SOURCE: Sappi Limited

April 19, 2006 07:54 ET

Sappi Ld announces Empowerment Transaction

Johannesburg, SA -- (MARKET WIRE) -- April 19, 2006 --

Sappi/ Lereko - Announcement of a Black Economic Empowerment Transaction

Sappi Limited
Incorporated in the Republic of South Africa
Registration Number (1936/008963/06)
Share Code: SAP & ISIN ZAE000006284
("Sappi")

Lereko Investments (Proprietary) Limited
Incorporated in the Republic of South Africa
Registration number (2004/013452/07)
("Lereko Investments")

ANNOUNCEMENT OF A BLACK ECONOMIC EMPOWERMENT TRANSACTION

1. INTRODUCTION

Sappi has concluded a black economic empowerment ("BEE") transaction with Lereko Property Company (Proprietary) Limited ("LPC"), a company formed by a consortium led by Lereko Investments which will include Sappi South African employees. LPC will acquire a 25% economic interest in Sappi's South African plantation land portfolio ("the Sappi land") for an amount of R224 million through a vendor-financed mechanism ("the BEE land transaction").

2. RATIONALE

Sappi is one of South Africa's largest private landowners, with in excess of 360 000 hectares across its commercial forestry operations. The overriding objectives of the BEE land transaction are to:

- introduce an empowerment shareholder who, over time, will become the
  beneficiary of an unencumbered 25% economic interest in the Sappi land;
- facilitate development projects identified and managed by LPC, 
  predominantly on areas of the Sappi land not used for commercial 
  operations, with the aim of enhancing value generated from the Sappi 
  land; and
- enable Sappi to continue its commercial operations.
LPC will have an exclusive right to participate, at its election, in all commercial property development initiatives on the Sappi land.

Through a formal selection process, LPC was identified as being the most appropriate partner to assist Sappi in unlocking value within its land portfolio to the benefit of all stakeholders.

3. THE COMPOSITION OF LPC

The composition of LPC is illustrated below:

3.1 Lereko Investments (46,19% (1))

Lereko Investments is a company founded by black individuals who have been involved in community service and the liberation struggle since the 1970's through to the 1990's and who continue to undertake community work. They were influential in the unfolding of the South African democratic process in the early 1990's. These individuals have since successfully established themselves as business people.

Lereko Investments' mission is to be a leading player in the black empowerment arena, focusing on selected sectors of the economy where together with key stakeholders (shareholders, management and employees and communities), it will participate in the transformation of South Africa with a view to enhancing the economic well-being of all its stakeholders and creating long-term value for them. Lereko Investments' founders are committed to participating in value-adding, sustainable black empowerment transactions.

(1) = Lereko Investments has the right to appoint the majority of the board of directors of LPC

3.2 Malibongwe Women Development Trust (10,14%)

Malibongwe is a trust focusing on the upliftment of women in South Africa. Malibongwe operates in all nine provinces in South Africa and has a beneficiary base in excess of ten thousand women.

3.3 Sappi workers trust (30,00%)

Sappi and Lereko both subscribe to the principle of appropriate and truly broad-based participation. Accordingly, a trust for the benefit of Sappi's South African employees who do not currently participate in other company share incentive schemes will be established to participate in the BEE land transaction.

3.4 AMB Capital (13,67%)

AMB Capital is a specialist empowered financial services company offering a suite of niche services within the South African financial services environment.

4. FINANCING BY SAPPI

In order to ensure that the BEE land transaction is sustainable and generates a return for LPC's shareholders, Sappi has agreed to provide financing on the basis illustrated below:

1. Sappi companies sell to LPC a 25% undivided ownership share in the 
   Sappi land subject to (2).
2  Sappi reserves a real right of use over the 25% undivided ownership 
   share to secure the continued conduct of its commercial forestry 
   operations on the Sappi land.
3. Sappi Manufacturing (Proprietary) Limited (a wholly owned subsidiary of
   Sappi) issues preference shares to LPC on which LPC will receive an 
   agreed return for Sappi's right of use over the land. These preference 
   shares are only redeemable on the sale of the Sappi land.
4. LPC issues preference shares to Sappi Manufacturing ("the LPC 
   Preference Shares") on which Sappi Manufacturing will receive a 
   funding rate which is lower than LPC could obtain from third party 
   financiers to finance the acquisition of land.

5. OTHER SALIENT FEATURES

5.1 Reservation of real rights

Sappi has reserved a real right of use over the Sappi land to allow it to conduct its commercial forestry and related operations.

5.2 Exit Mechanisms

After a period of 10 years from the effective date of the transaction, LPC will have the opportunity to realise its 25% economic interest in the Sappi land based on an independently determined market value, thereby allowing LPC to realise the full capital growth in its investment in the Sappi land. In certain circumstances, Sappi will have the right to acquire LPC's ownership share. This will be at a pre-determined premium to market value if exercised within the first 10 years and at market value after 10 years. In the event of Sappi exercising this right, LPC will have the right to acquire selected areas of land not exceeding 15 000 hectares in aggregate.

5.3 LPC obligation to redeem preference shares

LPC will not be required to make redemptions of the LPC Preference Shares during the first 5 years but thereafter will be obliged to utilise an agreed percentage of accumulated proceeds received from any land sales and other value adding initiatives to redeem the LPC Preference Shares. This aims to ensure that, over a reasonable period of time, LPC will effectively become the economic beneficiary of an unencumbered 25% undivided share in the Sappi land.

6. UNDERTAKINGS GIVEN BY LPC

The following material undertakings have been given by LPC:

- LPC will not be entitled to sell the 25% undivided ownership share for 
  an initial period of 10 years;
- LPC will remain a black controlled company for at least a period of 10
  years;
- No shareholder of LPC may sell their equity in LPC for a period of 5 
  years; and
- Popo Molefe and Valli Moosa will retain a meaningful effective economic
  interest in LPC for a period of 10 years.

7. CONDITIONS PRECEDENT

The BEE land transaction is subject to the following main conditions precedent:

- The signature of certain supplementary agreements;
- Satisfactory legal and accounting opinions;
- The necessary consents of the Minister of Agriculture and Land Affairs 
  in terms of the subdivision of Agricultural Land Act, 1970;
- Notification to the regional land claims commission as contemplated in 
  Section 11(7) of the Restitution of Land Rights Act, 1994; and
- Approval of the registration of the real rights referred to in 5.1 
  above in terms of the Deeds Registries Act, 1937.

8. FINANCIAL EFFECTS

The pro forma financial effects of the BEE land transaction on the earnings, headline earnings, net asset value and tangible net asset value per share of Sappi are not significant.

Johannesburg
19 April 2006

Financial Advisor to LPC
AMB Capital Limited

Legal Advisor to Sappi
Deneys Reitz

Legal advisor to LPC
WWB

UBS
Sponsor
For further information:

Andre F Oberholzer
Group Head Corporate Affairs
Sappi Limited (Reg No 1936/008963/06)
Tel +27 (0)11 407 8044
Fax +27 (0)11 403 8236
Mobile +27 (0)83 235 2973
andre.oberholzer@sappi.com

Brunswick Group LLP
Roderick Cameron
Nonhlanhla Kumalo
Tel +27 (0) 11 268 5750



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