BAKKAFROST ACQUIRES MAJORITY SHAREHOLDING IN SCOTTISH SALMON COMPANY
Bakkafrost acquires majority shareholding in Scottish Salmon Company – Faroese salmon farmer Bakkafrost has secured a majority shareholding the Scottish Salmon Company – the second biggest Scottish salmon company by harvest volumes in 2018.
Bakkafrost said it had signed a binding agreement for the acquisition of 68.6% of The Scottish Salmon Company Plc (“SSC”) from Northern Link Ltd . Successful acquisition of the 68.6% majority stake will trigger a Mandatory Tender Offer for the remaining 31.4% free float in SSC. The agreed acquisition price of NOK28.25 / SSC share implies an Enterprise Value for SSC of DKK 4,351.9m.
The Transaction and any subsequent Mandatory Tender Offer will be funded via a mix of debt and equity, including an accelerated bookbuild offering of approx.15% of share capital and a directed share issuance of approximately 5% of share capital to Northern Link Ltd (“Northern Link”). The accelerated bookbuild offering will be launched imminently
The Scottish Salmon Company is a leading salmon farming company with operational headquarters in Edinburgh, Scotland. The company’s operations are on the West Coast of Scotland and the Hebrides with a clear vision and ambition to “Bringing Scotland’s finest salmon to the World.” SSC has exclusive genetics to Native Hebridean Salmon which is stronger, leaner and noticeable firmer compared to Atlantic salmon. SSC had a harvest of 29,913 tonnes in 2018, an 18,463 tonnes harvest in H1-2019 and has total harvest capacity of 50,000 tonnes. The company generated an EBITDA of £56.7m in 2018 and £35.7m in H1-2019.
Regin Jacobsen, CEO of Bakkafrost since 1989, commenting on the transaction “Bakkafrost’s journey has been characterised by delivering industry leading growth and profitability combined with a focus on shareholder value creation. The Scottish Salmon Company represents an attractive acquisition at this juncture providing exposure to the attractive and premium Scottish salmon farming region with potential for synergies and transfer of best practices. The entire Bakkafrost team is looking forward to working with the SSC management team to continue to enhance performance of the business and drive value in the years ahead.”
The strategic rationale for the acquisition includes:
- Provides Bakkafrost access to the Scottish farming region which is a niche farming region with Scottish provenance products priced at a premium to the market
- Creates a combined differentiated global leader in premium salmon with dual exposure to both Faroe Islands and Scottish premium salmon
- Positive diversification of Bakkafrost’s operations from a pure play Faroe Islands company to a presence in two attractive salmon farming markets while remaining both developed markets and premium product focused.
- Potential for material improvement in The Scottish Salmon Company’s profitability over a five year horizon through realisation of identified synergies, transfer of best practices and a targeted investment programme
Bakkafrost expects to generate synergies in three key areas mainly related to Feed and Procurement, Sales Cooperation and SG&A and Overhead savings.
- Feed & Procurement: Bakkafrost produces fish feed with a significantly higher marine index compared to industry feed. Supplying feed to SSC would result in fixed cost efficiency at Bakkafrost feed facilities through intercompany sales of higher quality feed to SSC. Net synergy estimated at DKK 1.2 per kg feed, equating to annual synergies of approximately DKK 70mm from 2022 onwards (~NOK2.6 / kg of SSC harvested salmon)
- Sales Cooperation Both SSC and Bakkafrost market premium salmon and brands that obtain a significantly higher price due to provenance and product differentiation. Both companies plan to drive efficiencies by coordinating sales efforts going forward taking advantage of relative distribution strengths in global markets.
- SG&A & Overheads: Leaner head office structure in Scotland (through discontinuing the listed functions of SSC).
Bakkafrost also believes that there is the potential for transfer of best practices including (i) secondments to stimulate identification and transfer of best practices, (ii) implementation of better farming procedures for improved cost performance, (iii) gradual consolidation of sites, (iv) mitigation of biological threats through de-licing expertise. The overall result of these actions is expected to result in larger fish improving price achievement and profitability.
Bakkafrost also plans to make targeted investments to achieve the efficiencies outlined above. These include investment in a new modern recirculation plant for smolt production replacing SSC’s large number of small smolt facilities. Additionally, investments are planned to be directed towards replacing SSC’s existing seawater equipment.
Bakkafrost says it is committed to strong cooperation with local communities and authorities and hopes to stimulate employment through significant investment in the business. Additionally, Bakkafrost is committed to ongoing work to strengthen the Scottish regulatory framework.
Bakkafrost acquires majority shareholding