To view the PDF file, sign up for a MySharenet subscription.

A E C I LIMITED - Acquisition Of Schirm And Withdrawal Of Cautionary Announcement

Release Date: 08/11/2017 07:05
Code(s): AFE     PDF:  
Wrap Text
Acquisition Of Schirm And Withdrawal Of Cautionary Announcement

AECI LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1924/002590/06)
Share code: AFE ISIN: ZAE000000220
(“AECI” or “the Company” or “the Group”)

ACQUISITION OF SCHIRM AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

1. Introduction

  Shareholders are advised that AECI and its wholly-owned subsidiary, AECI Mauritius Limited
  (“AECI Mauritius”), has reached agreement with Imperial Chemical Logistics GmbH (“ICL”),
  a wholly-owned subsidiary of Imperial Holdings Limited, and Schirm GmbH, a wholly-owned
  subsidiary of ICL, in terms of which (i) AECI Mauritius will acquire 100% of the share capital
  in Schirm GmbH and shareholder loan claims; and (ii) Schirm GmbH will acquire (A) the
  contract manufacturing service business of ICL (“Wolfenbüttel Business”); and (B) a
  property in Wolfenbüttel, Germany (“Wolfenbüttel Property”), (together, “Schirm”) (“the
  Transaction”). The purchase consideration is €110,5 million (R1 808,2 million(1)) and is
  payable in cash (“Purchase Consideration”). The Transaction is subject to the conditions
  precedent set out in paragraph 4 below.

  Schirm manufactures agrochemicals and fine chemicals. It has four sites in Germany
  (Schönebeck, Wolfenbüttel, Lübeck and Baar-Ebenhausen) and one in Ennis, Texas, in the
  USA.

  In terms of the Transaction, ICL will retain the customer warehousing, transportation and
  distribution services on the sites on which Schirm operates. For a period of one year from
  the closing date of the Transaction, Schirm GmbH retains an option to acquire four
  warehouses at the Schirm plant in Schönebeck from ICL for a maximum purchase
  consideration of €9,0 million (R147,3 million(1)). Schirm GmbH has entered into a separate
  25-year lease agreement with ICL for warehouse and factory space to meet its own
  operational and raw material storage requirements, in terms of which AECI will make a
  pre-payment of €3,5 million (R57,3 million(1)).

  (1) calculated at the ZAR/EUR rate of R16,36 as at 7 November 2017.


2. Overview of Schirm

  Schirm is an established contract chemical manufacturer which provides an integrated
  service across the entire value chain of synthesis, formulation and packaging of
  agrochemicals and fine chemicals. Agrochemical products include herbicides, fungicides
  and insecticides while the fine chemicals portfolio comprises raw materials for the biocides,
  personal and home care, adhesives and rubber industries. Schirm is the leading provider
  of formulation services for agrochemicals in Europe and its services include:
  -    Synthesis: raw materials from suppliers or customers are converted to chemical
       products and either sold to customers or utilised by Schirm in formulation processes;
  -    Formulation: Schirm uses products from its own synthesis process and/or products
       from customers and sells formulations in bulk to those customers; and
  -    Packaging and labelling of liquid and solid chemical products in all packaging sizes.

  The sale of agrochemicals accounts for approximately 80% of Schirm’s revenue, with fine
  chemicals contributing the balance. Approximately 80% of revenue is generated in Europe,
  primarily in Germany, and the rest is generated in the USA.

  Schirm is a supplier to leading global crop protection chemical producers such as Bayer,
  BASF, DuPont, Syngenta, Sumitomo Chemical and Lanxess. It has relationships averaging
  over 30 years with its 10 largest customers.

  According to global strategy consulting firm Roland Berger, Schirm's addressable synthesis
  market was estimated to have a global value of €8,1 billion in 2016 and is expected to grow
  by c.3,7% p.a. to 2020, driven mainly by underlying market growth and a positive price
  outlook for contract manufacturing services.

  In the formulation and packaging of agrochemicals, the addressable global market size was
  estimated by Roland Berger at €3,4 billion in 2016 and is expected to grow at c.3,4% p.a.
  to 2020, driven mainly by underlying market growth and upward price trends.

  Over the last two financial years, Schirm invested approximately €25 million (R370,6
  million(1)) in capital expenditure in terms of contractual arrangements with strategic
  customers and on installing a state-of the-art synthesis plant at its Schönebeck site. Spare
  capacity remaining from the upgrade will be filled in the coming years. These investments
  have provided the additional capacity necessary to achieve significant growth in Schirm’s
  synthesis operations, with the resultant financial benefits expected from the financial year
  ending 30 June 2018. The benefits of this capital expenditure are not reflected in historical
  financial information.

  (1) calculated at the average ZAR/EUR rate of R14,82 for the year ended 30 June 2017.


3. Rationale for the Transaction

  In addition to domestic growth, AECI’s focus is also on expansion outside South Africa in
  its chosen strategic areas of Mining Solutions, Water & Process, Plant & Animal Health,
  Food & Beverage, and Chemicals.

  AECI already has well-established businesses in Africa, South East Asia, the USA and
  Australia. The Transaction is in line with the Company’s international expansion strategy.
  Schirm presents a strong investment case for AECI:

  -    it is a market leader in the provision of formulation services for agrochemicals in
       Europe;
  -    it has long-standing customer relationships with its blue-chip customer base;
  -    it has invested substantially in capital expenditure over the past two years and it is
       expected that this investment will enable significant revenue growth as well as cost
       efficiencies;
  -    there are potential synergies associated with the extension of Schirm’s manufacturing
       expertise to AECI as well as expansion and supply chain opportunities for the Group’s
       existing Plant & Animal Health pillar;
  -    there are opportunities for AECI to replace some of the raw materials it currently
       imports from third parties;
  -    enhanced geographic and product diversity for AECI’s wider chemicals portfolio;
  -    there are also potential synergistic benefits associated with differing seasonal demand
       cycles in the northern and southern hemispheres; and
  -    it provides currency diversification for AECI.


                                                    2
  Schirm will operate as a stand-alone entity, in AECI’s Plant & Animal Health pillar.


4. Conditions precedent

  The closing of the Transaction is subject to the fulfilment or waiver (if possible) of the
  following conditions precedent:
  -    approval by the German Federal Cartel Office, Germany’s national competition
       regulator;
  -    the German Federal Ministry of Economics and Energy issuing a clearance certificate
       for the Transaction;
  -    approval by the Financial Surveillance department of the South African Reserve Bank;
  -    registration of a first ranking priority notice in respect of the transfer of the ownership
       of the Wolfenbüttel Property in favour of Schirm GmbH; and
  -    the municipal authority waiving its statutory rights of pre-emption (or issuing a
       certificate of non-applicability) relating to the Wolfenbüttel Property.

  Warranties and indemnities typical of a transaction of this nature have been provided for.
  The closing date of the Transaction will be the last business day of the month in which the
  last closing condition is fulfilled or, as the case may be, waived (if so permitted). However,
  if there are less than eight business days between the date of such fulfillment or waiver
  and the end of the then current month, closing shall take place on the last business day of
  the next month or any other business day mutually agreed upon in writing.


5. Purchase consideration
  The Purchase Consideration for the Transaction has been structured as a “locked-box” with
  an effective date of 30 June 2017, subject to a separate trade working capital adjustment
  mechanism on the closing date of the Transaction.
  AECI will fund the Transaction utilising a financing facility provided by The Standard Bank
  of South Africa Limited.


6. Financial information
  For the year ended 30 June 2017, the net asset value of Schirm was €14,4 million (R215,0
  million(2)), inclusive of shareholder loan claims to ICL of €55,9 million (R834,5 million(2))
  and it delivered revenue of €115,6 million (R1 713,7 million(2)), EBITDA of €13,8 million
  (R204,6 million(2)), EBIT of €9,7 million (R143,8 million(2)) and profits after tax of €5,2
  (R77,1 million(2)) million attributable to the net assets. These audited figures were prepared
  in conformity with International Financial Reporting Standards.
  (2) The spot ZAR/EUR exchange of R14,93 has been applied to convert net assets as at 30 June 2017 and the
  average exchange rate of R14,82 for the year ended 30 June 2017 has been applied to convert profit and loss
  items.


7. Categorisation of the Transaction
  The Transaction is classified as a Category 2 transaction for AECI in terms of the Listings
  Requirements of the JSE Limited (“Listings Requirements”).
  Following the implementation of the Transaction, Schirm GmbH and Schirm GmbH’s wholly-
  owned subsidiary Schirm U.S.A., Inc., will become wholly-owned subsidiaries of AECI. The
  Company confirms that Schirm’s constitutional documents enable AECI to continue to
  comply with its obligations in terms of the Listings Requirements.


8. Withdrawal of cautionary announcement
  Shareholders are referred to the further cautionary announcement dated 30 October 2017.
  As the full details of the Transaction have now been released, shareholders no longer need
  to exercise caution when dealing in their AECI securities.


Woodmead, Sandton
8 November 2017


Investment Bank, Corporate Advisor and Transaction Sponsor
The Standard Bank of South Africa Limited

Legal Advisors to AECI
Webber Wentzel and Linklaters LLP




                                            

Date: 08/11/2017 07:05:00 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.

Share This Story