Great catch for brimstone
Deal offers new angle on corporate action in fishing sector
A COLD, CALCULATED look at the proposal by Tiger Brands to sell off its controlling stake in hake fishing specialist Sea Harvest, is bound to raise a few questions – the key question being why would a food conglomerate such as Tiger Brands relinquish one of its best-known seafood brands for what looks like a very reasonable price to a Brimstone Investment Corporation led consortium?
Brimstone already owns 21,52% of Sea Harvest and wants to buy the 73,16% shareholding held by Tiger Brands for R541m. The proposal gives Sea Harvest an enterprise value of around R740m – which, as pointed out last week on Fin24, is less than the value accorded to the fishing business when it delisted from the JSE late in 2000. A fairer value might be closer to the R950m mark.
Naturally, the underlying question is whether Tiger Brands is quickly unloading a business that has less than favourable long-term prospects. It wasn’t too long ago that speculation was rife Sea Harvest would be merged with Tiger Brands’ other fishing subsidiary, Oceana Fishing group.
Admittedly, trading has been tough for Sea Harvest over the past few years. A much smaller hake has been caught off SA’s West Coast, with the larger fish seemingly migrating east, which has ramped up fuel costs on fishing vessels.
But from what Finweek can garner, Sea Harvest is hardly a spent force in fishing and recent capital spending to refurbish the fishing fleet tops R300m. Clearly Brimstone will not be buying run-down assets at Sea Harvest.
If these facts and figures are roughly correct it seems Brimstone is scoring a great deal. But how did Brimstone manage to negotiate from such a strong position against one of SA’s toughest corporates?
The answer might lie in Brimstone’s annual report, which shows a PUT option on Sea Harvest. Basically, if Brimstone exercised the PUT option, Tiger Brands would be obliged to buy all or part of Brimstone’s 23m shares in Sea Harvest at around 1000c/share. That would mean Tiger paying out roughly R230m to Brimstone, a transaction that would give Sea Harvest an inferred value of close to R1bn.
Tiger would also be saddled with the unenviable task of finding another black empowerment partner – not easy at a time when funding options are limited.
Clearly, Tiger took those factors into consideration in its decision to sell Sea Harvest to the Brimstone consortium at what looks like a more than reasonable price.
Why exactly Tiger opted to sell Sea Harvest at this juncture is another story entirely. Tiger Brands CEO Peter Matlare couldn’t be reached for comment at the time of going to press.
But back to Brimstone… Ultimately, Brimstone wants to hold around 55% of Sea Harvest, with its other major shareholders being empowerment entities and the fishing company’s staff.
One issue that might worry Brimstone shareholders is whether the funding needed for the Sea Harvest transaction will detract from the group’s generous dividend policy. Brimstone CEO Mustaq Brey is adamant the Sea Harvest deal will not strain the empowerment group. “We’re leveraging our existing investment in Sea Harvest, which goes from being an associate company to a subsidiary without us having to put any more money in.”
One needs to remember that Brimstone ultimately only wants a stake of 55% in Sea Harvest, the balance being shared between other empowerment partners and Sea Harvest staff.
Brey explains: “Effectively there is no additional capital input from Brimstone. The debt portion of the deal will be incurred in Sea Harvest.”
Perhaps the most intriguing angle to the deal is how aggressively Brimstone – which also owns around 10% of Oceana – may chase other fishing/seafood assets. Finweek reckons some inspirational deal-making could see Brimstone pushing Sea Harvest closer to rival empowerment group Sekunjalo’s Premier Fishing.
Merging Sea Harvest and Premier Fishing under a united empowerment banner wouldn’t only create superb branding opportunities across hake, lobster and pilchards but also put such a venture in a strong position for the allocation of fishing rights. Just a thought…