EXXARO Resources’ proposed replacement black economic empowerment (BEE) transaction was narrowly approved by a majority of shareholders today, but the group also agreed to a number of provisions.
In apparent last minute horse-trading ahead of the annual general meeting (AGM), in which all other resolutions were passed, Exxaro has agreed to broaden the scope of the BEE by no later than June next year. It has also made adjustments to the control structure such that no single shareholder would control Eyesizwe Holdings.
The market has been critical of the deal in which Exxaro intends to replace its previous 50%+ empowerment structure with a new dispensation in which it will be 30% black empowered. Sources have remarked that the deal is dilutive and hasty given that a redraft of the Mining Charter was being contested in the High Court during December.
There has also been criticism that Mxolisi Mgojo, CEO of Exxaro Resources, and the group’s former CEO and Eyesizwe Holdings founder, Sipho Nkosi, had control over the key BEE company. Mgojo defended the deal last week, saying that it was a political imperative to do BEE speedily even though the future demands of the Mining Charter were in flux.
Nonetheless, Exxaro just about squeaked through.
Requiring a majority of 75% of those shareholders who voted (and who were eligible), some 77.6% voted in favour of one particularly controversial leg of the replacement BEE deal which was to issue new shares to the new BEE structure at a discounted price.
The precursor to this was that Exxaro buy back shares owned by the former BEE structure Main Street 333 in order that it settle outstanding debt. This resolution was supported by 87.5% of shareholders with 12.5% voting against.
However, underlining just how close approval for Exxaro’s scheme was, a significant slug of shareholders – 22.39% – voted against the discounted share issue. The concern was that after having sold a portion of their shares, the members of MS333 stand to re-acquire a stake in the business at a 40.1% discount.
The exact amount of dilution, however, appeared to be a question of interpretation. Owing to the fact that the empowerment partners, the Industrial Development Corporation (IDC) included, are putting in about R4.7bn of their own unencumbered funds, means the dilution falls to about 22%, said Rand Merchant Bank which advised Exxaro on the deal.
Another adjustment agreed to by Exxaro was that the company endeavour to list the block of BEE shares in Exxaro in so doing allowing black shareholders to trade their shares with other Historically Disadvantaged South Africans or HDSAs.
A shareholder who voted against the deal told Miningmx he was “disappointed”, but said the concessions were “a victory” for minority shareholders. “Even in its revised form, I think this deal is sub-optimal. I take the point that BEE shareholders needed to be compensated for the lock in of the shares [for seven to 10 years] but not on that scale, and also this is a deal for empowerment of South African assets when, in fact, they are getting a facilitation over the whole business,” he said.
Thus ends roughly three years of deliberations over the renewal of Exxaro’s BEE structure, although its critics are likely to be perplexed it went through in its current form. Asked what may have happened had the proposed BEE restructuring been voted down, Exxaro head of strategy, Mzila Mthenjane, said: “Too ghastly to contemplate”.