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Apportionment of tax cost for South African Income Tax purposes in relation to the unbundling of Rainbow
RCL FOODS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1966/004972/06)
ISIN: ZAE000179438
Share code: RCL
("RCL FOODS")
APPORTIONMENT OF TAX COST FOR SOUTH AFRICAN INCOME TAX PURPOSES IN RELATION TO THE
UNBUNDLING OF RAINBOW
1. INTRODUCTION AND BACKGROUND
1.1. RCL FOODS' shareholders ("Shareholders") are referred to the announcements released by RCL FOODS on
the Stock Exchange News Service of the JSE on 4 June 2024 and 10 June 2024, regarding the listing on the
Main Board of the JSE ("Listing") of all of the issued ordinary no par value shares ("Rainbow Shares") of
Rainbow Chicken Limited ("Rainbow") and the subsequent unbundling thereof by way of a pro rata distribution
in specie to Shareholders ("Unbundling").
1.2. All capitalised terms used but not defined in this announcement shall bear the meanings ascribed to them in the
pre-listing statement ("Pre-listing Statement") of Rainbow published on 10 June 2024.
1.3. The purpose of this announcement is to notify Shareholders of the closing prices at which the Rainbow Shares
traded on the last day to trade to participate in the Unbundling plus one Business Day (("LDT+1"), being
Wednesday, 26 June 2024 ("Closing Share Price on LDT+1"), as well as the apportionment ratio calculated
with reference thereto ("Apportionment Ratio") that Shareholders need to apply for South African tax purposes
to allocate the expenditure of their existing RCL Foods Shares to: i) the RCL Foods Shares following the
Unbundling; and ii) each of the Rainbow Shares being distributed to Shareholders ("Rainbow Distribution
Shares").
1.4. The summary of the tax consequences of the Unbundling as set out below represents general comments and
does not constitute a complete analysis of the tax consequences for Shareholders pursuant to the Unbundling.
It is not intended to be, nor should it be interpreted to be, legal or tax advice. Neither RCL FOODS, Rainbow,
nor its advisors, directors or employees can be held responsible for the tax consequences of the Unbundling.
Shareholders are advised to consult their own professional tax advisors in this regard. The tax consequences
of the Unbundling may also be different for non-resident Shareholders based on their country of residence. This
includes the calculation of the costs of the RCL Foods Shares and the Rainbow Distribution Shares for tax
purposes going forward. The Pre-listing Statement contains further information about the tax consequences of
the Unbundling.
2. APPORTIONMENT TAX PRINCIPLES
2.1. The Unbundling constitutes an unbundling transaction for South African tax purposes as defined in section 46
of the Income Tax Act.
2.2. The Unbundling distribution is a dividend as defined in the Income Tax Act and is not a return of capital as
contemplated in the said act.
2.3. Even though the methodology to determine the cost for tax purposes of the shares is the same, the tax
consequences differ depending on whether the RCL Foods Shares are held on capital account or as trading
stock.
2.4. RCL Foods Shares held as trading stock:
2.4.1. Should the RCL Foods Shares be held as trading stock, then the Rainbow Distribution Shares will be
deemed to be held as trading stock going forward.
2.4.2. Following the Unbundling, the combined expenditure of the RCL Foods Shares and the Rainbow
Distribution Shares will be equal to the expenditure of the RCL Foods Shares prior to the Unbundling
in terms of section 11(a), section 22(1) or section 22(2) of the Income Tax Act.
2.5. RCL Foods Shares held on capital account:
2.5.1. Should the RCL Foods Shares be held on capital account, then the Rainbow Distribution Shares
will be deemed to be held on capital account going forward.
2.5.2. Following the Unbundling, the combined base cost of the RCL Foods Shares and the Rainbow
Distribution Shares will be equal to the expenditure of the RCL Foods Shares in terms of paragraph
20 of the Eighth Schedule to the Income Tax Act.
2.6. Section 46(3)(a) of the Income Tax Act provides that the amount of the expenditure to be allocated to each of
the Rainbow Distribution Shares and the RCL Foods Shares must be determined in accordance with the ratio
that the closing market value of all the Rainbow Distribution Shares, as at LDT+1, bears to the sum of the closing
market values of the RCL Foods Shares and the Rainbow Distribution Shares on that day (LDT +1). The amount
so allocated to the Rainbow Distribution Shares should be applied to reduce the expenditure in respect of the
RCL Foods Shares.
2.7. Accordingly, irrespective of whether the RCL Foods Shares and the Rainbow Distribution Shares are held as
trading stock or on capital account, and in accordance with the interpretation of the South African Revenue
Service set out in its Binding General Ruling 29 (Issue 2), the portion of the expenditure (should the shares be
held as trading stock) or the base cost (should the shares be held on capital account) should be determined by
applying the ratio that the closing market value of the Rainbow Distribution Shares bears to the sum of the
closing market values of the RCL Foods Shares and that of the Rainbow Distribution Shares on the LDT+1,
being Wednesday, 26 June 2024 (i.e. the first trading day ex entitlement to participate in the Unbundling).
3. APPORTIONMENT RATIO FOR TAX PURPOSES
3.1. The Apportionment Ratio is calculated as follows:
Company Closing Share Price Apportionment
on LDT + 1 (R) Ratio(1)
RCL FOODS 11.01 75.10232%
Rainbow 3.65 24.89768%
14.66 100.00000%
Note:
1. Calculated as the Closing Share Price on LDT + 1 of a Rainbow Share (or an RCL Foods Share, as the case may be),
divided by the sum of the respective Closing Share Prices on LDT + 1 of an RCL Foods Share and a Rainbow Distribution
Share.
3.2. Shareholders are thus advised that the expenditure or base cost of an RCL Foods Share must be apportioned
in the ratio of 75.10232% to each RCL Foods Share retained, and 24.89768% to each Rainbow Distribution
Share received.
4. IMPLEMENTATION OF THE UNBUNDLING
4.1. Pursuant to the terms of the Unbundling, Shareholders will receive the Rainbow Distribution Shares in
Dematerialised form only.
4.2. Accordingly, all Certificated Shareholders wishing to receive their Rainbow Distribution Shares must appoint a
CSDP under the terms of the Financial Markets Act, directly or through a Broker, to receive the Rainbow
Distribution Shares on their behalf.
4.3. Should a Certificated Shareholder not appoint a CSDP under the terms of the Financial Markets Act, directly or
through a Broker, to receive the Rainbow Distribution Shares on its behalf, the Transfer Secretaries will issue
such Shareholder with a statement of allocation reflecting its Rainbow Distribution Shares. Such Shareholder
can thereafter instruct the Transfer Secretaries to transfer its Rainbow Distribution Shares, represented by the
statement of allocation, to its appointed CSDP or can instruct the Transfer Secretaries to issue such
Shareholder, at its own risk, with a share certificate(s) at any time following the Unbundling.
4.4. If a Shareholder is in any doubt as to what action to take in respect of the Unbundling, such Shareholder should
consult its Broker, CSDP, banker, attorney or other professional advisor.
Westville
27 June 2024
Financial Adviser and Transaction Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Legal Adviser to RCL FOODS and Rainbow
Edward Nathan Sonnenbergs Incorporated (trading as ENS)
Date: 27-06-2024 09:30:00
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