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Sanlam announces BEE transactions worth R11 billion

The broad-based deal also extends its partnership with the Patrice Motsepe controlled Ubuntu Botho.
If you want to lead in SA, you need to lead in empowerment, says Sanlam CEO Ian Kirk. Picture: Moneyweb

Sanlam has announced details of its much-anticipated BEE deal which will see it increasing its direct black shareholding to 18% and black economic ownership, which combines direct and indirect holdings, to 35%.

The deal has three parts to it.

In the first, the company will issue new shares, equivalent to 5% of the enlarged share pool, to a group of new shareholders that include women, youth, employees as well as its existing shareholder Ubuntu Botho, which is controlled by Patrice Motsepe and has been invested in Sanlam since 2004. Of the 5%, the majority (80%) will be allocated to the new broad-based shareholders and the minority (20%), to its established partner. 

This transaction is worth about R8 billion, depending on the final price of the Sanlam shares, and will be funded by Sanlam and Standard Bank. It is structured over a seven-year period. The first BEE deal, which was structured in 2004 and saw 14% of the firm transferred to its partner Ubuntu Botho, is debt free.

Sanlam share performance over the last year

The second leg of the deal will see Sanlam loan R2 billion, at commercial rates, to Ubuntu Botho. It will use this to acquire a 25% stake in Sanlam Investment Management (SIM), taking its controlling stake to over 51%. “This is a repositioning of SIM,” says Sanlam CEO Ian Kirk. The balance of the funds will be used to invest in other financial sector businesses. These investments, he explains, will be in areas where Sanlam has traditionally been weak, such as healthcare, employee benefits, and entry-level life.

The third leg of the deal will see Sanlam acquire a 25% stake in ARC Financial Services from African Rainbow Capital. “What we are doing is deepening and extending our relationship with Ubuntu Botho [UB],” Kirk says.

The issuance of new shares will also strengthen Sanlam’s balance sheet. The proceeds from the BEE transaction will be used to redeem about R4 billion of the short-term debt facilities raised in acquiring the remaining 53.37% shareholding in Morocco-based Saham Finances. This will enable Sanlam to stabilise and strengthen its balance sheet. “Sanlam is very conservative in this way as their balance sheet could easily have handled the debt,” says Glen Heinrich an analyst with Perpetua Investment Managers. “However they like to keep flexibility by having a strategic facility of excess capital handy for whatever may come their way. In this case, they utilised the opportunity to better strategically position their SA business through the BEE deal.” 

Increased black ownership at group and operating subsidiary level is important to realising Sanlam’s vision to lead in all market segments in South Africa. “While direct broad-based black ownership at the listed company level is key, increasingly clients want to see broad-based empowerment in the operating businesses with which they are going to be doing business,” Kirk says.

“Strategically the deal makes sense,” adds Heinrich. “The company is thinking long-term and is positioning the parts of their SA business where they are not the market leader to better compete. Also, the partnership with UB has been very successful and the further relationship with ARC FS has been discussed in the market for a while, so this was no surprise. Ultimately the relationship should be symbiotic given UB’s large stake in Sanlam but investors should always be aware of any potential conflicts of interest and monitor them accordingly.”

“Sanlam has a history of supporting empowerment – first for the Afrikaaners and now for black South Africans,” says Kirk. “I firmly support the government’s assertion that our task is to build a country driven by enterprise and innovation and to develop an economy that is diverse, resilient and prosperous.”

 

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Look forward to colossal job growth from this game changing deal! Thereafter Sanlam can take on Allianz etc. as a true global business.
Brilliant

Mandela would be proud

SA needs to ditch BEE, it serves no purpose. The blatant lies about the minimal black ownership on the JSE were just that.

All for broad based employee schemes however, seems like a decent way to reward good performance across the board.

I agree — employee schemes, from mid level management and lower, is potentially a worthwhile idea. If employees shared in profits, and it was based on tenure rather than seniority of position, it could make a big difference to productivity and nest eggs of ordinary workers.

BEE however…has cost companies fortunes, continues to cost fortunes and ordinary shareholders suffer the dilution/ destruction in value.
And it looks like it will never end. I could have agreed to the sense of it if once empowered, always empowered was codified into law but now it remains an open ended, never ending demand to ensure the likes of Ramaphosa and Motsepe get even richer than they are.
That is the value of BEE — not to empower the previously disenfranchised or economically empower poorer black people, but to ensure a constant stream of wealth to the new black elite.

I struggle to see how value is created in deals like this (but then I am not a CA or the recipient). Shares are issued by Sanlam and sold to a shareholder. In theory this should have an NPV of zero, but there will be risks since the new shareholder does not pay upfront.

Besides ticking the box of a BEE ownership for Sanlam, why should this interest me from a value creation perspective? What is the IRR of this deal and what is the WACC for Sanlam? For a financial services company operating in South Africa, I would look at a number of about 12-15% for the WACC due to the riskiness of the cash flows. IRR of this deal will need to be higher than this, otherwise it is value destructive.

Keep in mind this will be repeated again in about 10 years time.

ZA inc = uninvestable

I can see value to Patrice Motsepe but little else to any other person.

Vodacom did something similar. Share price was destroyed and looks like it will never recover.
If something similar happens to Sanlam shares then it could be that non-beneficiary shareholders are finally starting to protest with their money/ feet.
Sadly I still like both sanlam and vodacom so i am one of the sods who will have to endure the value destruction and hope at least the dividends remain healthy.

Well if they issue more shares and nothing else changes, then dividend per share will decrease.

Let’s see:
Arc wants to expand but cannot because it’s short on cash. Also, it cannot raise funds because it’s trading at a heavy discount. So, it’s better to dilute someone else.

Luckily Van Zyl is also Chairman of big brother Sanlam while Little Van Zyl sits on the Board of SIM. So they get Sanlam to raise the cash by issuing shares and then to lend the funds to Arc to expand.

Nice!

Yip, that’s more or less how it works for larger listed corporate’s. If you wish to keep the doors open without legislation forcing your hand or to avoid government interference such as MTN is experiencing in Nigeria, the price of doing business in S.A for large listed entities, is broad-based empowerment – whether one sees any sense in it or not. The process is implemented through means of raising of extra capital to fund such BEE transaction. Private participation in owning the shares of any listed entity is of course not compulsorily for anyone who dislikes the requirements for big business to operate in S.A.

“Sanlam has a history of supporting empowerment – first for the Afrikaaners (Sic) and now for black South Africans,” says Kirk.
I think Mr Kirk has his own interpretation of history: The Afrikaners started SANLAM to drag themselves up by their boot straps (very successfully, I might say) not to free load off BEE shares.

Following comments already made I think Sanlam are proving nimble (and unprincipled) in pragmatically doing what is needed to survive and hopefully prosper in a morally corrupt environment. It is no different to what they did during apartheid. The real crunch though; in both scenarios was for the common man. He’s the one who actually paid and pays for this government licenced theft and gifting to the currently well connected like Patrice Motsepe. The only “broad based” thing about it is Cyril’s bum.

I’m not sure how this BEE/Patrice Motsepe what-what helps the average shareholder.

Another company I wouldn’t touch with someone else’s money.

”Sanlam loan R2bn to Ubunthu Botho to increase stake in Sanlam to 51% ”
This sounds like a judas move by Sanlam on WMC .
when are these companies going to stand up and tell government Bbeee does not work?

End of comments.

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