The Competition Commission has given the go-ahead to the takeover of Tongaat Hulett by Mauritius-based Magister Investments.
Magister is controlled by Zimbabwe’s Rudland family, which is also involved in Gold Leaf Tobacco, one of the largest producers of cigarettes on the sub-continent.
The commission conditionally approved the proposed transaction in which Magister intends to acquire Tongaat by subscribing for up to R2 billion of a R4 billion rights offer.
Existing shareholders will have first option to follow their rights, after which Magister will mop up the rest of the shares, up to a cap of R2 billion.
This does not mean Magister will automatically end up in control of Tongaat.
It could theoretically end up with less than 50%, though it could still acquire control by building its shareholding on the open market.
The capital raised through the rights issue will be used to further pay down debt, specifically payment-in-kind (PIK) debt instruments, which may require the disposal of certain assets at disadvantageous prices – particularly after the July riots in KwaZulu-Natal last year impacted certain parts of the business.
Tongaat already paid down R6 billion in debt to SA lenders over the previous financial year and will be able to further strengthen the balance sheet post the rights offer.
The commission’s approval comes with certain conditions:
- No employees are to be retrenched;
- The staff headcount must be maintained for at least one year after the merger date;
- The BEE shareholding must remain the same for three years;
- An employment share ownership scheme of 5% in the SA operating subsidiary of Tongaat must be put in place within three years of the transaction;
- Tongaat must continue to source at least 40% of its feedstock from historically disadvantaged persons; and
- Tongaat must continue to participate in the Sugar Master Plan, intended to ensure alignment of interests in the sugar sector for the long-term benefit of producers and the country.
Tongaat said it welcomes the commission’s approval, and will “continue to progress the outstanding conditions precedent, including approvals from the South African lenders and the relevant merger control approvals in various jurisdictions to deliver a successful rights offer”.
Magister is an investment holding company, headed by Hamish Rudland, with interests in agriculture, transport and logistics, civil construction, and real estate across southern Africa and Guernsey.
The company committed to partially underwrite a rights offer in Tongaat up to R2 billion that will be used to strengthen the balance sheet after reducing debt by 42% in the previous financial year.
It did this through asset disposals after former executives were accused of financial fraud that overstated the company’s finances.
Former CEO Peter Staude, several former executives and an auditor from Deloitte appeared in court last month on 19 charges of fraud for falsifying accounts.
In March 2021 Tongaat initiated a debt restructure to give it more time to repay outstanding loan facilities and raise capital for the longer term benefit of stakeholders.