Tongaat’s contentious deal with Mauritius-based Magister Investments is off the table, leaving a R2 billion hole in the group’s recapitalization plan.
In 2021, Magister committed to underwriting R2 billion of Tongaat’s R5 billion rights offer. The deal was meant to be finalised by the end of June, once certain conditions were fulfilled.
But Magister’s hearing, which was due to take place before the Takeover Special Committee, has resulted in both parties calling the deal off.
In a statement on Friday evening, Tongaat said due to the longer than anticipated timelines of the hearing before the committee and Zimbabwean Competition and Tafiff Commission approval, it was clear that the conditions would not be met by the end of June.
“Little purpose will be served in waiting until 30 June 2022 for the Underwriting Agreement to expire by effluxion of time. Tongaat Hulett and Magister have accordingly agreed to terminate the underwriting agreement with effect from today, 24 June 2022,” Tongaat stated.
At the heart of Magister’s hearing, was a ruling by the Takeover Regulation Panel earlier this month that meant the deal couldn’t go forward due to its finding that Magister and some third parties had acted in concert when purchasing shares ahead of a shareholder vote.
The news of the deal being cancelled is likely to be welcomed by minority shareholders at Tongaat, who were opposed to it, saying that Zimbabwe’s Rudland family, which has ties to Magister, would be able to takeover the company on the cheap. The controversial family owns Gold Leaf Tobacco Corporation.
The deal with Magister, was part of Tongaat’s move to ensure that it avoids selling its assets by means of a capital raise.
Chris Logan, chief investment officer of Opportune Investments welcomed the news saying: “It’s a positive move forward without doubt.”
The embattled sugar and property company also announced on Friday that it has established a restructuring committee, which will be a subcommittee of its board.
“The primary responsibility of the restructuring committee will be to oversee and approve negotiations and the consensual development of a plan to reduce and repay debt to sustainable levels whilst improving the liquidity of the company,” Tongaat said.
Piers Marsden will be Tongaat’s Chief Restructuring Officer, taking the responsibility of developing and executing the liquidity and restructuring plans. Marsden will also serve as the committee’s chairman and will be joined by non-executive directors Jean Nel, Andile Sangqu, Graham Clark and Tongaat’s CFO Rob Aitken.
After years of irregularities, Tongaat has been left with a staggering R6.8 billion debt pile and former directors, including ex-CEO peters Staude, facing charges.
The JSE-listed company, which has been in business for more than 147 years, also has operations in Mozambique, Zimbabwe and Botswana.
On Friday Tongaat also made its stance on selling its assets clear, following media reports in Mozambique alleging that US-based firm Lusitania Investment Capital had made an offer to acquire Tongaat’s operations.
“It is important to note that Tongaat remains committed to a recapitalisation and remains firmly of the view that a capital raise is a better alternative to strategic asset disposals, particularly an accelerated disposal programme which is unlikely to realise full value for the assets,” Tongaat explained in its response to Fin24.
The sugar producer confirmed that it was approached with an offer but wouldn’t be drawn into divulging more details.
“We are not able to provide any details of any party who approaches us, but we can confirm that a party did approach us in this regard with an initial and exploratory non-binding expression of interest,” Tongaat said.
However, a letter seen by Fin24 purporting to be from Lusitania Investment Capital, shows that the Miami based company reached out to Tongaat with a “formal preliminary” offer of $160 million to $220 million (up to R35 billion) for the operations in Xinavane and Mafambisse, Mozambique.
The letter dated 25 April 2022, details how Lusitania initially approached Tongaat on 10 January, with a formal expression of interest to begin discussing a non-binding offer on the operations. Lusitania further stated that its shareholders were “eager” to follow-up with a formal offer for the entire Mozambique business.
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In its response to Fin24, Tongaat said there will be no further talks on the “party’s” offer, due to the company’s pending rights offer.
Chris Logan said he was aware of the media reports on the offer, which he said Tongaat should have accepted.
“They’ve made a fundamentally wrong decision, it’s a basic error that the board’s pursuing that. It can be interpreted that they are trying to gift value to Magister by pursuing … [the] recapitalisation idea,” Logan said.
Logan further said their lack of skin in the game was why the board was fine with the rights offer.
“This board has minimal shareholding, so if there was alignment, they wouldn’t do this. And alignment’s a basic feature of good governance, it’s foundational,” said Logan.
Tongaat has previously said it prefers the capital raise to selling some of its assets because they will not fetch their full value, but Logan said the Lusitania’s offer is full value.
Tongaat’s share price has fallen by more than 97% in the past five years, and its stock currently trades at R2.60 per share.
“They [board]can’t keep doing this … they just steamed ahead with the rights issue … look at the share price? Don’t they care? No, they don’t care because they’ve got next to no shares. So, how can then say it’s [Tongaat is] well governed, there is no alignment,” he asserted. Magister did not respond to Fin24’s enquiry on when the hearing was scheduled for.
Source: News 24