BWO.L Regulatory News (BWO)

Barloworld Limited

(Incorporated in the Republic of South Africa)

(Registration number 1918/000095/06)

(JSE Share code: BAW)

(JSE ISIN: ZAE000026639)

(Share code: BAWP)

(JSE ISIN: ZAE000026647)

(Namibian Stock Exchange share code: BWL)

("Barloworld" or "the Company")

ANNOUNCEMENT RELATING TO PROPOSED AMENDMENTS TO BARLOWORLD'S 2008 BROAD-BASED BLACK ECONOMIC EMPOWERMENT TRANSACTION

1. Introduction

Shareholders of Barloworld ("Shareholders") are referred to the Broad-Based Black Economic Empowerment ("B-BBEE") transaction implemented by Barloworld in September 2008 ("the 2008 B-BBEE Transaction") and are advised that Barloworld has reached agreement with the strategic black partner and community service group participants in the 2008 B-BBEE Transaction relating to certain amendments to the terms of the said transaction ("the Proposed Amendments").

In terms of the Listings Requirements of the JSE Limited ("JSE"), the Proposed Amendments are deemed material in relation to the terms of the 2008 B-BBEE Transaction as previously approved by Shareholders. Accordingly, Shareholder approval for the Proposed Amendments is required.

Full details of the Proposed Amendments will be set out in the circular to Shareholders ("the Circular") to be issued on or about 15 May 2015 and which will provide the full terms of the Amendments. The salient dates and times of the general meeting of Shareholders ("the General Meeting") to approve the Proposed Amendments, are set out in paragraph 6 below.

2. The 2008 B-BBEE Transaction

In September 2008, Barloworld implemented the 2008 B-BBEE Transaction in terms of which participants subscribed for ordinary shares in Barloworld, representing in aggregate 9.56% of Barloworld's increased issued ordinary shares after the implementation of the 2008 B-BBEE Transaction.

The 2008 B-BBEE Transaction comprised four components, namely an employee component (including black non-executive directors), which acquired an aggregate 2.71% of Barloworld's ordinary shares, an educational trust component, which acquired an aggregate 0.47% of Barloworld's ordinary shares, a community service group component (the"CSGs"), which acquired an aggregate 0.95% of Barloworld's ordinary shares and a strategic black partner component (the "SBPs"), which acquired an aggregate 5.44% of Barloworld's ordinary shares.

The relevant salient terms of the 2008 B-BBEE Transaction, insofar as they relate to the SBPs and CSGs (together "the B-BBEE Participants"), are set out below:

· The B-BBEE Participants contributed equity of R44.9 million in aggregate to their respective ring-fenced special purpose vehicles incorporated by the B-BBEE Participants for purposes of acquiring their Barloworld ordinary shares and the loans referred to below ("Funding SPVs").

· The Funding SPVs entered into loan agreements for the raising of an aggregate of R1 171 million ("SPV Loans"). The Funding SPVs in turn used the proceeds of these loans, together with a portion of their equity contributions, to advance a seven year fixed interest rate bullet loan of R1 207 million, in aggregate, to Barloworld ("Barloworld Loans").

· The Funding SPVs subscribed for an aggregate of 14,485,013 Barloworld ordinary shares ("Subscription Shares") at their par value of R0.05 per share (representing 6.40% of Barloworld's issued ordinary shares after the implementation of the 2008 B-BBEE Transaction), and have been entitled to dividends and full voting rights on those shares.

· Prior to 31 December 2014, the B-BBEE Participants were not entitled to sell the shares in their respective structures and the shares which are held in Barloworld. Between 31 December 2014 and 31 December 2017, the B-BBEE Participants will, subject to certain restrictions, be entitled to sell the shares in their respective structures and the shares which are held in Barloworld. One of these restrictions is that any disposal may not result in a loss by Barloworld of its B-BBEE credentials.

· Prior to 31 December 2017, the B-BBEE Participants were not entitled to encumber the shares in their respective structures and the shares which are held in Barloworld.

Should the 2008 B-BBEE Transaction progress in the ordinary course (i.e. in the absence of any breach of the 2008 B-BBEE Transaction agreements by a B-BBEE Participant, for instance), then after the twentieth business day after the seventh anniversary of the date on which the Funding SPV of a B-BBEE Participant makes its first drawdown under the relevant loan agreements (the seventh anniversary being 22 September 2015):

· Barloworld has the right to repurchase all of the Subscription Shares of such Funding SPV from it, at their par value of R0.05 per share;

· Such Funding SPV will be obliged to subscribe for such number of Barloworld ordinary shares as is equal to the number of Subscription Shares subscribed for by it ("Maturity Date Subscription Shares") at a subscription price which was determined by a formula and which would be R179.69 per share ("the Subscription Price"), if the subscription were to occur on 22 September 2015. If the subscription occurs after 22 September 2015 (which is expected to happen), the Subscription Price will escalate at a rate of 10.98% per annum ("the Predetermined Factor"). The Subscription Price as escalated by the Predetermined Factor is hereinafter referred to as "the Compulsory Subscription Price"; and

· If the Funding SPV of a B-BBEE Participant is not able to pay the total Subscription Price for the Barloworld ordinary shares which it is obliged to subscribe for, on the date that it is obliged to do so, then, provided it is not in breach of its obligations under certain of the 2008 B-BBEE Transaction agreements, the Funding SPV will be obliged to subscribe and pay for that number of Barloworld ordinary shares as is equal to the cash available to the Funding SPV on the date that it is obliged to subscribe for the shares divided by the Compulsory Subscription Price. The Funding SPV will then be afforded a period ending on 31 August 2016 to subscribe and pay for, at the Compulsory Subscription Price escalated at the prime interest rate plus 2%, the balance of the shares. If, by 31 August 2016, all of the shares that the Funding SPV is obliged to subscribe for have not been subscribed and paid for, then Barloworld will be entitled to claim from the Funding SPV specific performance, without prejudice to any other rights which Barloworld may have in that regard.

At the time of implementation of the 2008 B-BBEE Transaction, the Barloworld board of directors ("the Board") believed that the transaction would embrace the spirit of empowerment, while achieving the requirements of the Department of Trade and Industry's Codes of Good Practice on B-BBEE, as gazetted in Government Gazette No. 29617 ("the DTI Codes") and the goals of Barloworld's overarching B-BBEE strategy.

The 2008 B-BBEE Transaction was implemented just prior to the impact of the global financial crisis on South Africa which resulted in a decline in the Barloworld share price, and lower than expected dividends accrued to the B-BBEE Participants during the term of the 2008 B-BBEE Transaction. Due to these factors, the current position is that it is highly unlikely that the B-BBEE Participants or their Funding SPVs will be able to finance the subscription of all of the Barloworld ordinary shares which they are obliged to subscribe for either on the date on which they are obliged to subscribe for such shares or by 31 August 2016. The Board believes that if Barloworld were to enforce its rights to claim specific performance from the Funding SPVs of the B-BBEE Participants, any value created for the B-BBEE Participants by the 2008 B-BBEE Transaction would be lost, including their initial equity contribution.

The Board believes that this is not aligned with the spirit in which Barloworld undertook the 2008 B-BBEE Transaction.

3. Proposed Amendments to the 2008 B-BBEE Transaction

The Board has considered various alternatives to conclude the 2008 B-BBEE Transaction in a fair and equitable manner for the SBPs, the CSGs, Barloworld and Shareholders. The relevant salient terms of the Proposed Amendments, for which Shareholder approval will be sought by way of three resolutions ("B-BBEE Resolutions") at the General Meeting, are set out below:

· On the date on which the Funding SPVs of the B-BBEE Participants are required to subscribe for the Maturity Date Subscription Shares, they will be obliged to subscribe, at the Subscription Price (which will be R179.69 per share), for only so many shares which their Funding SPVs can afford from available cash resources. Thereafter, their rights and obligations to subscribe for further shares in Barloworld, which rights and obligations, but for the amendment, would have subsisted for another year whether or not the Funding SPVs could fund the subscription, will terminate.

· After the Funding SPVs of the B-BBEE Participants have subscribed for the shares referred to above, all restrictions imposed upon them relating to those shares and the shares in the respective structures of the B-BBEE Participants will terminate. The effect is that those restrictions which would ordinarily have subsisted until 31 December 2017 will terminate approximately two years earlier.

· To further the objective of increasing black ownership in Barloworld, the Company proposes to issue 450 000 Barloworld shares ("the Additional Shares") to the B-BBEE Participants (or their applicable entities) pro-rata to the respective shareholdings of the B-BBEE Participants' Funding SPVs in Barloworld, for a subscription price equal to the par value of R0.05 per Barloworld Share, which Additional Shares will be subject to a lock-in period of 12 months from the date of issue.

The estimated cash that would be available to the Funding SPVs as at the Last Practicable Date (being 30 April 2015) is R269.88 million. This amount includes accrued interest on the SPV Loans and interest receivable on the Barloworld Loans. The estimated cash is based on the difference between the Barloworld Loans and the SPV Loans and will therefore only materialise into cash on the maturity date of 22 September 2015. It must be noted that the cash available to the Funding SPVs will change prior to the maturity date of 22 September 2015 as a result of future dividends, interest and capital payments. For illustrative purposes, if the Proposed Amendments are implemented and the Funding SPVs of the B-BBEE Participants were able to use the R269.88 million to subscribe for ordinary shares in Barloworld at the Subscription Price, they would be entitled to subscribe for 1,501,901 ordinary shares, being 0.66% of Barloworld's current issued ordinary shares excluding treasury shares, which they would hold free of restrictions. If the B-BBEE Participants choose to sell these shares, Barloworld will still claim B-BBEE ownership points under the "continued recognition" key measurement principle in terms of the Revised DTI Codes gazetted in Government Gazette 36928 for this estimated 0.66% shareholding for a further period equal to the duration of the 2008 B-BBEE Transaction (i.e. seven years).

The B-BBEE Participants (or their applicable entities) would also be entitled to subscribe for the 450 000 Additional Shares at the par value of R0.05 per share, representing 0.20% of Barloworld's current issued ordinary shares excluding treasury shares, which will be subject to a lock-in period of 12 months. Barloworld will claim B-BBEE ownership points in respect of the Additional Shares for so long as the B-BBEE Participants (or their applicable entities) hold these shares, and B-BBEE ownership points under the "continued recognition" key measurement principle in terms of the Revised DTI Codes for the same period thereafter.

The Proposed Amendments will result in a once off International Financial Reporting Standards 2 charge of approximately R198.11 million.

Barloworld intends to repurchase on the open market such number of Barloworld shares as is equal to the Barloworld shares subscribed for by the Funding SPVs of the B-BBEE Participants (or, in the case of the Additional Shares, the applicable entities of the B-BBEE Participants) pursuant to the Proposed Amendments in order to minimise the dilution to Shareholders. The Subscription Price to be paid by the Funding SPVs of the B-BBEE Participants will be sufficient to fund the cost of such repurchase.

The Board has considered the terms and conditions of the Proposed Amendments and is of the unanimous opinion that they provide the most equitable solution for the SBPs, the CSGs, Barloworld and Shareholders, taking into account the equity risk taken by the SBPs and CSGs, the share price of Barloworld, and the objective of increasing black ownership in Barloworld.

4. Suspensive Conditions

The Amendments are subject to the fulfilment of the suspensive condition that, by 30 June 2015, they are approved by Shareholders. The notice of the General Meeting, which forms part of the Circular, will set out the B-BBEE Resolutions. Each of these resolutions must be supported by 75% or more of the voting rights exercised on the resolution by Shareholders present or represented by proxy at the General Meeting and entitled to exercise voting rights on the resolutions. The votes of the Funding SPVs, their associates, and, in the case of the resolution for the Additional Shares, the applicable entities of the B-BBEE Participants, and their associates, shall be excluded from voting.

5. Pro forma financial effects of the Proposed Amendments

The pro forma financial effects which illustrate the impact of the Proposed Amendments on the earnings per share ("EPS"), headline earnings per share ("HEPS"), net asset value per share ("NAV") and tangible net asset value ("TNAV") of Barloworld for the twelve months ended 30 September 2014, are set out below.

The pro forma financial effects are presented in accordance with the provisions of the Listings Requirements of the JSE and the Guide on Pro Forma Financial Information issued by the South African Institute of Chartered Accountants. These pro forma financial effects are the responsibility of the Board.

The pro forma financial effects are presented in a manner consistent with the basis on which the historical financial information of Barloworld has been prepared and in terms of Barloworld's accounting policies applied for the 30 September 2014 financial year.

The pro forma financial effects have been presented for illustrative purposes only and, because of their nature, may not give a fair reflection of Barloworld's financial position, changes in equity or results of operations post the implementation of the Proposed Amendments.

It has been assumed for purposes of the pro forma financial effects that all of the Proposed Amendments took place with effect from 1 October 2013 for statement of comprehensive income purposes, and on 30 September 2014 for statement of financial position purposes.

Notes:

1. Column A has been derived without adjustment from Barloworld's audited consolidated results for the year ended 30 September 2014.

2. Column B illustrates the impact of the IFRS 2 charges, transaction costs and issue of the Additional Shares arising as a result of the Proposed Amendments:

a. A once-off IFRS 2 charge of R155.31 million, arising from the termination of the obligation to subscribe for further shares contemplated in paragraph 3, calculated using a Monte Carlo simulation model using the following model inputs and assumptions:

i. Last Practicable Date 30 April 2015

ii. Primary maturity date 21 October 2015

iii. Initial Subscription Shares 14 485 013

iv. Share price on Last Practicable Date R95.10 per share

v. Maturity strike price R179.69 per share

vi. Risk free rate Swap curve

vii. Expected dividend yield 3.0%

viii. Expected volatility 25%

ix. Scheme value before amendment R182 568

x. Scheme value after amendment R155 495 942

b. The issue of 450 000 Additional Shares to B-BBEE Participants at par value of R0.05 per share equal to R22 500;

c. A once-off IFRS 2 charge of R42.8 million related to the issue of the Additional Shares as contemplated in paragraph 3, calculated as the difference between the Barloworld share price as of the Last Practicable Date and the par value of R0.05 per share, multiplied by the number of Additional Shares; and

d. Once-off transaction costs amounting to R5.19 million have been expensed.

3. Column C illustrates the additional impact of the exercise by Barloworld of its option to repurchase 14 485 013 Barloworld shares from the B-BBEE Participants at par value pursuant to the 2008 B-BBEE Transaction on the assumption that such option will be exercised and the result of the subscription and payment by the Funding SPVs of the B-BBEE Participants at R179.69 per share for so many shares as they can afford from available cash resources (being 1,501,901 shares based on the cash available to the Funding SPVs of the B-BBEE Participants as of the Last Practicable Date) and includes the impact of Column B.

4. Column D is not a direct outcome of any of the Proposed Amendments, but Barloworld intends to repurchase Barloworld shares on the open market to minimise the dilution of the cash subscription of shares set out in Column C. The column illustrates the additional impact of Barloworld repurchasing 1,951,901 shares in the market at a price of R95.10 per share (as of the Last Practicable Date) and includes the impact of Column B and C.

6. Salient dates and times

The salient dates and times in relation to the posting date of the Circular and the General Meeting are set out below:

Notes:

1. All times shown in this SENS announcement are South African local times.

2. These dates and times are subject to change. Any changes will be released on SENS and published in the South African press.

Johannesburg

12 May 2015

Investment Bank and Transaction Sponsor

The Standard Bank of South Africa Limited

Legal advisors

Bowman Gilfillan Inc.

Independent Reporting Accountants and Auditors

Deloitte & Touche

Public Relations Firm

Instinctif