Tongaat Hulett and Barloworld at impasse over acquisition
Source: Farmer's Weekly
The coronavirus disease (COVID-19) pandemic has resulted in yet another upheaval in South Africa’s agricultural value chain.
The proposed R5,53 billion acquisition of Tongaat Hulett Starch by Barloworld subsidiary, KLL Group, is at risk of collapse due to the socio-economic impact of the COVID-19 pandemic.
Photo: Tongaat Hulett
This time the virus’s socio-economic impact has led to a breakdown in negotiations between Tongaat Hulett and Barloworld about the latter’s intention to purchase Tongaat Hulett’s starch business.
A recent announcement by Barloworld on the JSE’s Stock Exchange News Service (SENS), said that “Barloworld is of the view that COVID-19 global pandemic and the consequences thereof, constitute an event that is reasonably likely to cause the EBITDA [earnings before interest, taxes, depreciation and amortisation] of [Tongaat Hulett Starch] for the financial year ending 31 March 2021 to be 82,5% or less of the EBITDA for the financial year ended on 31 March 2020, and that, therefore a material adverse change (MAC) has occurred.”
In February, Barloworld announced that one of its wholly-owned subsidiaries, KLL Group, intended to acquire Tongaat Hulett Starch as a going concern for R5,53 billion. At the time of this statement, Barloworld anticipated that the proposed transaction would be concluded sometime during the third quarter of this year.
However, according to Barloworld’s latest SENS announcement, the company no longer wished to continue with the proposed transaction.
Responding to the statement, Tongaat Hulett CEO, Gavin Hudson, expressed surprise at Barloworld’s belief that a MAC had occurred.
“We believe that Barloworld does not have sufficient information at its disposal to come to such a conclusion, given that we are only one month into our trading year,” he said.
“We do, of course, understand the impact that the COVID-19 pandemic and subsequent lockdown has had on most businesses, including ours, notably the combined impact of the alcohol ban and reduced manufacturing demand on the [Tongaat Hulett] starch business. However, we have taken this into account in our modelling, we have stress-tested various scenarios and are confident that at this point there is no MAC event.”
Both Tongaat Hulett and Barloworld indicated that the matter would be referred to an independent third party for a decision on whether or not a MAC had occurred in the proposed transaction of Tongaat Hulett Starch.
Barloworld’s statement added that the company expected the decision to be made by 7 July.