JSE-listed industrial group Barloworld believes Covid-19-related impacts on the earnings of JSE-listed sugar manufacturer Tongaat Hulett’s starch business have resulted in a material adverse change (MAC) to the terms of a sale and purchase agreement between the companies.

Barloworld in February announced its intention to acquire Tongaat’s starch business for R5.3-billion.

Barloworld, through its wholly-owned subsidiary KLL Group has, however, 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 for the financial year ending March 31, 2021, compared with the year ended March 31, 2020.

Tongaat CEO Gavin Hudson, however, says Barloworld does not have sufficient information at its disposal to come to the conclusion that an MAC has occurred, given that Tongaat is only one month into the trading year.

"We do not believe that an MAC has occurred. We do, of course, understand the impact that the Covid-19 pandemic and subsequent lockdown has had on most businesses, including ours, notably the combined impact of the alcohol ban and reduced manufacturing demand on the starch business.

“However, we have taken this into account in our modelling, we have stress tested various scenarios and are confident that at this point there is no MAC event. As such, we believe it is premature to make such a call," he adds.

Tongaat and KLL can now refer the matter to an independent accountant who will determine if an MAC has taken place, after receiving submissions from both companies.

Barloworld envisions that this process will take between six to eight weeks.

“We remain committed to concluding this transaction as we believe the disposal of starch will position the group for longer-term sustainability. This will ensure we can deliver on our strategic business partnerships that will step-change our transformation initiatives, protect over 30 000 employees' jobs and help support the economies of the countries in which we operate,” Hudson comments.