Paul Janisch

SAB's BEE deal

It's made the press again -in fact it's made a lot of press.  I was referred to the Business Day report by Robert Simmonds.  This report concentrated on the beneficiaries, 20% of whom are SAB's lower paid white employees.  And once again Mr Obvious (one Ajay Lalu) is asked for his opinion - to which he replies  “Unfortunately, according to the codes of good practice, white beneficiaries don’t qualify,”  Er....... tell us something we don't know Ajay.  So what if they don't get any points for this deal - what SAB hopes to achieve is the financial independence of their staff and sundry other players.

And then not to be outdone ol' Aj "criticised the fact that there was no guarantee on the value of the stakes at the end of the 10-year lock-in period."  He might have been taken a bit out of context here so I'll cut our hero a little slack - but just in case AjLal is not that clued up about these things I'll explain it for him.  RISK AND REWARD OLD MAN, CAPITALISM IS ALL ABOUT RISK AND REWARD.

I've blogged about the SAB deal before

SAB is a fascinating deal, it stands out as the only one where the business reasons are so apparent.   We know that the Western Cape is clamping down on unlicensed taverns and 70% of SAB's turnover comes from unlicensed taverns.  Here is SAB staring at the potential demise of their biggest channel unless they do something.  Sheer brilliance, if I may use such a superlative.

And I still think it's the best deal done so far, in spite of what Fawu says.  Let them strike I say - just make sure that you suck on Windhoek Lager at the end of the day of hard toyi-toying.

Cisco re-routes

And there I was getting so excited about HP.  Cisco has gone one better in my humble opinion.  All listed multinationals should be looking at this option.  Simply put, Cisco has provided Cisco Systems Inc (NASDAQ:CSCO) long-term share participation rights to numerous people within South Africa.  The CSCO shares are equal to the rather sterile figure of 25.1% of three local operations within South Africa.  There is also the traditional lock-in clause until 2017.  An explanation can be found on the Cisco website.

I have always loved this idea - you are now creating some serious wealth for new players.  The stock is no longer dependent on the performance of the local bourse, it is linked to the primary listing.  So if the the JSE goes south on its own and the NASDAQ pumps you are in the pound seats.

Now - what isn't clear is how they did this.  The codes tried to make it as difficult as possible for this to happen.  Paragraph 6 of Code 100, statement 103 (recognition of equity equivalents for multinationals) is the relevant section.

6.3 In calculating their ownership score. Multinational Businesses may recognise sales of Equity Instruments in non-South African Enterprises to black people, on the following basis:

6.3.1 the non-South African Enterprise must form part of the chain of ownership between the Multinational Business and its eventual holding company; (this is not too difficult) and
6.3.2 the transaction must comply with South African exchange control requirements; (this limits the maximum investment of each person to about R500k per year and to the best of my knowledge it is only natural people who can do this) and
6.3.3 the percentage of the value of the Equity Instruments sold to the value of the Multinational Business represents the recognisable black claim to Economic Interest (again not too difficult)
6.3.4 the percentage of Exercisable Voting Rights ceded to the buyers of the Equity Instruments in the Multinational Business represents the recognisable black right to Exercisable Voting Rights; (this is the bugger, there has to be a cession of rights in the local operation, this is probably VERY difficult.  Shareholders have voting rights on the shares and shares in the parent company are attached to the company as a whole, not its subsidiaries).and
6.3.5 the rights of ownership in the Equity Instruments are comparable to rights that would have accrued had the Equity Instrument B-BBEE  in the Multinational Business.

Cisco has somehow got around this.  We not quite the  press release does state that "the transaction is subject to customary closing conditions, including regulatory approvals".