Primedia - Increase Of The Bee Shareholding In Primedia
Primedia - Increase of the BEE shareholding in Primedia and withdrawal of cautionary announcement

Primedia Limited
(Incorporated in the Republic of South Africa)
(Registration number 1993/003355/06)
Share code: PMA & ISIN: ZAE000035119
Share code: PMN & ISIN: ZAE000035127
("Primedia" or "the company")

INCREASE OF THE BLACK ECONOMIC EMPOWERMENT ("BEE") SHAREHOLDING IN PRIMEDIA AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

1. INTRODUCTION

As part of its commitment to broad-based black economic empowerment, Primedia is proposing, subject to shareholder approval, to facilitate the acquisition by the Mineworkers Investment Company (Pty) Limited ("MIC") of an additional 9.8% direct ownership interest in the total share capital of Primedia (excluding the treasury shares held by the Primedia share trust) ("the proposed BEE transaction"). The total value of the proposed BEE transaction is approximately R322.0 million, based on the market price of Primedia "N" shares on the close of business on Thursday, 20 October 2005, being the last practicable date prior to the finalisation of the proposed BEE transaction.

In terms of the proposed BEE transaction, Primedia is proposing to issue a total of 8 million Primedia "N" shares ("the par value "N" shares") to MIC or its wholly-owned special purpose subsidiary, Newshelf 793 (Proprietary) Limited ("MIC SPV"), at their par value of 0.02 cents per share ("the specific issue") in order to facilitate the proposed BEE transaction, which will equate to a 3.6% dilution to existing Primedia shareholders, and is in line with recent BEE transactions. MIC or the MIC SPV will hold the 8 million par value "N" shares issued to them in terms of the specific issue and the additional Primedia "N" shares to be acquired from Active Value Fund Managers Limited, a company incorporated in the British Virgin Islands, acting as general partner of Active Value Capital, L.P., Active Value Pledge Fund, L.P. and AVC CIP L.P., as investment manager of Active Value Capital, Inc and Active Value Euro Partners, Inc ("Active Value").

In total, BEE shareholders will be entitled to participate in approximately 18.6% of Primedia"s total issued share capital subsequent to the implementation of the proposed BEE transaction. The acquisition of the Primedia "N" shares from Active Value by MIC and/or the MIC SPV will be funded by third party financiers.

2. RATIONALE

The Broad-Based Black Economic Empowerment Act 53 of 2003 ("BBBEE Act") establishes a legislative framework for the promotion of an increased participation of black people in the economy and empowers the Minister to establish industry Codes of good practice. Primedia is committed to BEE and has made enormous strides in this regard, as evidenced by its recent ranking by Financial Mail/Empowerdex as the most transformed media company in South Africa.

The proposed BEE transaction will enable Primedia to position itself for the current and future requirements of the BBBEE Act and applicable Codes and ensure the preservation of its current businesses and competitiveness within the South African context. The transaction will also augment the range of strategies that Primedia has implemented to date, to ensure its successful transformation, including equity ownership, employment equity, skills and enterprise development, preferential procurement and social development. Primedia has identified MIC as its strategic BEE partner due to MIC"s commercial background, understanding of the media sector, its broad based nature, current shareholding and existing relationship with Primedia.

Primedia shareholders are referred to the published audited financial results of Primedia for the year ended 30 June 2005, wherein they were advised that Primedia Broadcasting (Pty) Limited, a wholly-owned subsidiary of Primedia, had acquired, subject to certain regulatory approvals, MIC"s effective 14.2% interest in Africa on Air (Pty) Limited ("AoA"), for a consideration of R7.1 million in cash and 5 962 385 Primedia "N" shares ("the AoA Primedia "N" shares") ("the AoA transaction"). AoA owns 94.7 Highveld Stereo, which is South Africa"s leading commercial radio station. The AoA acquisition will be earnings and cash flow enhancing for Primedia. In terms of the Listings Requirements of the JSE Limited ("JSE"), the AoA transaction is classified as a small related party transaction, and accordingly a fair and reasonable opinion was obtained from Deloitte & Touche Corporate Finance, who have issued an opinion that, in their view, the AoA transaction is fair and reasonable to Primedia shareholders. MIC currently owns a 9.2% economic interest in Primedia (including the AoA Primedia "N" shares to be issued to MIC and/or its wholly owned subsidiaries in terms of the AoA transaction), and has joint voting control over Primedia, in consortium with the Kirsh family.

In terms of the proposed BEE transaction, MIC will better align its economic and voting interests in Primedia. After the implementation of the proposed BEE transaction, MIC will hold an ownership interest in Primedia`s total issued share capital of approximately 18.6%.

Primedia"s BEE shareholding, calculated in economic terms, will increase from approximately 9.2% to 18.6%. The 9.2% includes the AoA Primedia "N" shares to be issued to MIC and/or its wholly owned subsidiaries in terms of the AoA transaction, which is still subject to certain regulatory approvals. In terms of the JSE Listings Requirements the specific issue is considered to be an issue of shares to non-public shareholders, which represents a discount of approximately 100% as at the last practicable date.

3. SALIENT TERMS OF THE PROPOSED BEE TRANSACTION

3.1 Steps required to implement the proposed BEE transaction The proposed BEE transaction will be implemented as follows:

Step 1
Primedia will issue 8 million Primedia "N" shares to MIC or the MIC SPV at par value on the effective date. The effective date will be the date on which the resolutions approving the specific issue are passed by Primedia shareholders.

Step 2
MIC or the MIC SPV will obtain funding of approximately R 205 million from third party funders, which has already been secured and is on market related terms and conditions. In terms of these funding arrangements, MIC has pledged 14.9 million of its existing shareholding in Primedia as collateral, as well as the additional shares to be acquired pursuant to the proposed BEE transaction.

Step 3
Using the funding obtained in step 2 above and existing funding resources, MIC or the MIC SPV will acquire 15 million Primedia "N" shares from Active Value. Primedia shareholders are referred to the cautionary announcement dated 9 September 2005 wherein they were informed that MIC had agreed with Active Value to acquire 15 million Primedia "N" shares. The aforementioned acquisition is conditional upon the specific issue.

3.2 The proposed BEE transaction structure Refer to press announcement for diagram

3.3 Primedia and MIC relationship agreement Subject to its funding arrangements, MIC will not, without Primedia"s prior written consent, be permitted to dispose of any of its Primedia shares except for the AoA Primedia "N" shares, for a period of six years from the effective date. This will result in approximately 37.9 million of MIC"s total shareholding in Primedia of 43.9 million shares being subject to a lock- in restriction for a period of six years ("the lock-in undertaking").

If Primedia grants its consent to MIC to dispose of any of its Primedia shares during the said six-year period, it will be on the basis that MIC disposes of the shares to another empowerment group that is acceptable to Primedia or that Primedia is given a 60 day pre-emption right to acquire the shares in question.

Furthermore and subject to its funding arrangements if, during the six-year period, MIC ceases to be controlled by the Mineworkers Investment Trust ("MIT") or there is a change in the beneficiaries of MIT which results in a material prejudice to Primedia"s BEE status, Primedia will entitled to buy back the par value "N" shares at its issue price plus an amount equal to any funding shortfall suffered by MIC or the MIC SPV in respect of the 15 million Primedia "N" shares acquired from Active Value, which amount shall not exceed the market value of the par value shares at the effective date.

After the first six years, but before the expiry of a ten-year period from the effective date, MIC will be entitled to dispose of its Primedia shares on market related terms, to (a) an empowerment group that is acceptable to Primedia free of any other restrictions, or (b) any other party, subject to a 30 day pre- emption right in favour of Primedia.

4. FINANCIAL EFFECTS

4.1 Cost to Primedia shareholders The cost of the proposed BEE transaction to Primedia shareholders is a dilution of approximately 3.6%.

4.2Pro forma financial effects of the AoA transaction and proposed BEE transaction The unaudited pro forma financial effects for which the Primedia board of directors (`the Primedia board") are responsible, are presented for illustrative purposes only and may not give a fair reflection of the financial position and results of operations post the implementation of the AoA transaction or the proposed BEE transaction.

The Primedia board believe that in order for Primedia shareholders to obtain a complete understanding of the transactions entered into by Primedia with BEE parties subsequent to 30 June 2005, it is important to disclose the unaudited pro forma financial effects of the AoA transaction and the proposed BEE transaction.

The table below sets out the unaudited pro forma financial effects of the AoA transaction and proposed BEE transaction based on the published financial results of Primedia for the year ended 30 June 2005:

Per Primedia share (1)
Before		 (2,3)
After
the AoA
transaction
(cents)		 Change
%		 (4,5,6)
After the
Proposed BEE
transaction
(cents)		 Change
%		 (6,7,8)
After the
AoA transaction
and BEE
transaction
(cents)		 Change
%
EARNINGS97.099.52.6%93.3(3.8%)96.2(0.8%)
Headline earnings95.097.82.9%91.6(3.6%)94.5(0.5%)
Diluted earnings94.097.23.4%91.2(3.0%)94.0-
Net Asset Value ("NAV")183.6215.517.4%175.5(4.4%)206.512.5%
Tangible Net Asset Value ("TNAV")(22.2)0.7103.2%(23.1)(4.1%)(1.1)95.0%
Weighted issued number of shares (`000)223 032228 994231 032236 994

Note:

1.Extracted from the published financial results of Primedia for the year ended 30 June 2005.
2.For purposes of calculating the earnings per share, headline earnings per share and diluted earnings per share it was assumed that the AoA transaction was effective on 1 July 2004.
3.For purposes of calculating the NAV per share and TNAV per share it was assumed that the AoA transaction was effective on 30 June 2005.
4.For purposes of calculating the earnings per share, headline earnings per share and diluted earnings per share it was assumed that the proposed BEE transaction was effective on 1 July 2004.
5.For purposes of calculating the NAV per share and TNAV per share it was assumed that the proposed BEE transaction was effective on 30 June 2005.
6.For purposes of calculating the earnings per share, headline earnings per share and diluted earnings per share it was assumed that the AoA transaction and the proposed BEE transaction were effective on 1 July 2004.
7.For purposes of calculating the NAV per share and TNAV per share it was assumed that the AoA transaction and the proposed BEE transaction were effective on 30 June 2005.
8.Transaction costs relating to the proposed BEE transaction of approximately R4 million have been included in the financial effects calculations applicable to the proposed BEE transaction.

4.3Pro forma financial effects of the AoA transaction and the proposed BEE transaction taking into account the impact of IFRS2 Primedia will, with effect from 1 July 2005 adopt the new International Financial Reporting Standards ("IFRS"). The principal effect of this change, in relation to the proposed BEE transaction, is in respect of IFRS 2: Share Based Payments which sets out how entities must recognise and measure share-based payment transactions.

Under IFRS2, Primedia is required to expense, through the income statement, the fair value of the par value "N" shares to be issued in terms of the proposed BEE transaction. This fair value is deemed to be equal to the current Primedia "N" share price, which at close on 20 October 2005 was R14.00 per share. Accordingly, the fair value of the 8 million par value "N" shares to be issued in terms of the proposed BEE transaction has been calculated to be R112.0 million, which amount will be recognised as a once-off expense through headline earnings.

This once off expense will have no effect on the group"s cash flows or distribution policy and the ongoing economic effect of the proposed BEE transaction will be limited to the dilution in earnings resulting from the increased number of shares in issue. The AoA transaction will be accounted for as a business combination in terms of IFRS 3:

Business Combinations and IFRS 2 will therefore not apply in respect thereof.

Using the same assumptions as in 4.2 above and assuming IFRS2 was in effect in 2005, the financial effects applying IFRS 2 in respect of the proposed BEE transaction and AoA transaction are as follows:

Per Primedia share (1)
Before		 (2,3)
After
the AoA
transaction
(cents)		 Change
%		 (4,5,6)
After the
Proposed BEE
transaction
(cents)		 Change
%		 (6,7,8)
After the
AoA transaction
and BEE
transaction
(cents)		 Change
%
EARNINGS97.099.52.6%44.8(53.8%)48.9(49.6%)
Headline earnings95.097.82.9%43.1(54.6%)47.3(50.2%)
Diluted earnings94.097.23.4%43.8(53.4%)47.8(49.1%)
NAV183.6215.517.4%175.5(4.4%)206.512.5%
TNAV(22.2)0.7103.2%(23.1)(4.1%)(1.1)95.0%
Weighted issued number of shares (`000)223 032228 994231 032236 994

It should be noted that these financial effects have been based on the 2005 results for illustrative purposes only and represent a once off reduction in reported headline earnings per share under IFRS of 48 cents per Primedia share based on the weighted average number of shares in issue in 2005.

As the proposed BEE transaction will take effect only in the 2006 financial year, the 2006 interim and final headline earnings per share will accordingly be approximately 48 cents per Primedia share lower than normalised headline earnings per share would have been. The distribution to shareholders in 2006 will be based on the normalised earnings for that year excluding the IFRS adjustment relating to the proposed BEE transaction. In 2007 and subsequent financial years, there will be no headline earnings per share effect in relation thereto and Primedia would anticipate growth in 2006/7 based on normalised headline earnings per share for the prior year (excluding the IFRS2 adjustment relating to the proposed BEE transaction).

5. CONDITION PRECEDENT

The proposed BEE transaction is conditional on the approval, by the requisite majority of Primedia shareholders, of all the resolutions necessary to implement the proposed BEE transaction and ancillary matters.

6. OPINIONS AND RECOMMENDATIONS

The Primedia board has considered the terms and conditions of the proposed BEE transaction and is of the opinion that the proposed BEE transaction is in the best interests of all of Primedia"s key stakeholders, including employees and shareholders and, accordingly, recommend that Primedia shareholders vote in favour of the resolutions required to implement the proposed BEE transaction. The specific issue is regarded as a related party transaction in terms of the JSE Listings Requirements and, as a result, an opinion from an independent expert as to the fairness and reasonableness of the specific issue is required in terms of the JSE Listing Requirements.

Deloitte & Touche Corporate Finance, the independent expert, has considered the terms of the specific issue and is of the opinion that it is fair and reasonable and has advised the company accordingly. The directors of Primedia, who directly or indirectly beneficially own Primedia shares intend to vote in favour of the resolutions to implement the proposed BEE transaction in respect of their shareholdings.

7. PUBLICATION OF CIRCULAR

A circular containing full details of the proposed BEE transaction and incorporating a notice of general meeting has been prepared and will be posted to Primedia shareholders on Thursday, 3 November 2005.

Notice is hereby given that the general meeting of Primedia shareholders to consider and, if deemed fit, approve the resolutions necessary to implement the proposed BEE transaction will be held at 09:00 on Friday, 18 November 2005 at the registered office of Primedia, First Floor, Primedia Place, 5 Gwen Lane (Corner Fredman Drive), Sandown, Sandton.

8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

Primedia shareholders are referred to the cautionary announcements dated 17 August 2005 and 9 September 2005, and are advised that the negotiations referred to therein have been completed.

Caution is therefore no longer required to be exercised by Primedia shareholders when dealing in their Primedia securities.

Sandton
1 November 2005

Investment bank to Primedia Independent expert Corporate law advisor to Primedia
Investec Corporate Finance Deloitte and Touche Corporate Finance Edward Nathan
Sponsor to Primedia Legal adviser to MIC Reporting accountants
Investec Bank Limited MJ King Inc. Deloitte and Touche

Date: 01/11/2005 04:39:23 PM

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