First Rand and MMI issue new shares

FirstRand and MMI, what happened there yesterday? The companies both issued new shares, a Reuters story titled S.Africa's FirstRand shares fall after new stock issued says that the stock was allocated to staff, an empowerment deal. In the Reuters story, an emailed answer: "Existing shares that were allocated to staff are being sold and new shares are being issued to normalise the NAV (net asset value)." The Business Day story titled FirstRand shareholders cash in R3.4bn. Ownership has been around 10 years since February 2005, is that at a corporate level a long time to be locked in and owning shares? My next question is, this specific windfall, how is it likely to impact on consumer spend, that is not nothing at all, that is a lot of money in the hands of not that many people.

In short, if I understand the Business Day article properly, 12 thousand staff received 171 million shares at 12.28 Rand each. I went back and looked in the original SENS announcement: FirstRand intends to make available 171.4 million shares representing approximately 3.1% of FirstRand to its black South African employees. The total funding required at 12.28 Rand was 2.1 billion rand. That is why the employee scheme had to sell a lot of shares, to settle the associated debt, 64 million shares. At around 50 Rand in December, that equates to 3.2 billion Rand. The balance of the shares, the 107 million odd shares, 66.7 million were sold, leaving 40 odd million shares left, or less than 25 percent of the original staff allocation. How many share options and shares the Black Non-executive Directors Trust has received over the years, the annual report suggests that there can never be more than 62 million shares. Or so I read.

I guess all you need to know in the end is that if you were at FirstRand and had been inside the net, in the empowerment deal, you would a) have 23.7 percent of the original shares left b) own them free and clear and c) have sold 38 percent of your original shares at 3.74 times the original price paid. Sounds simple! If you had 500 shares at the beginning (which many people did), they would have around 5700 Rand in shares left, 118 or so shares, have extracted 8950 Rand from the sale of 194 or so shares. When you put it that way, not nothing at all, as they say in the classics, it is better to have something than nothing.