ACQUISITION OF SCHIRM AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT1. Introduction
Shareholders are advised that AECI and its wholly-owned subsidiary, AECI Mauritius Limited (“AECI Mauritius”), has reached agreement with Imperial Chemical Logistics GmbH (“ICL”), a wholly-owned subsidiary of Imperial Holdings Limited, and Schirm GmbH, a wholly-owned subsidiary of ICL, in terms of which (i) AECI Mauritius will acquire 100% of the share capital in Schirm GmbH and shareholder loan claims; and (ii) Schirm GmbH will acquire (A) the contract manufacturing service business of ICL (“Wolfenbüttel Business”); and (B) a property in Wolfenbüttel, Germany (“Wolfenbüttel Property”), (together, “Schirm”) (“the Transaction”). The purchase consideration is €110,5 million (R1 808,2 million(1)) and is payable in cash (“Purchase Consideration”). The Transaction is subject to the conditions precedent set out in paragraph 4 below. Schirm manufactures agrochemicals and fine chemicals. It has four sites in Germany (Schönebeck, Wolfenbüttel, Lübeck and Baar-Ebenhausen) and one in Ennis, Texas, in the USA.
In terms of the Transaction, ICL will retain the customer warehousing, transportation and distribution services on the sites on which Schirm operates. For a period of one year from the closing date of the Transaction, Schirm GmbH retains an option to acquire four warehouses at the Schirm plant in Schönebeck from ICL for a maximum purchase consideration of €9,0 million (R147,3 million(1)). Schirm GmbH has entered into a separate 25-year lease agreement with ICL for warehouse and factory space to meet its own operational and raw material storage requirements, in terms of which AECI will make a pre-payment of €3,5 million (R57,3 million(1)).
(1) calculated at the ZAR/EUR rate of R16,36 as at 7 November 2017.2. Overview of Schirm
Schirm is an established contract chemical manufacturer which provides an integrated service across the entire value chain of synthesis, formulation and packaging of agrochemicals and fine chemicals. Agrochemical products include herbicides, fungicides and insecticides while the fine chemicals portfolio comprises raw materials for the biocides, personal and home care, adhesives and rubber industries. Schirm is the leading provider of formulation services for agrochemicals in Europe and its services include:
|•||Synthesis: raw materials from suppliers or customers are converted to chemical products and either sold to customers or utilised by Schirm in formulation processes;|
|•||Formulation: Schirm uses products from its own synthesis process and/or products from customers and sells formulations in bulk to those customers; and|
|•||Packaging and labelling of liquid and solid chemical products in all packaging sizes.|
The sale of agrochemicals accounts for approximately 80% of Schirm’s revenue, with fine chemicals contributing the balance. Approximately 80% of revenue is generated in Europe, primarily in Germany, and the rest is generated in the USA.
Schirm is a supplier to leading global crop protection chemical producers such as Bayer, BASF, DuPont, Syngenta, Sumitomo Chemical and Lanxess. It has relationships averaging over 30 years with its 10 largest customers.
According to global strategy consulting firm Roland Berger, Schirm's addressable synthesis market was estimated to have a global value of €8,1 billion in 2016 and is expected to grow by c.3,7% p.a. to 2020, driven mainly by underlying market growth and a positive price outlook for contract manufacturing services. In the formulation and packaging of agrochemicals, the addressable global market size was estimated by Roland Berger at €3,4 billion in 2016 and is expected to grow at c.3,4% p.a. to 2020, driven mainly by underlying market growth and upward price trends.
Over the last two financial years, Schirm invested approximately €25 million (R370,6 million(1)) in capital expenditure in terms of contractual arrangements with strategic customers and on installing a state-of the-art synthesis plant at its Schönebeck site. Spare capacity remaining from the upgrade will be filled in the coming years. These investments have provided the additional capacity necessary to achieve significant growth in Schirm’s synthesis operations, with the resultant financial benefits expected from the financial year ending 30 June 2018. The benefits of this capital expenditure are not reflected in historical financial information.
(1) calculated at the average ZAR/EUR rate of R14,82 for the year ended 30 June 2017.3. Rationale for the Transaction
In addition to domestic growth, AECI’s focus is also on expansion outside South Africa in its chosen strategic areas of Mining Solutions, Water & Process, Plant & Animal Health, Food & Beverage, and Chemicals. AECI already has well-established businesses in Africa, South East Asia, the USA and Australia. The Transaction is in line with the Company’s international expansion strategy. Schirm presents a strong investment case for AECI:
|•||it is a market leader in the provision of formulation services for agrochemicals in Europe;|
|•||it has long-standing customer relationships with its blue-chip customer base;|
|•||it has invested substantially in capital expenditure over the past two years and it is expected that this investment will enable significant revenue growth as well as cost efficiencies;|
|•||there are potential synergies associated with the extension of Schirm’s manufacturing expertise to AECI as well as expansion and supply chain opportunities for the Group’s existing Plant & Animal Health pillar;|
|•||there are opportunities for AECI to replace some of the raw materials it currently imports from third parties;|
|•||enhanced geographic and product diversity for AECI’s wider chemicals portfolio;|
|•||there are also potential synergistic benefits associated with differing seasonal demand cycles in the northern and southern hemispheres; and|
|•||it provides currency diversification for AECI.|
Schirm will operate as a stand-alone entity, in AECI’s Plant & Animal Health pillar.4. Conditions precedent
The closing of the Transaction is subject to the fulfilment or waiver (if possible) of the following conditions precedent:
|•||approval by the German Federal Cartel Office, Germany’s national competition regulator;|
|•||the German Federal Ministry of Economics and Energy issuing a clearance certificate for the Transaction;|
|•||approval by the Financial Surveillance department of the South African Reserve Bank;|
|•||registration of a first ranking priority notice in respect of the transfer of the ownership of the Wolfenbüttel Property in favour of Schirm GmbH; and|
|•||the municipal authority waiving its statutory rights of pre-emption (or issuing a certificate of non-applicability) relating to the Wolfenbüttel Property.|
Warranties and indemnities typical of a transaction of this nature have been provided for.
The closing date of the Transaction will be the last business day of the month in which the last closing condition is fulfilled or, as the case may be, waived (if so permitted). However, if there are less than eight business days between the date of such fulfillment or waiver and the end of the then current month, closing shall take place on the last business day of the next month or any other business day mutually agreed upon in writing.5. Purchase consideration
The Purchase Consideration for the Transaction has been structured as a “locked-box” with an effective date of 30 June 2017, subject to a separate trade working capital adjustment mechanism on the closing date of the Transaction.
AECI will fund the Transaction utilising a financing facility provided by The Standard Bank of South Africa Limited.6. Financial information
For the year ended 30 June 2017, the net asset value of Schirm was €14,4 million (R215,0 million(2)), inclusive of shareholder loan claims to ICL of €55,9 million (R834,5 million(2)) and it delivered revenue of €115,6 million (R1 713,7 million(2)), EBITDA of €13,8 million (R204,6 million(2)), EBIT of €9,7 million (R143,8 million(2)) and profits after tax of €5,2 (R77,1 million(2)) million attributable to the net assets. These audited figures were prepared in conformity with International Financial Reporting Standards.
(2) The spot ZAR/EUR exchange of R14,93 has been applied to convert net assets as at 30 June 2017 and the average exchange rate of R14,82 for the year ended 30 June 2017 has been applied to convert profit and loss items.7. Categorisation of the Transaction
The Transaction is classified as a Category 2 transaction for AECI in terms of the Listings Requirements of the JSE Limited (“Listings Requirements”).
Following the implementation of the Transaction, Schirm GmbH and Schirm GmbH’s wholly-owned subsidiary Schirm U.S.A., Inc., will become wholly-owned subsidiaries of AECI. The Company confirms that Schirm’s constitutional documents enable AECI to continue to comply with its obligations in terms of the Listings Requirements.8. Withdrawal of cautionary announcement
Shareholders are referred to the further cautionary announcement dated 30 October 2017. As the full details of the Transaction have now been released, shareholders no longer need to exercise caution when dealing in their AECI securities.
8 November 2017
Investment Bank, Corporate Advisor and Transaction Sponsor
The Standard Bank of South Africa Limited
Legal Advisors to AECI
Webber Wentzel and Linklaters LLP