DURBAN - Omnia Holdings’ share price leapt more than 4percent on the JSE yesterday morning after the diversified chemicals group agreed to sell Oro Agri to Rovensa for $165million (R2.73billion), with the proceeds from the sale expected to be used to reduce its debt.
The share closed 1.78percent higher at R40.64 yesterday.
Omnia and Rovensa - a European-headquartered business that produces and distributes biocontrol, bionutrition and crop protection solutions - have been in discussion about the sale since June.
Omnia chief executive Seelan Gobalsamy said it was not an easy decision to sell Oro Agri after it acquired the business for $100m in 2018.
“We have been in discussions with the buyer for a while, and we came to a conclusion that it would be better to sell the business, as it requires a lot of capital after we reviewed its business plan. The board undertook a comprehensive review of Oro Agri as part of the group’s broader strategy and has concluded to accept Rovensa’s attractive offer and recommend that shareholders approve the transaction,” Gobalsamy said.
He said the price was reflective of Rovensa having synergies with Oro Agri that Omnia did not have, as well as the capacity to fully fund Oro Agri’s growth plan.
“We believe that Oro Agri’s risk profile, the attractive price offered by Rovensa and the opportunity to de-risk our capital structure outweigh Oro Agri’s long-term potential, which would require significant investment to realise,” he said.
Omnia significantly reduced its debt to R1.88bn at the end of March, down from R4.4bn a year earlier, after embarking on a turnaround strategy that focused on reducing costs, increasing margins, managing working capital more effectively and ensuring a return on capital previously invested.
“The turnaround plan helped us to stabilise our balance sheet, which included reducing our debt. At year end, we reported a debt of R1.88bn. We also concluded an oversubscribed rights offer of R2bn in 2019. Our share price has been encouraging and moved to more than R40 as of today, up R20 at some stage,” he said.
In the past 12 months, Omnia’s share price has surged by 54.8percent to R40.45, up from R26.61 a year ago.
“Our intention is to use the proceeds from the disposal to repay debt and position Omnia with a strong financial base from which to fund selective organic expansionary capex and working capital. We will remain conservative regarding capital allocation to value accretive non-organic opportunities,” Gobalsamy said.
The group said it planned to review its dividend policy, and this, together with decisions regarding the return of any surplus cash to shareholders, including through a special dividend and/or share buyback, will be announced with its results for the year to the end of March 2021.
The disposal was subject to regulatory conditions, which included its shareholders at a general meeting to be held in December.