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BRIMSTONE INVESTMENT CORPORATION LIMITED - Acquisition by Brimstone of a 15% indirect interest in Clover and withdrawal of cautionary announcement

Release Date: 04/02/2019 08:38
Code(s): BRT BRN     PDF:  
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Acquisition by Brimstone of a 15% indirect interest in Clover and withdrawal of cautionary announcement

BRIMSTONE INVESTMENT CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1995/010442/06
Share Code: BRT ISIN: ZAE000015277
Share Code: BRN ISIN: ZAE000015285
(“Brimstone”)

ACQUISITION BY BRIMSTONE OF A 15% INDIRECT INTEREST IN CLOVER INDUSTRIES LIMITED AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

1. INTRODUCTION

   Further to the cautionary announcement released on the Stock Exchange News Service (“SENS”) of the JSE Limited
   (“JSE”) on 21 January 2019, holders of ordinary shares in Brimstone and N ordinary shares in Brimstone
   (“Brimstone Shareholders” and “Brimstone Shares”, respectively) are referred to the joint announcement (“Firm
   Intention Announcement”) released on SENS today, 4 February 2019, by Clover Industries Limited (“Clover”) and
   Milco SA Proprietary Limited (“Milco SA” or the “Offeror”), in respect of the firm intention by Milco SA to make a
   cash offer to acquire all the shares of Clover on a fully diluted basis (the “Offer” or the “Proposed Transaction”).

   The Firm Intention Announcement was released following the conclusion of an agreement between Clover and
   Milco SA on 4 February 2019 (“Implementation Agreement”), in terms of which Milco SA will make the Offer to
   Clover shareholders (“Clover Shareholders”) to acquire all of their Clover ordinary shares (“Clover Shares”) by
   way of a scheme of arrangement (the "Scheme") in terms of section 114 of the Companies Act, No. 71 of 2008, as
   amended ("Companies Act").

   The amount payable to Clover Shareholders in terms of the Scheme will be a cash consideration of R25.00 per
   Clover Share ("Scheme Consideration"), amounting to an aggregate Scheme Consideration of approximately
   R4.8 billion. The Scheme will be subject to the fulfilment or waiver of a number of conditions precedent, on or
   before 20 August 2019 (or such later date as Milco SA and Clover may agree upon). which have been detailed
   in the Firm Intention Announcement. If the Scheme becomes operative, the listing of all of Clover’s Shares on
   the main board of the JSE and the Namibian Stock Exchange (“NSX”) will be terminated and Clover will become a
   wholly-owned subsidiary of Milco SA.

2. BRIMSTONE’S PARTICIPATION IN THE PROPOSED TRANSACTION

   On 3 February 2019 (“Signature Date”), Brimstone entered into an agreement (“Shareholders and Subscription
   Agreement”) with International Beer Breweries Limited (“IBBL”), Ploughshare Investments Limited
   (“Ploughshare”), as incorporators and on behalf of Milco Mauritius International Limited (“Milco Mauritius”),
   IncuBev Limited (“IncuBev”), Milco SA and the executive management of Clover (“Clover Management”), in terms
   whereof the parties have agreed to constitute and capitalise Milco SA for purposes of implementing the Proposed
   Transaction.

   In terms of the Shareholders and Subscription Agreement, the shareholding of Milco SA will be as follows:

   -   78.7% by Milco Mauritius, a Mauritian holding company, which will become a party to the Shareholders and
       Subscription Agreement upon its formation when it ratifies and confirms and agrees in writing to be bound by
       the provisions thereof. The shareholders of Milco Mauritius will be IBBL (59.5%), IncuBev (8.3%) and
       Ploughshare (10.9%);
   -   15% by Brimstone; and
   -   6.3% by Clover Management.

   In terms of the Shareholders and Subscription Agreement, Brimstone shall subscribe for 15% of the entire issued
   share capital of Milco SA (“Brimstone Subscription”) for a cash consideration of R726 million (“Brimstone
   Subscription Amount”), which will be funded through debt funding.

   The purpose of this announcement is to advise Brimstone Shareholders of the terms and conditions of the Proposed
   Transaction and Brimstone Subscription.

3. NATURE OF BUSINESS OF CLOVER
  
   Clover is a leading and competitive branded consumer goods and products group operating in South Africa and
   select African countries reaching a wide range of consumers with a range of quality value-added dairy and non-
   dairy products. Clover has one of the largest ambient and chilled distribution networks in Southern Africa. The
   company’s segments include: dairy fluids, dairy concentrated products, ingredients, non-alcoholic beverages,
   fermented products and other products. Clover’s footprint extends across South Africa and sub-Saharan Africa,
   employing over 8,500 employees.

4. THE SCHEME CONSIDERATION PREMIUM

   The Scheme Consideration represents a compelling proposition and attractive opportunity for Clover Shareholders
   to realise value in cash and to divest of their Clover Shares at a substantial premium, as set out below, which is also
   attractive considering the low trading volumes in Clover Shares on the JSE and NSX.

   The table below illustrates the Scheme Consideration premium relative to the Clover Share price determined on a
   number of metrics:

      Scheme                   Clover       share      Scheme                 Clover       share      Scheme
      Consideration            price prior to the      Consideration          price prior to the      Consideration
      premium to               Cautionary              premium                Firm     Intention      premium
                               Announcement 1                                 Announcement 2


      Closing price                  R14.10                    77%                   R20.00                   25%
      30-day VWAP3                   R14.73                    70%                   R19.09                   31%
      60-day VWAP3                   R16.10                    55%                   R18.05                   39%
      90-day VWAP3                   R16.16                    55%                   R16.93                   48%

   Notes:
   
   1. Respective price metrics of a Clover Share on the JSE on 18 October 2018, being the last trading day prior to the publication
      of the first cautionary announcement by Clover (“Cautionary Announcement”).
   2. Respective price metrics of a Clover Share on the JSE on 1 February 2019, being the last trading day prior to the publication
      of the Firm Intention Announcement.
   3. VWAP refers to the volume weighted average price over the particular number of trading days.

5. INFORMATION ON THE OFFEROR

   Set out below are the credentials of the parties playing a lead-role in the Offeror:

   -    IBBL is a directly owned subsidiary of the Central Bottling Company (“CBC”) Group. CBC is a privately-owned
        international food and beverage group whose subsidiary companies serve over 160 million consumers
        worldwide. CBC is Israel's leading manufacturer and distributor of beverages, and, through its foreign
        subsidiaries, has manufacturing and distribution operations in Turkey, Romania, and Uzbekistan. CBC, which
        is also the owner of the Tara dairy, Israel's second largest milk processing dairy, produces and distributes its
        own brands and Müller brands, and it operates the license for the Müller brand in Romania. CBC also owns Gat
        Foods, a “grove to table” juice operation with customers in over 70 countries. In addition, CBC works closely
        with its international franchisors, including The Coca-Cola Company, Carlsberg, Anheuser-Busch InBev, the
        Müller Group and Diageo;
  -     IncuBev is an international business focused on the food and beverage sectors in sub-Saharan Africa. The
        shareholders of IncuBev comprise global executives with extensive knowledge, experience and relationships,
        both in sub-Saharan Africa and the rest of the world, in the dairy and non-alcoholic beverage industry. IncuBev
        has a network design with access to deep operational, private equity, banking and management consulting
        expertise, within sub-Saharan Africa and globally; and
  -     Ploughshare is a privately owned, independent investment company which is part of a broader international
        investment group which has investments and expertise in retail, distribution and beverages.

   Milco SA will not only retain the services of Clover Management but Clover Management will, together with a loan
   from Milco SA, reinvest a portion of the proceeds they receive from the Scheme, and settlement of their share
   appreciation rights, into Milco SA.

6. RATIONALE FOR BRIMSTONE’S PARTICIPATION IN THE OFFER

   Milco SA and Brimstone believe that Clover presents a uniquely attractive investment given its large chilled
   distribution capability, a strong market position for key brands and an experienced management team. Milco SA
   brings extensive knowledge of the dairy, juice and non-alcoholic beverage industries. It has the technical and
   research ability to bring healthier food to consumers, has access to international brands and know-how, and
   connections and operating experience in sub-Saharan businesses, alongside its proven commercial and trade
   abilities. Milco SA intends to combine its capabilities with those of Clover to unlock value through key strategic
   initiatives, primarily aimed at accelerating sales, distribution and efficiency opportunities within Clover’s product
   portfolio in South Africa and expansion into select sub-Saharan Africa territories.

7. SALIENT TERMS OF THE SHAREHOLDERS AND SUBSCRIPTION AGREEMENT

   7.1 Lock-in period, warranties and other salient terms

      7.1.1    Brimstone has undertaken not to dispose of or encumber its Milco SA Shares for a period of seven
               years from the date on which it acquires its Milco SA Shares, unless approved by a special majority of
               the shareholders of Milco SA who in total hold not less than 60% of the voting rights (whether directly
               or indirectly) of Milco SA, provided that a special majority shall always include (i) IBBL for as long as it
               (a) holds an effective interest in Milco SA of not less than 10%, (b) Milco Mauritius is the largest
               shareholder of Milco SA and (c) IBBL is the largest shareholder of Milco Mauritius, and (ii) at least one
               other material shareholder, being a shareholder that holds 10% or more of the issued share capital of
               the Milco SA or Ploughshare and/or IncuBev for as long as they each retain at least 90% of their
               respective effective interest in Milco SA.

      7.1.2    The Shareholders and Subscription Agreement is unconditional and contains representations and
               warranties which are standard for an agreement of this nature.

      7.1.3    Following the Signature Date, Brimstone shall be entitled to nominate one person for election to the
               board of Milco SA.

      7.1.4    For so long as Brimstone is a shareholder of Milco SA, and in exchange for the provision of various
               management services, Brimstone shall be paid an annual management fee by Milco SA equivalent to
               (i) 1% of the Brimstone Subscription Amount for the first seven years, and (ii) 1.5% thereafter.

   7.2 Brimstone Put Option

       Simultaneously with the conclusion of the Shareholders and Subscription Agreement, Brimstone concluded an
       agreement (“Brimstone Put Option Agreement”) with Milco SA, IBBL and Ploughshare in terms whereof
       Brimstone will be entitled, at its election, to exercise a put option against Milco SA, Clover or Milco Mauritius,
       subject to any applicable regulatory and/or shareholder approvals, for the Milco SA Shares held by Brimstone
       to be repurchased by Milco SA or purchased by Clover or Milco Mauritius (“Brimstone Put Option”). The
       Brimstone Put Option is exercisable at any time (i) during the period commencing 120 days after the seventh
       anniversary of the date on which Milco SA acquires all of the Clover Shares (“Effective Date”) and terminating
       120 days after the 10th anniversary of the Effective Date (“Put Option Period”); or (i) during the period
       commencing on the Signature Date and terminating at the end of the Put Option Period if: IBBL ceases to hold
       at least 50.1% of the entire issued share capital of Milco Mauritius and/or ceases to control (as such term is
       defined in the Companies Act) Milco Mauritius; or there is a disposal by Clover of all or greater part of its assets
       or undertaking.

8. LOSS ATTRIBUTABLE TO, AND NET ASSETS OF, THE BRIMSTONE SUBSCRIPTION

   As mentioned above, Brimstone will, through the Brimstone Subscription, acquire an indirect 15% interest in Clover.

   Based on the audited results of Clover for the year ended 30 June 2018, the net asset value of Clover as at 30 June
   2018 was R2,842.4 million (15% of this figure being equivalent to R426.4 million) and the loss attributable to Clover
   Shareholders for the year ended 30 June 2018 was R(38.0) million (15% of this figure being equivalent to R(5.7)
   million). These results were prepared in accordance with the framework concepts and the measurement and
   recognition requirements of International Financial Reporting Standards.

9. CATEGORISATION OF THE BRIMSTONE SUBSCRIPTION AND CIRCULAR TO BRIMSTONE SHAREHOLDERS

   In terms of the JSE Listings Requirements, the Brimstone Subscription is classified as a Category 1 transaction,
   and accordingly requires Brimstone Shareholder approval.

   Details of the Brimstone Subscription and the Proposed Transaction, together with inter alia, pro forma financial
   effects of the Brimstone Subscription, will be included in a circular to Brimstone Shareholders (“Brimstone
   Circular”), which is required to be posted to Brimstone Shareholders within 60 days of this announcement.

   The salient dates and times pertaining to the implementation of the Brimstone Subscription and the Proposed
   Transaction will be released on SENS and published in the press at the time of posting of the Brimstone Circular.

10.BRIMSTONE SHAREHOLDER SUPPORT

   To date, Brimstone has received irrevocable undertakings to vote or procure the voting of Brimstone Shares in
   favour of the necessary resolutions to give effect to the Brimstone Subscription, representing 54.74% of the voting
   rights of Brimstone Shares.

11.WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT

   As details of the Proposed Transaction and the Brimstone Subscription have been announced, Brimstone
   Shareholders are no longer required to exercise caution when dealing in their Brimstone Shares.

Cape Town

4 February 2019

Investment Bank, Corporate Advisor and Sponsor to Brimstone
Nedbank Corporate and Investment Banking, a division of Nedbank Limited

Legal Advisor to Brimstone
ENSafrica

Date: 04/02/2019 08:38:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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