Press releases

Barloworld to acquire Tongaat Hulett Starch for R5.350 billion

03 March 2020

Barloworld has entered into a Sale and Purchase Agreement with Tongaat Hulett Limited to acquire the Tongaat Hulett’s Starch business (Tongaat Hulett Starch, THS) as a going concern for R5.350 billion. The acquisition will be funded from the Company's existing cash resources and local debt facilities.

The acquisition follows an auction process by Tongaat Hulett and a comprehensive due diligence by Barloworld that evaluated the opportunity within the company’s strict guard rails and returns criteria.

Barloworld continues to focus on improving returns in the medium term, while noting that there are limited value accretive growth opportunities within its current portfolio of businesses. It is Barloworld's view that the opportunities to achieve its ambitions lie in high growth, capital light and defensive industries.

The proposed acquisition is in line with Barloworld’s ambition to add high growth businesses to its portfolio and potentially provides a platform from which to grow further.  It will bring into the Barloworld portfolio a highly cash generative business that possesses market leading assets and a strong client base of well-regarded and established multi-national clients.

Barloworld Group CEO Dominic Sewela says: “In addition to being an integrated starch and modified starch producer that has been operating for over 100 years, THS is the leading starch and glucose producer in Africa and has significant growth prospects. The Business has strong financial fundamentals with historical revenue growth of c. 8% per annum over a 10 year period and has positive economic profit and best-in-class return on invested capital of c.28%”.

“The broad and balanced product mix and fact that it enjoys a strong market position as the sole manufacturer of starch and glucose in South Africa, the points that starch and glucose producers supply stable and diversified end-product markets and benefit from stable local raw material supplies, positive projections of glucose consumption (volume) Africa (c. 3.4% per annum) and in South Africa (c. 1.7% per annum), with the South African modified starch market valued at c. R600 million per annum, made the investment compelling and one that will immediately benefit our shareholders” says Sewela.

THS further present’s opportunities for Barloworld to, amongst other things, leverage its core capabilities of building lasting B2B businesses, operating in emerging markets and unlocking latent manufacturing capacity through the application of lean improvement processes.

Barloworld expects that through product development and specialisation (into modified starches) it will be able to create immediate margin uplift and to optimise the product mix, whilst the ability to leverage Barloworld's core competencies in distribution within its existing businesses will also create additional value.

Barloworld intends to retain the strong management that has consistently delivered strong EBITDA performance and cash conversion despite the tough economic conditions.

“This acquisition signals the implementation of our strategy and puts us in a position to sustainably double the intrinsic value our business. THS has consistently delivered a strong financial performance and will directly make a positive contribution to Barloworld post the Acquisition”, says Sewela.

The proposed acquisition is subject to the fulfilment of a number of suspensive conditions that include, among other things:

  • Tongaat Hulett shareholders passing a special resolution approving the Proposed Transaction as required in terms of sections 112 and 115(2)(a) of the Companies Act;
  • The approval of the Proposed Transaction by the relevant competition authorities and receipt of any other regulatory approvals that may be required for the Proposed Transaction, including the approval of the JSE, the Financial Surveillance Department of the South African Reserve Bank and the issue of a compliance certificate by the Takeover Regulations Panel (TRP)
  • Tongaat Hulett publishing a notice of the Proposed Transaction ("Section 34 Notice") in terms of section 34 of the Insolvency Act; 24 of 1936, as amended;
  • Tongaat Hulett’s bank lending group agreeing not to exercise any rights they may have, as a result of the publication of the Section 34 Notice, to accelerate the payment of any liquidated claims they may have against Tongaat Hulett;
  • Absa Bank Limited and Nedbank Limited consenting to the assignment to Barloworld of the commodity finance facilities granted by them to Tongaat Hulett; and
  • No material adverse change having occurred in relation to the Business between the signature date of the SPA and the Closing Date.

The Proposed Transaction is expected to finalised and closed in quarter 3 of 2020.