Bakkafrost P/f

M&A Activity • Sep 25, 2019

Bakkafrost acquires 68.6% of The Scottish Salmon Company

Bakkafrost acquires 68.6% of The Scottish Salmon Company

25 September 2019: P/F Bakkafrost ("Bakkafrost" or the "Company") is pleased to

announce today that it has signed a binding agreement for the acquisition of

68.6% of The Scottish Salmon Company Plc ("SSC") from Northern Link Ltd (the

"Transaction"). SSC was the #2 Scottish salmon farming company by harvest

volumes in 2018 as reported, and is listed on the Oslo Bors. Successful

acquisition of the 68.6% majority stake will trigger a Mandatory Tender Offer

for the remaining 31.4% free float in SSC. The agreed acquisition price of

NOK28.25 / SSC share implies an Enterprise Value for SSC of DKK 4,351.9m.

The Transaction and any subsequent Mandatory Tender Offer will be funded via a

mix of debt and equity, including an accelerated bookbuild offering of

approx.15% of share capital and a directed share issuance of approximately 5% of

share capital to Northern Link Ltd ("Northern Link"). The accelerated bookbuild

offering will be launched imminently

The Scottish Salmon Company is a leading salmon farming company with operational

headquarters in Edinburgh, Scotland. The company's operations are on the West

Coast of Scotland and the Hebrides with a clear vision and ambition to "Bringing

Scotland's finest salmon to the World." SSC has exclusive genetics to Native

Hebridean Salmon which is stronger, leaner and noticeable firmer compared to

Atlantic salmon. SSC had a harvest of 29,913 tonnes in 2018, an 18,463 tonnes

harvest in H1-2019 and has total harvest capacity of 50,000 tonnes. The company

generated an EBITDA of £56.7m in 2018 and £35.7m in H1-2019.

Regin Jacobsen, CEO of Bakkafrost since 1989, commenting on the transaction

"Bakkafrost's journey has been characterised by delivering industry leading

growth and profitability combined with a focus on shareholder value creation.

The Scottish Salmon Company represents an attractive acquisition at this

juncture providing exposure to the attractive and premium Scottish salmon

farming region with potential for synergies and transfer of best practices. The

entire Bakkafrost team is looking forward to working with the SSC management

team to continue to enhance performance of the business and drive value in the

years ahead."

Strategic Rationale

The strategic rationale for the acquisition includes

· Provides Bakkafrost access to the Scottish farming region which is a niche

farming region with Scottish provenance products priced at a premium to the

market

· Creates a combined differentiated global leader in premium salmon with dual

exposure to both Faroe Islands and Scottish premium salmon

· Positive diversification of Bakkafrost's operations from a pure play Faroe

Islands company to a presence in two attractive salmon farming markets while

remaining both developed markets and premium product focused.

· Potential for material improvement in The Scottish Salmon Company's

profitability over a five year horizon through realisation of identified

synergies, transfer of best practices and a targeted investment programme

Bakkafrost expects to generate synergies in three key areas mainly related to

Feed and Procurement, Sales Cooperation and SG&A and Overhead savings.

· Feed & Procurement: Bakkafrost produces fish feed with a significantly

higher marine index compared to industry feed. Supplying feed to SSC would

result in fixed cost efficiency at Bakkafrost feed facilities through

intercompany sales of higher quality feed to SSC. Net synergy estimated at DKK

1.2 per kg feed, equating to annual synergies of approximately DKK 70mm from

2022 onwards (~NOK2.6 / kg of SSC harvested salmon)

· Sales Cooperation Both SSC and Bakkafrost market premium salmon and brands

that obtain a significantly higher price due to provenance and product

differentiation. Both companies plan to drive efficiencies by coordinating sales

efforts going forward taking advantage of relative distribution strengths in

global markets.

· SG&A & Overheads: Leaner head office structure in Scotland (through

discontinuing the listed functions of SSC).

Bakkafrost also believes that there is the potential for transfer of best

practices including (i) secondments to stimulate identification and transfer of

best practices, (ii) implementation of better farming procedures for improved

cost performance, (iii) gradual consolidation of sites, (iv) mitigation of

biological threats through de-licing expertise. The overall result of these

actions is expected to result in larger fish improving price achievement and

profitability.

Bakkafrost also plans to make targeted investments to achieve the efficiencies

outlined above. These include investment in a new modern recirculation plant for

smolt production replacing SSC's large number of small smolt facilities.

Additionally, investments are planned to be directed towards replacing SSC's

existing seawater equipment.

Bakkafrost is committed to strong cooperation with local communities and

authorities and hopes to stimulate employment through significant investment in

the business. Additionally, Bakkafrost is committed to ongoing work to

strengthen the Scottish regulatory framework.

Transaction Structure & Terms

Bakkafrost has signed a binding agreement for the acquisition of 68.6% of SSC

from Northern Link for an acquisition price of NOK28.25 / share. As per

regulations Bakkafrost will be required to make a Mandatory Tender Offer for the

remaining shares of SSC at the same price. The NOK28.25 / share price represents

an 8.5% premium to 3 month SSC VWAP and implies an Enterprise Value of DKK

4,351.9m an EV / EBITDA multiple of 7.2x (assuming H1-2019 annualised SSC EBITDA

excluding synergies).

Financing Structure & Terms

Bakkafrost has fully committed acquisition financing in place to secure funding

of the Transaction. The Transaction will be funded by a mix of debt and equity

including an accelerated bookbuild offering of 15% of Bakkafrost share capital,

a directed share issuance of 5% of Bakkafrost share capital to Northern Link and

an additional debt facility.

· Private placement of 15% of Bakkafrost share capital via an accelerated

bookbuild offering

-        The Board of Directors is authorized to issue shares equal to 10% of

the existing share capital. In order to facilitate immediate settlement of the

full 15% of the private placement, the Company and the settlement bank in the

offering will enter into a share lending agreement with its largest shareholder.

The Company will redeliver such number of borrowed shares not being covered by

the current share issue authorization subject to the approval by an upcoming

extraordinary general meeting ("EGM")

· Directed share issuance of 5% of Bakkafrost share capital to Northern Link

-        As part of the consideration received, the Company will issue shares

representing approx. 5% of current share capital to Northern Link

-        The share issuance will be subject to the approval by the EGM

· In addition, the Company will use an additional debt facility to fund the

acquisition of potentially up to 100% of the outstanding shares in The Scottish

Salmon Company.

In case shareholders do not approve the issue of additional Bakkafrost shares,

the Company will use an additional bank facility to settle the share loan in

cash and Northern Link will receive a cash consideration for an amount

equivalent to the approximate 5% share issuance they would have otherwise

received.

DNB, Goldman Sachs International and Nordea acted as joint financial advisors to

Bakkafrost. Daiwa Corporate Advisory Limited (DC Advisory) acted as financial

advisor to SSC.

IMPORTANT NOTICES

This document is not an offer to sell or a solicitation of offers to purchase or

subscribe for shares. Copies of this document may not be sent to jurisdictions,

or distributed in or sent from jurisdictions, in which this is barred or

prohibited by law. The information contained herein shall not constitute an

offer to sell or the solicitation of an offer to buy, in any jurisdiction in

which such offer or solicitation would be unlawful absent registration, or an

exemption from registration or qualification under the securities laws of any

jurisdiction.

In any EEA Member State, this communication is only addressed to and directed at

qualified investors in that Member State within the meaning of the Prospectus

Regulation (Regulation (EU) 2017/1129) (the "Prospectus Regulation").

In addition, in the United Kingdom, this document is not being distributed, nor

has it been approved for the purposes of Section 21 of the Financial Services

and Markets Act 2000 ("FSMA"), by a person authorised under FSMA and is directed

only at persons who (i) are outside the United Kingdom, (ii) are investment

professionals falling within Article 19(5) of the U.K. Financial Services and

Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the "Order") or

(iii) high net worth companies, and other persons to whom it may lawfully be

engaged with, falling within Article 49(2)(a) to (d) of the Order (all such

persons in (i), (ii) and (iii) above together being referred to as "relevant

persons"). Under no circumstances should persons who are not relevant persons

rely or act upon the contents of this announcement. Any investment or investment

activity to which this document relates in the United Kingdom is available only

to, and will be engaged only with, relevant persons.

This document is not an offer for sale of securities in the United States.

Securities may not be offered or sold in the United States absent registration

with the United States Securities and Exchange Commission or an exemption from

registration under the U.S. Securities Act of 1933, as amended. Bakkafrost does

not intend to register any part of the offering in the United States or to

conduct a public offering in the United States of the shares to which this

document relates.

Any Mandatory Tender Offer by Bakkafrost to SSC's shareholders may be restricted

by law in certain jurisdictions.  In particular, SSC's shareholders resident in

the United States of America, its territories and possessions, any state of the

United States of American and the District of Columbia (the "United States") may

not be eligible to participate in any Mandatory Tender Offer and the Mandatory

Tender Offer may not be made, directly or indirectly, in or into the United

States.

To the extent that SSC's shareholders resident in the United States will be

included in any Mandatory Tender Offer, such offer may be made to SSC's

shareholders resident in the United States in reliance on, and in compliance

with, Section 14(e) of the U.S. Securities Exchange Act of 1934, as amended (the

"Exchange Act"), and Regulation 14E thereunder, or an exemption therefrom.  To

the extent Regulation 14E is applicable, Bakkafrost and/or its financial

advisors and their affiliates may acquire shares of SSC outside any Mandatory

Tender Offer during the applicable offer period in accordance with applicable

law and regulations and the provisions of the exemption provided under Rule 14e

-5 under the Exchange Act, if available.  Any of the purchases referred to in

this paragraph may occur either in the open market at prevailing prices or in

private transactions at negotiated prices.  Information about such purchases

will be disclosed as and if required by applicable securities laws.

This document includes forward-looking statements. The words "believes",

"expects", "may", "will", "seek", "would", "could", "should", "shall", "risk",

"intends", "estimates", "aims", "plans", "predicts", "continues", "assumes",

"positioned" or "anticipates" and similar expressions (or their negative)

identify certain of these forward-looking statements. These forward-looking

statements are statements regarding Bakkafrost's intentions, beliefs or current

expectations concerning, among other things, Bakkafrost's results of operations,

financial condition, liquidity, prospects, growth, strategies and the industry

in which Bakkafrost operates. The forward-looking statements in this document

are based on numerous assumptions regarding Bakkafrost's present and future

business strategies and the environment in which Bakkafrost will operate in the

future. Forward-looking statements involve inherent known and unknown risks,

uncertainties and contingencies because they relate to events and depend on

circumstances that may or may not occur in the future and may cause the actual

results, performance or achievements of Bakkafrost to be materially different

from those expressed or implied by such forward looking statements. Many of

these risks and uncertainties relate to factors that are beyond Bakkafrost's

ability to control or estimate precisely, such as future market conditions,

currency fluctuations, the behaviour of other market participants, the actions

of regulators and other factors such as Bakkafrost's ability to continue to

obtain financing to meet its liquidity needs, changes in the political, social

and regulatory framework in which Bakkafrost operates or in economic or

technological trends or conditions. Past performance should not be taken as an

indication or guarantee of future results, and no redocument or warranty,

express or implied, is made regarding future performance. Bakkafrost and each of

the joint financial advisors expressly disclaim any obligation or undertaking to

release any updates or revisions to these forward-looking statements to reflect

any change in Bakkafrost's expectations with regard thereto or any change in

events, conditions or circumstances on which any statement is based after the

date of this document or to update or to keep current any other information

contained in this document. Accordingly, undue reliance should not be placed on

the forward-looking statements, which speak only as of the date of this

document.