Wrap Text
Acquisition Of Controlling Interest In Afric Oil Group
SACOIL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1993/000460/06)
JSE Share Code: SCL AIM Share Code: SAC
ISIN: ZAE000127460
(“SacOil” or “the Company”)
ACQUISITION OF CONTROLLING INTEREST IN AFRIC OIL GROUP
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
CANCELLATION OF SHARE TRADING ON AIM
SACOIL DIVERSIFIES ACROSS INDUSTRY VALUE CHAIN THROUGH ADDITION OF FUEL
DISTRIBUTION BUSINESS IN SOUTHERN AFRICA
SacOil, the South African based independent African oil and gas company
that is focussed on the full oil and gas value chain, is pleased to
announce that it has signed agreements to acquire 100% of Phembani Oil
Proprietary Limited (“Phembani Oil”) from Gentacure Proprietary Limited
(“Gentacure”) and its holding company, Moopong Investments Holdings
Proprietary Limited (“Moopong”) (“the Acquisition”). Phembani Oil’s only
asset is a 71% direct interest in Afric Oil Group (“Afric Oil”), one of
the largest independent fuel distributors in South Africa, distributing
over 30 million litres of fuel product (diesel, petrol and paraffin)
monthly to a diversified client base that include local and national
government, mining, construction, transport, manufacturing, parastatals,
resellers and agricultural clients. Following completion of the
Acquisition, SacOil will hold a 71% indirect interest in Afric Oil, with
the remaining 29% interest held by The Compensation Fund, a fund managed
by the Public Investment Corporation SOC Limited (“PIC”), the largest fund
manager on the African continent.
The purchase consideration for the Acquisition (“the Consideration”) will
be up to a maximum of R200 million ($15.4m), split into an unconditional
initial consideration of R147.3 million ($11.3m) (“the Initial
Consideration”) and a conditional consideration of up to R52.7 million
($4.1m) (“the Contingent Consideration”), conditional upon Afric Oil
attaining performance related targets for the year ending 31 December 2017
that include achieving a consolidated EBITDA of R100 million ($7.7m) and
recovering certain accounts receivable existing as at 31 December 2016.
The Acquisition is subject to the fulfilment of certain conditions
precedent. Details of the conditions precedent and settlement of the
Consideration are set out later in this announcement. SacOil intends to
fund the cash component of the Consideration from the proceeds of a debt
facility to be secured by the Company.
The Acquisition is fully in line with the Company’s stated strategy of
focussing on cash generating opportunities that expand SacOil’s operations
across the oil and gas value chain on the African continent. Following
completion of the Acquisition, SacOil’s portfolio will comprise of
operated production activities in Egypt, exploration in Democratic
Republic of Congo, alongside partner TOTAL E&P RDC, Malawi and Botswana,
a crude trading allocation with Nigerian National Petroleum Company and
fuel distribution operations in Southern Africa. The Acquisition also
provides SacOil with its first operational footprint in South Africa
thereby enabling the Company to play a meaningful role in the socioeconomic
development of the country.
BACKGROUND TO AFRIC OIL
Afric Oil was established in 1995 as South Africa’s first 100% black-owned
oil company. Since launching in 1995, Afric Oil has grown into a business
distributing around 30 million litres of fuel products (diesel, petrol
and paraffin) monthly with a reported audited turnover for the year ended
31 December 2015 in excess of R3 billion ($230.6m). Afric Oil achieved
these results utilising its two owned depots in Boland, Western Cape
province, and Beitbridge, Zimbabwe/RSA border. Afric Oil’s operations are
predominantly in South Africa, however it also has an operating presence
in the greater Southern African regions that include Zimbabwe, Zambia and
Namibia. The key customers of Afric Oil include government departments,
state-owned entities, blue chip mining and industrial customers and other
non-refinery wholesalers of fuel products.
During February 2017, Afric Oil acquired certain operating assets of Big
Red Investments Proprietary Limited, Redlex Investments Proprietary
Limited, Turquoise Moon Trading 477 Proprietary Limited (collectively “Big
Red”) and the fuel distribution business undertaken under the name Forever
Fuels, an acquisition that will expand Afric Oil’s regional footprint and
provide access to a stable higher margin business. The Big Red acquisition
will further enhance Afric Oil’s distribution capabilities with ownership
of a fleet of 32 product distribution vehicles and a fuels depot facility,
including the land, located in Randfontein, Gauteng. The Big Red
acquisition is expected to contribute an additional 16 million litres per
month of fuel products (diesel, petrol and paraffin) and approximately
R1.8 billion ($138.4m) of revenue per annum to Afric Oil. This would
increase Afric Oil’s total distribution of fuel products to over 45 million
litres per month.
Afric Oil benefits from an experienced, stable and highly credible
executive team comprised of Tseke Nkadimeng (CEO) and Isaiah Mutandiwa
(CFO), both of whom have extensive resource industry knowledge, and will
continue to manage the Afric Oil business following completion of the
Acquisition.
RATIONALE FOR THE ACQUISITION
The Acquisition will indirectly provide SacOil with an income producing
subsidiary in South Africa and is in line with SacOil’s strategy to become
a fully integrated, pan-African industry player. The Acquisition will
provide SacOil with:
- A material position in a well-established business that operates in
a regulated, fixed margin fuel distribution sector in Southern
Africa;
- Ownership and control of a respected player and brand in the
Southern African wholesale fuel distribution market;
- Access to significant revenue generation and predictable, low-risk
income from the regulated fuel industry;
- An experienced and stable management team, with in-depth industry
knowledge;
- A good platform for organic growth and to pursue consolidation
opportunities that exist in a large fragmented fuel distribution
market in Southern Africa; and
- Diversification of SacOil’s upstream and midstream portfolio to
include fuel wholesale distribution, crude trading, exploration and
production.
Commenting on the Acquisition Dr Thabo Kgogo, CEO of SacOil, said:
“This truly transformational acquisition of the majority interest in Afric
Oil is in line with our strategy of diversifying SacOil’s operations into
the downstream segments of the African oil and gas value chain and
underpinning our business with low volatility and predictable revenue
streams.
The Acquisition will increase SacOil’s consolidated revenues
significantly, complementing our existing crude trading business and
providing a strategic platform for broader expansion of our downstream
activities. We see great potential to scale up the Afric Oil business and
we are excited by the growth opportunities provided by the Acquisition.
Furthermore, as a South African based business, we are pleased to be
establishing a meaningful operational footprint in our country and look
forward to playing an important role in distributing fuel products that
drive the key industries that are at the heart of our nation’s economy. I
am confident that the addition of Afric Oil to our portfolio will provide
our enlarged group with a platform to continue to drive SacOil’s future
growth targets.”
PRESENTATION AND ADDITIONAL DETAILS
A presentation providing further details on the Acquisition is available
on SacOil’s website: www.sacoilholdings.com
CONDITIONS PRECEDENT TO THE ACQUISITION
The Acquisition is conditional upon, inter alia, the fulfilment of the
following outstanding conditions precedent:
i. Gentacure shall have notified SacOil that it has successfully
concluded the transaction to acquire 75% of the entire issued share
capital of Phembani Oil from Phembani Group Proprietary Limited
(“Phembani Group”) and released the security over the shares in
Phembani Oil acquired from it by Gentacure;
ii. SacOil shall have signed and delivered a R27million ($2.1m) bank
guarantee to Gentacure relating to the deferred portion of the
Initial Consideration;
iii. SacOil shall have notified Gentacure and Moopong (the “Sellers”)
that the results of the due diligence are satisfactory in its sole
discretion;
iv. Gentacure shall have notified SacOil that it has procured from the
minority shareholders in Afric Oil a waiver of their rights to tag
along as part of the Acquisition triggered by disposal of their
shares in Phembani Oil;
v. Gentacure shall have notified SacOil in writing that it has
procured all necessary consents (in writing) from Afric Oil’s
contractual counterparties, including funders of Afric Oil,
required for the change in control of Phembani Oil;
vi. SacOil shall have notified the Sellers that there has been no
Material Adverse Change in the business, operations or financial
circumstances of Phembani Oil and its subsidiaries between 3 March
2017 (“Signature Date”) and the date that all the conditions
precedent to the agreements have been fulfilled or waived
(“Fulfilment Date”); and
vii. the Competition Authorities of South Africa and Zimbabwe shall have
approved the Acquisition, as required by the respective Competition
Act, unconditionally, or, if any condition is attached to the
approval, the party that is affected by such condition may (acting
reasonably), by notice in writing to the other party, consent to
its imposition and this condition precedent shall then be deemed
to have been fulfilled.
ACQUISITION DETAILS AND SETTLEMENT OF THE CONSIDERATION
SacOil has entered into two inter-conditional agreements with the Sellers
(“Transaction Agreements”), the effect of which will be that SacOil will
become the owner of 100% of the issued share capital of Phembani Oil. The
Consideration will be settled in cash and SacOil shares, as set out below.
The Transaction Agreements consist of a Sale of Shares Agreement entered
into between SacOil and Gentacure whereby SacOil will purchase 75% of the
issued share capital of Phembani Oil from Gentacure for a consideration
of R140 million ($10.8m) and a Share Subscription and Repurchase Agreement
with Phembani Oil whereby SacOil will subscribe for an additional 25% in
Phembani Oil for a consideration of R60 million ($4.6m), thereafter
Phembani Oil will redeem the 25% of the Phembani Oil shares owned by
Moopong for a similar consideration to SacOil’s subscription for Phembani
Oil shares.
The Initial Consideration of R147.3 million ($11.3m) will be discharged
by SacOil five days after Fulfilment Date (“Closing Date”), as follows:
1. R81.1 million ($6.2m) shall be settled by issuing ordinary SacOil
shares at a 10% discount to the 90 day VWAP calculated at the
close of business on Fulfilment Date, to Gentacure;
2. R14.2 million ($1.1m) shall be settled by issuing ordinary SacOil
shares at a 10% discount to the 90 day VWAP calculated at the
close of business on Fulfilment Date, to Phembani Oil, who will
use this consideration, in part, to redeem Moopong’s shareholding
in Phembani Oil;
3. R25 million ($1.9m) cash payment shall be immediately due and
payable to Phembani Oil, who will use this consideration, in
part, to redeem Moopong’s shareholding in Phembani Oil; and
4. R27 million ($2.1m) in cash, secured by a bank guarantee
provided to Gentacure on Fulfilment Date, plus accrue interest
at the prime lending rate payable 12 months after the Closing
Date.
The Contingent Consideration of up to R52.7 million ($4.1m) will be
discharged by SacOil as follows:
1. within 10 days after the audited consolidated results being issued
for Afric Oil for the year ending 31 December 2017, a non-cash
payment of up to R31.9 million ($2.5m) shall be payable by issuing
ordinary SacOil shares at a 10% discount to the 90 day VWAP
calculated at the Fulfilment Date, to Gentacure; and
2. within 10 days after the audited consolidated results being issued
for Afric Oil for the year ending 31 December 2017, a non-cash
payment of up to R20.8 million ($1.6m) shall be payable by issuing
ordinary SacOil shares at a 10% discount to the 90 day VWAP
calculated at the Fulfilment Date, to Phembani Oil, who will use
this consideration, in part, to settle its redemption obligations
to Moopong.
Of the Contingent Consideration of R52.7 million ($4.1m), R40 million
($3.1m) is conditional on Afric Oil achieving a minimum consolidated
EBITDA of R100 million ($7.7.m) for the year ending 31 December 2017 (“the
EBITDA Contingent Consideration”). Should Afric Oil achieve a consolidated
EBITDA between R100 million ($7.7m) and R68 million ($5.2m), then EBITDA
Contingent Consideration will reduce on a pro rata basis from R40 million
($3.1m) to R1 ($0.1). The remaining R12.7m ($1.0m) of the Contingent
Consideration is conditional on the achieving of accounts receivable
recovery targets on a rand for rand basis.
Additionally, should Afric Oil achieve an EBITDA in excess of R100 million
($7.7m), 17.25% of each Rand of EBITDA achieved in excess of the R100
million ($7.7 m) EBITDA shall be deemed to form part of the EBITDA
Contingent Consideration.
The Initial Consideration and the Contingent Consideration shall be
subject to:
(i) the Sellers shall not be entitled to dispose of any such ordinary
SacOil shares within a period of 12 (twelve) months after the issue
of those shares without the prior written permission of SacOil; and
(ii) the maximum number of ordinary SacOil shares issued to the Seller
shall not, in any event, exceed 23,5% of the total issued shares of
SacOil as at the Signature Date;
EFFECTIVE DATE
Completion of the Acquisition is subject the fulfilment of the conditions
precedent disclosed above and is anticipated to occur 5 business days
after the Fulfilment Date. The Longstop date for the transaction is 31
May 2017.
THE VALUE OF THE NET ASSETS BEING ACQUIRED AND ATTRIBUTABLE PROFITS
As at the Signature Date of the Transaction Agreements, for the 12 months
ended 31 December 2015, Afric Oil's consolidated earnings before interest,
tax, depreciation and amortisation was R35.2 million ($2.7m), profit after
tax was R13.9 million ($1.1m) and its net asset value of R 231.2 million
($17.8m), of which 71% is attributable to SacOil. This Afric Oil results
exclude the impact of the Big Red acquisition that will be included from
1 March 2017.
CATEGORISATION
The Acquisition is classified as a Category 2 transaction for SacOil in
terms of the Listings Requirements of the JSE Limited (“Listings
Requirements”).
Following the implementation of the Acquisition, Phembani Oil and the
Afric Oil Group will become subsidiaries of SacOil. SacOil confirms that
these subsidiaries respective constitutional documents will enable SacOil
to continue to comply with its obligations in terms of the Listings
Requirements.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this announcement, the cautionary announcement
originally published by SacOil on 1 December 2016, and renewed on 17
January 2017, is hereby withdrawn and caution is no longer required to be
exercised by shareholders of SacOil when dealing in SacOil shares.
CANCELLATION OF AIM ADMISSION
As disclosed in the announcement dated 1 December 2016, the Acquisition
would be classified as a reverse takeover pursuant to Rule 14 of the AIM
Rules for Companies. Accordingly, the Company's shares were suspended from
trading on AIM at that time. Following careful consideration, the Company
has decided to seek shareholders’ approval to cancel the admission of its
ordinary shares to trading on AIM (“Cancellation”). The decision was made
on the basis that the Company’s shareholder base is predominantly South
African and its shares trade sporadically in London. Accordingly, the
board of directors felt it could not justify the costs of retaining two
listings and the burden of complying with two regulatory regimes.
An explanatory circular will be posted to Shareholders in due course to
call a general meeting to approve the Cancellation, setting out the
background to and reasons for Cancellation, the reasons why the board of
directors believe that this is in the best interests of the Company and
its Shareholders as a whole and their recommendation to Shareholders to
vote in favour of the resolution on the Cancellation. The earliest
effective date for Cancellation will be 03 April 2017. Up to and until
Cancellation, trading in the Company’s shares on AIM will remain suspended
but they will continue to trade on the JSE. The Company will continue to
maintain its listing on the JSE and Shareholders wishing to trade the
Company’s shares after Cancellation will be able to do so on the JSE, as
the Company has no intention to cancel this listing.
SACOIL’S SETTLEMENT OF THE CONSIDERATION
SacOil intends to fund the Acquisition by:
- issuing SacOil ordinary shares to Gentacure and Phembani Oil to the
value of R95.3 million ($7.3m) on the Closing Date, with the number
of ordinary SacOil shares priced at a 10% discount to the 90 day
VWAP calculated at the Fulfilment Date;
- Cash payment of R25 million ($1.9m) on the Closing Date and the R27
million ($2.1m) due and payable 12 months after the Closing Date
will be funded from a debt facility to be secured by SacOil, with
details set out below; and
- issuing SacOil ordinary shares to the Gentacure and Phembani Oil
for the portion of the Contingent Consideration due 12 months after
the Closing Date, with the number of ordinary SacOil shares priced
at a 10% discount to the 90 day VWAP calculated at the Fulfilment
Date, subject to a limit of the total shares issued in terms of the
Acquisition not exceeding 23.5% of SacOil’s issued share capital
before the Acquisition.
The Company is currently in discussion with a number of financial
institutions to raise a debt facility of up to R180 ($13.8m) million to
satisfy the cash component of the Consideration amounting to R52 million
($4.0m), plus interest where applicable, for the Acquisition, the working
capital for the enlarged SacOil group and general corporate purposes.
INTEGRATION STRATEGY
After the completion of the Acquisition, Afric Oil will become a 71%
indirectly held subsidiary of SacOil. SacOil will work with the existing
minority shareholders and management team of Afric Oil to execute on the
Afric Oil growth strategy.
The key focus area for SacOil will be on ensuring that the relevant
synergies from the Big Red acquisition are achieved in terms of possible
cost savings, enhanced margins and the identification of new growth
opportunities that will enhance Afric Oil’s market share and position.
MARKET ABUSE REGULATION
This announcement contains inside information for the purposes of Article
7 of EU Regulation 596/2014.
* Currency Exchange Assumptions: ZAR1 = US$0.077 /US$1 = ZAR13.01. Numbers
shown will reflect the impact of rounding.
JSE Sponsor
PSG Capital Proprietary Limited
6 March 2017
For further information please contact:
SacOil Holdings Limited
Damain Matroos
+27 (0)10 591 2260
finnCap Limited (Nominated Adviser and broker)
Christopher Raggett and James Thompson
+44 (0) 20 7220 0500
Buchanan (Financial PR adviser)
Ben Romney / Chris Judd
+44 (0)20 7466 5000
Corporate Advisor to Gentacure and Moopong
Gem Capital Proprietary Limited
ABOUT SACOIL
SacOil is a South African based independent African oil and gas company,
dual-listed on the JSE and AIM. The Company has a diverse portfolio of
assets spanning production in Egypt; exploration and appraisal in the
Democratic Republic of Congo, Malawi and Botswana; and midstream projects
including crude trading in Nigeria and a terminal project in Equatorial
Guinea. Our focus as a Group is on delivering energy for the African
continent by using Africa’s own resources to meet the significant growth
in demand expected over the next decade. The Company continues to evaluate
industry opportunities throughout Africa as it seeks to establish itself
as a leading, full-cycle pan-African oil and gas company.
Date: 06/03/2017 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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