ZAMBEEF | Announcement of the exercise of the put options granted to RCL Foods Limited by Zambeef Products plc (RCL-JSE)

By Published On: March 24th, 2016Categories: Corporate announcement

Zambeef notes the following announcement released today by RCL Foods to the Johannesburg Stock Exchange regarding the put options concerning Zam Chick and Zamhatch.

Release Date: 24/03/2016 12:18:00 Code(s): RCL
Announcement of the exercise of the put options granted to RCL Foods Limited by Zambeef Products plc
RCL FOODS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1966/004972/06)
ISIN: ZAE000179438
Share Code: RCL

 

1. Background

During 2013, RCL Foods Limited (“RCL FOODS”), through its wholly owned subsidiary, Rainbow Farms Investments Proprietary Limited, entered into agreements with Zambeef Products PLC (“Zambeef”) regarding investments in its broiler business, Zam Chick Limited (“Zam Chick”), and a greenfield hatchery investment, Zamhatch Limited (“Zamhatch”).

RCL FOODS has a 49% interest in Zam Chick and a 51% interest in Zamhatch. Shareholders’ agreements were entered into between RCL FOODS and Zambeef in respect of Zam Chick on 1 February 2013 (“the Zam Chick Shareholders’ Agreement”) and Zamhatch on 29 May 2013 (“the Zamhatch Shareholders’ Agreement”) (collectively, “the Shareholders’ Agreements”).

In terms of the Shareholders’ Agreements RCL FOODS, as a standard protection mechanism, was granted put options that would require Zambeef to acquire all of the ordinary shares held by RCL FOODS in Zam Chick (“the Zam Chick Option”) and Zamhatch (“the Zamhatch Option”) (collectively, “the Options”).

If the Zam Chick Option is exercised at any time, the value attributable to RCL FOODS’ interest in Zam Chick (49%) will be determined as the higher of the following amounts on the date that the Zam Chick Option is exercised:

    • 49% of the consolidated earnings before interest, taxation, depreciation and amortisation (“EBITDA”) of Zam Chick at an exit enterprise value (“EV”) / EBITDA multiple of 7.5 times; or
    • the original purchase price paid by RCL FOODS to Zambeef for the Zam Chick shares, expressed in US Dollars (“USD”).

Currently, RCL Foods has no shareholder loan account claims against Zam Chick. If the Zamhatch Option is exercised within 3 years of the effective date (31 March 2013), the value attributable to RCL FOODS’ interest in Zamhatch (51%) will be determined as the higher of the following amounts on the date that the Zamhatch Option is exercised:

    • 51% of the consolidated EBITDA of Zamhatch at an exit EV / EBITDA multiple of 7.5 times;

or

  • the invested USD amounts outstanding to RCL FOODS on capital and loan account.

Should the Options be exercised, the purchase consideration in respect of the Zam Chick shares and the Zamhatch shares purchased by Zambeef, shall, at Zambeef’s discretion, be payable as follows:

  • in cash; or
  • by the transfer by Zambeef to RCL FOODS of Zambeef shares; or
  • by the issue and allotment by Zambeef to RCL FOODS of newly issued Zambeef shares; or
  • by a combination of Zambeef shares and cash.

The value attributed to the Zambeef shares for purposes of settling the purchase consideration or part thereof in Zambeef shares, will be determined by the Volume Weighted Average Price (“VWAP”) of Zambeef shares as quoted on the AIM Stock Exchange for 30 business days immediately preceding the settlement date. The settlement date shall not be later than six months from the date that the Options are exercised. Zambeef’s market capitalisation as at 23 March 2016 is USD31.9 million (based on an exchange rate of GBP1.00: USD1.4091).

In terms of each of the Shareholders’ Agreements, and in respect of each Option, to the extent that Zambeef is unable to effect the total payment for the Option shares in cash, then it shall effect payment by issuing Zambeef shares to RCL FOODS. For this purpose, Zambeef warranted that it would hold available up to 10% of its issued ordinary share capital (in respect of each Option).

In accordance with Zambian laws and regulations, certain scenarios relating to the acquisition of the shares by Zambeef may require shareholder approval. In addition, the approval of the Competition and Consumer Protection Commission, the Lusaka Stock Exchange and the Securities and Exchange Commission (“SEC”) will be required in order for Zambeef to implement the acquisition of all of the ordinary shares held by RCL FOODS in Zam Chick and Zamhatch in accordance with the terms of the Options.

2. Exercise of the Options

Exercise notices in respect of Zam Chick and Zamhatch were delivered to Zambeef on 23 March 2016, informing Zambeef that the Options have been exercised. This action fixes the Option exercise date and commences the six-month period for purposes of determining the settlement date, in accordance with the terms of the Shareholders’ Agreements.

The purchase price owing by Zambeef to RCL FOODS in terms of the Options is as follows:

  • in respect of Zam Chick – USD 14,250,000.00; and
  • in respect of Zamhatch – USD 4,000,000.00 capital plus USD 6,159,174.53 of shareholder loans, (collectively, “the Settlement Consideration”).

3. Dispute

There is a dispute between RCL FOODS and Zambeef with regard to the computation of the purchase price to be paid for the Zamhatch shares by Zambeef. Zambeef contends that the portion of the purchase price payable by it for the capital contribution by RCL FOODS to Zamhatch should comprise the Zambian Kwacha value of the capital contribution at the time that it was originally paid (in USD) by RCL FOODS. This amounts to ZMW 24,800,000.00. RCL FOODS contends that the amount payable to it ought to be the USD amount originally paid, being USD 4,000,000.00. On the Zambeef version, this results in a reduction in the amount payable to RCL FOODS of approximately USD 1,807,250.22 (based on an exchange rate of USD 1.00: ZMW 11.31 as at 23 March 2016).

In addition, Zambeef argues that a portion of the RCL FOODS loan account in Zamhatch was paid in Euros, and ought to be denominated in Euros as opposed to USD. The Euro amount paid by RCL FOODS was Euro 3,301,849.53. Again, RCL FOODS is of the view that this amount should also be denominated in USD as at the date of payment, being USD 4,159,174.53. On the Zambeef version, this results in a reduction in the amount payable to RCL FOODS of approximately USD 466,656.60 (based on an exchange rate of USD1.00: Euro 0.8942 as at 23 March 2016).

If the matter is not resolved, RCL FOODS will pursue its contractual remedies in terms of the Shareholders’ Agreements.

4. Rationale for the exercise of the Options

RCL FOODS is of the opinion that its interests in Zambeef (indirectly held through Zam Chick and Zamhatch) would be better aligned with the shareholders of Zambeef if RCL FOODS’ indirect investments were to be ex