The board of the Nasdaq-listed and United States-headquartered UTi Worldwide Inc has approved a proposal of a transaction that will earn the company’s South African operations black economic empowerment (BEE) credentials, the company announced on Friday.
UTi, a global supply-chain solutions provider, is a subsidiary of JSE Securities Exchange-listed United Service Technologies’ Uniserv. Uniserv’s only interest is an investment of about 30% in UTi.
The transaction is conditional on the negotiation and execution of definitive documents and final certification — likely to be received in July — by BEE ratings agency EmpowerDEX.
The transaction will not affect UTi’s International Healthcare Distributors acquisition, which became effective in June. It already provides for a 25,1% shareholder interest by an independent, broad-based BEE entity. The transaction will involve a BEE trust that will be established to provide broad-based educational benefits to UTi’s staff in South Africa and their dependents.
“Through black empowerment initiatives, South Africa is accelerating economic participation for the benefit of historically disadvantaged South Africans,” UTi Africa CEO and board vice-chairperson Matthys J Wessels said.
“We believe the plan we are putting in place holds important advantages for our employees and our company, consistent with the intentions of the South African government. Under the Broad-Based Black Economic Empowerment Act, companies in South Africa are encouraged to increase their purchasing from black empowered enterprises.
“Thus, being certified as black empowered is seen as an important means to retain current business and, perhaps, gain a competitive advantage against companies not so designated.”
UTi’s operations in the country will — in terms of the proposal — be transferred to a new company, UTi South Africa (UTiSA), in exchange for an interest-bearing note from the local company.
The company expects that the note will not be repayable for the first five years. In connection with the transaction, 25% of the equity in the newly formed UTiSA will be sold to the BEE trust while UTi will retain the remaining 75%.
The price is based on the value of the shares of the local entity.
It is expected that the interest the Nasdaq-listed company will earn on the note for the remainder of the current fiscal year will approximate the expected earnings before tax and interest of UTiSA’s operations. Therefore, the proposed transaction is anticipated not to be dilutive to UTi’s consolidated earnings in the current fiscal year.
UTi’s gross revenues for the first quarter rose 50% to $489,6-million from $326,8-million previously. Net revenues for the first quarter in 2004 gained 29% to $170-million from $131,4-million before. Operating income increased by 68% to $18,7-million from $11,1-million while the operating margin rose to 11% in the first quarter compared with 8,4% previously. — I-Net Bridge