/ 20 March 2008

City Lodge concludes R485m BEE deal

JSE-listed City Lodge Hotels has concluded a broad-based black economic empowerment (BEE) transaction including its employees, the University of Johannesburg’s school of tourism and hospitality and black-controlled investment company Vuwa Investments, the company said late on Wednesday.

Tourism and hospitality students and the group’s own staff are the major beneficiaries of the proposed R485-million BEE transaction.

“Contributing to the education of black students in the tourism and hospitality sector is an investment in the future of South Africa while empowering and retaining our own black staff is also a key consideration for staff motivation and skills retention within our group.” said Hans Enderle, the group’s founder and non-executive chairperson.

The group’s BEE deal will include a staff trust, which will acquire a 6% stake in City Lodge Hotels (adding to the 1,7% of the group already held by a staff trust established in 1995), the University of Johannesburg’s school of tourism and hospitality will acquire a 3% stake, and empowerment company Vuwa will acquire a 6% stake.

While the overall transaction involves 15% of City Lodge’s shares, black ownership of the group will rise to 22,4% if mandated investments, as defined by the Department of Trade and Industry’s BEE codes, are excluded from the existing shareholding structure.

Outlining the structuring of the transaction, Enderle said City Lodge and its advisers have spent the past year examining the most meaningful and creative way to improve the group’s BEE credentials and at the same time make a substantial contribution to skills development and skills retention.

“The University of Johannesburg’s school of tourism and hospitality has played a very important role in developing skills over many decades, so we came up with a means to assist them to continue this role into the future,” added Enderle, himself a graduate of a Swiss hotel school.

As part of the agreement relating to the university acquiring a 3% stake in City Lodge, it will receive a 10% “trickle dividend” that will be used annually to fund bursaries for historically disadvantaged black students. At least 85% of bursary recipients must be black, half of whom must be female.

The staff trust, in the form of the Injabulo Staff Trust, will benefit eligible employees, including all current and future black and white employees who do not qualify to participate in the company’s executive share incentive scheme. About 75% of City Lodge staff are black.

“The City Lodge 10th Anniversary Employees Share Trust that we introduced in 1995 — which was pretty groundbreaking at the time — has proved to be such a success that we thought we would replicate and expand the model as part of our broad-based BEE initiative,” added Enderle, stressing that this trust has enabled staff to realise the value of being shareholders in their own employer company through the receipt of regular share distributions and annual dividends.

Requiring approval from 75% of shareholders, City Lodge has proposed that the transaction takes the form of a court-sanctioned scheme of arrangement that will require existing shareholders to sell 15% of their holdings at the 10-day volume weighted average price measured back from March 18 2008. The share price for the transaction will be R76,06 compared with the current share price of about R74,50.

Vuwa is an empowerment company led by Bulelani Ngcuka, who is an 18% shareholder.

A scheme meeting of shareholders of City Lodge will be convened in June, with the scheme of arrangement being sanctioned by the court later in the month. The repurchase of shares is envisaged to take place to take place in July 2008. — I-Net Bridge