| Fri 15 May 2009, 17:15 | | AFR / SOV - Joint Announcement Regarding the Proposed Reverse Listing of Afgri`s |
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AFR SOV
AFR SOV
AFR / SOV - Joint Announcement Regarding the Proposed Reverse Listing of Afgri`s
Food Division into Sovereign and Cautionary Announcements
Afgri Limited
Registration Number: 1995/004030/06
(Incorporated in the Republic of South Africa)
ISIN: ZAE000040549
JSE share code: AFR
("Afgri")
Sovereign Food Investments Limited
Registration Number: 1995/003990/06
(Incorporated in the Republic of South Africa)
ISIN: ZAE00009221
JSE share code: SOV
("Sovereign")
JOINT ANNOUNCEMENT REGARDING THE PROPOSED REVERSE LISTING OF AFGRI`S FOOD
DIVISION INTO SOVEREIGN AND CAUTIONARY ANNOUNCEMENTS
1. INTRODUCTION
Shareholders of Afgri and Sovereign ("the Parties") are advised that the
Parties have entered into heads of agreement ("Heads of Agreement") setting
out the salient terms and conditions upon which Afgri will reverse list its
Food Division ("Afgri Foods") into Sovereign by selling Afgri Foods to
Sovereign, or its nominee, for a purchase consideration to be settled
through the allotment and issue of 110,488,070 new Sovereign ordinary par
value shares of R0.01 each ("the Purchase Consideration") to Afgri
Operations Limited ("Afgri Operations") (a wholly owned subsidiary of Afgri
and the holding company of Afgri`s various operating divisions and
entities) ("the Proposed Transaction") as fully paid up. For purposes of
establishing the relative shareholdings in Sovereign after implementation
of the Proposed Transaction, Afgri Foods has been valued at R1.02 billion
and Sovereign (prior to implementing the Proposed Transaction) has been
valued at R305 million, resulting in a combined valuation of Sovereign
(post implementation of the Proposed Transaction) of R1.325 billion.
Based on the above relative valuations, the allotment and issue of new
shares in Sovereign will result in Afgri owning 77% of the issued shares of
Sovereign ("the Acquisition Percentage") after implementation of the
Proposed Transaction, thereby bringing about a change in control in
Sovereign for purposes of the Securities Regulation Panel`s ("SRP") Code on
Takeovers and Mergers ("SRP Code").
2. RATIONALE OF THE PROPOSED TRANSACTION
Afgri and Sovereign wish to implement the Proposed Transaction in order to
achieve a number of strategic and financial benefits including:
- the creation of a poultry operation of significant size and scale
which will be the third largest poultry player in South Africa;
- the realisation of significant synergies and cost savings between the
businesses to achieve an improved cost profile; and
- to unlock value for Afgri and Sovereign shareholders.
3. INFORMATION ON AFGRI FOODS AND SOVEREIGN
The businesses of Afgri Foods which form the subject of the Proposed
Transaction include:
- Daybreak Farms which is a vertically integrated poultry producer and
which includes a 65% interest in Midway Chix, a producer of day old
chicks;
- Afgri Animal Feeds which produces animal feed products mainly aimed at
the poultry and dairy markets;
- Nedan which is a cotton seed and soya bean crushing facility producing
edible oils and soya proteins for the human and animal feeds markets;
and
- LabWorld which supplies laboratory equipment used in the feed, and
poultry businesses, as well as in the wider agricultural, chemical and
beverage industries.
Sovereign is a vertically-integrated poultry business located around Port
Elizabeth in the Eastern Cape province. Sovereign`s business units
currently comprise a breeder operation, hatchery operation, broiler
operation, feed mill, logistics fleet, processing plant and sales and
marketing unit.
4. PURCHASE CONSIDERATION
The Purchase Consideration has been agreed on the basis of the following
assumed maximum net debt amounts (all interest bearing debt less cash and
cash equivalents):
- Sovereign: R500,000,000; and
- Afgri Foods: R542,500,000,
collectively ("the Maximum Debt Amounts").
To the extent that the actual net debt balances at the Effective Date (as
defined in paragraph 6 below) ("Final Debt Amounts") exceed the Maximum
Debt Amounts, the number of shares comprising the Purchase Consideration
will be determined once the Acquisition Percentage has been adjusted as
follows:
- for every R10,000,000 of additional net debt in Sovereign, the
Acquisition Percentage will increase by 0.50%; and
- for every R10,000,000 of additional net debt in Afgri Foods, the
Acquisition Percentage will decrease by 0.15%.
As at the Effective Date, the auditors of Afgri and Sovereign will confirm
the Final Debt Amounts and thereafter the final number of new ordinary
shares to be allotted and issued by Sovereign to Afgri Operations as the
Purchase Consideration, shall be determined.
The Parties will warrant that as at the Effective Date, there will be
sufficient working capital in the respective businesses forming part of the
Proposed Transaction to fund their normal business operations for the 12
months following the Effective Date.
5. SUSPENSIVE CONDITIONS
Sovereign and Afgri intend to enter into a binding sale and purchase
agreement in respect of the Proposed Transaction, which will be subject to
the following suspensive conditions which must be fulfilled or waived by 31
July 2009:
- The respective boards of directors of Sovereign, Afgri and Afgri
Operations, approve the Proposed Transaction and the formal sale and
purchase agreement providing the final agreed terms and conditions of
the Proposed Transaction;
- The shareholders of Sovereign, Afgri and Afgri Operations pass all
resolutions necessary to approve and effect the Proposed Transaction
including the passing of special resolutions required in terms of the
Companies Act, 1973, and in the case of special resolutions, such
resolutions are registered with CIPRO;
- The authorised share capital of Sovereign is increased to the extent
necessary to provide for the allotment and issue of ordinary shares in
Sovereign to discharge the Purchase Consideration;
- The JSE Limited ("JSE") approves the relevant shareholder
documentation to the extent required for the Proposed Transaction;
- The SRP dispenses with the requirement that Afgri must extend a
mandatory offer to Sovereign shareholders in terms of Rule 8.7 of the
SRP Code;
- The Proposed Transaction is approved by the Competition Authorities
without any conditions or if any condition is imposed, such condition
is acceptable to Afgri and Sovereign;
- Employment and restraint of trade agreements are entered into with key
Sovereign management personnel;
- Afgri receives the written consent from the Agri Sizwe Empowerment
Trust and the Land Bank of South Africa Limited to implement the
Proposed Transaction;
- The approval of the existing financiers of Sovereign and Afgri is
obtained for the Proposed Transaction, to the extent required or
prudent in terms of existing facilities;
- The remaining shareholders of Midway Chix waive, to the extent
necessary, any pre-emptive rights they may have in respect of the
Afgri group`s shareholding in Midway Chix; and
- Afgri concludes a satisfactory due diligence investigation of
Sovereign and Sovereign concludes a satisfactory due diligence
investigation of Afgri Foods and each party issues a written
confirmation to that effect.
6. EFFECTIVE DATE
The effective date of the Proposed Transaction shall be the first day of
the calendar month following the date on which all of the suspensive
conditions in 5 are either fulfilled or waived ("the Effective Date").
7. INCREASE IN AUTHORISED SHARE CAPITAL AND CATEGORISATION
In order to proceed with the Proposed Transaction, it is necessary to
increase the authorised ordinary share capital of Sovereign. Accordingly,
shareholders of Sovereign will be requested to approve a special resolution
necessary to implement an increase in the authorised ordinary share capital
of Sovereign from 50 000 000 shares of R0.01 each to 500 000 000 shares of
R0.01 each by the creation of an additional 450 000 000 shares.
Furthermore, the Proposed Transaction qualifies as a reverse take-over for
Sovereign in terms of section 9.5(c) of the JSE Listings Requirements. The
JSE will only permit Sovereign to retain its listing, following the reverse
take-over, should the JSE be satisfied that Sovereign will continue to
qualify for a JSE listing in terms of the JSE Listings Requirements. The
directors of Afgri and Sovereign are confident that Sovereign will continue
to meet the requirements and accordingly qualify for listing after the
implementation of the Proposed Acquisition and the reverse take-over.
In terms of the JSE Listings Requirements, Sovereign is required to prepare
a Category 1 circular incorporating Revised Listing Particulars and a
notice of the general meeting which will be posted to Sovereign
shareholders within 28 days of the further announcement following the
conclusion of the respective due diligences and signature of the Sale and
Purchase Agreement.
The Proposed Transaction is a Category 2 transaction for Afgri in terms of
section 9.5(a) of the JSE Listings Requirements and accordingly, approval
by shareholders of Afgri is not required.
8. ARTICLES OF ASSOCIATION
Following the implementation of the Proposed Transaction, Sovereign will be
a subsidiary of Afgri. As a listed company, Sovereign`s articles of
association comply with Schedule 10 of the JSE Listings Requirements.
9. CAUTIONARY ANNOUNCEMENTS AND PRO FORMA FINANCIAL EFFECTS
At this stage the pro forma financial effects of the Proposed Transaction
have not been calculated.
Accordingly, Afgri shareholders are advised to exercise caution when
dealing in Afgri shares until a further announcement is made.
Sovereign shareholders are referred to the cautionary announcements dated 5
March 2009, 21 April 2009 and 15 May 2009 and are advised to continue to
exercise caution when dealing in Sovereign shares until a further
announcement is made.
A further announcement setting out the pro forma financial effects and
salient dates and times of the Proposed Transaction will be made in due
course.
15 May 2009
Centurion
Corporate adviser and Corporate adviser and sponsor to
transaction sponsor to Afgri Sovereign
Investec Corporate Finance Barnard Jacobs Mellet Corporate
Finance
Attorneys to Afgri Attorneys to Sovereign
Brink Cohen Le Roux Cliffe Dekker Hofmeyr
Sponsor to Afgri
Rand Merchant Bank (A division
of FirstRand Bank Limited)
Date: 15/05/2009 17:15:46 Produced by the JSE SENS Department.
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