Barclays recently secured 56,1% control of Absa at a cost of about R31-billion, leaving black economic empowerment consortium Batho Bonke as the second largest shareholder, with 10%.
Batho Bonke’s impeccable timing has gifted it a more than R3-billion theoretical profit on its Absa share options. It tied the knot with Absa six months before Barclays announced its intention to take a majority stake in the bank, prompting the share price to double.
While Batho Bonke already exercises voting rights over 10% of Absa’s shares, it will only take physical ownership of the shares in 2007 when it exercises options to acquire its 10% of Absa at R48 an Absa share — less than half the current share price of just under R100.
The recent announcement that Moody’s was considering upgrading Absa’s credit rating appears to have pushed the share price to a record R100 this week.
Should the Absa share price exceed R100 in 2007, the consortium will pay R69 a share which, based on recent trends, seems the likely outcome.
But at the current Absa share price, Batho Bonke’s stake is already more than R3-billion in the money, which is comforting news for the more than 400 black economic empowerment (BEE) companies and 1,1-million beneficiaries that make up the consortium. The consortium’s 10% is worth R6,6-billion at current prices, for which it will have to pay just R3,5-billion in 2007, based on the current Absa share price.
Absa’s 40 000 individual shareholders owned about 35% of the bank, worth R11,6-billion, when the Batho Bonke deal was announced 18 months ago (the rest was owned by Sanlam, 19%, Remgro 9,4% and other large institutional shareholders).
The average value of shares owned by these 40 000 individual shareholders was R289 000 when the deal was announced. These shares are now worth about R578 000 (though most shareholders will have sold some or all of their holdings to Barclays at R82,50).
Transaction costs of 2% will have a dilutionary effect of an average R75 000 per Absa shareholder (based on a figure of 40 000shareholders). But the average shareholder has still seen the value of their stake increase by R675 000 because of the doubling in Absa’s share price. The sharp move in the share price, if it continues, will soften the dilutionary effect on existing shareholders
Batho Bonke’s 1,1-million beneficiaries benefit by an average R1 700 at current Absa share prices. The biggest beneficiary is Tokyo Sexwale, with R250-million.
Unless the wheels fall off the Barclays merger and the Absa share price sinks back below R48, the Batho Bonke consortium should have no trouble raising the necessary capital to purchase these shares.
It paid about R147-million for 73,2-million preference shares issued to the consortium by Absa in April last year. Each of these carries an option to convert to ordinary shares in 2007 at a so-called strike price of between R48 and R69. Should the Absa share price rise to R130 by 2007, Batho Bonke will pay the higher strike price of R69, or about R5-billion for shares which will then be worth R9,5-billion.
The architects of the deal were Mvelaphanda’s Tokyo Sexwale, Yard Capital’s Leslie Maasdorp and Nthobi Angel, who recently resigned as non-executive director of Mvelaphanda Resources to take up a senior position at Eskom.
All three are non-executive directors at Absa, which this week announced the addition of two Barclays representatives to its board: Dominic Bruynseels, head of Barclays Africa, and Dave Roberts, CEO of Barclays international retail and commercial banking.
Maasdorp, formerly deputy director general at the Department of Public Enterprises, says Batho Bonke’s beneficiaries are drawn from a wide range of constituencies including BEE companies, community trusts, stokvels, rural NGOs and women’s organisations in all nine provinces. “It’s important to bear in mind that more than 60% of the consortium’s equity is held by more than one million people, and that figure has been audited, so this is not a case of the usual suspects enriching themselves. These one million shareholders are all potential clients of Absa.”
The consortium will receive no financial assistance from Absa, thereby staying on the right side of section 28 of the Companies Act, which prohibits a company from offering financial assistance for the purchase of its own shares. The initial R147-million it paid for the preference shares was provided by Sanlam.
Sexwale’s Mvelaphanda consortium has been allocated 20% of the shares, of which 7% is in Sexwale’s name. The so-called Leslie Maasdorp and Nthobi Angel groupings get 10% each. The rest is spread among hundreds of BEE companies, community trusts, stokvels and the like.
Tokyo Sexwale’s theoretical profit on his options now stands at more than R250-million, while his Mvelaphanda colleague Mark Wilcox, with 2%, is sitting with more than R70-million in theoretical profits.
Barclays was obliged to lift its shareholding above 56% to ensure it retains control once Batho Bonke exercises its options, which will dilute Barclays’ shareholding to just above 50%.