Omnia to take the money and run

If shareholders approve, JSE-listed chemicals company Omnia will sell its Oro Agri business to private equity-owned Rovensa, which supplies sustainable farming solutions to farmers around the world. 

Headquartered in Europe, a subsidiary of Rovensa, European Crops Products, will pay Omnia $146.9-million (about R2.5-billion) for the privilege.

This follows a flurry of interest in South African assets. Recent announcements include the acquisition of chunky 6.5% of pay-TV company MultiChoice by French media group Canal+, which has fuelled speculation about its intentions for MultiChoice.

Canal+ has been eyeing the company since about 2017 when its offer to acquire all or part of the Naspers subsidiary was reportedly rejected.

In addition, a JSE industrial bellwether, Afrox, is to be delisted after Linde plc, Afrox’s German parent, made an offer to acquire the 49% of the company that it does not own.

While there has been considerable commentary about the value that the JSE’s small and mid-cap sector is offering, the sale of Oro Agri was certainly not at a discount.

Omnia acquired the business, which uses orange oil as a base to produce a range of agri-products including organic pesticides and fungicides, for $100-million in 2018, selling it for $165-million (including debt repayments) in 2020.

And unlike debt-laden Ascendis Health which is trying to sell Remedica, an important constituent of the health products group, Oro is a small albeit attractive part of the Omnia business.

“Oro accounts for 5% of our turnover, 15% of our Ebitda and 30% of our offshore revenue,” says CEO Seelan Gobalsamy.

It is budgeted to remain at similar levels in FY21 in contrast to the enterprise value placed on Oro Agri by Rovensa, which is about 40% of Omnia’s enterprise value.

“We had to weigh the future potential of Oro against future investments into capital expenditure, research and development and distribution that would need to be made into Oro. We believe the risk profile of the Oro Agri business, the attractive price offered by Rovensa as well as the benefits to Omnia of a de-risked balance sheet outweigh any potential long-term upside to Omnia from its investment in Oro Agri.”

Oro was not the only bio-agri company in the Omnia portfolio; it has another horse in the race in the form of Australia-based Agriculture International which accounts for 20% of foreign earnings and produces and trades in granular, liquid and speciality fertilisers, humates and other biostimulants. 

The balance of offshore earnings is delivered by Omnia’s explosives business, BME international, which is growing in Africa, Canada and Australia. 

Shareholders still have to approve the transaction, but as 60% of the shareholder base has voiced its informal support for the deal, Gobalsamy is confident the company will secure the necessary approvals.

What is attractive is that the deal will wipe the remaining R1.8-billion of debt off Omnia’s balance sheet, leaving some spare change — a far cry from this time in 2019.

“Restructuring our debt was difficult, the rights issue was difficult. It was not a good time for the company,” Gobalsamy recalls. “We got through it with the support of our lenders and shareholders who bought into the strategy to stabilise the balance sheet, relook our investments and renew the company.” 

Perhaps as a reward for their support, a special dividend or share buy-back programme may be announced after the March 2021 year-end.

“It does not make sense to return cash if we are not on a sound financial footing. But by that stage, we will be further along with our restructuring programme and would have evaluated our capital requirements.” 

It is a rare, positive story. Omnia’s market capitalisation (its number of shares multiplied by its share price), which dipped as low as R1.9-billion, is now hovering at near to R7-billion. 

While the company is in a closed period, with interim results due in late November, Gobalsamy notes that as an essential services company providing products into the agriculture, mining, cleaning and water treatment industries, Omnia has weathered the Covid-19 storm better than most.

“We are not in airlines, restaurants and shopping malls, for which we are grateful,” he says. DM/BM