Fishing group Sea Harvest said on Monday it has offered to buy Terrasan’s pelagic business and part of its abalone business for R965m in a deal that will be settled in new shares and cash.
The proposed transaction will position Sea Harvest to diversify and sell a greater number of fish products, as well as boost some existing quotas.
Privately owned Terrasan invests in pelagic or deep sea fishing and abalone farming in the Western Cape, having been established in SA in 1963. It employs more than 600 people.
Sea Harvest is buying 100% of the fishing business and 63.07% of Terrasan’s abalone business.
After rising as much as 4.8% to R9.38 by midafternoon trade on the JSE, Sea Harvest shares ended the day down 0.45% at R8.91, giving the company a market valuation of R2.66bn.
To pay for the deal, Sea Harvest, which is 54.4% owned by BEE investment company Brimstone, will issue 60-million new shares to Terrasan at a value of R10 per share. This is a 60-day volume weighted average price before December 13, when the news of a potential transaction surfaced. The other portion of the deal, R364.8m, will be settled in cash.
The issuance of new shares for the deal will result in Brimstone ceasing to have majority control. However, this will not change the firm’s BEE score or government-based fishing rights allocation process which determines the quantity of fish that can be caught for 15 years.
In terms of the deal, extra money will be paid out if Terrasan meets profit targets in 2024. These are called earn-outs and would equal R157m and R98m. Sea Harvest had more than R2.2bn in long-term debt before the deal.
Since its listing in 2017, Sea Harvest has tried to become “one of the largest black-owned diversified global seafood businesses”. It owns Ladismith Cheese and BM Foods that produces pastries, hummus, olives and cheeses under the Mediterranean Delicacies brand.
If the deal is approved, Sea Harvest will sell fish oil, which competitor Oceana, also part-owned by Brimstone, has had success with due to global shortages and high demand. Fish oil is an essential food for farmed salmon, which is expanding globally as sushi becomes more popular.
CEO Felix Ratheb said the transaction will enable Sea Harvest to add value and scale to its existing small sardine and anchovy catch allocation and add a 118-year-old brand to the group.
This would counter Sea Harvest’s present focus on hake, including the cyclicality of that business. Catch rates of different species differ each year, due in part to weather conditions.
Sea Harvest already owns an abalone farming business, but said Terrasan’s is highly cash-generative. “Together the businesses will be well placed to strengthen SA abalone in international markets,” the firm said.
Terrasan’s abalone business is situated in Hermanus and Gansbaai and employs 430 people and sells dried, live and canned abalone to many customers in the Far East.
Sea Harvest’s abalone business is unprofitable, but is expected to become more valuable as the aquaculture farm ages and the size of the abalone grows. Bigger abalone fetch a higher price in China. It would not disclose whether Terrasan’s aquaculture business makes a profit.
Valeo Capital has been appointed as the independent expert to determine the fairness of the transaction, which is still subject to approval by shareholders of both companies. It requires more than a 50% vote to get the deal across the line.
In line with the deal, Terrasan also plans to restructure its group of companies. Chair Stanley Subramoney said, “This will yield several positive outcomes for Terrasan, its shareholders and other stakeholders, including that it will retain its exposure to the fishing and aquaculture industries by merging into the larger, combined and more diversified post-transaction business of Sea Harvest.”
Smalltalkdaily analyst Anthony Clark said while the announcement about the transaction is overly complex the deal enhances the business reach and depth of Sea Harvest by taking it into pelagic fishing, the canned fish market and turbocharges its abalone endeavours.
It is a large deal to digest given Sea Harvest has been an acquisitive company over the past few years, but should the profit warranties of Terrasan be met, the market, Clark said, should be very pleased with the multiple paid and the uplift in creating a broader fishing business.
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