AFGRI, the JSE listed agricultural business, today announced that MGK Bedryfsmaatskappy (Eiendoms) Beperk (“MGK”) acquired 11 of its retail outlets. These retail branches currently supply agricultural products and inputs to farmers.
Chris Venter, CEO of AFGRI said, “The rationale for the disposal of these specific retail outlets is in line with AFGRI’s strategy to exit retail business, which is not part of its identified grain value chain or core business. We want to align the remaining retail outlets with the core business of AFGRI.” Venter was complimentary towards MGK saying that, “We are assured that the MGK management philosophy will be in the best interest of farmers in the geographic areas in which these retail outlets are situated.”
Ben Lombard, Managing Director of MGK said that MGK’s management is optimistic and excited about the transaction and sees it as an opportunity for growth in and around irrigation areas. The outlets acquired through the transaction will strengthen MGK’s strategic position and market share, especially for its retail division, Obaro.
The transaction affects outlets in Brits, Thabazimbi, Vaalwater, Marble Hall, Groblersdal, Burgersfort, Hoedspruit, Nelspruit, Barberton, Malelane and Komatipoort which are being sold as a going concern to MGK. Any mechanisation division or outlet is specifically excluded from the transaction, including but not limited to the mechanisation outlets at Marble Hall and Malelane.
The purchase consideration includes R47.5 million in respect of the businesses and certain immovable property, plus the value of the stock in trade which amounts to approximately R62.5 million. R23.75 million is payable directly to AFGRI on the effective date, and a further R23.75 million will be paid into a trust account of the attorneys appointed by AFGRI to transfer the immovable properties purchased by MGK in terms of the agreement, which will be released on a pro rata basis to AFGRI against registration of the immovable property in the name of MGK. On the final payment date 40% of the value of the stock in trade will be payable to AFGRI and thereafter 15% of the value of the stock in trade will be paid to AFGRI on a monthly basis.
The financial effects of the transaction have been calculated and have no significant effect (i.e. are less than 3%), on AFGRI’s earnings per share, headline earnings per share, net asset value per share and net tangible asset value per share for the year/period ended 30 June 2009.
AFGRI and MGK have embarked on a process of communicating with branch managers of the affected outlets, and at this stage none of the parties expect that employees will be retrenched. AFGRI does however have a regional office, which is excluded from this transaction, at which a consultative process with employees is underway as there may be a requirement to retrench one or two employees.
The transaction is subject to certain conditions precedent, which both MGK and AFGRI are confident will be met.
Chris Venter says, “Currently AFGRI is undergoing an entire review of operations to revert to a core focus excluding manufacture or production of primary agricultural inputs. A strategic decision has been taken not to participate in retail activities in non-grain growing geographic areas.” “Despite the sale of these 11 retail outlets, the supply of AFGRI’s remaining products and services to the farmers will be unaffected by the transaction,” concludes Venter.
