July 4, 2011


Codfarmers and Atlantic Cod Farms to combine



Codfarmers ASA and Atlantic Cod Farms AS went into a letter of intent for the merger of the organisations yesterday (Jul 3).


The transaction will be structured as a share for share exchange, under which the ACF shareholders will receive COD shares as consideration for their ACF shares.


Based on the agreed exchange ratio and assuming 100% acceptance from the ACF shareholders, the COD shareholders and the ACF shareholders will own 51.1% and 48.9%, respectively, of the combined company.


The combined company will conduct a rights offering in the range between MNOK 54 and MNOK 90 at a subscription price of NOK6.80 (US$1.27) per share to repay interest bearing debt and to strengthen the company's working capital. The minimum amount of MNOK 54 has been underwritten by existing shareholders in COD and ACF. The underwriting is subject to completion of the transaction.


The completion of the transaction is inter alia subject to final agreements and an approved offer document, legal due diligence, acceptance from ACF shareholders representing more than 90% of the ACF shares, approval by the general meeting of COD with two-thirds majority and any required governmental approvals.


The parties expect that the transaction will be completed in August 2011 and that the rights issue will be completed in September 2011.


A new board of directors will be elected with effect from completion of the transaction reflecting the new shareholder structure. Harald Dahl will be the CEO of the combined company.


COD and ACF are the two leading companies in the Norwegian cod farming industry. COD has its production facilities in Nordland, while ACF has its corresponding facilities in Sunnmøre. The companies have their facilities in the regions that are most suitable for cod farming. The combined company will have capacity to produce 20,000 tonnes of farmed cod per year.


The companies have through the merger discussions identified substantial industrial synergies with respect to costs, competence and market. The combination will strengthen the companies' ability to release more juveniles into sea and maintain hatchery, juveniles and farming production in both geographic regions. In addition, the combination will reduce the biological risk by the geographical spread of the facilities. The combined entity will have a substantially improved position in its marketing work towards large European customers.


The corporate head office and sale/marketing will be located in Oslo, while the operational management of the company's biological production will continue to be located in the area of the production facilities. This is expected to lead to reduced operating expenses for the combined company.


"Cod farming has been through a very difficult period, with challenges with respect to both production costs and low market prices. This has lead to a substantial down-scaling of the industry. While there in 2007/08 were 30-35 companies that released juveniles into sea, there are now only three to four companies left. Both companies have the last year gradually increased their control over production costs and the fish the companies released to sea in 2010 shows an improved growth rate compared to previous generations.


"In addition, prices on cod have gradually improved the last year, from low NOK20 (US$3.73) to over NOK30 (US$5.60) per kilogramme. CODs strategy to develop a consumer packed product, STRØM, has been successful. We have experienced a significant growth in the sales and received positive feedback with respect to the quality and packing of the product", said Harald Dahl, CEO in COD.


"Both ACF and COD has completed substantial restructurings the last year. This has resulted in lower costs and reduced debt. The proceeds the combined company will receive through the rights offering shall be applied towards financing of new profitable growth. Substantial resources have been invested in the development of cod farming, both from the private and governmental side. This combination secures a further development in an exciting sector", said Marianne E. Johnsen, chair of COD.


"ACF has the previous months made significant structural changes, including financial and organisational changes. The timing is right for a structural solution with COD that realises significant synergies to the benefit of the shareholders and the employees", said Ivar Kvangardsnes, CEO in ACF.


"A combination of the companies is a beneficial industrial solution supported by the boards of both of the companies and which they have been active to get in place. The fact that the minimum amount of MNOK 54 in the planned rights offering has been underwritten shows that the combination also is supported by the significant shareholders in both of the companies", said Helge Hellebust, chairman of ACF.


DnB NOR Markets and Pareto Securities have been advisors to Codfarmers og Atlantic Cod Farms, respectively.

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