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ASCENDIS HEALTH LIMITED - Disposal of Afrikelp, Efekto and Marltons businesses within the Ascendis Biosciences division

Release Date: 02/05/2019 15:45
Code(s): ASC     PDF:  
 
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Disposal of Afrikelp, Efekto and Marltons businesses within the Ascendis Biosciences division

Ascendis Health Limited
(Registration number 2008/005856/06)
(Incorporated in the Republic of South Africa)
Share code: ASC ISIN: ZAE000185005
(“Ascendis Health” or “the Company” or “the
Group”)


Disposal of Afrikelp, Efekto and Marltons businesses within the Ascendis Biosciences division

1. INTRODUCTION AND RATIONALE

   Shareholders are referred to the announcement released on the Stock Exchange News Service of
   the JSE on 25 September 2018, in terms of which shareholders were advised that Ascendis Health
   had embarked on a strategic review of its business, with the objective of improving performance
   through focusing on organic growth, improved cash generation and enhanced profitability
   including the divestment of non-core assets and businesses. The Ascendis Biosciences division was
   considered as non-core to the Group’s strategy and was accordingly identified for divestment.
   
   The board of directors of Ascendis Health is pleased to advise shareholders that the Company has,
   on 2 May 2019 (“Signature Date”), entered into agreements (“Agreements”) with a consortium
   comprising RMB Ventures Seven Proprietary Limited, Nedbank Private Equity and certain
   members of the management of the Ascendis Biosciences division (together, the “Consortium”),
   in respect of which the Ascendis Biosciences division will be restructured (set out in further detail
   below) and disposed of (“the Transaction”).

   The following businesses are to be disposed of by Ascendis Health as part of the Transaction:

       -   100% of the issued share capital of and, if any, the sale claims against, Efekto Zambia
           Limited, registration number 220180000042 (“Efekto Sale Shares”);
       -   100% of the issued share capital of and, if any, the sale claims against, Agro-Serve
           Proprietary Limited, registration number 1973/000868/07 (“Agro-Serve”) (“Agro-Serve
           Sale Shares”);
       -   100% of the issued share capital of and, if any, the sale claims against Afrikelp Holdings
           Proprietary Limited, registration number 1971/009291/07 (“Afrikelp”) (“Afrikelp Sale
           Shares”);
       -   the entire business conducted by Efekto Care Proprietary Limited, registration number
           2009/006357/06 (“Efekto Care Business”); and
       -   the entire business conducted by Marltons Pets and Products Proprietary Limited,
           registration number 2013/114411/07 (“Marltons Business”);
   (“the Disposal Businesses”).

   Two of the remaining businesses in the Ascendis Biosciences division, being Avima Proprietary
   Limited (“Avima”) and Klub M5 Proprietary Limited, may be considered for divestment in the short
   to medium term. Shareholders will be advised accordingly of further details as appropriate.
   The Agreements comprise an overall Framework Agreement, governing the Transactions, as well
   as an individual Sale of Business Agreement in respect of the Marltons Business and the Efekto
   Care Business, and an individual Share Sale Agreement in respect of the Efekto Sale Shares, the
   Agro-Serve Sale Shares and the Afrikelp Sale Shares.

2. THE TRANSACTION

2.1      Transaction Structure
         The Transaction has been structured as follows:
2.1.1         The Consortium will incorporate Bachique 746 Proprietary Limited, registration number
              2018/624159/07 (“BidCo”);
2.1.2         BidCo, in turn, will incorporate Jaxson 750 Proprietary Limited, registration number
              2019/124661/07 (“SPV1”) and Bioko 751 Proprietary Limited, registration number
              2019/125150/07 (“HoldCo”) as wholly owned subsidiaries;
2.1.3         SPV1, in turn, incorporates Cambrose 755 Proprietary Limited, registration number
              2019/181632/07, a special purpose vehicle (“SPV1A”) as a wholly owned subsidiary;
2.1.4         HoldCo, in turn, incorporates Bioko 752 Proprietary Limited, registration number
              2019/28803/07 (“SPV2”) as a wholly owned subsidiary;
2.1.5         BidCo to establish a further special purpose vehicle, Jaxson 748 Proprietary Limited,
              registration number 2019/124613/07 (“OpCo”) which will be wholly owned by HoldCo
              and which will acquire the Marltons Business;
2.1.6         SPV1A will acquire the Afrikelp Sales Shares;
2.1.7         SPV2 will acquire the Agro-Serve Sale Shares, and in turn will own all the shares in Agro-
              Serve Namibia Proprietary Limited, registration number F/1973/00868/07, a wholly-
              owned subsidiary of Agro-Serve;
2.1.8         Agro-Serve then acquires the Efekto Sale Shares and the Efekto Care Business, through a
              sale of shares and sale of business arrangement, respectively.
2.1.9         The Sellers are:
              -   in relation to the Efekto Sale Shares and the Agro Serve Sale Shares, Ascendis
                  Biosciences;
              - in relation to the Afrikelp Sale Shares, Avima; and
              - in relation to the Efekto Care Business and the Marltons Business, Efekto Care and
                  Marltons, respectively (jointly referred to as “the Seller Group”).
2.1.10        The Purchasers are:
              -   in relation to the Efekto Sale Shares, Agro-Serve;
              -   in relation to the Agro-Serve Sale Shares, SPV2;
              -   in relation to the Afrikelp Sale Shares, SPV1A;
              -   in relation to the Efekto Care Business, Agro-Serve; and
              -   in relation to the Marltons Business, Opco.
2.1.11        The Target Group comprises the Afrikelp Group, Efekto Care, Marltons, Efekto Zambia and
              Agro-Serve.

2.2     Transaction Consideration
        The total consideration payable to Ascendis Health for the Disposal Businesses is a base price
        of R480 million (“Base Price”). The Base Price has been adjusted pre-signature for net working
        capital and debt-like items, to an aggregate purchase price of R459.6 million (“Aggregate
        Purchase Price”). The Aggregate Purchase Price may be adjusted upwards or downwards (as
        the case may be) on closing of the Transaction for certain other costs, including, inter alia:
        (a) additional proceeds at 6.25% in favour of the Sellers on the value of the Aggregate Purchase
            Price between the effective date and closing date;
        (b) leakage costs between the Signature Date and the Closing Date;
        (c) agreed working capital funding provided by members of the Seller Group to members of
            the Target Group after the Signature Date, being R5 million; and
        (d) any other payments made after the Signature Date by any member of the Seller Group on
            behalf of the Target Group, which adjustment is capped at a maximum of R10 million.

2.3     Effective date
        Notwithstanding the Signature Date of the Agreements, the effective date of the Transaction is
        31 March 2019 (“Effective Date”).

2.4     Conditions Precedent
        The Transaction is subject to the fulfilment and/or waiver, where appropriate, of certain
        material conditions precedent including, inter alia:
2.4.1        within ten business days of the Signature Date:
2.4.1.1          Ascendis Health delivering copies of the written approval by the senior debt lenders
                 of the Seller Group in respect of the Transaction;
2.4.1.2          Ascendis Health delivering copies of the written consent of the senior debt lenders
                 with regards to the release of all security required under the Agreements, as may be
                 required to implement the Transaction on the Closing Date (being the last business
                 day of the month in which all the conditions precedent have been fulfilled or waived);
2.4.2        the following agreements being entered into:
2.4.2.1          a transitional services agreement being entered into between inter alia the Sellers,
                 Ascendis Health and BidCo, which provides for inter alia information technology
                 transfer and support, for a period of up to 6 (six) months after the Closing Date and at
                 a similar fee that such services are rendered as at the Signature Date; and
2.4.2.2          supply and distribution agreements being entered into between:
2.4.2.2.1                Avima and Efekto Care; and
2.4.2.2.2                Marltons and Ascendis Vet,
2.4.3        the Transaction being approved by the relevant competition authorities; and
2.4.4        by no later than the date of fulfilment or waiver of the last of the conditions precedent,
             as applicable, Bidco notifying Ascendis Health that it satisfied with the outcome of
             regulatory processes required to be followed by Ascendis Health in terms of the
             Agreements.

2.5     Brief description of the business carried on by each of the Disposal Businesses
        -    Afrikelp specialises in natural growth stimulants for green plants, extracted from the giant
             South African brown seaweed Ecklonia maxima, that improves the quality and quantity of
             agricultural crops;
        -    Agro-Serve is a retail and wholesale agent distributor of home and garden care products
             and related services;
         -   Efekto Care manufactures, supplies and distributes various and wide-ranging home and
             garden pesticides, garden fertiliser and plant food products to several large and small
             customers, primarily within Southern Africa; and
         -   The Marltons Business conducts the import, sale, supply and distribution of a wide range
             of pet snacks and similar food products, as well as pet healthcare products and pet
             accessories, within Southern Africa.

2.6      Application of sale proceeds
         The cash proceeds from the Transaction will be applied by the Company to reduce debt levels
         and fund working capital.

2.7      Warranties and indemnities
         The Agreements contain warranties and indemnities that are customary for agreements of
         this nature.

2.8      Other significant terms of the Agreements
         -   Long-stop date
             The Long-Stop Date is 30 June 2019, provided that this date shall be extended by an
             additional three months if the approval of the competition authorities is not obtained by
             that date or such other date as may be agreed between the parties in writing.
         -   Restraints and competing businesses
             A restraint period of 24 months from the Effective Date has been imposed on the Target
             Group and the Purchasers to provide protection against unfair competition upon
             termination of shareholding and that in the circumstances it is fair and reasonable, and
             necessary for the protection of the interests of the Target Group.

3.    FINANCIAL INFORMATION

      The net asset values (“NAV”) and net profit after taxation, per entity and/or assets and liabilities
      comprising the Disposal Businesses are set out below:


                                                                           NAV      Profit after taxation
       Name of entity                                                    (Rand)                    (Rand)
       Efekto Zambia Limited                                                  0                         0
       Agro-Serve1                                                 (11 529 719)                 1 152 647
       Afrikelp Investments 2                                       (2 532 953)                 1 061 013
       Afrikelp 3                                                  (50 261 113)                 8 043 754
       Marltons Assets and Liabilities                               73 796 085                 1 739 357
       Efekto Assets and Liabilities                                191 538 185                11 267 003
       Total                                                        201 010 485                23 263 774
 
       Notes:
       1. Comprises the consolidated NAV and profit after tax of Agro-Serve and its wholly owned
          subsidiary, being Ago-Serve Namibia.
       2. Comprises the consolidated NAV and profit after tax of Afrikelp Investments and its
          subsidiaries, being Taurus Chemical Namibia, Rotaq, Akusa (USA) and Taurus Chemicals Cape
          Kelp.
       3. Comprises the stand-alone NAV and profit after tax of Afrikelp Proprietary Limited. The NAV
          however includes an investment into Ascendis Animal Health (Pty) Ltd with a book value of
          R160,056,202 which will not form part of the Disposal Businesses, and will accordingly be
          transferred into another Ascendis Group company prior to the Transaction.
 
   The financial information disclosed above has been extracted from each entities’ respective
   unaudited consolidated interim financial results for the six-month period ended 31 December 2018
   which were prepared in accordance with International Financial Reporting Standards.

4. JSE CATEGORISATION

   The Transaction is categorised as a category 2 transaction in terms of the JSE Listings Requirements
   and accordingly is not subject to approval by the shareholders of the Company.


Johannesburg
2 May 2019


Sponsor
Questco Corporate Advisory Proprietary Limited

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