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Sappi empowerment deal puts 30% of its SA business in black hands
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Michael Bleby
Business Day
Thursday, March 25, 2010
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SAPPI, the world’s largest maker of glossy paper, yesterday said it had concluded an economic empowerment transaction that would place 30% of the local unit — equivalent to 4,5% of the listed parent — in black hands.
Under the deal valued at R814m, Sappi would issue new and unlisted “A” shares to non-managerial staff of all races, as well as to black managers and to a separate foundation. After 2019, when the transaction runs out, these “A” shares will convert into ordinary Sappi stock.
The deal also replaces a transaction struck in 2006 between the paper company and Lereko Property Company, in which Lereko acquired a 25% stake in Sappi’s plantation land, with the right to develop that land.
Under the deal announced yesterday, Sappi will take full control of Lereko Property Company, while the original members — Lereko Investments and its two partner organisations — will trade in their stake, worth R102m, for shares in Sappi.
The deal aligns Sappi’s local operations with the provisions of the forestry industry charter, finalised last year, which specifies a 30% black shareholding. It also raises the company’s black economic empowerment rating to level four from level six, giving it 100% preferential procurement recognition.
The employee share scheme was unique in that it would still award shares to staff who left the company, provided it was after 2013. “Even if you resign, after a period of three years we will return your vested shares (at the end of the scheme in 2019),” Sappi southern Africa CEO Jan Labuschagne said.
This won praise from an empowerment analyst.
“It is unique. We’ve seen other schemes where once employees leave, they forfeit their entitlement,” said Bravura Consulting partner Ajay Lalu.
“They are effective lock-ins for black employees. They’re worse than golden handcuffs. There’s no certainty on the share price. You have to stick around to receive that benefit.”
But an equity analyst who declined to be named said the deal would not benefit Sappi greatly. “There are only two paper suppliers. It’s not really going to open up many doors.”
Property developer Lereko had widened activities as a result of the transaction, executive director Lulu Gwangwa said. “We diversified our investment in Sappi and deepened our investment into paper and pulp,” she said.
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