BEE deals rocket in 2003
20 April 2004
The value of black economic empowerment deals in South Africa more than trebled in 2003 compared to the preceding year, according to the latest Mergers & Acquisitions (M&A) annual compiled by global financial services firm Ernst & Young.
According to Ernst & Young's M&A, there were 189 black economic empowerment (BEE) deals worth R42.2-billion in South Africa in 2003, compared to 104 deals totalling R12.4-million in 2002.
"After some tough times in the 1990s, there are now a number of established black empowerment firms around, headed by shrewd dealmakers", M&A author David Thayser told ThisDay.
Thayser said BEE in South Africa had entered a new phase, with government pressure on sectors such as minerals and petroleum to get their empowerment structures in line with BEE charters – as well as an industry-led charter in the financial sector - resulting in a burst of activity in the final quarter of 2003, as firms aligned themselves with
charter requirements.
The headline deal of 2003, according to M&A, was the African Rainbow Minerals and Exploration Investments / Harmony/ Avmin deal, worth R10.6-billion. "This transaction stands out not because of its size, but for what it represents, namely the creation of a black economic empowerment giant in the mining sector", Thayser said in a statement.
This involved a fullblown merger of Patrice Motsepe's African Rainbow Minerals and Exploration Investments with Avmin - to form a new entity called African Rainbow Minerals - and the acquisition by Harmony of Avmin's gold assets.
Also in the resources sector, in June 2003 Tokyo Sexwale's Mvelaphanda Resources acquired a 15% stake in Gold Fields for R4.2-billion.
"It's not hard to see where the impetus was coming from", Thayser said. "The Minerals Charter on black economic empowerment, introduced in 2002, requires 15% of mining assets to be the hands of previously disadvantaged individuals in three
years, moving up to 25% in 10 years, and in new projects, 25% up front."
In financial services, "the more interesting deals", according to M&A, were BEE transactions, the major deal being the announcement of a R2.2-billion-funded deal by a Patrice Motsepe-led consortium of 10% of Sanlam, announced in December.
"Smaller, but by no means insignificant deals were done between Investec and a consortium led by Tiso, which took up a 25.1% holding in Investec's domestic arm for R981-million in May."
With the industry now having clarity in the form of a financial services charter, "one can expect bigger and more significant BEE deals to come through this year", Thayser said. "If we are to make one prediction this year, it is that BEE deals will drive a very large portion of M&A activity once more."
No signs of slowing in 2004
So far, Thayser seems to be right on the money. New BEE deals announced in April 2004 alone have included the
following:
Absa Bank - Banking group Absa issued 73.2 million new redeemable preference shares worth R2 each to new black firm Batho Bonke, led by Mvelaphanda chair Tokyo Sexwale, effectively giving Batho Bonke 10% of Absa's direct ownership and making Absa the first of SA's big four banks to sell a direct stake to a BEE consortium.
Foodcorp - Empowerment group Pamodzi Investment Holdings bought out the country's third-largest food group, Foodcorp, in a deal worth over R2-billion - the largest empowerment deal so far in SA's food manufacturing sector. Pamodzi already had a 51% controlling stake in Foodcorp, bought in 1998 for R1.8-billion. After buying out the remaining 49%, Pamodzi committed to giving shares to management (a 15% stake) and staff (20%), leaving Pamodzi with a 65% stake. The deal was financed with both public and private sector funding, the core funder being the Land Bank, which provided R800-million in debt finance.
Putco -
Listed bus operator Putco announced plans to sell its bus fleet to subsidiary Putco Services, repurchase its shares, issue new shares and raise funds in order to introduce over 50% black equity shareholding to the group. Putco has secured BEE partners Safika Holdings and DEC Investment Holding company to take up a 50.5% equity interest in the company. The deal will classify Putco as a "black" company in terms of the Black Economic Empowerment Commission.
Cadiz - Financial services group Cadiz more than doubled its black ownership by selling a 10% stake to Worldwide Capital for R55.18-million. In February 2004, Cadiz sold a 10% stake to a consortium controlled by Makana Investment Corporation, made up of former Robben Island prisoners.
Super Group - Transport and logistics firm Super Group agreed to sell a 25.1% stake to black-owned investment company Peu. No specific value has been given, but it is believed the total purchase price is in the region of
R900-million. The Industrial Development Corporation will provide Peu with R300-million in funding.
Astrapak - Packaging group Astrapak sold over 25% of its stake in its subsidiary, Pak 2000, to a BEE consortium for R12.5-million. The deal brings Astrapak in line with the charter for the petrochemical industry.
ICT empowerment charter
According to Ernst & Young's M&A, more industries will announce BEE charters during the course of 2004, "with each likely to spur a new round of transactions".
The Department of Arts and Culture recently commissioned an independent study to evaluate the arts and culture industry - covering music, film, video, crafts and book publishing, among others - with a view to developing an empowerment charter for the sector.
And in March 2004, London-listed IT services group Dimension Data appointed former civil servant Andile Ngcaba as the chairperson-designate of its South African operation.
Didata will sell a 25% stake in its operation to a black consortium led by Ngcaba.
The announcement of Ngcaba's appointment followed the release of the first draft of a black economic empowerment charter for SA's information and communications technology (ICT) industry, drawn up by an industry working group.
Included in the industry-driven charter is an ICT empowerment scorecard designed to measure companies' direct and indirect empowerment initiatives. It measures the score based on Department of Trade and Industry weightings, an ICT split weighting, and mid-term and long-term targets.
The working group's chairman, Electronics Industries Federation president Dali Mpofu, said the 32-page document aimed to encourage a structured discussion on the industry's future.
"The scorecard approach to black economic empowerment seems to be accepted as a good methodology for measurement, and has been included in the draft", Mpofu said. "However, the scorecard
indicators, weightings and targets need to be specially tailored for the ICT sector."
SouthAfrica.info reporter
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