Seafood and aquaculture company Sea Harvest aims to acquire 100% of investment group Terrasan’s subsidiaries engaged in the catching, processing and sale of pelagic fish, and 63.07% of Terrasan’s subsidiaries engaged in the farming, processing and sale of abalone for an initial amount of R965-million, to be settled in shares and cash.

As a part of the transaction, Sea Harvest will acquire Terrasan’s vertically integrated pelagic fish business, West Point Fishing, which is based in St Helena Bay, in the Western Cape.

Employing more than 600 people, the business operates a fishing fleet that catches sardines and anchovies and produces fish oil and fish meal – both largely for export. The company also produces canned fish largely for the South African market and sold under the Saldanha brand.

Sea Harvest will also acquire a majority stake in Terrasan’s 30-year-old, vertically integrated abalone business, Aqunion, based in Hermanus and Gansbaai, in the Western Cape.

Employing 430 people, Aqunion produces and sells dried, canned and live abalone to a diversified customer base across the Far East.

“We are confident the acquisition will create value and diversification into wild caught pelagic species and their processed products, including fish oil, fishmeal and canned fish.

“Furthermore, it will enable us to add value and scale to our own small sardine and anchovy pelagic quota where we currently have a small footprint; add a 118-year-old brand to the group, thereby complementing our 60-year-old hake brand; counter the cyclicality of the pelagic fishery relative to the hake fishery; and add a mature, cash-generative abalone business with a diversified customer base and markets to our existing abalone operations,” says Sea Harvest CEO Felix Ratheb.

Terrasan CEO Danie du Toit comments that Terrasan and Sea Harvest believe that a combined South African abalone business will benefit from scale and synergies created through the consolidation, leaving it well positioned as a South African champion to exploit international opportunities and successfully compete in its target markets.

“Central to our values as a company, the proposed transaction will benefit Terrasan employees by securing jobs and generating value for the beneficiaries of the Saldanha Foods Employee Trust and the local communities of Saldanha, St Helena Bay, Gansbaai, Buffeljags, Kleinzee and Hermanus,” adds Sea Harvest chairperson Fred Roberston.

The initial purchase amount of R965-million for the transaction will be settled through R600-million in Sea Harvest shares and the balance in cash, together with two further performance-linked earnout amounts.

“This will yield several positive outcomes for Terrasan, its shareholders and other stakeholders, including that it will retain its exposure to the fishing and aquaculture industries by merging into the larger, combined and more diversified post-transaction business of Sea Harvest,” says Terrasan chairperson Stanley Subramoney, alluding to the portion of the purchase consideration that will be discharged by way of the issue of Sea Harvest shares to Terrasan,

The transaction is subject to regulatory approvals, the approval of Sea Harvest and Terrasan shareholders and conditions normal for a transaction of this nature.

AIMS

The acquisition represents material progress in Sea Harvest’s ambition of becoming a leading black-owned, responsible and diversified food and fishing business.

Following the acquisition, Sea Harvest will be in a position to offer a more complete suite of products, including fishmeal, fish oil and canned fish. Sea Harvest will also add an in-demand, local, affordable, branded protein product to its stable.

Sea Harvest is confident that the acquisition will create value by diversifying into wild-caught pelagic species and their processed products. This will enable the company to add value to its small pilchards and anchovy pelagic quota through forward integration into canning and fishmeal and fish oil production.

Moreover, the purchase of Terrasan’s pelagic business will enhance the earnings stability of Sea Harvest's fishing operations, since the performance of the pelagic business is counter-cyclical to hake.

Sea Harvest's export earnings will increase post the acquisition as fishmeal, fish oil and abalone are exported products.

Integration with the pelagic business will allow the combined businesses the flexibility to land catch on both the west and east coasts of South Africa, thereby using the business' assets more efficiently.

This effective use of assets contributes to Sea Harvest's mission of providing sustainable employment and positively impacting the communities in which it operates, as it is expected to assist in preserving jobs, including in rural areas.

Additionally, the abalone business is mature, high margin and cash-generative and will facilitate the acquisition of a diversified international customer base and market that Sea Harvest's existing abalone operations will benefit from.

Sea Harvest's current abalone business experienced significant difficulties in accessing international markets during the Covid-19 pandemic. The abalone business has the diversified biomass necessary to compete in the global market for dried and canned abalone sales.

The acquisition will further facilitate broader market access to a larger more diversified business in the fishing industry since Sea Harvest is a listed entity.