Standard Bank Oil ETN · JSE:SBOIL
Standard Bank Oil ETN — Standard Bank Group — Merger or Acquisition (July 2004)
45 slides from Standard Bank Oil ETN's merger presentation, Jul 15, 2004
Slide 1: Black ownership initiative
Black ownership initiative 15 July 2004
Slide 2: Agenda
Agenda Empowerment strategy and Derek Cooper partners Mechanics and financial impact Standard Bank Group Jacko Maree Liberty Life Myles Ruck Conclusion Derek Cooper 2
Slide 3: Empowerment strategy and partners
Empowerment strategy and partners Derek Cooper 3
Slide 4: Empowerment strategy
Empowerment strategy • Broad-based empowerment - key to the long term success of South Africa • Standard Bank and Liberty Life have an important role to play in transforming and growing SA’s economy by supporting BEE • Mindful of ongoing responsibilities to deliver appropriate returns to shareholder
Slide 5: Vision of the Charter
Vision of the Charter “ …. promoting a transformed, vibrant and globally competitive sector that reflects the demographics of SA, and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targe
Slide 6: Principles of the Charter
Principles of the Charter • A commitment that was voluntarily developed • A transformational framework that establishes mechanisms for BEE • A balanced scorecard approach to measure BEE achievements • Growth and development of the sector integral to BEE • Subject to sound business practice 6
Slide 7: Ownership and Control
Ownership and Control • Control – Board of directors comprised of 33% black 3 points board members • Ownership – Direct black ownership of 10% of South 12 points, only African operations by 2010 awarded once control requirement is met – Indirect black ownership of 15% of South 2 points, only African
Slide 8: Ownership
Ownership • Black ownership – Black ownership as a percentage of the value of South African operations on the date of the transaction (Para 10.6 of the Charter) • Direct ownership – Ownership of equity interest with control over all the voting rights (Para 2.20 of the Charter) – Equity acquired on a
Slide 9: Our empowerment partners - ownership
Our empowerment partners - ownership % of empowerment stake The Tutuwa Consortium * 40 (Safika and MCI) Black management and staff of 40 Standard Bank and Liberty Life Regional business, community 20 and educational groupings 100 * The Tutuwa Consortium intends, in due course, inviting Black managem
Slide 10: Strategic partners – effective ownership
Strategic partners – effective ownership • Safika * (60%) – Vuli Cuba (20%), Saki Macozoma (20%), Moss Ngoasheng (20%), Marc Ber (10%), Richard Chauke (5%) and Soto Ndukwana (5%), and 20% reserved for a future strategic partner • MCI (40%) – The Ramaphosa family (30%), management and staff (25%), Ja
Slide 11: Board of Directors - control
Board of Directors - control • Board of directors • Target 33% • On implementation: SBK - 28% LGL - 25% – Saki Macozoma – Saki Macozoma – Cyril Ramaphosa – Leila Patel – Thulani Gcabashe – Sibusiso Sibisi – Kgomotso Moroka – Chris Nissen 11
Slide 12: Black management - ownership
Black management - ownership • Significant allocation to black management and staff – 40% of empowerment stake • Ensures broad-based empowerment – Meaningful wealth creation for a number of individuals • Ensures retention and attracts top black candidates • Black = African, Coloured and Indian SA ci
Slide 13: Black management - ownership
Black management - ownership • Allocation of rights – 2004 - 70% (retention mechanism) – 2005 to 2008 - 30% (attraction and retention mechanism) • Vesting * – First allocation by early 2008 – All other allocations by end 2010 – Back end loaded • Access to shares after lock in date – 2014 or earlier
Slide 14: General staff scheme
General staff scheme • 100 ordinary shares per qualifying group employee • Qualifying group employee is defined as – Not participating in the black management scheme – Nor participating in an existing share option scheme • Approximately 35 000 such employees • After tax remuneration paid to trust to
Slide 15: What do partners bring to SBK and LGL?
What do partners bring to SBK and LGL? • Tutuwa consortium – Strategic alignment and input – Co-ordination of interests amongst black partners – Board representation • Black managers – Retention and attraction of top talent – Immediate broad-based empowerment • Regional business, community and educa
Slide 16: Ensuring the deal works
Ensuring the deal works • Purchase price – Market close on 9 July 2004 less 5% discount, rounded up to nearest 50 cents – SBK 4050 cps – LGL 4850 cps • Funding – Reasonable market related rates for partners • 20 year term 16
Slide 17: Why conclude an ownership deal now?
Why conclude an ownership deal now? • Secure strategic partners of choice • Competitive tool to attract and retain the best black staff • Elimination of investor uncertainty • Currently SBK and LGL both have surplus capital • Demonstrates a commitment to black economic empowerment and the Financial
Slide 18: Mechanics and financial effects: Standard Bank
Mechanics and financial effects Standard Bank Jacko Maree 18
Slide 19: Determination of shares required for schemes
Determination of shares required for schemes % Proportion of SA banking operations to * 75.4 total group Direct ownership at 10% thereof 7.54 Deduct: Andisa transaction concluded (0.07) Required direct ownership portion 7.47 Number of shares 100.5 million * Independently determined 19
Slide 20: Implied shares to be purchased
Implied shares to be purchased % of Based on shares in issue 1 346.3 shares in Millions of million issue shares Rm Black strategic partners, management 7.37 99.2 4 017 and community scheme Black general staff 0.10 1.3 55 Total for Charter purposes 7.47 100.5 4 072 Add: Other general staff 0.13 1.8 7
Slide 21: The process of the recommended transaction
The process of the recommended transaction 1. SBK creates wholly owned subsidiaries • StratCo, CommCo and StaffCo • Fully capitalised by SBK - R4.1bn 2. Subsidiaries and general staff trust propose section 311 scheme of arrangement between SBK and its ordinary shareholders • 75% ordinary shareholder
Slide 22: The resultant structure
The resultant structure Black ownership initiative General Staff Scheme Other OtherStandard Standard Bank Bank ordinary ordinary The Tutuwa Consortium shareholders shareholders The The Community Community The Managers Safika MCI Trust Trusts 100% 100% 100% 100% Staff Co 1, Staff Co 2 General Staff S
Slide 23: Key terms
Key terms Capitalisation of the subsidiaries – Preference share coupon fixed rate – 8.5% – Ordinary dividend to service coupon payments and preference share redemption – Preference shares have a 20 year term • Expected payment profile 17 years • May be redeemed at any time • Can introduce 3rd party
Slide 24: Economic cost as a % of market cap 3.00%
Economic cost as a % of market cap 3.00% 0.39% including effect Opportunity cost Total of Liberty's 3.00% based on cost of initiative equity 2.34% 0.27% Inherent discount in buy back 0.36% excluding the effect of Total 2.80% General staff scheme Liberty's cost initiative 2.19% 0.26% 0.00% 0.50% 1.00
Slide 25: Accounting implications
Accounting implications • Repurchase of shares – Initially accounted for as a reduction in equity of R4.1bn – Weighted ave number of shares for EPS purposes • Reduced by number of shares bought back • Reinstated on full redemption or to the extent re- financed • Preference shares issued by subsidiar
Slide 26: Accounting effects
Accounting effects 2003 base 2004 Medium-term impact* normalised* HEPS 468c 0.5% 3.5 to 5.0% Fully diluted 470c 1.2% 0.2 to 0.7% HEPS ROE 22.8% ∆ 1.2% ∆ 1.5 to 2.5% NAVPS 2 141c 5% 3.5 to 5.5% * Including the effects of Liberty’s ownership initiative The 2004 impact is distorted by non-recurring ite
Slide 27: Capital adequacy implications
Capital adequacy implications Proforma Dec 2003 Tier 1 Total Group % % At 31 Dec ’03 11.4 14.8 After preference share issue 12.6 16.0 After proposed transaction 10.8 14.2 Target range 9 - 10 Banking operations At 31 Dec ’03 10.8 14.4 After preference share issue 12.0 15.6 After proposed transaction
Slide 28: SBK shareholding
SBK shareholding Pro forma after the recommended Dec ’03 transaction % % 1 Old Mutual Group 13.8 12.8 2 Public Investment Commissioner 12.6 11.6 3 Liberty Group 4.7 4.4 4 Sanlam Group 4.3 4.0 5 Investment Solutions 3.3 3.0 6 Tutuwa Consortium - 3.0 7 Black management - 2.9 8 Transnet Pension Fund 2.
Slide 29: The Charter scorecard
The Charter scorecard The pillars Procure- Human ment and Ownership Access to Empower- Corporate Resource Enterprise and Financial ment Social Develop- Develop- Control Services Financing Investment ment ment The points 17 25 15 18 17 3 5 The recommended transaction helps secure points D D D 29
Slide 30: Mechanics and financial effects: Liberty Life
Mechanics and financial effects Liberty Life Myles Ruck 30
Slide 31: A direct black shareholding of 9.4% is required
A direct black shareholding of 9.4% is required Rm Liberty Life market capitalisation 14 068 Value of Liberty Ermitage (635) Equity value of South African operations 13 433 10% of Liberty Life’s South African operations – 1 343 gross empowerment value Less empowerment value of STANLIB (28) Net empow
Slide 32: Implied shares to be purchased
Implied shares to be purchased % of Based on shares in issue 275.8 million shares Millions of in issue shares Rm Tutuwa Consortium 3.74 10.3 526 Black management 3.74 10.3 526 Broad-based educational and regional 1.87 5.2 264 groupings Total to be purchased in terms of the 9.35 25.8 1 316 scheme Exi
Slide 33: The process of the recommended transaction
The process of the recommended transaction 1. LGL creates wholly owned subsidiaries • Stratsub, Staffsub and Commsub • Capitalised by LGL – R1.3bn 2. Subsidiaries propose section 311 scheme of arrangement between LGL and its ordinary shareholders • 75% ordinary shareholder approval • Sanction of Hig
Slide 34: The resultant structure
The resultant structure The Tutuwa Consortium Blackmngt- Safika MCI Commtrust trust 100% 100% 100% 100% Blackmngt- General Stratsub 1 Stratsub 2 Commsub staff trust sub 2.2% 1.5% 1.9% 3.7% 0.2% Existing Liberty 90.5% Liberty Group Group ordinary shareholders Preference shares 34
Slide 35: Key terms
Key terms Capitalisation of the subsidiaries – Preference share variable rate 65% of prime – Ordinary dividend to service coupon payments and preference share redemption – Preference shares have a 20 year term • Expected payment profile 14 years • May be redeemed at any time • Can introduce 3rd part
Slide 36: Economic cost as a % of market cap 2.8%
Economic cost as a % of market cap 2.8% Opportunity cost based on cost of equity 2.1% Inherent discount in 0.5% 0.2% buy back General staff scheme cost 0.0% 1.0% 2.0% 3.0% Source: Liberty Life, independently reviewed 36
Slide 37: Accounting implications
Accounting implications • Repurchase of shares – Initially accounted for as a reduction in equity of R1.3bn – Weighted ave number of shares for EPS purposes • Reduced by number of shares bought back – 25.8 million • Reinstated on full redemption or to the extent re-financed • Preference shares issue
Slide 38: Accounting effects
Accounting effects 2003 base 2003 % change % change proforma excl once- off costs HEPS 346.4c 347.4c + 0.3% + 3.3% EPS 424.0c 433.1c + 2.1% + 4.6% Headline ROE 10.7% 11.6% EVPS R57.58 R58.43 + 1.5% + 1.6% 38
Slide 39: Capital adequacy implications
Capital adequacy implications Proforma Dec 2003 Shareholders’ CAR funds CAR times Rbn Rbn covered At 31 Dec ’03 8.7 3.4 2.6 After proposed transaction 7.5 3.4 2.2 39
Slide 40: The Charter scorecard
The Charter scorecard The pillars Procure- Human ment and Ownership Access to Empower- Corporate Resource Enterprise and Financial ment Social Develop- Develop- Control Services Financing Investment ment ment The points 17 25 15 18 17 3 5 The recommended transaction helps secure points D D D 40
Slide 41: Conclusion
Conclusion Derek Cooper 41
Slide 42: Key shareholder issues
Key shareholder issues • Long term benefits (sustainability) • Cost of the deal – 3.0% for SBK shareholders – 2.8% for LGL shareholders • Pro-rata share repurchase via a scheme • 15 - 20 year term • No initial cash investment by partners • Benefits of Charter compliance 42
Slide 43: Indicative timeline
Indicative timeline SBK Date LGL Date Scheme meeting Mid Sep 2004 Mid Oct 2004 Black management allocations End Sep 2004 End Oct 2004 finalised Regional business, community and End Dec 2004 End Dec 2004 educational groupings allocations finalised 43
Slide 44: In summary…
In summary… • Costs upfront • Simple structure • Broad-based (our own people) • Meets Charter requirements • Leverages Charter points across empowerment pillars • Long term commitment from strategic partners • Black staff retention and attraction • No unresolved funding issues • Alignment of stakeho
Slide 45: Liberty Life
s) LIBERTY LIFE
Standard Bank Group — Merger or Acquisition (July 2004) on 6ix