To launch the package of transactions, Sanlam will issue new shares to a new broad-based group of empowerment shareholders (80% of new shares) and Ubuntu-Botho (20% of new shares). This will increase black ownership in Sanlam and will strengthen Sanlam’s balance sheet by redeeming the debt raised for the Saham Finances transaction.
As part of the package of transactions, the Group will also provide a R2 billion facility to Ubuntu-Botho to be utilised for the acquisition of strategic stakes in Sanlam businesses or investment in other businesses that are complementary to the Sanlam strategy. About half of the facility will be utilised to acquire a 25% share in one of Sanlam’s operational subsidiaries, Sanlam Investment Holdings (SIH), and to establish a new black owned black managed insurance company, African Rainbow Life Insurance. SIH acts as Sanlam’s South African third-party asset management business.
In turn, Sanlam may acquire a 25% stake in African Rainbow Capital Financial Services (ARC FS) from African Rainbow Capital (ARC) – a subsidiary of Ubuntu-Botho.
Read more about the funding and structuring of the transaction.
The potential strategic benefits of the transaction include:
Sanlam will provide a R2 billion facility to UB to enable it to acquire an interest in specific operating subsidiaries of the Sanlam Group and to invest in other businesses that are complementary to the Sanlam strategy.
Sanlam and Ubuntu-Botho have demonstrated that combining strategic relationships between black investors and established businesses with broad-based black economic empowerment and entrepreneurship can create long-term value as it delivers both commercial benefits and meaningful economic transformation.
Patrice Motsepe, Chair of Ubuntu-Botho
Forged over 14 years, the partnership between Sanlam and UB is one of South Africa’s most successful empowerment partnerships.
Value for broad-based black shareholders
Increased economic inclusion for new broad-based beneficiary groups:
Pool of qualifying candidates to participate in the Sanlam economic empowerment transactions through the trusts. New participant approval to be done by a joint committee:
All participants will be beneficiaries of the Master Trust and five Beneficiary Trusts
Guidance Framework principles:
The Master Trust Deed and BBBEE legislation set the criteria on which participants will be selected. Criteria that will be considered are:
Beneficiaries of the previous BBBEE transaction will not qualify for a distribution. This will ensure that every beneficiary will be a new recipient of this initiative.
Beneficiaries should be individuals and groups that are relevant to the aims of the category, empowerment intent and should contribute to positioning Sanlam as a responsible corporate citizen. Sanlam’s intent is to enable economic transformation and inclusive growth and wealth creation for all stakeholders.
Existing networks known to the Sanlam Group and Ubuntu-Botho will be leveraged to access the potential pool of groups and individual beneficiaries. This will strengthen the reach and impact of benefits. Existing relationships include those established by Sanlam through its Group Market Development division and with Ubuntu-Botho provincial boards and structures.
Sanlam made undertakings to shareholders to provide them with information from the start of the process. This includes being fair and transparent about the beneficiary selection process.
Fairness: Beneficiaries will be selected through a fair and transparent process with clear pre-determined criteria by the trustees of the Master Trust after approval by Sanlam and Ubuntu-Botho.
Transparency: Sanlam will report annually on the level of distributions, criteria applied and impact within each of the Beneficiary Trusts, without exposing the privacy of any individual beneficiary.
Reporting: Sanlam and Ubuntu-Botho will require the administrators of the Master Trusts and each of the Beneficiary Trust to keep proper records of all beneficiaries and the details of their participation and comply with all relevant statutory reporting obligations. In addition, the trusts will be subject to an annual audit.
Independence: Those involved with the process will not be allowed to directly or indirectly benefit from any distribution. This principle will also apply to anyone connected to such individual.
Ubuntu-Botho Investments (Pty) Ltd (Ubuntu-Botho) was established in 2003 as Sanlam’s broad-based strategic empowerment partner. Its aim was to build black-controlled capital and to make a difference in the lives of ordinary South Africans by being the premier black-owned and controlled financial services entity. Its shareholders included women and youth groups, unions, church groups and trusts – all of whom received 1 000 shares as part of the original share allocation. Ten years later, at the maturity date of the Sanlam empowerment transaction, these shares were valued at more than R1 000 per share: the remaining 491 shareholders each had a shareholding with a minimum gross approximate value in excess of R1 million.
Many of these shareholders have used their shareholdings to further their individual businesses. Others are keeping their shareholding intact to transfer their wealth to the next generation. Some have decided to sell a portion of their holdings to meet personal financial needs. All benefited from the capital appreciation of the investment in Sanlam.
Ubuntu-Botho remained a Sanlam shareholder after the 10-year lock in period and the repayment of the original debt. The initial objective of accumulating capital had been achieved.
Sanlam’s corporate governance approach required the highest level of controls as the package of BBBEE transactions posed potential conflicts of interests and involved related party transactions.
The Board’s Independent Committee of Non-executive Directors is mandated to evaluate matters between Sanlam and Ubuntu-Botho that could give rise to conflicts of interest. The committee is chaired by Sipho Nkosi, the lead independent director, and comprises all the non-executive directors who are independent of Sanlam and Ubuntu-Botho: Anton Botha, Chris Swanepoel, Paul Hanratty, Karabo Nondumo and Mathukana Mokoka. JP Morgan was appointed as an independent financial adviser to the committee. An independent fairness opinion was obtained from Deloitte in line with the JSE Listings Requirements.
The committee met eight times since August 2017 to consider how to strengthen Sanlam’s relationship with Ubuntu-Botho, the development of Sanlam’s empowerment strategy - given the opportunities presented by the Saham Finances transaction - and the current South African context.
They met prior to all Board meetings, where the transaction was discussed, and presented findings and recommendations to the Board. The committee’s responsibilities included four submissions to the JSE and engagement with international investors seeking confirmation of the committee’s independence status and commitment to good governance principles. Detail about the matters considered by the committee in terms of the transactions, beneficiaries, funding facility and costs are available in the shareholder letter on the website.
A summary of related parties
Currently, Ubuntu-Botho legally and beneficially owns 14% of the Sanlam shares (excluding treasury shares). Therefore, it is a material shareholder as contemplated in the JSE Listings Requirements and a major party in the transaction.
Patrice Motsepe, the deputy Chair of Sanlam, has a controlling stake in Ubuntu-Botho. He is also a director of Ubuntu-Botho and ARC. In addition to their positions on the Sanlam and Sanlam Life Boards and committees, Rejoice Simelane is a director of Africa Rainbow Capital and Johan van Zyl, Chair of Sanlam, is the Chief Executive Officer of Ubuntu-Botho and Co-chief Executive Officer of ARC respectively.
Approvals and controls
All aspects of the package of transactions were reviewed and approved by the committee before these were submitted to the Board for approval.
The transactions remain subject to the fulfilment or waiver of a number of suspensive conditions, in addition to the conclusion of definitive agreements, by no later than 30 June 2019.
Sanlam was founded to assist in empowering impoverished and economically marginalised Afrikaans people. However, the organisation has since led corporate South Africa in ground-breaking empowerment transactions – this time to benefit previously disadvantaged black South Africans.
Sanlam pioneered structured BEE in South Africa when it sold its controlling stake in Metropolitan Life to a black-controlled company, Methold, to shift some of the country’s wealth to its black population. This transaction led to the establishment of New Africa Investments (NAIL), the first major black-controlled company to list on the JSE. This transaction excluded Sanlam from participation in the South African entry-level market for a period of 10 years.
Sanlam made history again when it became the first major financial services company in South Africa to conclude its own ownership empowerment transaction with Ubuntu-Botho. This became one of the country’s most successful BBBEE deals when it matured in 2014.
Sanlam announced a package of BBBEE transactions to the value of more than R10 billion, building on its relationship with Ubuntu-Botho and an expanded group of empowerment beneficiaries.
The principle of continuous transformation includes our commitment to BBBEE as a national economic priority and evidence of good corporate citizenship. As at 31 December 2018, Sanlam achieved a level 1 BBBEE status.
Sanlam has successfully contributed to BBBEE through the following primary vehicles: