Durban - Chemicals group Omnia Holdings is set to acquire a 90 percent stake in Umongo Petroleum for R780 million in a move to strengthen its chemicals division. The deal is subject to regulatory approvals, including the approval of the Competition Commission.
Rod Humphris, group managing director, said on Thursday Omnia was confident that the acquisition would meet the commission’s requirements for approval.
“We expect the deal to be completed in about three months if there are no complications. The acquisition is complementary to our business, so we do not expect the acquisition to face any regulatory objections,” Humphris said.
If the transaction is approved, Umongo will add a bulk volume base oil, additive and lubricant offering to Omnia’s chemicals division.
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The acquisition adds to Omnia’s chemicals offering, with manufacturing last year remaining static at low levels, leading to poor demand for its chemicals.
This resulted in the group wanting to diversify its exposure to different products.
A combination of relatively low economic growth and a slowdown in mining and agricultural sectors have stymied growth in the manufacturing sector.
The company identified the chemicals sector for growth and last year alluded to the search for acquisition prospects, organic growth opportunities and new technologies.
Humphris added that there were a couple of things the group considered before considering the acquisition.
“The group has a strong balance sheet and over the last two years we have been in a cash positive position. Secondly, we saw a gap and acquiring Umongo will be good for our chemicals division, because the base oil is an important product range we are not involved in,” he said.
The acquisition consideration is apportioned between an up-front cash payment of R618.5m, an earn-out cash payment of up to R121.5m linked to the achievement of performance milestones over the three-year period to end-February 2020, and a retention amount of R40m.
Omnia financial director Wayne Koonin said: “Acquiring Umongo is a logical step in Omnia’s development and is indicative of our long-stated strategy to strengthen the chemicals cluster within our business.
“Umongo is a market-leading, complementary asset to our existing Protea Chemicals business, which will broaden our current product offering and strengthen our sub-Saharan Africa strategy.”
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 to customers.
The remaining 10 percent of Umongo will continue to be held by Autumn Storm, an entity in which current Umongo chief executive Boston Moonsamy is a shareholder.
Moonsamy said: “Omnia’s chemicals division has a wealth of experience and a reputation for excellence in the chemicals sector. We are excited to be joining Omnia, and look forward to creating new opportunities to grow the business in South and sub-Saharan Africa.”
Omnia is not looking to change Umongo’s management structure.
Moonsamy would remain in his position for five years while chairperson and founder Mahmoud Homayoun would remain a member of the board and a specialist adviser to Umongo for four years.
Shares in Omnia dropped 0.45 percent on the JSE on Thursday to close at R158.30.