Sasol has finally spilled the beans on its long awaited Black Economic Empowerment (BEE) deal. The company announced this week that it would dish out some 63.1m shares to a range of previously disadvantaged individuals and groups. The Sasol Inzalo BEE Tra
The ‘nuts and bolts’ of the deal
Shares will be allocated according to strict criteria. The major chunk (four percent of the shares) has been reserved for Sasol employees. The group currently employs some 26 000 individuals of whom 60 percent are black. Three percent of the shares will be reserved for the black public who will be able to participate through one of two ownership structures. Sasol hopes to attract between 100 000 and 200 000 applicants by approaching individuals companies, partnerships or trusts, informal groups such as stokvels, church groups and families.
The balance of shares will be split between BEE groups and the Sasol Inzalo Foundation which will each receive 1.5 percent of the 63.1m shares on offer. Two categories of BEE groups have already been identified. The first consists of Sasol’s existing business partners and the second of empowerment groups. Sasol reports that as many as 86 BEE groups have already accepted invitations to participate.
We welcome the establishment of the Sasol Inzalo Foundation which will focus on development of critical skills in maths, science and technology. Sasol executive director Nolitha Fakude says: “This Foundation is an extension of Sasol's long-standing tradition of giving back to the community through, among others, artisan training programmes, bursaries, co-operation agreements with tertiary institutions and other sponsorships.”
Public participants get two ‘purchase’ options
The 18.9m shares available to the black public will be offered at the 60-day volume weighted average price of R366 a share. Sasol advised that the scheme would be launched around 22 May 2008 and will be open for six weeks.
Sasol has created two transaction models to ensure the offer attracts the greatest possible number of public participants. The first is a cash invitation which requires potential purchasers to pay cash up front for the total number of shares they apply for. The minimum 10 shares will cost potential investors R3 660. Holders of these shares will enjoy full dividends and voting rights from the date of ownership. A two year moratorium of the sale of these shares will be in place.
The second purchase option is a funded invitation. Sasol will provide funding to shareholders under this model to reduce the total cash contribution required. Buyers will have to subscribe for a minimum of 25 shares and will only have to put down 5% of the cash value of said transaction. At the R366 offer price, this amounts to R457.50. And that’s where the restrictions come in. Buyers of shares through the funded invitation will have to hold the shares for at least three years… They will also receive only 5% of the dividend awarded by Sasol to ordinary shareholders from the fourth year of their investment. No dividends will be awarded in the first three years. Approximately 85% of the public shares (16.1m) will be offered under this model.
Is this really a ‘broad-based’ empowerment initiative?
The problem with economic empowerment is simply this. There is only so much of the cake to go around. If you want to give people crumbs then the current practice of chopping up existing structures and dishing out miniscule percentages of listed companies is great. But real and lasting empowerment will only flow from the generation of new wealth and ideas. While beneficial ownership of a Top-40 JSE listed share cannot be sneezed at it certainly does little to ‘empower’ individual participants. In our view Sasol’s linked skills development initiative will have far greater positive consequences for the country going forward.
And the timing of the deal could cause future problems too. Will Sasol’s ‘empowerment’ shares perform as well as Telkom? When the government telecommunications company went public it allocated shares through the Khulisa empowerment programme at 2420c per share. But Telkom listed before one of the longest bull market rallies the JSE has ever seen. Today Telkom shares change hands at around 14900c, a 515% improvement on the empowerment transaction value. That’s a great return and something that Telkom’s Khulisa investors will be very happy with.
Sasol’s deal comes at an altogether different phase in the market cycle. Prospects are a lot gloomier than when Telkom listed. And if Sasol’s share price goes down (or sideways) in the next two to four years there could be a number of extremely disgruntled ‘empowered’ individuals.
Editor’s thoughts:
Everyone has their own take on black economic empowerment. It certainly looks set to remain part of South Africa’s business environment for a number or years to come. But simply dividing the country’s existing assets will never fulfil the ‘more wealth for all’ slogan. Do you think public companies should focus on wealth distribution or wealth creation? Send your comments to gareth@fanews.co.za, or add them below.
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Added by moose, 31 May 2008