RAINBOW CHICKEN LIMITED - Announcement relating to the Acquisition of a further 23.9% of New Foodcorp Holdings Proprietary Limited

Announcement relating to the Acquisition of a further 23.9% of New Foodcorp Holdings Proprietary Limited

Rainbow Chicken Limited
(Incorporated in the Republic of South Africa)
(Registration number 1966/004972/06)
Share code: RBW
ISIN: ZAE000019063
(“RCL”)


ANNOUNCEMENT RELATING TO THE ACQUISITION OF A FURTHER 23.9% OF NEW FOODCORP HOLDINGS PROPRIETARY LIMITED 
(“FOODCORP”)

1.    Introduction

      On 29 April 2013 RCL acquired an effective 64.2% of the issued ordinary share capital of
      Foodcorp through its subsidiary Capitau Investment Management Proprietary Limited (“the
      Acquisition”). As at the effective date of the Acquisition, Foodcorp management collectively held
      23.9% of Foodcorp directly and via Foodcorp Management Holdings Proprietary Limited.

      RCL has now agreed with Foodcorp management to acquire their 23.9% stake in Foodcorp (the
      “Transaction”). The Transaction will increase RCL’s effective interest in Foodcorp to 88.1%.
      Foodcorp management remains fully committed to the business of Foodcorp and aligned to
      RCL’s long term strategic objectives.


2.    Rationale for the Transaction

      RCL as a restructured business is pursuing compelling acquisitions of consumer brands in
      strategic growth markets in the food sector in South Africa and the greater sub-Saharan Africa.

      The acquisition of a diversified food manufacturer and distributor will enable RCL to:
      -   broaden the range of respected brands and categories in its portfolio to counter the cyclical
      nature of the chicken industry;
      - combine strengths in consumer insight between the organisations to support product
      innovation and development;
      - become a food player with significant scale to compete more effectively;
      - open up further opportunities to expand into Sub-Saharan Africa; and
      - leverage Vector’s expertise.

      The Transaction to increase RCL’s stake in Foodcorp supports our objective of being a
      consumer focused business that adds value for consumers and customers through its range of
      market leading brands.


3.   Terms of the Transaction

     RCL will pay Foodcorp management and Foodcorp Management Holdings Proprietary Limited a
     total cash consideration of R393 million for their 23.9% stake in Foodcorp. There are no
     outstanding conditions precedent to the Transaction, and the effective date of the Transaction is
     1 July 2013.


4.   The business of Foodcorp

     Foodcorp is a leading South African manufacturer of quality branded and private label food
     products. The company manufactures, markets and distributes a diversity of food products
     ranging from basic essentials to top end desserts and convenience meals.

     Foodcorp’s range of products is marketed under some of the leading and best recognised
     brands in South Africa. These include Yum Yum peanut butter, Ouma rusks, Pieman’s meat
     pies, Sunbake bread and bakery products, Bobtail and Dogmor pet foods, Nola mayonnaise
     and the popular maize drink, Mageu No 1. The company also manufactures a wide range of
     quality convenience, ready-to-eat products for Woolworths and other retailers.

     Foodcorp positions the majority of its products to appeal to the mass consumer market in South
     Africa and supplies most of them nationally to major retail outlets, food wholesale outlets,
     independent retailers, forecourts and the foodservice industry. It also exports certain products,
     principally to Western Europe, the Middle and Far East, and the rest of Africa.


5.   Pro forma financial effects of the Transaction

     The table below sets out the unaudited pro forma financial effects of the Transaction on
     earnings per share (“EPS”) and headline EPS, based on the reviewed results of RCL for the 12
     month period ended 31 December 2012, the 12 month audited results of Foodcorp for the
     period ended 31 August 2012, and the pro forma financial effects from the rights offer.

     The unaudited pro forma financial effects are the responsibility of the directors of RCL and have
     been prepared for illustrative purposes only, to provide information about how the
     Transaction may have impacted shareholders on the relevant reporting date, and because of
     their nature may not fairly present RCL’s financial position, changes in equity, results of
     operations or cashflows after implementation of the Transaction or of RCL’s future earnings.

                                           Before the               After the
                                          Transaction             Transaction                    Change
                                       (cents) note 1          (cents) note 2                       (%)
      EPS                                        (8.1)                 (27.7)                   (240.7)
      Headline EPS                               (1.1)                 (17.9)                  (1591.3)
      
      Notes:
      1. Extracted from the reviewed results of RCL for the 12 month period ended 31 December 2012, the 12 month
          audited results of Foodcorp for the period ended 31 August 2012 and the pro forma financial effects from the rights
          offer .The before transaction figures were based on the following assumptions:
          a.    an effective 64.18% share of Foodcorp was included in earnings;
          b.    the impact of the rights offer has been included for a full 12 month period in earnings and the weighted
                number of shares;
          c.    transaction costs and the amortisation impact of the preliminary purchase price allocation exercise have been
                included; and
          d.    no adjustments were made to normalise Foodcorp earnings.
      2. Adjustments to EPS and headline EPS have been made on the assumption that:
          a.    the Transaction was effective on 1 January 2012; and
          b.    a company tax rate of 28% was applied.
      3. Volatility in earnings is largely attributable to the highly leveraged capital structure and significant foreign currency
          exposure. Over time RCL plans to reduce the gearing to sustainable levels and manage foreign currency risk
          appropriately.


6.    Small related party transaction

      In terms of the JSE Limited (“JSE”) Listings Requirements, the Transaction is a small related
      party transaction for RCL’s subsidiary Foodcorp. As such, Deloitte Corporate Finance
      (“Deloitte”) has provided the Board of RCL with written confirmation, in its capacity as
      independent professional expert, confirming that the Transaction is fair to RCL shareholders.
      Deloitte’s opinion (the content of which is still subject to JSE approval) is available for inspection
      at the registered office of RCL for a period of 28 days from the date of this announcement.


Durban
1 July 2013

Merchant bank and sponsor to RCL
RAND MERCHANT BANK (A DIVISION OF FIRSTRAND BANK LIMITED)

Attorneys to RCL
CLIFFE DEKKER HOFMEYR INC.

Independent professional expert
DELOITTE CORPORATE FINANCE

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