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OCEANA GROUP LIMITED - Announcement regarding the proposed acquisition by Oceana Group Limited of Daybrook Fisheries

Release Date: 19/05/2015 10:45
Code(s): OCE     PDF:  
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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'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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