1. business and industrial

PERSONAL & CONFIDENTIAL
The Board of Directors of Cermaq ASA
Dronning Eufemias gate 16
P.O. Box 144, Sentrum
N-0102 OSLO
Norway
Oslo, 12 October 2014
Independent statement in accordance with section 6-16 of the Norwegian
Securities Trading Act
1.
Introduction
1.1
Background
MC Ocean Holdings Limited, a wholly owned subsidiary of Mitsubishi Corporation
(“MC”), on 22 September 2014 announced a recommended voluntary cash tender
offer (“the Offer”) for all outstanding shares in Cermaq ASA (“Cermaq” or the
“Company”). The offer price is NOK 96 per share payable in cash (the “Offer Price”),
as further described in the offer document dated 22 September 2014 (the “Offer
Document”).
The Board of Directors of Cermaq (the “Board”) has a duty under section 6-16 (1) of
the Norwegian Securities Trading Act (“STA”) to issue a statement setting out its
assessment of the Offer and the reasons on which it is based, including its views on
the effects of the implementation of the Offer on the interests of the Company,
including the effect, if any, of the strategic plans by the offeror on employment and
the location of the Company's place of business, as well as other factors of
significance for assessing whether the Offer should be accepted by the shareholders.
In accordance with section 6-16 (4) of the STA, the Oslo Stock Exchange may
require such statement to be made by an independent third party. The Oslo Stock
Exchange has required that such a statement regarding the Offer is issued by an
independent advisor.
ABG Sundal Collier Norge ASA (“ABG Sundal Collier”) has been engaged by
Cermaq to prepare a statement on behalf of Cermaq in accordance with section 6-16
(4) of the STA. The Oslo Stock Exchange has approved that the statement shall be
provided by ABG Sundal Collier.
ABG Sundal Collier’s duties according to the engagement have not included advice
on tax, legal or accounting issues and no advice given shall be construed as such.
ABG Sundal Collier has based its work on information available and market
conditions as at the date of this statement. Our opinions are necessarily based upon
economic, market and other conditions as they exist and can be evaluated on, and
on the information made available to us as of, the date hereof. It should be
understood that subsequent developments may affect this statement, and we do not
have any obligation to update, revise, or reaffirm this statement.
ABG Sundal Collier recommends the shareholders in Cermaq to study carefully the
information given in the Offer Document.
1.2
Our position, remuneration and independence
ABG Sundal Collier, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, competitive bidding, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
Pursuant to the letter of engagement between ABG Sundal Collier and Cermaq, ABG
Sundal Collier is entitled to a fee for services rendered to Cermaq in connection with
the Independent Statement, and the Company has agreed to reimburse our
expenses arising, and indemnify us against certain liabilities that may arise, out of
our engagement. The fee is independent of the conclusion of the statement and the
completion of the Offer. In the ordinary course of our business, we may actively trade
Cermaq shares and other securities of Cermaq for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short position
in such securities.
We and our affiliates in the past have provided, and in the future may provide,
investment banking and other financial services to Cermaq and have received or in
the future may receive compensation for the rendering of these services. In addition,
we and our affiliates in the past have provided, currently are providing, and in the
future may provide, investment banking and other financial services to the Ministry of
Trade, Industry and Fisheries (being the main shareholder of Cermaq) not related to
the Offer and have received or in the future may receive compensation for the
rendering of these services.
As of the date hereof, ABG Sundal Collier and its affiliates, including partners and
employees, own 8,000 shares in Cermaq.
2.
The transaction
The Company and representatives of MC have previously discussed the possibility of
business collaboration on several occasions. On 1 April 2014, MC signed a nondisclosure and stand-still undertaking agreement and commenced discussions with
the executive management team of Cermaq pertaining to a potential acquisition of
the Company by MC. A non-binding offer letter was delivered to the Company on 4
August 2014, stipulating the terms of a non-binding proposal. MC and the Company
entered into a due diligence agreement on 12 August 2014, and in the period from 12
August 2014 until the announcement date, MC has conducted a due diligence review
and participated in meetings with the executive management of the Company. To
execute the transaction, MC established the bidding company, MC Ocean Holdings
Limited, on 5 September 2014.
On 21 September 2014, MC and the Company entered into a tender offer agreement
(the “Tender Offer Agreement”), containing, among other things, the MC’s
commitment to make the Offer on the terms and conditions set out therein and the
commitment by the Company’s board of directors to issue a recommendation to the
Company’s shareholders to accept the Offer, subject to customary exceptions, such
as the fiduciary duties of the Company’s board of directors.
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3.
Access to information and methodology
In connection with this opinion, we have reviewed and considered among other
things:
(i)
the Offer Document dated 22 September 2014 including Appendix A, the
statement from the Board dated 21 September 2014;
(ii)
the Transaction Agreement, dated 21 September 2014;
(iii)
minutes from selected Cermaq Board meetings where strategic initiatives
have been discussed including the assessment of a potential offer from MC;
(iv)
certain reports and communications from the Company to its shareholders;
(v)
the reported price and trading activity for the Company’s shares;
(vi)
certain publicly available research analyst reports for the Company and its
peers;
(vii)
certain financial and stock market information for the Company compared
with similar information for certain other companies, the securities of which
are publicly traded;
(viii)
certain internal financial analyses and twelve moths rolling forecasts for the
Company prepared by its management as at April 2014, as approved for our
use by the Company (the “Forecasts”);
(ix)
the financial terms of certain other business acquisitions that we have
deemed to be relevant; and;
(x)
such other financial analyses, studies and matters that we considered
appropriate.
We have, with the consent of the Company, relied without independent verification
upon the accuracy and completeness of all of the financial and other information
reviewed by us for purposes of this opinion. In that regard, we have assumed with
the consent of the Company that the Forecasts have been reasonably prepared on a
basis reflecting the best available estimates and judgments of the management of
Cermaq at the time of preparation. In addition, with the consent of the Company, we
have not made an independent evaluation or appraisal of the assets and liabilities of
Cermaq or any subsidiary or affiliate thereof and we have not been furnished with
any such evaluation or appraisal, nor have we made any physical inspection of the
properties or assets of Cermaq.
4. Impact on the Company and its employees
Section 6-16 of the STA provides that the statement shall set out the opinion of the
bid and the reasons on which it is based, including views on the effect of
implementation of the Company’s interests, and on the Offeror’s strategic plans for
the Company and their likely repercussions on employment and the locations of the
Company’s places of business.
As described in the Offer Document, following a successful completion of the Offer,
MC intends to contribute to the sustainable growth and further expansion of the
business of the Company by levering synergies with MC’s existing salmon business,
by increasing capacity in salmon farming and processing business, strengthening the
Chilean salmon farming business by synergy with MC’s existing aquaculture
business in Chile, increasing the reprocessing business in Thailand and Vietnam and
increasing sales of salmon in Asian countries, especially in China. MC’s is of the view
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that there are many areas of potential synergies between the Company and MC.
Through collaboration in farming, processing and sales, MC plans to improve the
value of the Company and the value chain of MC’s marine products business.
MC states that it will seek to build on Cermaq’s present growth strategy and the
existing organisation with headquarter in Norway and Cermaq as its main
competence centre for salmon production globally after completion of the Offer. MC
has no current plans to make changes to the Company’s workforce following
completion of the Offer and believes that the talent and experience of the Company’s
employees are crucial drivers of the Company, and highly appreciates the
organisation that it has built to date. The Offer is not expected to have legal,
economic or work-related consequences for the employees in the Company.
The employee representatives on the Board have stated that they recommend and
support the Offer.
5. Views of the Board and the largest shareholder
The Board has been approached by various companies seeking to discuss
strategic opportunities and possibilities with Cermaq. After careful consideration,
the Board has concluded that a combination of the Company and MC is an
attractive alternative for the shareholders and the Company and its employees.
The Board has issued a unanimous recommendation of the Offer, confirming that
the Board has resolved to recommend that the Company’s shareholders accept
the Offer and tender their shares in the Company pursuant to the Offer. The
Board has based its recommendation not only on the Offer Price but also an
assessment of other factors that it has deemed relevant in relation to the Offer
including strategic plans and commitments of MC to build on the Company’s
current organisation and localisation. The Board believes that MC will be an
attractive new industrial owner of Cermaq, both for employees, customers,
suppliers and the local societies where Cermaq has its operations. The Board
has the right to withdraw its recommendation of the Offer in the event a superior
competing offer emerges, provided such offer is not matched by the Offeror within
three business days. The Board has received a recommendation from its financial
adviser Fondsfinans AS which concludes that the Offer represents an attractive
consideration to all the shareholders of the Company from a financial point of
view.
No special advantages are planned to be given or will be given by MC, nor have any
prospects for special advantages been given, to members of the executive
management or members of the Board in connection with making the Offer.
The CEO of Cermaq, Mr. Jon Hindar, and all Board members holding shares in the
Company plan to tender their Cermaq shares at the Offer Price.
The Board has discussed the Offer with the largest shareholder of Cermaq, the
Ministry of Trade, Industry and Fisheries.
In connection with the Offer, the following statement was made by the Company’s
largest shareholder, The Ministry of Trade, Industry and Fisheries, currently holding
59.17% of the outstanding shares in the Company:
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“The Norwegian State is prepared to sell its shares in Cermaq ASA
The Ministry of Trade, Industry and Fisheries is prepared to sell the State’s shares in
the fish-farming company Cermaq under terms and conditions outlined in today’s
notices from Cermaq and Mitsubishi Corporation. However, the Ministry may sell the
shares to any other party, if such party should present a more attractive offer than
Mitsubishi.
- I am pleased that Cermaq ASA attracts interest from a prime international industrial
corporation, confirming the global visibility, reach and recognition of the Norwegian
fish farming industry, says Ms. Monica Mæland, Minister of Trade and Industry.
The Ministry of Trade, Industry and Fisheries, representing the Norwegian state as
shareholder in Cermaq ASA, refers to the announcements from Mitsubishi
Corporation and Cermaq today that Mitsubishi Corporation, through its subsidiary MC
Ocean Holdings Limited, will launch a voluntary offer for all of the shares in Cermaq
ASA at a price of NOK 96 per share with an offer period of minimum four weeks. The
Ministry also refers to today’s statement made by the Board of Directors of Cermaq
ASA recommending the offer. The state holds 54,731,604 shares in Cermaq ASA,
corresponding to 59.17 % of the issued share capital.
The Ministry will respond to the offer terms within the offer period. However, based
on an assessment of available opportunities for Cermaq ASA and the Board of
Directors' recommendation, the Ministry has indicated to Mitsubishi Corporation that
it under prevailing market terms is prepared to pursue a sale of the state’s shares in
Cermaq to Mitsubishi Corporation on the terms outlined in today's announcement.
The Ministry points out that the Norwegian State may at any time before the end of
the offer period decide to sell its shares in Cermaq ASA to another purchaser or
offeror if an offer is made for the shares in Cermaq that the Ministry in its sole
discretion finds more attractive than the offer from Mitsubishi Corporation and that it
believes provides increased value to shareholders.
Carnegie AS has been the Ministry’s financial advisor in connection with the Offer.”
6. Evaluation of the Offer Price – summary considerations
The Offer Price of NOK 96 per share is substantially above historical share price
levels (adjusting for the sale of EWOS in 2013) despite of the solid share price
development on the back of the favourable climate for the salmon industry over the
last years. The recent share price performance has been impacted by a sell-off on
the back of the Russian EU import ban however salmon companies’ share prices
have trended back as the market seems to view this as a temporary event for the
demand curve. Moreover, the Company’s share price has performed reasonably well
in relative terms compared to both its Norwegian and Chilean peers.
The premium to the current share price of Cermaq is somewhat low compared to
average for Nordic deals, especially in light of the underlying synergy potential, which
has not been quantified by MC. The synergy potential is likely to be material upon
consolidation of Cermaq with MC’s activities within salmon farming and other
seafood activities.
On a trading multiple basis, the implied EV/EBIT(NTM) multiple under the Offer is
close to the 5-year historical average for the Company. The historical multiple prior to
the sale of EWOS which was announced in July 2014 may however be impacted by
historically lower risk due to increased diversification and lower earnings volatility
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with EWOS as part of the Company, and thus may not be directly comparable. In a
longer term perspective, several industry analysts argue that there may be upside in
valuation of salmon farming companies in general as they expect the industry to
become more demand driven rather than supply driven, which has been the case
historically, and that this may result in lower salmon price volatility which in turn could
result in higher valuation multiples for salmon farming companies generally. Based
on current trading multiples, the Offer values Cermaq at a slight premium to peers
based on near term earnings, however does not seem to give Cermaq credit for its
growth potential beyond 2015. On an EV per kg harvest basis, the Offer values
Cermaq at a lower multiple than its Norwegian peers and that this can, at least to a
significant extent be justified through Cermaq’s larger exposure in Chile, which
historically has shown weaker profitability and higher biological risk compared to
other salmon farming regions. Cermaq has initiated extensive profitability
improvement initiatives in Chile which are likely to be appreciated to a greater extent
by investors if and when they materialise in higher earnings for the Company.
When applying the discounted cash flow method giving full credit to the Company’s
long term growth potential and applying standard industry assumptions with regards
to cost of capital we arrive at a value per share that is substantially higher than the
Offer Price. It should however be mentioned that the success and value of the
Company’s business plan will depend on its success in developing a sustained shift
in its earnings base, which is a shift that is dependent on external factors such as
biological sanitary conditions and cost inflation. Considering that the Company’s
growth prospects primarily are located in Chile, which historically has displayed
higher biological risk and volatility in earnings, it may be argued that a risk premium
should be taken into account when valuating such growth initiatives and moreover
that the market may imply a discount on such growth measures until increased
confidence in the Chilean biological situation has been established, which is likely to
require a longer period of stable sanitary conditions.
Our sum-of-the-parts valuation gives a value per share, based on peer pricing and
excluding any transaction premium, which is slightly below the Offer Price. However,
there is significant uncertainty related to the relevant value that should be assigned to
the Chilean operations due to lack of reliable/updated data for Chilean peers. In a full
break-up scenario, applying transaction multiples we deem to be relevant for the
various geographies, we observe that the implied value per share is substantially
above the Offer Price. In relation to such a scenario we believe that the timing for a
sale of the Chilean operations is not currently optimal due to potential for improved
future profitability from relatively recently implemented improvement initiatives,
significant growth prospects and potential for an increased number of realistic likely
buyers in the future.
The Offer Price is close to the average of analysts’ near term target prices ranging
from NOK 82 per Share to NOK 112 per share (based on available data) and 6 of the
analysts have higher target prices than the Offer Price.
The Company has not conducted a structured sales process, which could have
contributed to optimising the price obtained for the Company’s shares. However,
subsequent to the change of government in Norway and also the sale of EWOS last
year, there has been significant speculation in the media, amongst analysts and the
industry in general, that the Company “is for sale”. Thus, it could be argued that
potential buyers have had some time to evaluate and report their interest in
potentially acquiring the Company. As stated in the Statement from the Board dated
21 September 2014, the Board has considered strategic alternatives for the future, in
a rapid changing environment and prospective consolidation in the aquaculture
business worldwide and the Board has been approached by various companies, both
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industrial and financial investors, seeking to discuss strategic opportunities.
Moreover, and as stated in the Offer Document dated 22 September 2014, the Board
may withdraw its recommendation in the event a superior competing offer emerges,
provided such offer is not matched by the MC within three business days. Also the
Ministry of Trade, Industry and Fisheries has stated that it “may at any time before
the end of the offer period decide to sell its shares in Cermaq ASA to another
purchaser or offeror if an offer is made for the shares in Cermaq that the Ministry in
its sole discretion finds more attractive than the offer from Mitsubishi Corporation and
that it believes provides increased value to shareholders”. Accordingly, other
potential interested buyers of Cermaq have had the opportunity, albeit over a limited
time period, to report their interest to acquire the Company to the Board. This cannot
however be directly compared to a structured sales process, in which a wider range
of buyers normally would have access to information and company management in
order to assess its interest in the Company and the strategic merits of such a
transaction over an extended period of time, which could have resulted in higher
competitive tension in relation to the Company or its assets.
7. Other observations and conclusion
Other elements that may be of relevance to the evaluation of the Offer and the Offer
Price and potentially the decision of shareholders whether to accept the Offer are, in
the opinion of ABG Sundal Collier;




The share price of Cermaq has not, after the last date the Cermaq share traded
including the extraordinary dividend related to the sale of EOWS on 7 January
2014, ben at the level of the Offer Price. The highest price that has been
observed since 7 January 2014 is NOK 87.75 (17 July 2014).
Several industrialists have historically been highly reluctant to take on assets in
Chile which most likely would mean that Cermaq is a realistic target for a limited
number of other salmon farming companies. A full split-up and sale of each of the
regions to the highest bidder through structured sales processes could have been
considered, however, the valuation on the Chilean operation would be highly
uncertain.
Absent an industrial deal, should the main shareholder elect to sell its shares in
the market, there is arguably a need to generate significant new investor demand
for such volume to be absorbed at prevailing market prices.
Immediately after the announcement of the Offer, the Cermaq share price traded
be above the Offer Price, however, it closed below the Offer Price at NOK 95.75
the first day of trading after announcement at a volume of 3.9 million shares (ca.
4% of equity and ca. 10% of shares outstanding excluding the shares of the
Ministry of Trade, Industry and Fisheries). The next six trading days, the share
closed at prices above the Offer Price. Since 1 October 2014, the share price has
closed at NOK 96 which is equal to the Offer Price.
Considering all of the above and based on the assumptions set out in the foregoing,
while the premium of the Offer Price to the more recent trading price of the Cermaq
share is admittedly moderate compared to precedent Nordic cash offers, the Offer
Price is below 6 of the target prices from research analysts covering Cermaq and we
argue that the Offer Price does not give full credit to the Company’s growth prospects
beyond 2015, ABG Sundal Collier’s conclusion is that the Offer Price is fair from a
financial point of view to the shareholders of Cermaq under the current market
conditions and with a short term perspective. In a longer term perspective, we do
believe that there is further valuation upside from both implemented cost cutting and
expansion initiatives in Chile, however, we do not expect the market to fully
appreciate such initiatives until 1) cost cutting initiatives to a greater extent
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materialise in long term improved profitability, and 2) confidence in a permanently
improved bio-security situation in Chile has been established, and the timing of both
of these factors is uncertain.
This letter shall be governed by and construed in accordance with Norwegian Law.
Yours faithfully,
ABG SUNDAL COLLIER NORGE ASA
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