Tongaat’s R5.35bn starch unit sale to Barloworld to go ahead
An independent expert has determined that the effect of Covid-19 has not been sufficient to trigger a material change clause
An independent expert has determined that the Covid-19 pandemic has not been sufficient to derail Tongaat Hulett’s R5.35bn sale of its starch unit to Barloworld.
As part of a plan to reduce a R13bn debt pile under CEO Gavin Hudson, Tongaat struck an agreement with the industrial group in February to sell the starch business, but parties had differed over whether the pandemic had subsequently dealt a large enough blow to the starch business’s earnings.
Barloworld triggered a material change clause — a rarely invoked clause in mergers and acquisitions that allows buyers to withdraw from deals if the value of the transaction has been undermined by a significant development.
This required the starch business to suffer at least a 17.5% drop in annual core profit, or earnings before interest, tax, depreciation and amortisation (ebitda), and the matter was put to a third party — Rothschild & Co SA.
The independent expert has determined that the ebitda of the business is not reasonably likely to fall this amount, with the transfer of the business to Barloworld now expected to take place November.
Barloworld said on Tuesday that it is pleased the starch unit had shown resilience during the pandemic, adding that it expected its performance to improve further as lockdown conditions in SA eased.
The business is a highly cash-generative, relatively asset light and defensive investment
“The business is a highly cash-generative, relatively asset light and defensive investment,” Barloworld said, adding that the starch business had a well-established client base of multinational companies.
Hudson said on Tuesday that now the issue of the dispute was behind the parties, they would work to close the deal as soon as possible.
“Throughout this process we have continued to work to close out workstreams to meet our other obligations under the agreement reached with Barloworld in February this year, so that we can conclude the sale and move forward,” Hudson said.
Tongaat is seeking to reduce its debt by R8.1bn, or 60%, by March 2021.
In morning trade on Tuesday, the group’s share was up 7.43% to R5.78, having more than halved so far in 2020.
Barloworld’s share was down 2.25% to R58.73, having fallen 47.9% in the year to date. — BusinessLIVE
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