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Firm Intention and cat 1 transaction relating to the proposed disposal of the Tongaat Hulett Starch Division
Tongaat Hulett Limited
(Incorporated in the Republic of South Africa)
Registration number 1892/000610/06
JSE Share Code: TON
ISIN: ZAE000096541
(“THL”, or the “Company”)
FIRM INTENTION AND CATEGORY 1 TRANSACTION ANNOUNCEMENT RELATING TO THE
PROPOSED DISPOSAL OF THE TONGAAT HULETT STARCH DIVISION
1. INTRODUCTION
Shareholders of THL (“THL Shareholders”) are referred to the cautionary announcement of 13
February 2020 (“Cautionary Announcement”), released on the Stock Exchange News Service
(“SENS”) of the JSE Limited (“JSE”).
THL Shareholders are hereby advised that the Company has entered into a sale and purchase
agreement (“SPA”) with KLL Group Proprietary Limited, a wholly-owned subsidiary of Barloworld
Limited (“Purchaser”), for the disposal of the assets and assumed liabilities of THL’s starch division,
Tongaat Hulett Starch (“THS” or the “Starch Business”) as a going concern (“Disposal”). The Disposal
is subject to the fulfilment of the suspensive conditions detailed in paragraph 4.3 below.
2. NATURE OF THE STARCH BUSINESS
THS was established in 1919 and is one of the largest wet millers in Sub-Saharan Africa, operating
four wet milling plants located at Germiston, Kliprivier and Meyerton in Johannesburg, and Bellville
in Cape Town. The mills have a combined total installed capacity to process more than 850 000 tons
of maize per annum.
The Starch Business uses non-genetically modified maize, predominantly yellow maize, to
manufacture high quality unmodified and modified starch as well as liquid and powdered glucose and
agri-products for some of the largest companies in the food, industrial and animal feed sectors in
domestic and international markets.
The Starch Business is one of the largest producers of unmodified and modified starch, and glucose
in Sub-Saharan Africa and enjoys a strong market position as the sole manufacturer of starch and
glucose in South Africa. THS supplies a significant proportion of the local market across a diverse
range of industries, including paper manufacturing, alcoholic beverages, prepared foods and other
food manufacturing and consumer end markets.
THS’ starch and glucose products are manufactured to ISO 22000 standards and the Starch
Business has an established international market presence, with approximately 50% of its products
exported to regional markets.
Amyral® corn starch, Hydex® and Vaalgold® Gluten 60 products which are manufactured by the
Starch Business are some of the leading starch, glucose and feed ingredient brands in South Africa.
3. RATIONALE FOR THE DISPOSAL
THL’s management and board of directors (“Board”) have previously communicated their
commitment to reduce group debt to more sustainable levels. Further, THL has undertaken to its
funders to reduce its debt levels by ZAR8.1 billion by March 2021 (“Debt Reduction Plan”). In line
with the Debt Reduction Plan, THL management and the Board have initiated various processes
including, (i) implementing greater operational efficiencies to improve the group’s cash flow; (ii)
considering potential non-core and core asset disposals, and (iii) considering potential equity capital
raising initiatives.
In pursuance of the aforementioned objective of reducing its debt to more sustainable and
manageable levels, the Company has taken the strategic decision to dispose of the Starch Business.
Management and the Board believe that the Disposal will position the group for long-term
sustainability and value creation for THL Shareholders.
4. SALIENT TERMS OF THE DISPOSAL
4.1. PURCHASE CONSIDERATION
4.1.1. An enterprise value of R5 350 000 000 (five billion three hundred and fifty million
Rand) has been placed on the Starch Business for purposes of the SPA (“Enterprise
Value”).
4.1.2. The cash purchase price payable for the Starch Business (“Purchase
Consideration”) is calculated in accordance with the following formula:
A = (B – C) + (D) + (E)
where
A= the Purchase Consideration
B= the Enterprise Value of R5 350 000 000 (five billion three hundred and fifty
million Rand)
C= an amount equal to the debt assumed by the Purchaser;
D= the difference between the normalised net working capital and the net
working capital on closing. If: (i) the net working capital on closing exceeds
the normalised net working capital, “D” will be a positive amount; or (ii) the
normalised net working capital exceeds the net working capital on closing,
“D” will be a negative amount; and
E= R96 000 000 (ninety six million Rand), in lieu of THL retaining the obligation
to pay for the post retirement benefits for retired employees as well as in-
service employees.
4.1.3. The Purchase Consideration will not exceed R5 347 000 000 (five billion, three
hundred and forty seven million Rand).
4.1.4. The Purchase Consideration shall be paid in cash.
4.1.5. An initial amount, being an estimate of the Purchase Consideration, will be payable
in cash, on a date (“Closing Date”) shortly after fulfilment or waiver of the suspensive
conditions. The estimate will be based on unaudited management accounts. R450
000 000 (four hundred and fifty million Rand) of the initial amount will be held in an
escrow account for 12 (twelve) months after closing, to cater for the possibility of
claims being made by the Purchaser against THL under the warranties or other
provisions of the SPA); and
4.1.6. the Purchase Consideration will be determined once unaudited Closing Date
management accounts of the Starch Business as at the Closing Date have been
prepared.
4.2. USE OF PROCEEDS
As detailed in paragraph 3 above, THL will use the proceeds of the Disposal to reduce the
group’s debt to more sustainable levels.
4.3. SUSPENSIVE CONDITIONS
The Disposal is subject to the fulfilment or waiver (to the extent permissible) of the suspensive
conditions contained in the SPA, including, inter alia, the following:
4.3.1. THL Shareholders approving the special resolution required in terms of sections 112
and 115(2)(a) of the Companies Act,
4.3.2. THL Shareholders approving the ‘category 1” ordinary resolution required in terms
of section 9 of the JSE Listings Requirements;
4.3.3. the independent expert referred to in paragraph 7 below delivering a report to the
Independent Board;
4.3.4. Court approval being obtained, if required pursuant to the Companies Act;
4.3.5. the approval of relevant competition authorities in relation to the Disposal
4.3.6. approval by the TRP (including a compliance certificate issued by the TRP in relation
to the Disposal as required by section 115(1)(b), read with section 119(4)(b), of the
Companies Act);
4.3.7. THL publishes the requisite notice of the Disposal, in terms of section 34 of the
Insolvency Act;
4.3.8 the funders of the Starch Business approve the Disposal and the cession, delegation
and assignment to the Purchaser of THL’s rights and obligations under Starch
Business facilities;
4.3.9 THL’s lenders approve the Disposal, grant such consents as are required to
implement the Disposal and agree to not exercise the right granted to them in section
34 of the Insolvency Act to accelerate the due date on which liquidated debts become
due;
4.3.10 no material adverse change occurs in the Starch Business in the interim period
between signature of the SPA and the Closing Date; and
4.3.11 THL Shareholders, holding no more than 5% (five per cent) of all the Company’s
issued share capital, exercise their appraisal rights by delivering valid demands, as
contemplated in sections 164(5) to 164(8) of the Companies Act, within the maximum
time period specified in the Companies Act.
4.4 CLOSING DATE
4.4.1 The Disposal will be implemented on the Closing Date, which is expected to be Q3
2020.
4.4.2 A further announcement relating to the fulfilment or waiver of the suspensive
conditions will be released by THL in due course.
4.5 OTHER SIGNIFICANT TERMS
4.5.1 A twelve month transitional services arrangement is being implemented to ensure
continuity in the operation of the Starch Business post the Closing Date.
4.5.2 The SPA contains certain representations and warranties and material adverse
change clauses, as is standard for a transaction of this nature.
4.5.3 All key THS management and employees will be retained by the Purchaser.
5 FINANCIAL INFORMATION
5.1 The value of the net assets comprising the Starch Business as at 30 September 2019 being
the date of the last published (six months interim) financial information of THL, was R1 020
000 000 (one billion and twenty million Rand).
5.2 The unaudited profit after tax attributable to the Starch Business for the six months ended 30
September 2019 was R206 000 000 (two hundred and six million Rand).
5.3 The financial information was prepared in accordance with International Financial Reporting
Standards and the Companies Act.
5.4 The pro forma financial effects of the Disposal will be detailed in the Circular.
6 CASH CONFIRMATION TO THE TRP
The Purchaser has delivered to the TRP, in compliance with regulations 111(4) and 111(5) of the
Companies Regulations, an irrevocable and unconditional guarantee issued by ABSA Bank for
purposes of satisfying the Purchase Consideration.
7 THE VIEWS OF THE INDEPENDENT BOARD AND AN INDEPENDENT EXPERT’S REPORT
A THL Independent Board has been constituted, as required by the Companies Regulations. The
Independent Board has appointed Java Capital (Proprietary) Limited as independent expert to furnish
a fair and reasonable opinion pursuant to the Companies Regulations. The Independent Board will
take cognisance of the independent expert opinion for the purposes of reaching its own opinion
regarding the Disposal.
The Independent Board of THL, individually and collectively accepts full responsibility for the
accuracy of the information contained in this announcement. In addition, the Independent Board
certifies that to the best of its knowledge and belief, the information contained in this announcement
solely pertaining to THS is true and, where appropriate, does not omit anything that is likely to affect
the importance of the information contained herein, and that all reasonable enquiries to ascertain
such information has been made.
8 CLASSIFICATION OF THE DISPOSAL
8.1 The Disposal meets the definition of a category 1 transaction as contemplated in the JSE
Listings Requirements. As a result, the Disposal is required to be approved by an ordinary
resolution of THL Shareholders, which will require the support of more than 50% (fifty per cent)
of the votes exercised thereon.
8.2 In addition, the Disposal is regarded as a disposal of the greater part of the assets or
undertaking of THL in terms of section 112 of the Companies Act and accordingly constitutes
an “affected transaction”. This will require the approval of THL Shareholders by way of a
special resolution, requiring the support of at least 75% (seventy five per cent) of the votes
exercised on it.
9 BENEFICIAL INTERESTS IN THE COMPANY
The Board is not aware of any beneficial interest in THL (i) held or controlled, directly or indirectly by
the Purchaser, persons (if any) acting in concert with the Purchaser or persons (if any) which have
furnished irrevocable commitments to vote in favour of the Disposal or (ii) in respect of which the
Purchaser or persons (if any) acting in concert with the Purchaser hold an option to purchase.
10 CIRCULAR
A circular setting out additional details of the Disposal (“Circular”) will be distributed to THL
Shareholders within 20 (twenty) business days after the date of publication of this announcement.
This Circular will incorporate a notice convening a general meeting of THL Shareholders ( “General
Meeting”) at which THL Shareholders will be requested to vote on the relevant resolutions. At the
same time, the salient dates and times of the Disposal, including the date of the General Meeting,
will be announced on SENS.
11 WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this announcement, THL Shareholders are advised that caution is no longer
required to be exercised by THL Shareholders when dealing in the Company’s shares.
Tongaat
28 February 2020
Financial Advisor and Transaction Sponsor to THL
PricewaterhouseCoopers Corporate Finance Proprietary Limited
Legal Advisor to THL
Bowmans
Date: 28-02-2020 04:42:00
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