MTN has pulled its planned black economic empowerment (BEE) scheme as a result of the global economic crisis.
The deal, which was supposed to be implemented in the first half of this year, will be tabled until further notice. While the company says it is still committed to following through with the equity deal, it is as yet unclear when it aims to reinitiate the plan.
In a statement this morning, the company explained: “MTN shareholders are advised that, in light of the severe constraints in current financial markets, the board of directors of MTN has determined it is presently not in the best interests of the company, its shareholders and the BEE investors to implement the proposed BEE transaction during the first half of 2009, as originally planned.”
The multibillion-rand BEE deal was announced on the tail of MTN's decision to unwind Alpine Trust-created investment business Newshelf 664. According to MTN's statement, the repurchase of Newshelf will continue.
The statement indicates the unwinding is well on track and legal documents are being finalised. “The legal agreements necessary to implement the Newshelf acquisition are in the process of being finalised and a further announcement containing the final terms of the Newshelf acquisition will be made, and circular to shareholders posted, in due course,” explains MTN.
Unwinding benefit
MTN's announcements regarding the unwinding and BEE transactions, in December, had many of the company's investors and employees in uproar over the dilution of the Newshelf share quota.
Employees have complained they are now expecting fewer shares in the unwinding than was promised when the initial allocation was made.
Newshelf was created independently of MTN, in 2002, by Alpine Trust when Transnet sold shares to the company at an average price of R13.90.
Unwinding the business at the company's current share price not only means MTN can pay its debt, but it also provides a significant windfall for those involved, owing to the sharp increase of the company's share price since 2003.
Some 2 400-plus employees are expected to benefit from the unwinding through share allocation, including MTN Group CEO Phuthuma Nhleko; COO Sifiso Dabwenga; and former MTN director Irene Charnley, among others. Newshelf currently owns 13.1% of MTN, at an estimated value of R24.4 billion.
Losing out
The BEE deal would have benefited black employees, since a large chunk of the unwinding shares had been allocated to black participation. The company also opened the deal to black South Africans in general.
"Eligible employees of MTN and black South African non-executive directors of MTN will also be invited to participate in the BEE transaction," the company said at the time of the original announcement.
The company signed a memorandum of understanding (MOU) with the Public Investment Corporation (PIC) that would oversee the unbundling.
MTN expected the BEE transaction to comprise between 5% and 6% of MTN's issued ordinary shared capital. In terms of the memorandum of agreement, the PIC would have made 6% of MTN ordinary share capital available from its equity portfolio for the BEE deal.
The MOU also stipulated that MTN will acquire Newshelf for a nominal value. The company explained it would settle the debt obligations, forking out R400 million in cash and issuing around 213.9 million shares - 11.5% of the company's issued share capital.
Analysts have noted the BEE transaction would have placed MTN in the ideal position to expand its emerging market presence.
MTN did not respond to ITWeb's request for additional comment by the time of publication.
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