There were 189 black economic empowerment (BEE) deals totalling R42,2-billion in South Africa in 2003, compared with 104 deals during 2002 totalling R12,4-billion. This is according to Ernst & Young’s 13th annual Mergers & Acquisitions book released on Tuesday that reviews merger and acquisition activity in South Africa for the year 2003.
According to David Thayser, Corporate Finance Partner at Ernst & Young and author of the book, 2003 could be regarded as the year in which black economic empowerment entered a new phase as a generator of transaction flows.
“After some tough times in the 1990s, there are now a number of established black empowerment firms around, headed by shrewd dealmakers,” he says.
While participants have matured, so has official pressure from the government for business to transform at all levels grown.
Government-sponsored BEE charters in the minerals and petroleum sectors, have been followed by an industry-led charter in the financial services sector.
The review indicates that after a relatively quiet first nine months to 2003, there was a burst of activity in the final quarter, as deals were lined up in response to charter requirements.
Whereas the review noted in previous editions a shift away from minority stakes in large listed companies in favour of management control of smaller, often unlisted entities, it could turn out that 2003 marked the return of a swing back to the acquisition of stakes in larger listed groups.
According to the review, BEE names that stood out during 2003 were Patrice Motsepe (the Harmony/ARMgold deal, the Harmony/ARMgold/Avmin deals and the Sanlam/Ubuntu-Botho deal), Tokyo Sexwale’s Mvelaphanda (Gold Fields) and the Tiso Group (Investec, as well as New Africa Investments Limited). A consortium led by Sexwale also bought into Absa.
Motsepe’s mining deals really began in April with the merger of Harmony and ARMGold, in a deal worth R4,9-billion. A 34,5% stake in Avmin was also acquired for R1,7-billion at the time. Then in November, the R10,6-billion merger of African Rainbow Minerals Investments, Motsepe’s investment vehicle, and the acquisition of Avgold by Harmony were concluded.
To round off the year, Motsepe headed a consortium called Ubuntu-Botho to buy 10% of Sanlam from current shareholders in a deal worth R2,1-billion, partly in the form of deferred ordinary shares.
However, full voting rights have been vested in the empowerment shareholders from the start.
According to the review, Tokyo Sexwale’s Mvelaphanda acquired interests in Gold Fields’ Beatrix, Kloof and Driefontein mines, creating a beneficial interest in Gold Fields’ gold assets of 15%, in an overall deal worth R4,1-billion.
“Sexwale is also set to head a consortium buying 10% of Absa,” says Thayser.
Sexwale has been a non-executive director of Absa for some time, and also entered into an empowerment transaction with Absa in its asset management arm, Abvest.
Bidvest sold 15% of its shares to black shareholders in the form of Dinatla in a deal worth R2,1-billion.
“The deal was structured along the lines that the full shares only vest in the new shareholder in 2006, once a threshold share price is reached,” adds Thayser.
On a smaller scale, but as interesting, comments Thayser, has been the activities of Tiso. In May it was announced that an empowerment consortium, including Tiso, Peu and the Development Trust, had bought 25,1% of Investec, together with an Investec employees’ trust, in a deal worth R981-million.
Tiso engaged in a lengthy battle with Kagiso, Primedia and Johnnic for control of New Africa Investments Limited in a deal that was only approved this year.
“This seems to be the only case so far of the target and both potential acquirers being black empowerment firms,” says Thayser.
“Indeed, the empowerment aspect was probably the least important aspect of the deal, with the deal driven purely by discounts to NAV and the need to consolidate broadcasting assets.”
Imperial Group also went into an empowerment deal worth R1,3-billion for Ukhamba to acquire a 10% stake in the group.
On the other side, Real Africa Holdings sold off its stake in Afrox Healthcare for R355-million. — I-Net Bridge