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Announcement regarding the proposed acquisition by Oceana Group Limited of Daybrook Fisheries
OCEANA GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1939/001730/06)
JSE share code: OCE
NSX share code: OCG
ISIN: ZAE000025284
(“Oceana” or “the Company” or “the Group”)
ANNOUNCEMENT REGARDING THE PROPOSED ACQUISITION BY OCEANA
OF DAYBROOK FISHERIES, INC. (“DAYBROOK FISHERIES”) AND FURTHER
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
The board of directors of Oceana (“the Board”) is pleased to announce that it has
concluded an agreement (“the Stock Purchase and Merger Agreement”) to
acquire indirectly by combination of a merger and stock purchase, the entire
issued share capital of Daybrook Fisheries for a purchase consideration of
USD 382.3 million (approximately ZAR 4,588 million) to be satisfied through a
combination of Oceana cash on hand, term debt facilities (as required), an equity
bridge facility and United States (“US”) debt (as discussed more fully below) (“the
Proposed Acquisition")*.
Daybrook Fisheries is a vertically-integrated fishing company engaged in
harvesting and processing of Gulf Menhaden into fishmeal and fish oil.
The Proposed Acquisition is classified as a Category 1 transaction for Oceana
under the Listings Requirements of the JSE Limited (“JSE”).
*Unless otherwise noted, all USD figures have been converted at the ZAR/USD
exchange rate of 12.00, being the hedged forward exchange rate at which the
Proposed Acquisition is expected to be completed. Capitalised terms used in this
section have the same meaning as ascribed in the body of this announcement.
2. OVERVIEW OF DAYBROOK FISHERIES
Established in 1955, Daybrook Fisheries is a vertically-integrated fishing
company engaged in harvesting and processing of Gulf Menhaden into high-
value fishmeal, a high protein feed ingredient, and fish oil, which is sold for
aquaculture feeds and for further refining into dietary supplements.
Strategically located in Empire, Louisiana (“LA”), about 60 miles south of New
Orleans, near the mouth of the Mississippi River, Daybrook Fisheries is in close
proximity to the abundant and well managed Gulf Menhaden resource and is the
second largest processor of Menhaden in the US.
Gulf Menhaden are small oily fish and are migratory plankton surface-feeders
that swim in large schools during the fishing season, which extends from mid-
April to November. Daybrook Fisheries is responsible for 35% to 40% of the
annual Gulf Menhaden catch.
Daybrook Fisheries sold 76,862 tons of fishmeal and fish oil equivalent to realise
revenue of USD 124 million (ZAR 1,308 million)^ and normalised revenue of
USD 114 million (ZAR 1,203 million)^ in 2014. Normalised revenue has been
calculated by adjusting for the revenue impact of approximately USD 10 million
(ZAR 105 million)^ resulting from a closing inventory normalisation adjustment.
Daybrook Fisheries’ 31 December 2014 year-end reported earnings before
interest, tax, amortisation and depreciation (“EBITDA”) was USD 43 million
(ZAR 454 million)^ and normalised EBITDA was USD 48 million (ZAR 506
million)^. Normalised EBITDA has been calculated by adding back non-recurring
historical expenditure of Daybrook Fisheries being in aggregate USD 9.5 million
(ZAR 100 million)^ that will not occur under the ownership of Oceana less a
closing inventory normalisation adjustment of approximately USD 4.5 million
(ZAR 47 million)^.
Daybrook Fisheries, through its subsidiary Westbank Corporation Inc.
(“Westbank”), currently owns and operates eleven refrigerated tender vessels
and ten single Cessna aircraft used to assist vessel captains locate schools of
Menhaden. Each vessel carries two twelve metre fishing boats which catch Gulf
Menhaden through the “purse seining” method.
Sales are made to leading domestic and international companies manufacturing
animal and aquamarine nutritional products as well as selected distributors
servicing these markets. Daybrook Fisheries’ proximity to the Port of New
Orleans, as well as other Gulf of Mexico ports, enables the competitive export of
its products to China and other Asian countries, Europe, and Latin America.
In addition to the operation in Empire, the company also has corporate and
executive offices in Morristown, New Jersey and New Orleans, LA, and storage
facilities in Memphis, Tennessee and Avondale, LA.
^USD figures for Daybrook Fisheries have been converted from US GAAP into
IFRS and are translated at the ZAR/USD exchange rate of 10.55, being the
average exchange rate for 12 months to Oceana’s financial year ended 30
September 2014.
3. RATIONALE FOR THE PROPOSED ACQUISITION
Oceana’s strategy includes the expansion of its international operations in order
to increase diversification of its targeted fish species, operational geography,
product profile and currency exposure.
As the largest fishing group in South Africa, Oceana has evaluated opportunities
in South Africa, the rest of Africa and globally to meaningfully increase its scale
and diversity.
Oceana believes that this opportunity has the profile and scale to deliver the risk
adjusted returns shareholders require.
The Proposed Acquisition represents an opportunity for Oceana to undertake a
truly transformative transaction and acquire access to a sustainable and well
managed fishing resource.
Based on Oceana and World Bank analysis, the increase in fishmeal demand is
primarily attributable to the aquaculture industry which is one of the fastest
growing food production segments in the World1. Demand for fishmeal and fish
oil is increasing due to rising global protein requirements, growing demand from
aquaculture production as well as growing demand as inputs into pet food and
pork production. Oceana expects this trend to continue in the longer term.
The Proposed Acquisition will increase diversification to Oceana’s product mix
and improve currency exposure while creating a significantly larger group with
multi-country exposure. It will also provide Oceana with a platform to explore
further initiatives globally.
Oceana has identified cost savings that can be extracted from Daybrook
Fisheries by the incorporation into the broader Oceana Group. These savings are
expected to deliver incremental earnings before interest and tax (“EBIT”) of at
least USD 3 million (ZAR 32 million) per annum within two years of the Proposed
Acquisition.
4. PRINCIPAL TERMS AND CONDITIONS OF THE PROPOSED ACQUISITION
4.1 Current structure of Daybrook Fisheries
Daybrook Fisheries’ current group structure separates the fishing assets
from its processing plant assets through a wholly-owned operating
subsidiary, Westbank.
1
World Bank report: Fishing to 2030
The processing plant assets and sales and administrative functions reside
within Daybrook Fisheries and the fishing vessel and spotter plane assets
reside within Westbank.
4.2 Proposed Acquisition steps and structure
The Proposed Acquisition will be structured in terms of the Stock
Purchase and Merger Agreement and ancillary agreements broadly as
follows:
i. the restructure of Daybrook Holdings Incorporated (“Daybrook
Holdings”), Daybrook Investors Incorporated (“Daybrook
Investors”), Daybrook Fisheries and Westbank (collectively the
"Daybrook Group") through a number of transactions whereby, inter
alia, 75% of Westbank will be sold to certain Daybrook Group
shareholders and management (“the Remaining Shareholders”);
ii. the merger of DPI Merger Sub Incorporated, a wholly-owned
subsidiary of Daybrook Holdings, with Daybrook Fisheries, in terms
of which Daybrook Holdings will acquire a 100% direct interest in
the surviving corporation, Daybrook Fisheries; and
iii. the acquisition by Oceana US Holdings Corporation (“OGL
Holdco”), a wholly-owned US subsidiary of Oceana, of all of the
shares in Daybrook Investors not already owned by the Daybrook
Group, as well as the remaining shares in Daybrook Holdings not
already held by Daybrook Investors,
(collectively, “the Transaction”).
The sale to the Remaining Shareholders of 75% of Westbank is due to the
requirements of the fishery endorsement, issued in terms of the American
Fisheries Act (“AFA”), which requires inter alia that the control and
ownership of qualifying fishing vessels vests in US citizens. The
Remaining Shareholders meet this requirement.
Following the Transaction, Oceana through OGL HoldCo, will hold a
100% indirect ownership in Daybrook Fisheries and an effective 25%
indirect ownership in Westbank through its ownership in Daybrook
Fisheries.
After completion of the Proposed Acquisition, Daybrook Holdings,
Daybrook Investors and Daybrook Fisheries will become wholly-owned
subsidiaries of Oceana. The constitutional documents of each of these
companies will comply (and if not will be amended to comply) with
paragraph 10.21 of Schedule 10 of the Listings Requirements of the JSE
to the extent required. .
4.3 Other key terms of the Proposed Acquisition
4.3.1 Fish supply arrangement
Daybrook Fisheries will secure its supply of Gulf Menhaden from
Westbank through an exclusive 30 year fish supply agreement in
terms of which Westbank commits to supply, and Daybrook
Fisheries commits to purchase, 100% of the Gulf Menhaden
harvested by Westbank (“the Fish Supply Agreement”). The Fish
Supply Agreement is renewable at the option of Daybrook Fisheries
for two additional consecutive 10 year periods.
4.3.2 Westbank membership agreement
Daybrook Fisheries will enter into a membership agreement with
the Remaining Shareholders regulating the relationship of the
members as well as the actions of Westbank. The agreement will
grant the Remaining Shareholders a 30 year option to put their
Westbank shares (“the Westbank Shares”) to Daybrook Fisheries,
exercisable in a 30 day period commencing on:
(i) the occurrence of certain trigger events, such as a
bankruptcy event occurring in respect of Daybrook Fisheries,
the termination of the Fish Supply Agreement or the exercise
of the Westbank bearer warrant (described below); or
(ii) 1 November 2016,
(“the Put Option”).
Upon exercise of the Put Option, Daybrook Fisheries will purchase
the Westbank Shares for an agreed price of USD 31.5 million
(ZAR 378 million) and should notice to exercise be provided by the
Remaining Shareholders within 30 days from 1 November 2016,
Daybrook Fisheries will pay the Remaining Shareholders an
additional USD 15 million (ZAR 180 million) (“the Put Premium”).
The Company will guarantee the aforementioned payments.
Post receipt of notification to exercise the Put Option a US person
will be designated who meets the US control and ownership
requirements of the AFA, to acquire the Westbank Shares.
In addition to the above, Westbank will issue a 30 year bearer
warrant to Daybrook Fisheries entitling Daybrook Fisheries or its
nominee to subscribe for additional membership units in Westbank
for a nominal value subject to the terms and condition of the
warrant, allowing acquisition by a designated US person who meets
the US control and ownership requirements of the AFA and is pre-
approved by the Maritime Administration of the US Department of
Transportation.
4.4 Purchase Consideration and Proposed Acquisition Funding
Oceana will acquire the entire issued share capital of Daybrook Fisheries
for a purchase consideration of USD 382.3 million (approximately
ZAR 4,588 million) which will be settled in cash (as detailed below) ("the
Purchase Consideration").
Oceana has taken, and will continue to take, steps to manage foreign
exchange risks in connection with the Proposed Acquisition up to the time
of completion of the Proposed Acquisition.
Depending on the manner of the exercise of the Put Option, a Put
Premium of USD 15.0 million (ZAR 180 million) may be paid to the
Remaining Shareholders, which together with the Purchase Consideration
of USD 382.3 million (ZAR 4,588 million), would result in an aggregate
amount of USD 397.3 million (ZAR 4,768 million) ultimately being paid.
Oceana intends to fund the Purchase Consideration plus transaction
expenses through a combination of:
- Up to ZAR 2,400 million from (i) Oceana cash on hand, and (ii) to the
extent that the Oceana cash on hand available to fund the Purchase
Consideration is less than ZAR 2,400 million, on or about the date that
the Proposed Acquisition will be implemented, the utilisation of Term
Funding to fund the shortfall (detailed below);
- Up to USD 142 million (ZAR 1,704 million) from debt raised in the US
(“the US Funding”) and secured by US Group companies only; and
- ZAR 1,200 million from an equity bridge facility (“the Equity Bridge
Facility").
Lucky Star Limited, a wholly-owned subsidiary of the Company, will also
raise a ZAR 2,700 million term facility (“Term Funding”) to refinance an
existing short term facility drawn down to fund the Group’s working capital
commitments and to the extent necessary fund the shortfall to meet the
Purchase Consideration.
The Equity Bridge Facility is expected to be repaid out of the proceeds of
a renounceable rights offer that will raise equity capital of ZAR 1,200
million (“Proposed Rights Offer"), which Oceana intends to undertake
after the Proposed Acquisition has been completed. The implementation
of the Proposed Acquisition is however not conditional on the Proposed
Rights Offer.
The ZAR denominated Term Funding and the Equity Bridge Facility has
been underwritten by The Standard Bank of South Africa Limited (acting
through its Corporate and Investment Banking division) (“Standard Bank”)
and the USD denominated funding required has been underwritten by
Bank of Montreal and/or its affiliates (together “the Debt Funders”). The
Debt Funders have provided Oceana with their respective commitments to
fund the re-finance of the existing Oceana group company short-term
working capital facility and the US debt funded portion of the Proposed
Acquisition (subject to market standard conditions).
Details of the Proposed Rights Offer will be released on the Stock
Exchange News Service (“SENS”) of the JSE and the Namibian Stock
Exchange at that stage.
The Company and Standard Bank (“the Equity Underwriter”) have entered
into a standby underwriting commitment in terms of which Oceana agrees
to conduct, and Standard Bank agrees to underwrite, the Proposed Rights
Offer. The standby underwriting commitment contemplates a
further underwriting agreement being entered into in respect of the
Proposed Rights Offer in due course prior to the issue of the Proposed
Rights Offer circular.
The Equity Bridge Facility is conditional on the underwriting arrangements
remaining in force with the Equity Underwriter, which in turn is conditional
on, among other customary conditions: (a) Oceana shareholder
approvals; (b) the transaction agreements remaining in force; (c) no
material adverse change event; (d) no force majeure event; and (e) no
change of control of Oceana.
4.5 Conditions
The Proposed Acquisition will be subject to customary closing conditions,
including, but not limited to the following material conditions:
- shareholders of Oceana (“Oceana Shareholders”) approving the
Proposed Acquisition (greater than 50% by number of votes, present
and voting) (refer to paragraph 5 for further detail on Oceana’s major
shareholders providing signed irrevocable commitment letters);
- Oceana Shareholders approving resolutions in respect of certain
matters pertaining to the implementation of the Proposed Rights Offer
(at least 75% by number of votes, present and voting) (refer to
paragraph 5 for further detail on Oceana’s major shareholders
providing signed irrevocable commitment letters);
- necessary government and regulatory consents including without
limitation the approvals and/or exemptions of the JSE, the Financial
Surveillance Department of the South African Reserve Bank, relevant
anti-trust and/or competition authorities and the US Federal Trade
Commission and/or Justice Department (as applicable);
- the Merger being approved by the stockholders of Daybrook Fisheries
and becoming effective in accordance with the terms provided in the
Stock Purchase and Merger Agreement;
- no legal restraint or action impeding completion of the Proposed
Acquisition;
- Support Agreements by the Principal Stockholders being executed and
becoming of full force and effect;
- no Material Adverse Change occurring;
- no Force Majeure Event occurring;
- the cancellation of all outstanding security interests and mortgages by
Daybrook Fisheries in favour of US regulators; and
- each key employee of Daybrook Fisheries accepting an offer of
employment and entering into an employment agreement.
The Proposed Acquisition will not become effective until, and unless, all
the closing conditions are satisfied or waived.
The closing conditions are set out in full in the Stock Purchase and
Merger Agreement.
5. IRREVOCABLE SUPPORT AND UNDERTAKINGS
Tiger Brands Limited (“Tiger Brands”), which owns 50 098 877 ordinary shares in
Oceana or 43.8% of the Oceana ordinary shares eligible to vote, and Brimstone
Investment Corporation Limited (“Brimstone”), which owns 20 096 755 ordinary
shares in Oceana or 17.6% of the Oceana ordinary shares eligible to vote, have
both signed irrevocable letters of support to vote in favour of all necessary special
and ordinary resolutions pursuant to the Proposed Acquisition and Proposed
Rights Offer.
Tiger Brands and Brimstone which own 43.8% and 17.6% respectively of the
shares eligible to participate in the Proposed Rights Offer, have furthermore both
signed irrevocable letters of commitment to follow their rights in the Proposed
Rights Offer.
6. OCEANA SHAREHOLDER APPROVAL AND INDICATIVE TIMING
As set out in paragraph 1 above, the Proposed Acquisition is classified as a
Category 1 transaction for Oceana under the Listings Requirements of the JSE.
As furthermore set out in paragraph 4.4 above, Oceana intends to undertake the
Proposed Rights Offer following the Proposed Acquisition.
Accordingly, approval by the requisite majority of Oceana Shareholders present
and voting at a general meeting of Oceana Shareholders (“the General Meeting”)
will be required for the Proposed Acquisition and the special and ordinary
resolutions necessary to implement the Proposed Rights Offer.
A circular to Oceana Shareholders (“the Circular”) setting out the full terms of the
Proposed Acquisition, including the notice of the General Meeting, will be posted
in due course.
Indicative timelines pertaining to the Proposed Acquisition are expected to be as
follows:
2015
Posting of the Circular to Oceana Shareholders mid June
General meeting of Oceana Shareholders mid – late July
Completion of Proposed Acquisition late July
The indicative timing as set out above is subject to variation. A further
announcement will be released by Oceana in due course providing final salient
dates and times in relation to the Proposed Acquisition.
7. INFORMATION PORTAL
For ease of access, an information portal relating to the Proposed Acquisition has
been created on the Oceana website, hosted at www.oceana.co.za where all
information relevant to the Proposed Acquisition will be maintained, including a
copy of the investor presentation presented to investors.
8. FURTHER CAUTIONARY ANNOUNCEMENT
Oceana Shareholders are advised that the Company is in the process of
completing the pro forma financial effects of the Proposed Acquisition (“the Pro
Forma Financial Effects”) and will release a further announcement setting out the
Pro Forma Financial Effects in due course.
Accordingly, further to the cautionary announcements dated 11 May 2015 and
14 May 2015, Oceana Shareholders are advised to continue to exercise caution
when dealing in their Oceana securities until such information is released.
Cape Town
19 May 2015
Investor relations contacts:
Imraan Soomra, Financial Director
+27 21 410 1458
Financial and Debt Adviser and Transaction Sponsor to Oceana
The Standard Bank of South Africa Limited
South African Legal Counsel to Oceana
Webber Wentzel
United States Legal Counsel to Oceana
Kean Miller LLP
Haynes and Boone LLP
K&L Gates LLP
Hogan Lovells US LLP
United States Financial Adviser to Oceana
Antarctica Advisors LLC
South African Bookrunner, Underwriter and Debt Funder
The Standard Bank of South Africa Limited
United States Bookrunner, Underwriter and Debt Funder
Bank of Montreal and/or its affiliates
Legal Adviser to Standard Bank as South African Bookrunner, Underwriter
and Debt Funder
Allen & Overy (South Africa) LLP
Sponsoring Broker to Oceana on the Namibian Stock Exchange
Old Mutual Investment Services (Namibia) Proprietary Limited
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this announcement may be considered forward-looking.
Although Oceana believes that the expectations reflected in any such forward-
looking statements relating to the Proposed Acquisition are reasonable, the
information has not been reviewed or reported on by the reporting accountants and
auditors and no assurance can be given by Oceana that such expectations will prove
to be correct. Oceana does not undertake any obligation to publicly update or revise
any of the information given in this announcement that may be deemed to be
forward-looking.
Date: 19/05/2015 10:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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