Acquisition Of Umongo Petroleum Proprietary Limited
- Published: Thursday, 11 May 2017 08:54
Omnia shareholders are advised that the Company, through its subsidiary, Omnia Group (Pty) Ltd., has entered into a sale of shares agreement (“Agreement”) with Lubricant Additives Solutions and Technology (Mauritius) (“Lubricant Additives”) and Autumn Storm Investments 294 (Pty) Ltd. (“Autumn Storm”), for 90% of the ordinary shares of Umongo Petroleum (Pty) Ltd. (“Umongo”) for a maximum aggregate acquisition consideration of ZAR780 million (the “Transaction”). The remaining 10% shareholding in Umongo will continue to be held by Autumn Storm, an entity in which the current Chief Executive Officer, Mr. Boston Moonsamy, is a shareholder. Umongo is a leading distributor of additives, base oils and other related petroleum, oil and lubricant products (“Product Range”) in South Africa and sub-Saharan Africa.
Umongo background information
In 1998, American based Chevron Oronite Company LLC (“Chevron Oronite”), appointed Mr. Mahmoud Homayoun via African Petroleum Additives (Pty) Ltd. (“APAC”) to represent them as an agent in South Africa servicing the requirements of the lubricant and fuel marketers with Chevron Oronite lubricant and fuel additives. In 2005, Umongo Petroleum Additives was established as a distributor of Chevron Oronite for South Africa and sub-Saharan Africa. Umongo diversified its business activities to also include distributor agreements with Chevron Products Company U.S.A. Inc. (“Chevron Products Company”), BASF SE (“BASF”) and Evonik Oil Additives GmbH (“Evonik”). This led to the change of its name to Umongo Petroleum. Umongo is owned by Lubricant Additives and Autumn Storm. Messrs Mahmoud Homayoun (Chairman), Boston Moonsamy (Chief Executive Officer) and Ranjith Ramkissoon (Technical) comprise the board of directors of Umongo. Umongo is based in Umhlanga Ridge, Kwa-Zulu Natal and currently employs 28 people. Umongo operates a fully outsourced supply chain and logistics business model, using accredited storage facilities, transporters and other related service providers to import, store, process and deliver raw materials and finished products to customers. In addition, Umongo offers a full range of technical support to customers that use the Product Range.
Terms of the Transaction
In terms of the Agreement, Omnia, through its subsidiary Omnia Group (Pty) Ltd., will acquire 90% of the ordinary shares of Umongo for a maximum acquisition consideration of ZAR780 million on a debt free, cash free basis. The acquistion consideration, for a 90% interest, is apportioned between an upfront cash payment of ZAR618.5 million, an earn-out cash payment of up to a maximum aggregate amount of ZAR121.5 million payable and a retention amount of ZAR40 million. The maximum aggregate earn-out cash payment of ZAR121.5 million is directly linked to the achievement of performance milestones over the three-year period to 28 February 2020. The maximum amount payable in years 1 and 2 is ZAR40.5 million per annum. Of the amounts earned on an annual basis, the first ZAR45 million will be retained in respect of various warranties and indemnities and will be released at a future date. The maximum aggregate earn out less the ZAR45 million retention amount, is ZAR76.5 million and is payable to the vendors over the three year period.
In terms of the retention amount of ZAR40 million withheld in respect of warranties and indemnities, ZAR25 million will be retained for at least three years (subject to certain conditions) and ZAR15 million will be retained and paid out over a four year period ending 30 June 2021. In terms of the Agreement, Omnia will retain a call option and Autumn Storm a put option over the remaining 10% shareholding in Umongo. The call/put option will be exercisable five years after the closing date of the Transaction and is subject to a revised valuation notice being delivered to Omnia/Autumn Storm at such future point in time. The call/put option will have a maximum settlement consideration of ZAR115 million, with no minimum amount applicable. Omnia will fund the acquisition consideration through its existing general borrowing facilities.
Following the implementation of the Transaction, Umongo will become a subsidiary of Omnia and report under the Chemicals division in the consolidated results. Umongo will continue to operate as a separate stand-alone entity within Omnia. Omnia will ensure that the Memorandum of Incorporation of Umongo does not frustrate or relieve Omnia in any manner from compliance with the Listings Requirements of the stock exchange operated by the JSE Ltd. (“JSE”).
Conditions precedent to the Transaction
The Transaction is subject to the fulfilment and/or waiver of a number of conditions precedent which are customary in a transaction of this nature, including amongst others:
- Umongo obtaining the written consent from third parties, including various Chevron Group entities and Ergon, with respect to change of control consent for material contracts;
- Umongo entering into replacement distribution agreements with certain suppliers; and
- The approval of the Transaction by various competition law authorities, including the South African Competition Authorities in terms of the Competition Act, 1998 (Act 89 of 1998), as amended from time to time.
Effective and closing date for the Transaction
The closing date for the Transaction will be the last day of the month in which the last of the outstanding conditions precedent are fulfilled or waived. The effective date for the Transaction is 1 March 2017, notwithstanding the signature date of the Agreement and the closing date.
For additional information regarding the Transaction, Omnia shareholders are referred to the investor presentation which is available on www.omnia.co.za. Omnia management will also host an investor call at 11:00 (South African time) on Thursday, 11 May 2017.