Two recent articles in different publications discuss the sale of a company's assets and the implication this will have on the seller's BEE status. There are different rationales behind each transaction.
The first one was in Business Report on 16 October, 2006. Caxton may hive off non-core assets in BEE move.
"Caxton is considering hiving off some of its assets into a separately listed vehicle in a move designed to introduce black economic empowerment (BEE) shareholders to the company. The group's core assets are in newspaper publishing and printing, and magazine publishing. Caxton also has commercial printing operations and academic publishing, packaging and stationery." (my italics - I assume these aren't core assets)
The second one was in today's Business Day - Ngcaba drives BEE spinoff at Didata units
"DIMENSION Data has spun off two small operating entities into a separate company to give them empowerment credentials and growth opportunities."
Sound business reasons are the driving forces behind both transactions. Caxton is living up to the old "stick to your knitting" cliché, but they have recognised that these non-core assets do have a business value to a potential buyer. Dimension Data (or DimDat as we used to call them) are looking for growth opportunities in government and Africa.
And the BEE impact?
Glad you asked. Code 100, statement 101 allows companies to sell assets or enterprises within the group to generate points on the equity scorecard. This new entity is known as an associated enterprise.
There are a few rules:
- the transaction must create a sustainable business
- there must be transfer of specialised skills/productive capacity to black people
- the associated enterprise must be able to procure clients other than the initiating enterprise
- there must be no onerous outsourcing arrangements made with the initiating enterprise
Once the transaction is concluded the initiating enterprise (seller) is able to claim points on their own equity scorecard. These points are based on the percentage that the value of the associated enterprise contributes to the total valuation of the initiating enterprise. The standard code 100 rules apply thereafter (these refer to voting rights, economic interest etc).
I love this kind of transaction. The initiating enterprise's emotional attachment to the associated enterprise is diminished and the new owners are provided with a lot more freedom to be owners. All gain in the short and long term.
If you are considering this kind of transaction read statement 101 carefully. You can't flog off some old dog and think you are going to get away with it. Also if you are looking to get involved in a business as an equity partner this is a great introduction.
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