Great catch for brim­stone

Deal of­fers new an­gle on cor­po­rate action in fish­ing sec­tor

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

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…

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