Paracon buys back 36m shares

By Bruce Venter for Paracon
Johannesburg, 21 Aug 2008

Black empowered ICT resourcing group Paracon Holdings has agreed to purchase 36.3 million of its own shares from BEE shareholder WDB Investment.

This will allow WDB to settle its R49 million debt with the Industrial Development Corporation (IDC) and hold its remaining 60 million shares in Paracon unencumbered, allowing WDB access to Paracon's dividends for the first time in five years.

WDB, a women's investment company, purchased slightly more than 99 million Paracon shares, at 48c each, in 2003, translating into 25.1% of total equity in Paracon.

WDB's stake in Paracon is worth about R160 million at the current market value. WDB's debt with the IDC totals about R49 million. In terms of the agreement, Paracon will buy back the shares at R1.35 per share, for a total of R49 million and then cancel them. WDB's Paracon shareholding will then be valued at about R100 million.

The repurchase and subsequent cancellation of the shares, says Paracon CEO Mark Jurgens, will limit the dilution of the company's BEE shareholding.

"This will enable the group to maintain its strong BEE status in continued partnership with a familiar BEE shareholder with whom we have an established relationship."

Jurgens explained further that a buy-back at a discounted price will enhance the company's earnings per share going forward and maximise shareholder value.

"The repurchase further benefits shareholders as it makes effective use of our existing cash resources," he says.

In a separate transaction, Paracon will buy back 16 million shares, worth R22.2 million, from wholly-owned subsidiary Paracon SA as treasury shares, which will also be cancelled.

Jurgens says that, in terms of the Companies Act, the subsidiary was not permitted to hold more than 10% of the company's shares.

Fruitful investment

Tania Slabbert, WDB CEO, says WDB's relationship with Paracon has been successful, adding that the company is pleased at the extent to which its investment in Paracon has risen in value.

"The share buy-back will enable us to settle our entire obligation to the IDC and then hold our remaining shares unencumbered," Slabbert says.

She adds that, to date, Paracon's dividends have gone towards settling the finance charges on the IDC funding agreements.

"Going forward, access to Paracon's dividend income will boost WDB's social upliftment programmes, the original objective of the BEE transaction," says Slabbert.

The programmes currently support over 23 000 rural women.

WDB is a broad-based BEE company, wholly-owned by the WDB Trust, that supports rural women across the country. The company's profits are channelled through to this trust to develop social upliftment programmes.

Paracon's empowerment strategy has seen the company ranked as SA's best empowered listed ICT company and is ranked in 12th position in SA's Top 200 listed companies.

"The buy-back is another step in maximising shareholder return and will be earnings-enhancing for Paracon. Further, we are delighted that the BEE stake in Paracon will now begin translating to direct benefit for underprivileged communities," concludes Jurgens.