Team size: Four

What are the most significant cases and transactions that your legal team has recently been involved in?

The Tour de France is the most prestigious cycle race in the world and one of the most impressive feats of endurance in sports. The Tour owes much of its fame to a specific part of the race: the climbs. Much of the strategy to win the Tour revolves around the mountain stages, where riders climb thousands of meters on steep roads in the French Pyrenees, the Vosges, and the Alps. That is when the strongest riders make their moves, where the Tour is won or lost.

The Tour is a team sport consisting of professional teams and support staff that compete against other professional teams in a highly pressurised environment. The similarity with a competitive in-house legal team is apparent.

In the past year, the AFGRI legal team has participated in its own gruelling Tour, which includes many treacherous but ultimately rewarding climbs.

In April 2022, the group embarked on a journey to implement a sustainable capital structure (the SCS). This required refinancing all the group’s facilities, repaying existing facilities, cancelling existing securities, and providing the most comprehensive security package in the group’s history.

The finance documents were behemoths, with the Common Terms Agreement spanning 260 pages. The lenders require the obligors to pay the legal fees as they do. To mitigate these burgeoning legal fees, the team did not outsource any part of the transaction, which required highly technical banking and finance skills. The transaction took a year to implement. Although negotiating the finance documents was gruelling, the even bigger challenge was fulfilling all the suspensive conditions.

All in all, 193 CPs had to be fulfilled to implement the SCS. Some were as mundane as noting a cession; however, some were as complex as implementing five M&A transactions, each with its CPs. This required the team to simultaneously negotiate and implement banking and finance transactions and M&A transactions under severe time constraints.

The receipt of the proceeds of this transaction was a CP to the SCS, so the team had to implement this in time. The team only outsourced the competition approval application. The rest of the drafting and negotiation was done in-house. It was a complex M&A transaction fraught with many challenges. The minority shareholders could not be forced or dragged along. They had to be convinced by negotiating an upside for them. This, however, required the team to convince the purchaser to enter into a sale of shares transaction as opposed to a sale of business transaction. This, in turn, resulted in the purchase negotiating comprehensive warranties and indemnities. So much so that the minorities threatened to pull out. A solution was found in the form of Warranty and Indemnity insurance. This would simplify the transaction. Guess again. Despite further due diligence and a hefty premium, the insurers did not want to ensure all the warranties and indemnities. This led to even more arguments and negotiations regarding what constitutes “insured “and “uninsured” warranties. Again, the minorities threatened to pull out. A solution was found in an escrow agreement where some sale proceeds were to be held for a period after closing. Finally, the contract was signed. Competition approval was obtained, and all CPs were fulfilled in bar one.

Then disaster struck. As a result of floods in KZN and high commodity prices, the business’s financial performance suffered. The purchaser threatened to invoke the dreaded “material adverse change” (MAC) clause. Again, the transaction was in jeopardy. Over December, a lower purchase price was negotiated combined with an earn-out. The sale proceeds flowed one day before the deadline, the climb was won, and the Tour remained alive.

Like Sunshine, the receipt of the proceeds of this transaction was a CP to the SCS. It was another significant merger; again, the minorities had to be convinced to sell their shareholding.

The purchaser had to obtain acquisition finance, which led to various amendments to the sale agreement and extension of deadlines. The team, however, closed the transaction, the proceeds flowed in time, and the climb was negotiated successfully.

This M&A transaction was complex because both the target (UK) and the purchaser (US) were foreign entities. Part of the sale also involved the assignment of IP from SA to the UK, for which SARB (FinServ) approval was required. The team did not outsource work and drafted and negotiated all the transaction agreements.

The disposal of CMI was complex mainly as a result of the fact that there were 4 African jurisdictions involved. The SA leg of the transaction did not require competition approval, but the Zambian and Tanzanian legs did. The team only outsourced the competition applications any work and drafted and negotiated all the transaction agreements.

The disposal of bunker storage facilities to SiloCo was complex because it required the team to draft a sale of business agreement and a technical management and service level agreement. The purchase depended on acquisition finance, which took much longer than anticipated. However, the proceeds finally flowed in time for the CP to be met.

In conclusion, the SCS were implemented on 3 March 2023, and the Tour was finished. All 193 CPs were fulfilled. Each stage and climb have been completed, most of them barely but all of them in time.

Life is short, but the Tour is long.

Could you share an example of a time when you came up with an innovation that improved how your legal team works and did not come at a large expense?

The financial services division of AFGRI has a sizeable lending book, and therefore, it and its clients spend a large amount on conveyancing fees. The legal team appointed a single conveyancing firm following a robust tender process. The legal team negotiated a reduced fee with the conveyancing firm of 35% of the Law Society of South Africa’s Conveyancing Fee Guidelines. The team then insourced a portion of the conveyancing work (‘insourced administrative services’). The remainder of the conveyancing services are performed by the conveyancing firm. In return for providing the insourced administrative services, the legal team charges clients that do not fall under the National Credit Act,34 of 2005 (NCA) an administrative fee. Clients who fall under the NCA are charged no administrative fee. The administration fee and the reduced conveyancing fee never exceed 65% of the Law Society’s Guidelines. The administrative fees earned by the legal team over the years exceeded the combined annual cost to the company of the entire legal team, including administrative staff. AFGRI’s clients, in turn, benefit from a significantly reduced rate (65% for NCA clients and 35% for non-NCA clients)—the conveyancer on the panel, in turn, benefit from an increased and regular flow of instructions. The process complies with the NCA, the Attorneys Act, 53 of 1979 and the Law Society’s Guidelines.

What are some of the key developments that have affected your business over the past year?

AFGRI is one of the largest players in South Africa’s food and agricultural sector. The industry is responsible for food security in South Africa and parts of Sub-Saharan Africa.

Conflict, climate, and the economy are the prime drivers of food insecurity. The ongoing wars in Ukraine and Israel raise uncertainty. There is lingering uncertainty in the energy and fertiliser markets. The Black Sea Grain Initiative brought stability but has not been renewed. Medium-term productive capacity in Ukraine is uncertain.

Covid-19 accentuated focus on self-sufficiency. Numerous trade restrictions imposed through recent crisis. Increasing prevalence of non-tariff barriers – EU Green Deal, India rice export ban, and SACU ag import bans. Rising protectionism impacts export markets.

Weather conditions will bring volatility. Projections for mild El Niño in 2023/24 remain uncertain about how long it will last. Long-term climate impacts – extreme weather more frequent

Finally, the South African Economy continues to be plagued by slowing growth, rising unemployment, persistent episodes of load-shedding, and decay of rail, port, and rural infrastructure.