A couple of years ago Solomon was planning to acquire 25% of the MegaFarm. No more. And the reason is, if you own more then the burden is too high on SIAF's capex. You would have to cough up $150M just for the next 6 or 9 buildings. And where would he get the money from? Also, as you acquire more, CA income comes down as well (because you can't pay yourself). So we discussed this and determined that maybe 35% would be the best we can do. We are close to that now.
I was pleased with the carve-out that's why I became a buyer in Q1. I wanted to do it sooner but didn't have the money in 2016.
All they owned before the carve-out was 75% of AF1 (75% of $37M). Another $24M deposits for PF1/2 was converted into TRW equity. And the revaluation of those assets, another $26M or so. And they sold a master license to TRW for $30M. And a bunch of receivables, for a total of $124M or 36.6%. So all of a sudden you have a bunch of "dead money" converted into equity. And they are capex free bcause TRW is on their own.
The downside is, SIAF/CA was making good money when they didn't own the farms. From resale. Close to 15% margin on every kg sold. Call it a marketing or service fee paid to CA. So that's why earnings are a bit disappointing now but they will catch up as the MF grows. And CA is still getting paid for consultancy. Even the license fees, but not for AF5.
AI
