ZAMBEEF | Exercise of the Put Options granted to RCL FOODS in respect of Zam Chick and Zamhatch (AIM)

By Published On: March 25th, 2016Categories: Corporate announcement

The Board of Directors of Zambeef has today received formal notification from Rainbow Farms Investments Proprietary Limited (“RCL FOODS”) that it wishes to exercise the Put Options granted to it when it entered into two separate transactions with Zambeef, relating to Zam Chick Limited (“Zam Chick”) and Zamhatch Limited (“Zamhatch”), and which were announced on 4 February 2013 and 30 May 2013 respectively (the “Put Options”) (the “Transaction”). Details of the Put Options were set out in the shareholders agreements entered into between RCL FOODS and Zambeef, in respect of Zam Chick on 1 February 2013 (“the Zam Chick Shareholders’ Agreement”), and RCL FOODS and Zamhatch on 29 May 2013 (“the Zamhatch Shareholders’ Agreement”) (together, “the Shareholders’ Agreements”).

It is noted that originally the Zam Chick Shareholders’ Agreement with Zambeef was entered into with Rainbow Chickens Limited but subsequently a novation agreement was entered into by Rainbow Farms Investments Proprietary Limited, Rainbow Chickens Limited and Zambeef for the substitution of Rainbow Chickens Limited by Rainbow Farms Investments Proprietary Limited as the counter party to the Zam Chick Shareholders Agreement.

Material terms of the Put Options

During 2013, RCL FOODS entered into agreements with Zambeef regarding investments in a broiler business via the acquisition of a 49 per cent. equity stake in Zam Chick and investing in a new hatchery business, through the incorporation of Zamhatch, in which RCL FOODS owns 51 per cent. and Zambeef 49 per cent of the equity.

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

If the Zam Chick Put Option is exercised, the value attributable to RCL FOODS’s interest in Zam Chick will be determined as the higher of the following amounts on the date that the Zam Chick Put Option is exercised:

  • 49 per cent. of the consolidated EBITDA of Zam Chick at an exit EV/EBITDA multiple of 7.5x; or
  • the original purchase price paid by RCL FOODS to Zambeef for the purchase of the RCL FOODS shares, expressed in USD.

If the Zamhatch Put Option is exercised within three years of the effective date, being 31 March 2013, the values attributable to RCL FOODS’s interest in Zamhatch (51 per cent.) will be determined as the higher of the following amounts on the date that the Zamhatch Put Option is exercised:

  • 51 per cent. of the consolidated EBITDA of Zamhatch at an exit EV/EBITDA multiple of 7.5x; or
  • amounts outstanding to RCL FOODS on capital, which is a kwacha amount and which shall be converted into US dollars on the settlement date of the Zamhatch Put Option and its US Dollar loan account and Euro loan account which will be converted to US dollars on the settlement day.

The purchase price in respect of the Zam Chick shares and the Zamhatch shares to be acquired by Zambeef, can be payable as follows:

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

The settlement date has to be not later than six months from the date that the Put Options are exercised, being 23 September 2016.

If the purchase price or part thereof is to be settled using Zambeef shares then the value to be attributed to the Zambeef shares for the purpose of settling the purchase consideration will be determined by the Volume Weighted Average Price (“VWAP”) of Zambeef shares as quoted on AIM for 30 business days immediately preceding the settlement date.

As a condition of the Put Options, RCL FOODS shall be released as surety or guarantor or indemnitor on behalf of Zam Chick and Zamhatch subject to Zambeef binding itself as surety or guarantor or indemnitor. Zam Chick and Zamhatch do not have any guarantee or indemnity or surety from RCL FOODS for any of their existing third party borrowings.

Effective date of Transaction and exercise date

The Settlement of the Put Options has to be no later than six months from the date on which Zambeef received the written notice of RCL FOODS’ intention to exercise the Put Options (“Settlement Date”).

On 23 March 2016, Zambeef received formal notification that RCL FOODS has exercised the Put Options. As of today, the amounts owing by Zambeef, are as follows:

  • in respect of Zam Chick – USD14,250,000; and
  • in respect of Zamhatch – ZMW24,800,000 plus USD2,000,000 in the form of a shareholder loan and EUR3,301,849.53 in the form of a second shareholder loan.

    (collectively, “the Settlement Consideration”).

Conditions precedent to the exercise of the Put Options

Regulatory approvals will be required from the Competition and Consumer Protection Commission, the Securities Exchange Commission and the Lusaka Stock Exchange.

Should the Board elect to pay the Settlement Consideration, in whole or in part, in Zambeef shares, shareholder approval will be required to be sought for the issue of such shares.

Implications

Zambeef has to settle the Put Options and once it does so, it will own 100 per cent. of Zamhatch and Zam Chick. The Board of Zambeef has the choice as to whether to pay the Settlement Consideration wholly in cash or only in Zambeef shares or partly in cash and partly in Zambeef shares. If the Board decides to pay the Settlement Consideration in cash then Zambeef calculates that it will be required to pay RCL FOODS USD16,250,000 and the US Dollar equivalent of ZMW24,800,000 and EUR3,301,849.53 on the date of settlement.

If Zambeef settles the Put Options in shares, it will result in dilution to Zambeef shareholders.

The Zambeef Board will carefully consider the above options and advise the shareholders of their suggested settlement mechanism to pay the Settlement Consideration.

In accordance with the Requirements of both the Lusaka Stock Exchange and the AIM Market of the London Stock Exchange, the Transaction shall be subject to shareholder approval and the Zambeef Board shall determine how to pay the Settlement Consideration before the Settlement Date.

Operational and Financial Performance of Zam Chick and Zamhatch

Zam Chick has performed well with Profit after Tax of ZMW19.9m (USD2.8m) for the year ended 30 September 2015 and of ZMW10.3m (USD1.8m) for the year ended 30 September 2014. Zam Chick is the entity through which all of the Zambeef Group’s chicken broiler operations are conducted. Zambeef will benefit from Zam Chick Ltd being 100 per cent. owned and this is an integral part of Zambeef’s cold chain food product operations which is the key focus area of Zambeef. Zam Chick will continue to benefit from Zambeef’s continued expansion of its retail network and hence is expected to continue to grow.

Zamhatch is a joint venture company established in 2013 for the purposes of establishing a breeder farm and hatchery to supply Zamchick its day old chick requirements as well as supply day old chicks to third parties. In particular Zam Chick is s