Business Combination

Sep 15, 2020

Slides

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everybody to Minerva's conference call about the material fact released on September 14, 2020. Today, we have Eric Santicli, Chief Financial and Investor Relations Officer. We wish to inform you that during this event, it's being recorded and all participants will be in a listen only mode during the company's presentation. The audio and slide show of this presentation are available through the live webcast at www.minerwarfoods.com/ irandmziqplatform. The slideshow can also be downloaded from the webcast platform in the Investor Relations section of this website. Before proceeding, we wish to mention that forward looking statements may be made during the presentation relating to Minerva's business prospects, operating and financial intimated and goals. They are based on the beliefs and assumptions of company's management and on information currently available. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Minerva and results to differ materially from those expressed in such forward looking statements. I will now turn the conference call over to Mr. Ed San Titli, CFO and IRO. Mr. Titli, you may start now. Thank you. Thank you all for being part of this conference. The idea is to have a quick introduction and open to Q and A. So I'll try to explain in a nutshell what's the proposed transaction. So yesterday, we released that Adena Foods is proposing is trying to close a proposed business combination with a SPAC, a special purpose acquisition company listed in U. S, listed at NASDAQ. This SPAC has $200,000,000 in cash. And the proposed transaction is to merger with Antenna. And as a result, Antenna will be a listed entity in NASDAQ with $200,000,000 cash plus $100,000,000 private investments that will be provided by the Spark after the transaction. Atena is valid at $1,500,000,000 of equity value or $1,354,000,000 as enterprise value, considering a negative net debt of $146,000,000 after the conclusion of the deal. In terms of multiples 2021, Athena is valued at 5.6 times enterprise value 2021. So far, we have signed a non binding letter of intent with the Spark, and we expect to close the transaction or to release that the business combination will not work in the next weeks, probably in the coming 3 to 4 weeks. So very quick, this is the main details of the transaction. I am available for your questions and doubts. So I think it's more productive to go directly to the Q and A section. Thank you very much. Thank you. We will now begin the question and answer session. From Laurent Soej, Citibank. You may proceed. Hi, thanks. Good morning, everybody. Ed, so I was wondering 2 questions on my side. The first one, I just wanted to understand, I'm trying to bridge the equity stake that Minerva will receive from the new company. And this $1,500,000,000 equity value, according to my math, it's I mean, it's 25%. You're receiving $200,000,000 for 25%. But the additional $100,000,000 from the private placement will not dilute the NAVA, only the SPAC shareholders. So this is sort of give $200,000,000 for a 25% stake, which will not reach the equity value of $1,500,000,000 yet. So if you could give that bridge, that would be very, very helpful. And the second point, could you provide more details of the spec shareholders, where they are from, where they are mandated? Any details would also be very helpful. Thanks. Well, regarding the details of the spec, unfortunately, because of the confidentiality of the letter of intent, we cannot open any more information regarding the spec. We had to disclose the non binding letter of intent because Minerva is a listed company and following our fiduciary needs, our fiduciary obligation. We had to disclose all the best available information, especially to Minerva shareholders. So that's why we decided to release a non binding letter of intention. Talking about the valuation, if you go to the presentation on Page 28, you will see all the numbers that you asked. But basically, Minerva will have more than 75%. Minerva will have 76.7% in the surviving entity. Minerva will receive $200,000,000 as a secondary offer and $100,000,000 from the private placement will stay in the cash of Athena. So it's like having $200,000,000 of secondary and $100,000,000 of primary proceeds. So if you make all the calculation and it's totally disclosed on Page 28 of the presentation that is in our website and that is part also of the material fact that we released yesterday. I think you have no doubts regarding the valuation and all the metrics of the deal. Our next question comes from Barbara Hauerstaedt, JPMorgan. You may proceed. Hi. Thank you. So I have a question in terms of your capital structure and how this transaction fits into that in terms of leverage reduction going forward? And which entity I see you have some growth opportunities you're highlighting here in your presentation? And how do you're thinking about leverage going forward and reconciling that with this growth opportunity? Thank you. You're talking about Athena or Minerva, leveraging Athena? For both, right, for Athena and for the consolidated Minerva since you're doing this transaction? So making a simple calculation, if Minerva received $200,000,000 considering the exercise of the warrants that Saliq is we'll be probably doing during this month. We're going to have a leverage, a net leverage of something around 1.8 times to 1.9 times, which is below our 2 times long term target or let's say the long term optimal level that we foresee for the capital structure of Minerva. In terms of Athena after the transaction, Athena will be net cash, will be negative debt of probably 140 $6,000,000 The growth that we expect for Athena until 2022 will not require additional leverage. The targets that we have for Exxigeon until the end of 2022, they can be executed only using this net cash that will be in the balance sheet of Athena. So until the end of 2022, we don't expect Athena to have leverage in principle. And Minerva, according to our long term view for optimal capital structure, we expect the company to be around 2x net debt to EBITDA. I'd like to remember everybody that in January we approved a new dividend policy for Minerva that would imply a minimum 50% of net profit as dividend payout for shareholders. If the company at the end of this year and next year have a net leverage below 2.5 times, which will probably be the case, especially after if we conclude this transaction. So in that sense, at least half of the net profit of Minerva this year will be distributed as dividends for the shareholders. I remember you that until the Q2, we had almost BRL570 1,000,000 BRL530 1,000,000 of net profit in the year, so not considering the second half of this year. So in that sense, following the policy, the dividend policy approved by the board, Minerva will probably have the ability to distribute at least 50% of net profit at the end of this year. Perfect. Thank you so much. Next question comes from Guilherme Palaris, Bank of America. Hi, Ed. So thank you for the call. I have two questions on my side. The first one is regarding the corporate governance of the SPAC or Athena, how it works, the way it will work, if the company has any details on that? And also thinking about the leverage of Athena, we see that it will be a net cash company, which is different from the profile that Minerva has. So how to think about it, if there is any potential of some asset liability management as well? Okay. So talking about the governance, Minerva is listed at Novo Mercado. We have the highest standards of corporate governance in Minerva. TINA will not be different. There is a structure, a governance structure that is being negotiated with the spot guys. But what I can tell you is that obviously Minerva will keep the controlling position of the Board because Minerva will have 76.7% of the company after the transaction is closed. We're going to have independent members, probably more than 20% of the board will be independent members, And they're going to follow all the NASDAQ rules, all the SEC rules for a company like this being listed in U. S. So what I can assure you is that the corporate governance procedures will be at least at the same levels of Minerva, but probably they will be even better in order to follow the regulatory rules that we have in for our NASDAQ listed company. Talking about leverage, yes, Atina will have net negative leverage after the transaction. By executing the business plan, leverage will probably continue being very close to neutral. This is very important because this opens the new opportunity for Athena in 2023, 2024, 2025 to continue growing the business. So by doing this carve out, what we are saying to the markets is that the main growth vehicle for Minerva will be Athena. As we have been telling the markets, Minerva will become a dividend, payer company. So the growth will totally be under the hands of Athena. So that's why we see the great opportunity to list Athena in U. S. To make Athena the most important growth vehicle for Minerva with a lot of opportunities, a lot of especially room to leverage and to have a much more healthy capital structure in order to continue growing the business, generating value and increasing the return to the shareholders. So the opportunity of this business combination is for the medium to the long term is to position Athena and to strengthen its capital structure in order to have Athena growing much higher and much faster than Minerva and more important to be the real growth vehicle of Minerva going forward with, let's say, a much more balanced capital structure than the capital structure that we had in Minerva, let's say, until 2018, 2019. So the idea is to keep leveraging Minerva very close to 2 times as we have already spoke to the market. And in the case of Athena, we have a target that was approved by the financial committee of the Board of Athena that leverage will never be over 1.5 times EBITDA. And the idea is to have in the long term something around 1.0 and 1.5 times net debt to EBITDA. So this will be the capital structure and the leverage profile of Athena for the long term. But in the medium term, as you mentioned, Athena will be net cash and we would probably use this cash to speed up growth and make more acquisitions in 2022 and 20 3. Okay. That's very clear. Thank you. Our next question comes from Thiago Duarte, Vitege Pactual. Sure. No problem. Yes. Two questions. The first one, if you could explore a little bit the strategic value on about the idea of making acquisitions outside South America, particularly Australia, as you guys put in the business plan in the presentation. So just if you could explore a little bit the rationale. It's a different mindset from what we have been hearing from you guys for many years. So it would be interesting to hear the benefits and the opportunities that you are envisaging in Australia in particular? And the second question would be it's actually a follow-up from the discussion about the capital structure of Athena, if you could If there is already any sort of dividend policy that you are targeting for Athena so that you could combine the M and A pipeline and dividends within that 1 to 1.5 leverage range that you mentioned in the previous question? So talking about the CapEx future of Athena, well, the minimum dividend policy is to pay at least 25% of net profit. We haven't discussed a new dividend policy in Athena yet. Obviously, we are waiting to have this deal closed, have a new board. And then if it's the and then we'll obviously have a discussion regarding dividend policy, but it's not it isn't something that we have already done. For now, you can consider 25% of net profit as business. Talking about Australia. The rationale behind Australia is to build a real global beef company. So having diversification in terms of origin is key in this business, especially to supply the main growing areas in the world. That's our Asia first and second, Middle East growing areas in terms of demand of rice protein. So the rationale behind going to Australia is to diversify further to another important origin that is specialized in niche markets. And we believe that using our commercial channels, especially in Asia and Middle East, would allow us to extract a lot of value from acquisitions in Australia. You have seen in the presentation, we are targeting not only beef plants, but also and most interesting, lamb plants in Australia. Our partner, Saliq, they have a lot of activity in farming in Australia, especially in the land sector. So it could be a perfect partnership for Athena to have land plants in Australia, be able to source the animal directly with our partner and exports to Middle East and also to China using much more efficient channels, commercial channels that we have and that we established by being, as a group, one of the most important exporters of beef and red meat to Middle East and also to Asia. So the opportunities that we see in Australia are related to consolidate further the market in lamb and beef, attract synergies, especially commercial synergies using our commercial channels And third, benefit and leverage our land operations in Australia, our future land operations in Australia, leverage it by partnering with our partner, our partner in Minerva, Saliq, that is in the farming business in that country. Our next question comes from Andrew De Luca, Barclays. Yes. Hi, Edison. Thanks for taking the question. So just going back to Barbara's question a little bit earlier. At the Minerva level, you guys have always talked about the internal targets are based on net debt. But if we look at the gross leverage, it's still relatively high. So can you just remind us how you think about your gross leverage? And does it make any sense at this stage to consider reducing the amount of gross debt that you have? Thanks. Yes. It makes a lot of sense to reduce gross debt as well. We have been carrying a lot of cash because the financial risk of the company when the leverage is a little bit higher than what we expected for optimal capital structure makes the financial risk of the company higher. So in that sense, makes sense to keep more cash. It's not the case anymore in Minerva. So you can expect cash and gross debt to be reduced in the next 12 to 18 months. However, we have a minimum cash quality in Minerva that would imply a minimum cash of around BRL 3,500,000,000 to BRL 4,000,000,000 today. So you can expect a cash reduction of at least BRL 2,000,000,000 in the next 18 months. That will imply one almost one turn of reduction in terms of gross debt to EBITDA. Great. Thanks very much. Next question from Andre Hashima, Kitao. Hi, Jason. I have a very simple question on my end. Can you just comment on the milestones to complete the transaction? So what should we look in terms of new dates? What should be I mean, what should be the procedural dates we should look out for where you can take this transaction or to have a to see its involvement? Sorry, could you repeat the question? The line is all sorry. Sorry. Let me just let me move away from my headset. So my question is very quite simple. I just like to know what would be the main milestones into the transaction, right? So what would you expect to report in that and date for the completion of the transaction? Sorry, I couldn't understand again. It's very hard to understand. Really sorry. Let me try. Is this better? Can you hear me now? So my question is, if you could please comment on what would be the important milestones and what should we expect in terms of dates and milestones to look out for until the transaction is completed? Yes, the connection has shocked me. It's really, really hard. Sorry, I'll try to connect later. I think Ayaka Danilo, the IR officer to call you directly, take your question and then he can read it for everybody. Okay. Thank you. Our next question comes up from the webcast from Fernando Luis, Tropico Investimentos. Edison, what are the risks of this transaction not to be concluded? Well, as we mentioned, we just signed a letter of intention with the spot guys. There are some conditions that might be matched in the coming weeks in order to conclude the transaction. Remember, this is a business combination, M and A transaction. So you have a lot of causes to be negotiated. From the spot side, they have to approve the transaction with their actual shareholders. They have the goal to raise $100,000,000 in a private placement. So they have their own challenges to go ahead and be in a position to close the transaction. So as we mentioned in the relevant in the material fact, there are lots of risks in the short to medium term to conclude the transaction. But thinking about giving our shareholders and the investors the best available information regarding the strategical move that we are doing in NAVA, we decided to release this letter of intention. So there are many risks for this transaction not to be concluded. But obviously, that we are in a position that the majority of the negotiations were already done. So we expect that we can have good news regarding this transaction in the coming weeks. Thank you. Our next question is also from the webcast from Eva Atakuri, Credicorp Capital. Hi. This is Ivan Atakuri from Credicorp Capital. What will be the use of proceeds of the USD 200 at Minerva, owned by Bex? The $200,000,000 will be in the that will go to the Minerva's cash will be used to pay down debt. We don't know which debt or if we're going to buy back bonds. It's not it was not already discussed. It was not discussed yet. But the idea is to use a great part of this cash to pay down debt and reduce leverage at Minerva level. Next question from telephone, Luca Sejeda, JPMorgan. Hi, Daniel. I hope you're listening to me well. So my question is regarding the potential valuation of the acquisitions you plan to make. Looking at the numbers, if I'm not mistaken, you're targeting pay something like 4x, 4.5x EBITDA for these assets. So if you can comment if this is the sort of the valuation range you're looking for in Australia, I honestly don't know much about the valuation of our land assets, if this is if that's the case. That would be my first question. And the second question is actually, I think a follow-up from a previous point, which is you're going to have 76 percent of this of Athena after the transaction. Is the target of the company just keep the control, so 50% plus 1% of the shares, so that means that it could further dilute Athena or you could even sell shares in the future. If that's the case, those would give also more flexibility to Minerva to raise further capital without impacting much, I'd say, the balance sheet going forward? Well, Lucas, the first question regarding the multiples of acquisition in Australia, well, we have the CEO of Atento is Mr. Ian Marrs. He used to be the former CEO of JBS Australia. So he was responsible for practically building up the operations of JBS in Australia. So he knows very well the lamb and beef market in Australia. So those multiples are based on conversations that we have already taken with a couple of targets in that country. If you take a look at the presentation, we have, I think, almost 10 targets with sizes and some general information about them. So the multiples are based on the competition that we have been taking. You could ask why we didn't not we did not go ahead with M and A with our own capital. And the answer is fair and it's very basic. The main priority of Minerva in the next couple of years, this year, next year, they'll have exhaustively spoke to the market is to reduce leverage and to put the company in a much more sustainable and optimal capital structure that would imply a leverage more close to 2x. So in that sense, the capital that the cash that we're generating from operations would not be used to acquisitions. It would be used to pay down debt and that's exactly what has been done in the past, I would say, 8 to 10 quarters. So even though it's a great opportunity to make this type of acquisition at this most forward, at this valuation, especially considering the ability that Athena Food team has to integrate business and extract value. It's the history of this company for the past 10 years. In the past 5 years, we employed more than $500,000,000 in acquisitions, and we're able to increase margins from 5% EBITDA margins to more than 10%, 11%. So it's a proven track record of this management team. Anyhow, because of the priorities regarding capital structure as a parent company, we would not go ahead with any M and A that would compromise our leverage targets in the network. Your second question sorry, what was your second question? Because If you can further divest or dilute and Minerva, you're saying it's 50%. Okay. Now I remember, sorry. No, the idea is to keep the 76.7% stake at Latina. We don't have any intention to further dilute or divest. We strongly believe Athena is a great business. It will be the main growth via cost Minerva if we get this deal done. Thank you. I received the question from Andre from Itau. He asked what are the timeline and milestones to conclude the transaction. So as I have already mentioned, the time line is probably a couple of weeks, 3 or 4 weeks, we will be in a position to close the transaction or to give up the transaction. The milestones are much more related to the SPAC side than to Minerva side. So from our side, everything that was required from our side to be done was done. It's complete. So it's a matter of concluding the requirement, especially associated area requirement and the private placement requirement on the spark side. Our next question comes from Levi Katz from Bruno Lima Equizel Research. Is there any strategic benefits regarding the profile of the SPAC guys? Or are we talking about a financial partner only? Thanks. They are basically a financial partner. However, they have a track record on Latin America and also on the food and agribusiness. So they bring to the company a good experience on dealing with this type of project and this type of company. They will be Board members as well. So their previous experience in Latara and also in the food and agri space will also help to manage Athena Food after the merger and the listing at Malbec. Thank you. This concludes the question and answer session. At this time, I would like to turn the floor back to Mr. Eddie Santicru for any closing remarks. So thank you all for participating in this conference call. We are totally available for any additional doubts or questions, our IR team and me as well. We continue having the commitment to give the market the most important and available information regarding this deal. So as soon as we have any news regarding the evolution of the negotiation, we'll come back to the market and make everything, all the details. This is a commitment that we have with all investors and shareholders. Thank you very much. Thank you for your time. Thank you. This concludes today's presentation. You may disconnect your lines at this time. Have a nice day.