understanding the vodacom bee deals the vodacom... · pdf fileagenda ¢welcome and...

UNDERSTANDING THE VODACOM BEE TRANSACTIONCraig Gradidge and Kagisho Mahura

AGENDA

Welcome and Intro

GMI Update

Investment Context key principles

Vodacom BEE Transaction (YeboYethu)

Admin Processes

Cyril RamaphosaForeword in Visions of Black Economic Empowerment2007

Broad-base BEE comes not only with rewards

but also with responsibility. As BEE evolves, it

will have to be the responsibility of all those

that are empowered to contribute to the

broadening and deepening of economic

empowerment across society.

GRADIDGE-MAHURA INVESTMENTSA diversified investment advisory company

Investment Sub-advisory

Asset Management Consulting

Financial Education Services

Wealth Management

A diversified investment portfolio

Unit TrustsBEE Transactions

Offshore InvestmentsShare Portfolios

Private EquityETFs (Satrix)

Alternatives (Hedge Funds)

Investment Management

Key Investment Principles

DiversificationAiming for low correlation:

Between asset classes shares, property, bonds, cash

Within asset classes Resources (Inzalo), Financials (Eyethu, Eyomhlaba, Masonge), TMT (Asonge, YeboYethu, Telkom, Welkom Yizani,

Phuthuma Nathi), Retail Industrial (Tiger Brands??)

Between currencies

Time in the Market Risk reduction over longer period

Long-term 1 year rolling returns

Total Periods - 108Negative Periods - 29

Long-term 5 year rolling returns

Total Periods - 104Negative Periods - 8

Long-term 10 year rolling returns

Total Periods - 99Negative Periods - 1

UPDATE ON PREVIOUS SCHEMES

YeboYethu

Vodacom SA

Black Public ESOP

Vodacom Group YeboYethu Thebe Royal Bafokeng

45%55%

93.75% 3.44% 0.84% 1.97%

How is the deal structured?

DISCOUNT 10% (R1562)

EQUITY 16% (R2500)

VENDOR FINANCING 74%

YeboYethu

Black Public

7 200 000Vodacom SA

Ordinary Shares

82 800 000 Vodacom SA

A Shares

Dividends

Dividends

YeboYethu

Subscribe for shares in YeboYethu

Shares sold at R25 each and in multiples of 100.

Min 100 shares (R2500), max 1,440,000 (R36m)

Total value of the deal R2.2bn

Can start trading after 5 years with other black investors

Seven-year vendor financing facilitation period

Unrestricted trading after 10 years

Receive dividends from year 1!

WHERE SHOULD ONE PITCH EXPECTATIONS?

Looking forward: need to make assumptions about

the future

Vodacom: assumptions we made

Growth Rate (of Vodacom profits)

Dividend Policy (what % of profits paid as dividends)

PE rating (value of Vodacom as a multiple of profits)

Inflation (average rate over the period)

As always rather make conservative assumptions

These are only illustrative figures

WHERE SHOULD ONE PITCH EXPECTATIONS?

AssumptionsDividend Policy 50%PE Rating 12Inflation 8%

Investment VSA sharesIssue price (per share) R 25Discount R 1,563 63 Notional Funding R 11,562 462 Your Investment R 2,500 100 Total exposure to VSA R 15,625 625

VodacomSA Profit Value at Y7 Expected dividend Present Value5% growth p.a. R 0 R 740 R 010% growth p.a. R 7,339 R 903 R 4,28215% growth p.a. R 17,305 R 1,101 R 10,097

LETS ASSUME A HIGHER DIVIDEND PAYOUT RATIO

AssumptionsDividend Policy 70%PE Rating 12Inflation 8%

Investment VSA sharesIssue price (per share) R 25Discount R 1,563 63 Notional Funding R 11,562 462 Your Investment R 2,500 100 Total exposure to VSA R 15,625 625

VodacomSA Profit Value at Y7 Expected dividend Present Value5% growth p.a. R 1,803 R 1,035 R 1,05210% growth p.a. R 9,911 R 1,264 R 5,78315% growth p.a. R 20,388 R 1,541 R 11,896

EVEN HIGHER DIVIDEND POLICY

AssumptionsDividend Policy 90%PE Rating 12Inflation 8%

Investment VSA sharesIssue price (per share) R 25Discount R 1,563 63 Notional Funding R 11,562 462 Your Investment R 2,500 100 Total exposure to VSA R 15,625 625

VodacomSA Profit Value at Y7 Expected dividend Present Value5% growth p.a. R 3,948 R 1,331 R 2,30410% growth p.a. R 12,483 R 1,625 R 7,28415% growth p.a. R 23,472 R 1,982 R 13,696

Vodacom SA

Is the largest mobile communications network operator in South Africa, by both number of customers and

revenue. The company is dominant in its market and enjoys a market share of 55%. It offers a range of

mobile voice and data communication products. The company has an awesome track record of innovation with a number of firsts nationally and internationally

over the years.

Prospects Vodacom SA

Expanding Data and Content Service Offering

MMS, internet, 3G, HSDPA, etc

Vodacom Business

Converged technology and communication services

Mobile Advertising

International Data Transmission

Undersea cabling

Risks Vodacom SA

Mature market fewer growth opportunities Approx 60% of revenue from airtime sales

Increased competition MTN, Cell C, Virgin Mobile, Telkom?

Disruptive technology Pre-paid sales more sensitive to economic cycle

85% of Vodacom SA sales

Regulatory environment changes Currency risks

Making imported equipment more expensive

Health risks

Risks - YeboYethu

No capital protection

Limited liquidity when trading shares

No regularly quoted share price first 5 years

Dividend does not fully cover outstanding debt

Risks to Vodacom (as discussed above)

Unlisted shares

Shares that are not listed or traded on a stock market Trade over-the-counter on a trading platform Participants on this platform usually have to register before

being able to trade Advantages:

Company does not incur cost of listing on stock market Usually less volatile share prices

Disadvantages: Illiquid market Price discovery hampered by liquidity, and sometimes

subjected to third party valuation

Requirements

Offer opened 30 July 2008 and closes at 15:00 on 11 September 2008

The prospectus containing application forms is available from Post Offices until 11 September 2008

Only original Application Forms will be accepted.

NOT those printed from YeboYethus website or photocopies!

Black minors (under 18 yrs) can apply

but must be assisted by a guardian and

have a bank account in their own name

APPLICATION PROCESS

Complete application form and sign

Have application stamped at your bank (go with ID)

Take application, certified copy of ID, proof of residence

to Post Office

System generates temporary YeboYethu account.

Please Note EFT and Bank issued cheque payments

must be made before 8 September 2008!

Keep record of all payments safe in case of disputes

Requirements cont

Vesting Trusts (NOT Discretionary Trusts)

Full Trust Deed

Letter of Authority

Trustees resolution authorising person/s to act

Certified Copy of ID of Authorised person/s

Proof of Physical Address

Requirements cont

Close Corporations

CK1 certificate of incorporation

CK 2 amended founding statement (if applicable)

Members resolution authorising person/s to act

Certified Copy of ID of Authorised person/s

Proof of Physical Address

Requirements cont

Partnerships

Partnership agreement

Partners resolution authorising person/s to act

Certified Copy of ID of Authorised person/s

Proof of Physical Address

Requirements cont

Unincorporated Associations e.g. Stokkie

Constitution

Members resolution authorising person/s to act

Certified Copy of ID of Authorised person/s

Proof of Physical Address

Disclaimer

This presentation does not constitute advice.

While all due care has been taken to ensure accuracy of the content of

this presentation, neither Craig Gradidge, Kagisho Mahura nor

GradidgeMahura Investments (Pty) Ltd accept any liability for any

loss that may be suffered by anyone who relied directly or indirectly

on all or part of this presentation.

GMI is a representative of Renaissance Specialist Fund Managers

(FSP 25033)

THANK YOU

Kagisho Mahura: 082 494 7480, kagisho@gminvestments.co.za

Craig Gradidge: 079 885 6215 gradidgec@gmail.com

A bit on vendor financing

Existing company(Vendor) New Company

Option: Borrow from the bank

Two things: Security Affordability

Main challenges: Personal security Interest rate risk Banks usually demand marketable assets as security Debt stands even if business falls over

A bit on vendor financing

Existing company(Vendor) New Company

Alternative option: Existing company provides funding

Offer debt usually at favourable rate to New Company Vendor sometimes guarantees dividend flow Attractive option if vendor has record of paying high dividends Positives:

vendor does not need to convince itself that it is a good company Deals can be structured on favourable terms If deal