Tongaat Hulett’s starch business sale to KKL Group has been rid off Material Adverse Change claims

SOUTH AFRICA – The proposed acquisition transaction of Tongaat Hulett’s starch business by Barloworld subsidiary, KKL Group has reached another significant milestone.

In February, Tongaat announced that it was offloading its 100-year-old starch business to KKL Group for R5.35billion (US$342.6m) in an effort to reduce its debt and cover on-going operations.

With the occurrence of the COVID-19 pandemic, dispute arose between the two JSE-listed groups, with Barloworld trying to get out of the deal claiming that the pandemic had affected its commercial merits.

Tongaat Hulett, which is battling a R13 billion (US$770m) debt burden following an accounting scandal last year, did not agree with Barloworld’s claims.

Rothschild & Co South Africa, was hereby appointed as an independent expert to look into the claim and has determined that a Material Adverse Change (“MAC”) triggered by the COVID-19 had not occurred.

“Tongaat Hulett has welcomed the decision by independent third-party Rothschild & Co that a MAC has not occurred with relation to the R5.35 billion sale of its starch business to Barloworld.”

Tongaat Hulett

According to the independent mediator, the EBITDA of Tongaat for the year ending 31 March 2021 will not be less than 82.5% of its EBITDA for the financial year ended 31 March 2020.

This determination demonstrates the resilience of the business, which maintained its profitability throughout the COVID-19 related lockdowns and restrictions imposed in South Africa, indicated Barlworld in a press-release.

For Tongaat Hulett, the sale will come as a huge relief as proceeds are expected to bring down its debt significantly.

“Tongaat Hulett has welcomed the decision by independent third-party Rothschild & Co that a MAC has not occurred with relation to the R5.35 billion sale of its starch business to Barloworld,” the group said in a statement.

The company has indicated that it has continued to close out workstreams to meet its obligations under the agreement.

“It is expected that we will be able to finalise this process by the end of October with the starch business transferring to Barloworld from 1 November 2020,” said Gavin Hudson, CEO of Tongaat Hulett

Meanwhile, Barloworld noted in its statement that the group had “continued to perform” in terms of its obligations as per the sale and purchase agreement.

Barloworld CEO, Dominic Sewela said, “While the uncertainty created by the COVID-19 pandemic necessitated the Board to issue a MAC notice, we have remained of the view that THS will be a valuable addition to the Barloworld portfolio.”

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