Omnia management has indicated that shareholders might look forward to a special dividend at the end of the financial year once it concludes the sale of its Oro Agri division to one of the world’s leading agricultural biotech groups, Rovensa.
Omnia CEO Seelan Gobalsamy says the board of directors decided to accept an “attractive offer” from Rovensa and urges shareholders to approve the transaction when it is put to a vote, probably in the second week of December.
Rovensa approached Omnia earlier this year with an offer for the various Oro Agri businesses operating in different countries.
An announcement published on the JSE Sens service on Monday states that Omnia and Rovensa have reached agreement after the completion of a due diligence investigation.
Gobalsamy says the major consideration for the sale of Oro Agri is that Omnia has been a relatively passive investor since acquiring it in 2018 and would’ve had to make significant additional investment in it and fully integrate the business into Omnia’s operations to realise its full potential.
On the other hand, Rovensa found that it was a very good fit for its businesses.
“In this context, the price is aligned with Rovensa’s perceived opportunities for Oro Agri and is attractive to Omnia in that it exceeds Omnia’s internal valuation of Oro Agri,” according to Omnia’s announcement.
Rovensa is described as a leading provider of speciality crop nutrition, biocontrol and crop protection products.
Based in Portugal, it sells its products in more than 70 countries and reported a turnover of more than €360 million (R7 billion) in its last financial year.
Rovensa will pay a total of $152 million (R2.5 billion) for Oro Agri, comprising $146.9 million for the businesses and the balance for debts owing by Oro Agri.
Gobalsamy says the board’s deliberations concluded that Oro Agri’s risk profile, the attractive price offered by Rovensa and the opportunity to derisk Omni’s capital structure outweighed the long term potential of the businesses, which would also have required significant investment.
“Oro Agri contributed less than 15% of Omnia’s earnings before interest, tax, depreciation and amortisation – excluding impairments – in financial 2020 and was budgeted to remain at similar levels in the 2021 financial year,” says Gobalsamy. “In contrast, the enterprise value placed on Oro Agri by the purchaser represents approximately 40% of Omnia’s enterprise value, implying unlocking of value for shareholders.”
In addition, Omnia notes that Oro Agri proved to have been a profitable investment.
Omnia acquired the group in 2018 for $100 million, securing a decent return of 52% in just more than two years.
While Oro Agri earned around 30% of Omnia’s offshore earnings last year, management says Omnia retains good international and currency diversification with its remaining international divisions. These include Agriculture International and BME International, which is focused on mining explosives and computerised detonation systems.
Omnia indicates that there are several opportunities to develop new products within these divisions and that it will be better to consider these for investment and future growth.
The sale will leave Omnia with a nice cash reserve, with management indicating that shareholders might look forward to a special dividend when the group announces its results the financial year to March 2021.
The announcement of the transaction states that Omnia will use the proceeds of the disposal to repay existing debt, which will reduce the group’s interest expenses as well as its weighted average cost of debt going forward. When repaying debt, Omnia will also be able to settle some of its existing interest rate hedges, according to the announcement.
Omnia’s results for the year to March showed that it paid R572 million in interest during the last financial year, while the balance sheet disclosed derivative instruments of R160 million.
While management says Omnia is likely to be in a net cash position after settling some debt, the balance sheet shows that it would actually have quite a large cash reserve following the sale, on top of the R2 billion raised in the rights issue last year.
Thus the announcement states: “When announcing its results for the financial year ending in March 2021, Omnia will have finalised its evaluation of its capital requirements and will set out its decisions regarding a return of any surplus cash to shareholders, which may include a special dividend and/or share buyback.”
Shareholders seem happy with what management has been doing in the past year.
The share price rocketed more than 200% from its 12-month intra-day low of R12.50 during the lockdown to the current R42.50, making it one of the best performers on the JSE.
The share is however still way below the highs of above R150 reached in 2018.
But shareholders are backing management.
Omnia says the majority of larger shareholders have indicated support for the disposal, with asset managers holding in total nearly 60% of the shares giving undertakings to support the various resolutions required to approve the transaction.
Shareholders and management of several other companies on the JSE – a really long list of companies – must be envious and wishing things were improving for them as well.