An independent expert Rothschild & Co has determined that a material adverse change (MAC) has not occurred in the proposed sale of Tongaat Hulett's starch business to Barloworld subsidiary KLL Group.

Tongaat in February agreed to sell the starch business to the Barloworld subsidiary for R5.35-billion.

However, in March South Africa entered into a strict lockdown to curb the spread of Covid-19 and it had a significant impact on all businesses and the economy.

Barloworld in May issued an MAC notice to Tongaat, stating that it is reasonably likely for the starch business to achieve 82.5% lower earnings before interest, taxes, depreciation and amortisation (Ebitda) for the financial year ending March 31, 2021, compared with the 2020 financial year.

Tongaat disagreed, arguing that Barloworld did not have sufficient information to come to that conclusion.

The companies, therefore, enlisted the services of Rothschild & Co to determine if an MAC had indeed occurred.

However, in August, another dispute occurred in relation to the focus of Rothschild & Co's determination and a second MAC was issued by Barloworld. The MACs were, however, consolidated for determination by Rothschild & Co.

Tongaat and Barloworld on September 22 reported that Rothschild & Co had determined that it was not "reasonably likely" that the Ebitda of the starch business would decrease by 82.5% year-on-year.

Barloworld pointed out that, during the MAC determination period, it had continued to perform its obligations in terms of the sales and purchase agreement and to monitor the performance of the starch business.

Barloworld received monthly management accounts, which demonstrated the resilience of the starch business following the move to Level 3 lockdown and the subsequent opening up of the economy.

Barloworld said it was pleased that the starch business had shown such resilience in the face of the economic challenges posed by the Covid-19 pandemic.

"The business is a highly cash generative, relatively asset light and defensive investment with a leading market position and a strong client base of highly regarded and well established multinational companies.

"These characteristics have underpinned the resilience of the sale business through the current economic challenges, validating Barloworld's stated strategy of entering into the defensive consumer foods sector and serving industrial customers as a long-term strategic pivot of its portfolio," the company said.

With the move to lockdown Level 1 from this week, it is anticipated that the sale business will continue to show positive momentum into the financial year-end.

The transaction remains subject to conditions precedent, but Tongaat said on September 22 it was committed to the fulfilment of the remaining conditions precedent and the implementation of the disposal.

Subject to the fulfilment (or waiver, if applicable) of the remaining conditions precedent, it is anticipated that the disposal will be implemented on October 31.