Dispute over the sale of Tongaat’s starch business at an impasse
Barloworld may want out of the deal, saying the pandemic constitutes a material adverse change in the starch business’s value
A dispute between Barloworld and Tongaat Hulett over a R5.3bn deal to buy the sugar producer’s starch business will be prolonged as the companies are yet to agree on an independent party to oversee the impasse.
Industrial group Barloworld, which had set out to buy Tongaat’s starch business under its subsidiary KLL Group, tried to back out of the deal in May stating that the impact of Covid-19 could alter the value of the acquisition.
Barloworld had invoked a material change clause that allows buyers to pull out from deals if the value of the transaction has been diminished by a significant development.
The dispute comes as the embattled Tongaat plans to dispose of its starch business in an effort to slash its debt by R8.1bn by March 2021.
Barloworld said in May that the starch business is likely to suffer at least a 17.5% drop in annual core profit or earnings before interest, taxes, depreciation and amortisation (ebitda). It cited the pandemic, which has brought industries to a grinding halt, triggered a scramble for cash and led economists to forecast one of the deepest recessions SA has ever faced.
Tongaat and Barloworld are yet to appoint an independent accountant to determine whether Tongaat can proceed with the transaction or if Barloworld can exit the deal.
Barloworld said in a statement on Thursday that it is unable to provide clarity on when the determination process will be complete. Barloworld had initially said in May that the process would take between six to eight weeks.
“It is a suspensive condition to the transaction that no material adverse change (MAC) has occurred. Therefore, the transaction cannot be completed until such time as it has been finally determined whether or not a MAC has occurred,” Barloworld said.
Tongaat said it “remains firmly of the view that an MAC has not occurred. The company is engaging with KLL Group to move matters forward and is committed to the process of resolving the dispute”, adding that the process of appointing an independent third party is ongoing.
With Karl Genertzky