BRIMSTONE INVESTMENT CORPORATION LIMITED - Announcement regarding an acquisition by Sea Harvest Group Limited and withdrawal of cautionary announcement

Release Date: 13/06/2018 09:00
Code(s): BRT BRN
 
Wrap Text
Announcement regarding an acquisition by Sea Harvest Group Limited and withdrawal of cautionary announcement

Brimstone Investment Corporation Limited
(Incorporated in the Republic of South Africa)
Registration number 1995/010442/06
Share Code: BRT ISIN: ZAE000015277
Share Code: BRN ISIN: ZAE000015285
(“Brimstone” or the “Company”)

ANNOUNCEMENT REGARDING THE ACQUSITION BY SEA HARVEST GROUP LIMITED OF THE FISHING
BUSINESS OF VIKING FISHING HOLDINGS PROPRIETARY LIMITED AND 51% OF THE SHARES OF VIKING
AQUACULTURE PROPRIETARY LIMITED
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

1.    Introduction and details

      Brimstone shareholders are referred to the announcement released on SENS today by Sea Harvest
      Group Limited (“Sea Harvest”), a 54.9% held subsidiary of Brimstone, and are advised that:
      
      -     a consortium of broad-based black economic empowerment (“B-BBEE”) investors led by
            Sea Harvest, together with its wholly-owned subsidiary Sea Harvest Corporation Proprietary
            Limited (“Sea Harvest Corporation”), have entered into sale agreements with Viking Fishing
            Holdings Proprietary Limited (which is controlled by Odin Investments Proprietary Limited, the
            Viking Staff Share Trust, the Viking Social and Upliftment Trust, Redburg Investments Proprietary
            Limited (“Redburg Investments”) and RWFT Investments Proprietary Limited) and certain of its
            subsidiaries and joint ventures (which include Longline Fishing Proprietary Limited, Gerombe
            Fishing Enterprises Proprietary Limited and Ziyabuya Fishing Company Proprietary Limited)
            (collectively “Viking Fishing”) to acquire the fishing business of, and selected shareholdings in,
            Viking Fishing (the “Fishing Acquisition”); and

      -     Sea Harvest Aquaculture Proprietary Limited (“Sea Harvest Aquaculture”), a wholly–owned
            subsidiary of Sea Harvest, has entered into a share purchase agreement with Viking Group
            Administration Proprietary Limited (“Viking Group Admin”), Redburg Investments and the
            trustees for the time being of the Rory Williams Family Trust ("RW Family Trust") to acquire
            51% of the issued share capital of Viking Aquaculture Proprietary Limited (“Viking Aquaculture”)
            (the “Aquaculture Acquisition”),
      
      the Fishing Acquisition and the Aquaculture Acquisition, collectively referred to as the “Proposed
      Transaction”.

      In addition to Sea Harvest, Sea Harvest Corporation and Sea Harvest Aquaculture, the remaining parties
      to the B-BBEE consortium comprise:

      -     Nalitha Investments Proprietary Limited (“Nalitha”);
      -     SeaVuna Fishing Company Proprietary Limited (“SeaVuna”); and
      -     South African Fishing Empowerment Consortium Proprietary Limited (“SAFEC”),

      collectively the “B-BBEE Consortium”.

      The Proposed Transaction is subject to the suspensive conditions set out in paragraph 5 below.

2.    Overview of the Viking Group

      Viking Fishing and Viking Aquaculture (together the “Viking Group”) was founded by Nico Bacon in
      1978 and has developed into a significant vertically integrated fishing and aquaculture business over
      the last 40 years. The group employs more than 1 600 people.

      Viking Fishing operates a fleet of 30 vessels from Cape Town, Hout Bay, Mossel Bay, Durban and
      Maputo. The company catches, processes and markets a diverse range of species including hake, horse
      mackerel, small pelagics (pilchards and anchovy), west coast rock lobster, prawns and tuna pole. Viking
      Fishing operates six processing facilities and markets its products in South Africa, Europe and Asia
      across the wholesale and foodservice channels.

      Viking Aquaculture is one of the largest diversified aquaculture producers in South Africa, farming
      abalone, mussels, oysters and trout across a number of locations in South Africa and Namibia.

3.   Rationale for the Proposed Transaction for Sea Harvest

     Following its listing on the JSE Limited (“JSE”) on 23 March 2017, Sea Harvest has actively sought to
     grow via acquisitions in the fishing and aquaculture sectors in line with Sea Harvest’s strategy and vision
     of becoming one of the largest black owned diversified global seafood and food companies.

     The acquisition of the Viking Group fits the group’s investment criteria and Sea Harvest is confident of
     the value that a combination of Sea Harvest and the Viking Group would generate through:

     -     the complementary nature of the fishing businesses; and
     -     the diversification into other wild caught species and aquaculture.

     The Proposed Transaction will have a positive impact on the fishing industry in South Africa as it will:

     -     significantly increase black ownership in the fishing industry due to the strong transformation
           credentials of Sea Harvest and the B-BBEE Consortium;
     -     ensure the preservation of 1 600 jobs, 90% of which consists of historically disadvantaged
           individuals, particularly in the ports of Mossel Bay, Saldanha Bay and Cape Town and the rural
           communities of Kleinzee and Gansbaai;
     -     introduce two new Small, Medium and Micro-sized Enterprise (“SMME”) players into the fishing
           industry;
     -     contribute to the establishment and furtherance of sizeable operational black industrialists and
           new black entrants in the fishing industry; and
     -     contribute to inclusive economic growth and participation through access, diversity,
           empowerment and transformation in the mainstream South African economy.

4.   Salient features of the Proposed Transaction

     4.1     The Fishing Acquisition

             The B-BBEE Consortium have entered into various agreements to acquire the fishing business
             of Viking Fishing by way of the purchase of selected assets, businesses and shareholdings in,
             and the assumption of certain third party debt, trade creditors and liabilities in and from,
             Viking Fishing.

     4.2     The Aquaculture Acquisition

             Sea Harvest Aquaculture has entered into a share purchase agreement to acquire 51% of the
             issued share capital of Viking Aquaculture from Viking Group Admin, Redburg Investments and
             the RW Family Trust.

     4.3     Purchase consideration

             The total maximum purchase consideration payable by the B-BBEE Consortium for the
             Proposed Transaction is R884 673 446 (the “Purchase Consideration”). The Purchase
             Consideration is to be settled by the B-BBEE Consortium through a combination of cash on
             hand, bank facilities, an issue of Sea Harvest ordinary shares of no par value (“Sea Harvest
             Shares”) and vendor funding as follows:

             by way of an upfront payment (the “Initial Consideration”):

             4.3.1   R565 000 761 for the Fishing Acquisition to be settled on the Closing Date (as defined
                     in paragraph 5 below) by way of:

                     4.3.1.1      R315 000 761 in cash; and

                     4.3.1.2      the issue of 19 230 769 Sea Harvest Shares (to be issued at an agreed price
                                  of R13.00 per share equating to R250 000 000);

             4.3.2   R64 604 890 for the Aquaculture Acquisition to be settled in cash on the Closing Date;
                     and

            4.3.3   vendor funding in an amount of R56 267 795,

            subject to adjustment as follows (the “Contingent Consideration”):

            4.3.4   a maximum of R198 800 000 will be payable as an upwards adjustment to the Initial
                    Consideration depending on the profit after tax generated by the Viking Group for each
                    of the two financial years ending 31 December 2018 and 31 December 2019
                    respectively, and certain profit warranties being achieved, which (if payable) will be
                    settled in three tranches:

                    4.3.4.1      a maximum of R44 400 000 in cash, post the 31 December 2018 financial
                                 year-end audit;

                    4.3.4.2      a maximum of R44 400 000 in cash, post the 31 December 2019 financial
                                 year-end audit; and

                    4.3.4.3      a maximum of R110 000 000 in cash on 1 January 2022.

     The portion of the Purchase Consideration attributable to Sea Harvest for the Proposed Transaction
     will be a maximum of R763 405 650, consisting of a portion of the Initial Consideration amounting to
     R564 605 650 and the maximum Contingent Consideration of R198 800 000.

     In order to expedite and promote existing black participants and SMME’s as well as the introduction of
     new black entrants, black industrialists and enterprise development in the fishing industry, the vendors
     and Sea Harvest Corporation have undertaken to assist SeaVuna, Nalitha and SAFEC by extending to
     them vendor funding and loans to fund their share of the Purchase Consideration for an amount of
     R124 267 795 (which amount is inclusive of an amount of R3 000 000 in excess of the Purchase
     Consideration related to VAT payable).

5.   Suspensive conditions

     The Proposed Transaction, the substance and form of which will be embodied in the transaction
     documents, is subject to the fulfilment or waiver (if applicable) of, among other things, the following
     suspensive conditions:

     -     approval of the Competition authorities, noting that the Competition Commission has
           recommended to the Competition Tribunal that the Proposed Transaction be approved subject
           to a condition restricting the exchange of competitively sensitive information between Sea
           Harvest and Oceana Group Limited via their common shareholder;
     -     Department of Agriculture, Forestry and Fisheries (“DAFF”) providing approval for the transfer
           of the fish processing establishments (DAFF has already approved the transfer of the fishing
           rights);
     -     approval of counterparties to material contracts of the target companies and assets; and
     -     no material adverse change in regard to the Viking Group occurring between the effective date
           and the date upon which all of the other suspensive conditions are fulfilled or waived.

     The closing date of the Proposed Transaction will be the start of business on the first business day of
     the month following the month in which all of the suspensive conditions are fulfilled or waived (or such
     other closing date as may be agreed on in writing by the parties), which is expected to be on or about
     2 July 2018 (the “Closing Date”).

6.   Net assets and attributable profits

     The assets to be acquired by the B-BBEE Consortium are being sold by various legal entities within the
     Viking Group and are separately identifiable, with financial information available to separately present
     the carrying value of the assets to be acquired by the various members of the B-BBEE Consortium.
     However, the operations of the group are managed as a single business with no allocation of revenues,
     costs or profits to specific assets. As a result, historical financial information is not available in order
     to separately present the earnings attributable to the specific assets and liabilities acquired by each
     member of the B-BBEE Consortium.

     The profit after tax attributable to the selected business assets and liabilities acquired by the B-BBEE
     Consortium from the Viking Group for its financial year ended 31 December 2017, was R192 137 721.
     The proportionate share of the Purchase Consideration attributable to Sea Harvest is broadly indicative
     of its share of the attributable profit after tax set out above.

     The B-BBEE Consortium is to acquire from Viking Group attributable business assets and liabilities with
     a historical reported value reflecting liabilities that exceed assets by R149 840 958 at 31 December
     2017, being the date of its last annual financial statements, of which Sea Harvest is to acquire business
     assets and net liabilities with a historical reported value reflecting liabilities that exceed assets by
     R159 693 899.

     The attributable net liabilities acquired comprise of fishing vessels, property, plant and equipment,
     biological assets, fishing rights, inventory, trade receivables, trade payables and third party debt. The
     audited annual financial information of the Viking Group, from which the attributable profits and net
     liabilities were extracted and calculated, were prepared in accordance with International Financial
     Reporting Standards. For two smaller entities forming part of the Proposed Transaction, historical
     financial information was extracted from the unaudited management accounts. Sea Harvest is satisfied
     with the quality of the audited financial information of the Viking Group and the management accounts
     of the two smaller entities referred to above, however, shareholders should note that the fair value of
     assets acquired are different to the historical accounting carrying values, particularly for fishing rights,
     vessels and property, plant and equipment.

7.   Shareholding in Sea Harvest

     Following completion of the Proposed Transaction and the issue of Sea Harvest Shares in terms of
     paragraph 4.3.1.2 above, Brimstone’s shareholding in Sea Harvest will reduce to 51.0%.

8.   Categorisation of the Proposed Transaction

     The Proposed Transaction is categorised as a Category 2 transaction for Brimstone in terms of the JSE
     Listings Requirements.

9.   Withdrawal of cautionary announcement

     Brimstone shareholders are advised that the cautionary announcement, with the latest renewal of
     cautionary announcement having been published on SENS on 24 April 2018, has now been withdrawn
     and that shareholders are no longer required to exercise caution when dealing in the Company’s
     securities.

13 June 2018
Cape Town

Investment bank, corporate advisor and sponsor
Nedbank Corporate and Investment Banking

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