nelson Mandela and Secretary of the State in the first Government of National Unity. BRIMSTONE is a focused black controlled and managed investment holding company seeking to achieve above average returns for its shareholders by investing in businesses and entering into alliances to which it contributes capital, ideas, management, impeccable empowerment credentials and a value driven corporate identity. BRIMSTONE has strategic investments in the following sectors of the South African economy: - Industrial sector: investments in the manufacturing of upmarket men's clothing, packaging and fishing; - Financial Services sector: investments in insurance broking, consulting, and short-term insurance; and - Healthcare sector: investments in one of South Africa's largest private hospital groups and smaller investments in the supply of medical equipment to this sector. More than 52% of BRIMSTONE's economic value is held by approximately 3 700 black South Africans. The company has a black board of directors and operational management is in black hands. BRIMSTONE employs approximately 1 100 employees directly in its subsidiaries and more than 19 300 in its associate companies and has sought to empower its people through extensive employee participation in the equity of BRIMSTONE. Old Mutual (SA) holds 9.95% of BRIMSTONE's 'N' ordinary shares. The BRIMSTONE Consortium includes Mtha-we-Mpumelelo ("Mtha") (33% of the BRIMSTONE Consortium) which is comprised as follows: - Chestnut Hill is a 35% shareholder in Mtha and the shareholders of Chestnut Hill include Bulelani Ngcuka, Chairman, Sango Ntsaluba, Non-executive Chairman of Sizwe Ntsaluba and Chief Executive Officer of Amabubesi Investments (Proprietary) Limited ("Amabubesi") and Thabiso Tlelai, Chair of the Tourism Business Council of South Africa. Other shareholders include Mveleleli Booi, currently an Executive at Amabubesi, Gilimamba Mahlati, Chairman of Risk Monitor Group and Kennedy Memani, Director of KREM Investment Holdings and the Senior Partner in XK Memani, Ruiters and Associates. - Izingwe Financial Investments, an associate company of Izingwe Capital, is a 35% shareholder in Mtha. Izingwe's Chairman is Sipho M. Pityana, formerly a Group Executive Director of Nedcor Investment Bank Holdings, managing director of Strategic Business Development at Nedbank Corporate and the Director General of the Departments of Foreign Affairs and Labour. Other directors include Ashley Ally, the former CEO of the Legal Aid Board, Tsakani Matshazi, a Chartered Accountant, Phillip Dexter, the former Executive Director of Nedlac, and Mark Sifris, a corporate attorney. Mtha includes the investment vehicles of three broad-based groupings that represent black professionals namely: - The Black Lawyers Association ("BLA") (10% of Mtha) - The BLA represents approximately 900 black legal professionals and 300 legal students. It is a voluntary association whose objectives include the support and development of black lawyers and the provision of legal education and services to the black community. - National Association for Democratic Lawyers ("Nadel") (10% of Mtha) - Nadel is a voluntary organisation of lawyers, which has the primary goal of ensuring access to justice for previously disadvantaged individuals. Its members comprise all legal practitioners including attorneys, advocates, judges, paralegals and law students. Nadel provides legal advocacy and various legal support programmes, including judicial skills training. - South African Medical and Dental Practitioners ("SAMDP") (10% of Mtha) - SAMDP represents black medical and dental practitioners. It has 5 000 members and is an active player in the transformation of the health industry. It also plays a significant role in ensuring ethical standards, quality service and accessible healthcare throughout South Africa. 2.4.6. Resolved conflicts The Old Mutual Group identified and sought to address any perception of potential conflicts of interests between the Group and its potential Black Business Partners. Three key conflicts are identified and disclosed below: - Pulane Kingston, a 20.3% shareholder in Sphere and a senior member of the WIPHOLD team, is married to a member of the advisory team from Deutsche Securities. The Old Mutual plc board has considered this issue and is of the view that this potential conflict is not material. - The board of Old Mutual plc is aware of the fact that the majority of the board members and shareholders of Chestnut Hill are common to the board and shareholders of Amabubesi. An Old Mutual (SA) executive who is a shareholder of Amabubesi is however not a shareholder or board member of Chestnut Hill. Old Mutual (SA) holds a 20% stake in Amabubesi. The Old Mutual plc board has considered this issue and is of the view that it does not give rise to a potential conflict. - Professor Jakes Gerwel already sits on the board of Old Mutual Life Assurance Company (South Africa) Limited ("OMLACSA"). He is the Chairman of BRIMSTONE. The Old Mutual plc board has considered this issue and is of the view that it does not give rise to a potential conflict. 3. Overview of the Old Mutual (SA) Transaction Key Highlights: - 13.48% of the value of Old Mutual (SA) - 5.64% of Old Mutual plc's enlarged issued share capital following the issue of new shares - Key black stakeholders included: Employees and management (50%), Clients and Distributors (8%),Community Scheme (17%) and Black Business Partners (25%) - Aimed at 7458 black employees - Unique Client and Distributor scheme to include black distributors - Performance agreements with broad-based Black Business Partners - The WIPHOLD and BRIMSTONE Consortia - Aligned with empowerment strategy to preserve and grow business 3.1. Proposed Old Mutual (SA) Transaction structure ORGANOGRAM - REFER TO MEDIA ANNOUNCEMENT 3.2. Direct black shareholding as a result of the Old Mutual (SA) Transaction As part of Old Mutual (SA)'s ongoing commitment to transformation, Old Mutual (SA) is proposing a number of schemes aimed to benefit a wide group of stakeholders including employees and management, distributors, trade union members and their beneficiaries, communities and Black Business Partners. Shares in Old Mutual plc, the UK listed entity, will be issued in order to facilitate the Old Mutual (SA) Transaction. Old Mutual (SA) is a 100% held South African subsidiary of Old Mutual plc. 230.6m shares (5.64% of Old Mutual plc's current issued share capital) will be issued in respect of the various employee and Management Schemes and to the various SPVs to be formed for the Old Mutual (SA) Transaction at the same price of R14.95 per share, which represents the 10 day volume weighted average price of Old Mutual plc shares to 15 April 2005. The introduction of black shareholding of 5.58% of the enlarged issued share capital of Old Mutual plc, represents 13.48% of the value of Old Mutual (SA). The total level of black ownership in Old Mutual (SA) relative to the value of Old Mutual (SA) increases to 16.98%, if the existing direct black ownership of 1.46% in Old Mutual plc which equates to 3.50% of the value of Old Mutual (SA) as at 1 January 2004 is included. The table below sets out the total deal size at Old Mutual (SA) as well as the black ownership at Old Mutual (SA) using the enlarged issued share capital of Old Mutual plc to facilitate the Old Mutual (SA) Transaction. Using Old Mutual plc shares Black Total deal ownership Shareholding Shareholding No of Deal (post issue of (post issue of shares value new shares) new shares) m Rm Employee and Management Schemes 115.0 1 720 2.82% 2.76% Old Mutual (SA) Management Scheme 83.7 1 252 2.05% 2.05% Old Mutual (SA) Senior Black Management Scheme 25.8 386 0.63% 0.63% Old Mutual (SA) Broad-based Scheme 5.5 82 0.14% 0.08% Client & Distributor Schemes Black Distributors Trust 19.3 288 0.47% 0.47% Community Scheme Education Trust 38.5 576 0.94% 0.94% Black Business Partners 57.8 864 1.41% 1.41% WIPHOLD Consortium 28.9 432 0.71% 0.71% BRIMSTONE Consortium 28.9 432 0.71% 0.71% Total Old Mutual (SA) Transaction 230.6 3 448 5.64% 5.58% Existing black shareholders 59.5 889 1.46% 1.46% Total 290.1 4 337 7.10% 7.04% At Old Mutual (SA) level Black Total deal ownership Shareholding Shareholding (post issue of (post issue of new shares) new shares) Employee and Management Schemes 6.78% 6.66% Old Mutual (SA) Management Scheme 4.93% 4.93% Old Mutual (SA) Senior Black Management Scheme 1.53% 1.53% Old Mutual (SA) Broad-based Scheme 0.32% 0.20% Client & Distributor Schemes Black Distributors Trust 1.14% 1.14% Community Scheme Education Trust 2.27% 2.27% Black Business Partners 3.41% 3.41% WIPHOLD Consortium * 1.70% 1.70% BRIMSTONE Consortium * 1.70% 1.70% Total Old Mutual (SA) Transaction 13.60% 13.48% Existing black shareholders 3.50% 3.50% Total 17.10% 16.98% * Figures rounded up to 2 decimal places 3.3. The Old Mutual (SA) Employee and Management Schemes (worth 6.66% of Old Mutual (SA)) Old Mutual (SA) firmly believes that its employees and management are critical catalysts in transforming its business. The Old Mutual (SA) employee and management schemes comprise three different elements: 3.3.1. The Old Mutual (SA) Management Scheme (worth 4.93% of Old Mutual (SA)) The existing Old Mutual (SA) Management Scheme is to be replaced by a new Old Mutual (SA) Management Scheme, the primary purpose of which is to attract, reward and retain senior and middle management of Old Mutual (SA). Old Mutual plc will issue new ordinary shares to the new employee share trust which will be funded by employer companies within the Old Mutual (SA) Group, primarily from OMLACSA. The new employee share trust will own 2.05% of the enlarged issued share capital of Old Mutual plc (which equates to 4.93% of Old Mutual (SA)). This new employee share trust will be used to fund the long-term share incentives that Old Mutual (SA) expects to allocate to black management in the normal course of business to 2014. By reserving a significant portion of the Old Mutual plc shares for black management, Old Mutual (SA) is demonstrating its unequivocal commitment to transform its business fundamentally. The quantum of these long-term incentives are considered to be in line with international standards. Share allocations for white management will also be made in terms of the new Old Mutual (SA) Management Scheme, but will only be matched by the existing employee share trust at the time that the allocations are made. Shares will be allocated in terms of Old Mutual (SA)'s current allocation policy, subject to regular market testing and individual performance. The current policy is to make allocations in a combination of Restricted Share Plan ("RSP") share awards and share options. The RSP share awards will vest immediately (subject to the condition that the participant remains in Old Mutual (SA)'s employment for a period of time), while the share options will be exercisable after 3 years (but within 6 years). Participants are to be paid the dividends in respect of the RSP share awards and will be entitled to exercise the voting rights in respect of the relevant Old Mutual plc shares, but will have no dividend or voting rights in respect of the unexercised share options. The entire interest of 2.05% in Old Mutual plc shares held by the new employee share trust will count for black ownership given that the trust has been structured so as to comply with the ownership and control requirements of the FSC. 3.3.2. The Old Mutual (SA) Senior Black Management Scheme (worth 1.53% of Old Mutual (SA)) The Old Mutual (SA) Senior Black Management Scheme will operate for the benefit of the senior black management employed by Old Mutual (SA). A new trust will be formed to operate the scheme. Old Mutual plc will issue new ordinary shares to this trust, to be funded by means of a grant, primarily from OMLACSA, such that the trust will own 0.63% of the enlarged issued share capital of Old Mutual plc (which equates to 1.53% of Old Mutual (SA)). The trustees, on instruction from the Old Mutual (SA) Remuneration Committee, will make awards to existing (50%) and future (50%) participants. The scheme will comprise a once-off allocation with the possibility of an increase in allocation on promotion. This allocation will be in addition to the normal allocations made in terms of the Old Mutual (SA) Management Scheme and will be made by means of RSP share awards over Old Mutual plc shares. The RSP share awards will vest immediately but participants will only take delivery of the relevant Old Mutual plc shares after 4 years (one third), 5 years (one third) and 6 years (one third). The RSP share awards will be based on individual performance and subject to a multiple of annual remuneration with participants having to remain in Old Mutual (SA)'s employment for a period of time. 3.3.3. The Old Mutual (SA) Broad-based Scheme (worth 0.32% of Old Mutual (SA)) This scheme will operate for the benefit of all Old Mutual (SA) employees who do not participate in any other share scheme of the Group. This scheme will thus operate for the benefit of both black and white employees employed by Old Mutual (SA), 67% of which are black. The same trust that operates the Old Mutual (SA) Senior Black Management Scheme will operate the Old Mutual (SA) Broad-based Scheme. This trust will own 0.14% of Old Mutual plc's enlarged issued share capital (which equates to 0.32% of Old Mutual (SA)), to be funded by means of a grant primarily from OMLACSA. An RSP share award of R7 500 per employee will be made upfront to all qualifying employees, subject to a 5-year delivery period. 3.4. Old Mutual (SA) Client and Distributor Scheme (worth 1.14% of Old Mutual (SA)) The Old Mutual (SA) Client and Distributor Scheme allows Old Mutual (SA) to demonstrate its commitment to its current and future black distributors through the creation of the following Client and Distributor schemes: 3.4.1. Black Distributors Trust (worth 1.14% of Old Mutual (SA)) The objective of the Black Distributors Trust will be to provide or secure finance for black brokers and agents, as well as distribution businesses owned and managed by black South Africans. The finance or security made available by the trust will be utilised by such black distributors to acquire assets required in order to commence operations in a productive manner. The trust will be formed and will acquire 0.47% of Old Mutual plc's enlarged issued share capital (which equates to 1.14% of Old Mutual (SA)). There is a clear and present need for the development of a network of black distributors in order to serve previously underserved markets. Old Mutual (SA) recently launched the Old Mutual Academy for Financial Planners, an academy which provides the training required to operate as intermediaries to black South Africans. The Black Distributors Trust will augment the Academy and, through providing or securing funding required by black distributors to acquire relevant operational assets (which is often hard to obtain especially given the variable nature of distribution income), will ensure and fast track the productive entry by black distributors into the market. The Black Distributors Trust will be funded using the same funding mechanism as the Black Business Partners as detailed in paragraph 3.8.1 below. 3.5. Community Scheme (worth 2.27% of Old Mutual (SA)) The Old Mutual (SA) Education Trust allows Old Mutual (SA) to demonstrate its commitment to its union customer base. 3.5.1. Education Trust (worth 2.27% of Old Mutual (SA)) Complementing Old Mutual (SA)'s current focus on training and education, the purpose of the Education Trust is to provide a meaningful benefit to black trade union members who are clients and important stakeholders of Old Mutual (SA). The trust will be formed and will acquire 0.94% of the enlarged issuedRelated Shares:
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