KUALA LUMPUR (Oct 15): Malayan Flour Mills Bhd (KL:MFLOUR) said on Tuesday that there will be no second earnout payment from Tyson Foods Inc in relation to the consideration for its 49% equity disposal in Dindings Tyson Group (DTSB) to Tyson Foods.

As a result, the total consideration for the disposal of its 49% equity stake in DTSB amounts to RM289.916 million, from its initial payment and the adjusted first earnout consideration, instead of RM420 million if all disposal consideration were met.

In a filing on Bursa, Malayan Flour Mills said it has received a confirmation letter from Tyson on Oct 15 regarding the second earnout account prepared based on the audited financial statements of DTSB Group for the financial year ended Dec 31, 2023 (FY2023).

Malayan Flour Mills explained that while the initial second earnout consideration was set at RM140 million, adjustments were made to the consideration following the shortfall of DTSB’s FY2023 earnings before interest, taxes, depreciation and amortisation (Ebitda) and cash position from the targeted amount.

“As the Ebitda for FYE 2023 of RM104.577 million was less than the targeted Ebitda of RM173 million, the shortfall amount is multiplied by 1.5 times to arrive at the amount of RM102.635 million which was deducted from the estimated second earnout consideration.

“As the net cash for FYE 2023 was a negative number, the second earnout consideration was reduced by an amount of RM63.197 million which is equal to (a) the net cash deducted amount multiplied by (b) the sum of the absolute value of the net cash for FYE 2023 plus the 2023 net cash target.

“As the aggregate amount deducted from the second earnout consideration pursuant to the above paragraphs was RM165.832 million, the second earnout consideration was zero,” said Malayan Flour Mills.

In 2021, Malayan Flour Mills sold a 49% equity stake in DTSB, formerly known as Dindings Supreme Sdn Bhd, to Tyson International Holding Co for up to RM420 million.

The transaction was structured to be fully satisfied in cash and included call options for Tyson, which is the world’s second-largest processor and marketer of chicken, beef, and pork, with brands such as Tyson, Jimmy Dean, and Sara Lee.

According to the agreement, the consideration was to be paid in three main tranches, subject to DTSB meeting several Ebitda and cash position targets.

Malayan Flour Mills received the initial consideration of approximately RM184.9 million in 2021. After deducting the profit guarantee payment of RM15 million, Malayan Flour Mills received RM169.9 million for the disposal.

At the end of 2023, Malayan Flour Mills received the first earnout consideration, adjusted to RM119.972 million instead of the initial agreed amount of RM140 million, after falling short of the net debt target agreed upon for FY2022.

Shares in Malayan Flour Mills settled unchanged at 71 sen on Tuesday, valuing the company at RM879.8 million. Year-to-date, the stock has appreciated by 10.94%.