SHAREHOLDERS in Zimbabwe's largest seed manufacturer Seed Co Ltd on Wednesday approved a US$60 million deal which will see French based international field and vegetable seed developer Vilmorin & Cie acquire a 25% equity stake in the local company by the end of 2014.
At an extraordinary general meeting, shareholders approved what CEO Morgan Nzwere described as the biggest deal on the Zimbabwe Stock Exchange since dollarisation.
He said the rationale for the transaction was to increase the company's breeding, research, training and development expertise while also availing fresh and appropriately priced capital to finance growth in new and existing markets, particularly in East and West Africa.
The company's circular to shareholders indicated equity capital amounting to US$40,1 million will be raised through the issue to Vilmorin & Cie S.A of up to 37, 662, 481 new ordinary shares at a subscription price per share of US$0, 9925 immediately after the EGM, subject to regulatory approval, in two tranches.
The first phase of the transaction, according to the circular, focuses on placement and Aico Africa Ltd sale by 31 December 2013, where 10 273 048 ordinary shares, representing 5% of Seed Co's issued share capital being offered for cash at a subscription price of US$0,9925, to raise equity amounting to US$10,196 million.
"Concurrently with Seed Co's Tranche I placement, Aico will sell a portion of its Seed Co ordinary shares, being 20 546 096 shares, representing 10% of Seed Co's issued share post Tranche I placement and the Aico sale, at a price similar to Tranche I placement subscription price," reads part of the seed firm's circular.
Post the first phase of the transaction; Vilmorin & Cie will be controlling approximately 15% of the issued Seed Co share capital.
Under phase two of the transaction, which should be concluded by December 31 2014, Seed Co will, on the same date of issuing Tranche 1 placement shares , grant its global partner a call option to purchase up to 27 389 433 ordinary shares within 12 months of concluding Tranche I placement at a price per share of US$1, 0921 to inject equity amounting to US$29, 912 million into Seed Co.
The circular said the strategic partner was required to pay a non-refundable deposit of US$2, 991 million as a premium for the call option, being 10% of the total consideration payable under the second and final phase of the transaction and the deposit will be fully deductable from the total subscription amount for ordinary shares under Tranche II.
On fully exercising the call option in respect of Tranche II placement and following the Aico sale, the strategic global partner will control approximately 25% of the issued share capital of Seed Co.
In order to effect both transactions, Seed Co shareholders waived their preemptive rights in respect of the entire issue to Vilmorin & Cie SA.
The overall dilutive effect of the transaction to shareholders other than Aico is 16%.
Nzwere said Seed Co would benefit from joint research board and activities, germplasm exchange, technology transfer where the partner will provide field trials and bursaries, molecular market analysis, among other things.
Financial benefits of the transaction will see US$20 million going towards expensive debt reduction with potential savings of US$3 million per annum in finance costs.
Nzwere said US$6 million would go to the construction of a factory and offices in Malawi which will save the company US$500, 000 annually in rental costs. Another US$6 million will go towards the purchase of a farm for own production of seeds, leading to a reduction in production costs by close to US$1 million as well as increased tax savings in Zambia as the move will make Seed Co qualify as a farming entity and benefit from tax exemptions.
Nzwere said US$8 million would be invested in West Africa and Ethiopia where a possible 15 000 metric tonnes would be sold in the next three to five years.
"We want to invest in East and West Africa and those businesses could end up adding US$3 million to the bottom line in the medium to long-term," Nzwere said.
In an update on operations, Nzwere said government had not yet fully paid its outstanding debt for seed supplies for the previous season, but had made an upfront partial payment for a new consignment.