BRIMSTONE INVESTMENT CORPORATION LIMITED - The acquisition by Sea Harvest Group Limited of 100% of Ladismith Cheese Company Proprietary Limited

Release Date: 28/08/2018 12:05
Code(s): BRT BRN
 
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The acquisition by Sea Harvest Group Limited of 100% of Ladismith Cheese Company Proprietary Limited

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 ACQUISITION BY SEA HARVEST GROUP LIMITED OF 100% OF
LADISMITH CHEESE COMPANY PROPRIETARY LIMITED

1.   Introduction and details

     Brimstone shareholders are referred to the announcement released on SENS today by Sea Harvest
     Group Limited (“Sea Harvest”), a 51% held subsidiary of Brimstone, and are advised that Sea Harvest’s
     wholly-owned subsidiary, Cape Harvest Food Group Proprietary Limited, has concluded a share purchase
     agreement to acquire the entire issued share capital of Ladismith Cheese Company Proprietary Limited
     (“Ladismith Cheese”) (the “Acquisition”) for a purchase consideration of R527 million (“Purchase
     Consideration”), to be settled in cash.

2.   Overview of Ladismith Cheese

     Established in 1999, Ladismith Cheese is a value-adding dairy processing company based in Ladismith in
     the Western Cape. Ladismith Cheese’s primary business is the production, distribution, marketing and
     sale of cheese, butter and milk powders to the South African retail, wholesale and food service markets.

     Centrally located to various areas of milk supply, Ladismith Cheese produced c.9 000 tons of cheese and
     butter and 7 500 tons of dairy and non-dairy powder and generated revenues of R681 million and profit
     after tax of R57.7 million for the financial year to 31 January 2018. Ladismith Cheese employs
     approximately 350 people and has facilities in Johannesburg and offices in Cape Town.

     The shareholders of Ladismith Cheese (the “Vendors”) are the Taylor Family Trust, Van Zylsdamme
     Boerdery (Edms) Bpk, the JJ Nel Familietrust, Deyzel & Coetzee CC, the Van der Vyver Trust, JPA Crafford,
     the McGown Family Trust, the Muller Family Trust and the Ladismith Kaas Aandele Aansporingstrust and
     its beneficiaries.

3.   Rationale for the Acquisition

     The Acquisition is a further step in the execution of Sea Harvest’s stated investment strategy of growing:

     3.1     organically, through additional volumes and margin enhancement – Sea Harvest has executed
             against this pillar through the recent investments in the Harvest Mzansi factory freezer trawler
             and the implementation of the Marel factory solution at the Sea Harvest Saldanha operations;

     3.2     through acquisitions of high value species in:

              i.   the South African seafood sector – Sea Harvest has executed with the recent acquisition
                   of Viking Fishing;
             ii.   the Australian seafood sector – Sea Harvest has made some progress with the recent
                   investment in the Spanish Mackerel fishery in Western Australia;
            iii.   the aquaculture sector – Sea Harvest has executed with the recent acquisition of 51% of
                   Viking Aquaculture; and

     3.3     through acquisitions in complementary sectors of the South African food and agricultural
             industry which exhibit strong fundamentals and growth, and where Sea Harvest is able to
             leverage its core competencies and strengths.
    
     In this regard, the Acquisition represents the acquisition of a profitable branded FMCG food
     manufacturer of significant scale in the food and agricultural sector with a long track record, strong
     national brand and a proven management team.

     The dairy sector is expected to experience continued growing demand for cheese and butter in response
     to consumer dietary changes towards natural fat products.

     The Acquisition provides Sea Harvest with an ideal platform from which to build on in this sector through
     the development and acquisition of additional dairy and allied beverage products.

4.   Salient features of the Acquisition

     4.1   Purchase consideration

           As set out in paragraph 1 above, the Purchase Consideration is an amount of R527 million.

           The Acquisition has a commercial effective date of 1 February 2018 (the “Effective Date”) and the
           Vendors will accordingly also be paid an escalation amount calculated by applying a rate of 9.39%
           per annum to R527 million for the period from the Effective Date to the date upon which the
           Acquisition is implemented (the “Closing Date”), which will be the first business day of the month
           commencing after the date on which the last of the conditions precedent to which the Acquisition
           is subject has been fulfilled or waived (as the case may be). The Closing Date is currently expected
           to be on or about 1 December 2018.

           The Purchase Consideration will be settled in cash on the Closing Date and will be funded from
           available cash and/or facilities.

           It is currently the intention that Sea Harvest undertakes a vendor consideration placing of up to
           R300 million worth of Sea Harvest shares with Brimstone (the “Placing”), in order to part-fund the
           Purchase Consideration. The Sea Harvest shares to be issued pursuant to the Placing will be issued
           at a price no lower than the lower of (a) a 10% discount to the 30-day VWAP on the day the Placing
           is authorised by the directors of Sea Harvest and (b) a 10% discount to the 3-day VWAP on the
           date of the Placing. It is intended that the Placing shares be issued at approximately R14 per share.
           The Placing is subject to Sea Harvest shareholder approval.

           Details of the Placing in relation to Brimstone will be disclosed in due course in compliance with
           the JSE Limited (“JSE”) Listings Requirements.

     4.2   Other terms

           The Acquisition is subject to such other terms and conditions as are considered typical for a
           transaction of this nature. These include the provision by the Vendors of appropriate warranties
           and indemnities, and an escrow arrangement in terms whereof a portion of the Purchase
           Consideration is retained in escrow for a period of time.

           As part of the Acquisition, the Vendors and the key executives have provided certain non-compete
           undertakings.

           Sea Harvest will ensure that the provisions of the memorandum of incorporation of
           Ladismith Cheese does not frustrate it from compliance with the JSE Listings Requirements.

5.   Conditions precedent

     The Acquisition is subject to the fulfilment or waiver (as the case may be) of various conditions
     precedent, by no later than 30 November 2018 or such later date as may be agreed, including, inter alia,
     the following:

      -    approval of the Acquisition by the applicable competition authorities, either unconditionally or
           subject to such conditions as may be acceptable to the relevant party/ies;
      -    the conclusion of an escrow agreement;
      -    certain third-party consents, waivers and notifications; and
      -    no material adverse event occurring between the Effective Date and the Closing Date.

6.   Net assets and attributable profits

     The net asset value of Ladismith Cheese as extracted from its audited financial results for the 12 months
     ended 31 January 2018 prepared in accordance with IFRS for Small and Medium sized entities was
     R266 471 860 and Ladismith Cheese’s net profit after tax for the same period was R57 712 869.

7.   Categorisation of the Acquisition

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


28 August 2018
Cape Town

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

Date: 28/08/2018 12:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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