EX-1 2 d1386163_ex1.htm d1386163_ex1.htm
Voluntary offer to acquire all issued and outstanding
shares of Cermaq ASA
 
 
 
Made by
 
Marine Harvest ASA
 
 
Consideration:
 
 NOK 53.25 and 8.6 shares in Marine Harvest ASA for each share in Cermaq ASA
 
Offer Period:
 
 From and including 6 June 2013 to and including 21 June 2013 at 09:00 hours (CET)
This combined offer document and information memorandum (the “Offer Document”) has been prepared by Marine Harvest ASA (the “Company” or the “Offeror”) in connection with (i) its voluntary offer (the “Offer”) for the outstanding shares of Cermaq ASA (“Cermaq”) as of the date of this Offer Document (the “Cermaq Shares”) and (ii) the offer of new shares in the Company (the “Consideration Shares”) to shareholders in Cermaq (“Cermaq Shareholders”) as partial consideration for tendering their shares in the Offer, and (iii) the listing of the Consideration Shares on Oslo Børs ASA (“Oslo Børs”).
 
Investing in the Company’s shares (the “Shares” or the “Marine Harvest Shares”) involves certain risks. See section 1Risk factors” of this Offer Document.
 
Financial advisor and receiving agent
 
Financial advisor
 
 
5 June 2013
 

 
 

 


 
IMPORTANT NOTICE
 
For the definitions of terms used throughout this Offer Document, including the preceding pages, see section 18 “Definitions and glossary of terms”.
 
This Offer Document has been prepared to comply with the requirements regarding voluntary offers set out in Chapter 6 of the Norwegian Securities Trading Act and the requirements to prepare an information memorandum pursuant to Section 3.5 of the continuing obligations for stock exchange listed companies (the “Continuing Obligations”). The Offer Document has been reviewed and approved by Oslo Børs in accordance with Section 6-14 of the Norwegian Securities Trading Act as an offer document and has been reviewed in accordance with Section 3.5.5.1 of the Continuing Obligations as an information memorandum. The Offer Document complies with the requirements set out in Sections 7-4 no 6 and 7-5 no 7 of the Norwegian Securities Trading Act and the offer and listing of the Consideration Shares do not require the preparation and approval of a prospectus.
 
Notice to U.S. holders of Cermaq Shares: The Offer is made for the securities of a non-U.S. company. The Offer is subject to the disclosure requirements of Norway, which are different from those of the United States. Financial statements included in the Offer Document have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and, accordingly, may not be comparable to the financial statements of U.S. companies. It may be difficult for you to enforce your rights and any claim you may have arising under U.S. securities laws, since the Offeror is a non-U.S. company, and some or all of its officers and directors may be residents of countries other than the United States. You may not be able to sue a non-U.S. company or its officers or directors in a non-U.S. court for violations of the U.S. securities laws. It may be difficult to compel the Offeror and its affiliates to subject themselves to a U.S. court’s judgment. You should be aware that the Offeror may purchase securities in Cermaq otherwise than under the Offer, such as in open market or privately negotiated purchases. This Offer Document has been furnished to the U.S. Securities Exchange Committee (“SEC”) under cover of a Form CB, in compliance with Rule 802 under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”).
 
Except for the approval by Oslo Børs and the furnishing of the Offer Document to the SEC as described above, no action has been taken or will be taken in any jurisdiction by the Offeror or the Offeror’s financial advisors, Arctic Securities ASA (“Arctic Securities”) and Nordea Markets, a part of Nordea Bank Norge ASA (“Nordea Markets”), (together the “Financial Advisors”), that would permit the possession or distribution of any documents relating to the Offer, or any amendment or supplement thereto, including but not limited to this Offer Document, in any country or jurisdiction where specific action for that purpose is required. Accordingly, this Offer Document may not be used for the purpose of an offer of, or solicitation for, any securities in any jurisdiction or circumstances in which such offer or solicitation would be unlawful or unauthorised.
 
In the United States, the Offer is being extended solely through Beech Hill Securities Inc, a broker-dealer registered under the US Securities Exchange Act of 1934, to which Arctic Securities has a contractual relationship.
 
 
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Additional notices: This Offer Document has been published in English only, but contains a Norwegian summary set out in section 17 “Norsk sammendrag (Norwegian summary)”. Please note that the Norwegian summary is a translation of information found elsewhere in the Offer Document. In the event of any discrepancies between the contents of the Norwegian text and the English text, the English text will prevail.
 
The Offeror has furnished the information in this Offer Document. The Offeror’s Financial Advisors make no representation or warranty, expressed or implied, as to the accuracy or completeness of such information, and nothing contained in this Offer Document is, nor shall be relied upon as, a promise or representation by the Financial Advisors.
 
All inquiries relating to this Offer Document shall be directed to the Offeror, Arctic Securities or (outside the United States only) Nordea Markets. No other person has been authorised to give any information about, or make any representation on behalf of, the Offeror in connection with the Offer, and, if given or made, such other information or representation must not be relied upon as having been authorised by the Offeror or the Financial Advisors.
 
The Financial Advisors are acting for the Offeror and no one else in connection with the Offer and will not be responsible to anyone other than the Offeror for providing advice in relation to the Offer and/or any other matter referred to in this Offer Document. In the ordinary course of business, the Financial Advisors and certain of their affiliates have engaged, and may continue to engage, in investment and banking transactions with the Offeror, Cermaq and their respective subsidiaries.
 
The information contained herein is as of the date hereof and subject to change, completion or amendment without notice. There may have been changes affecting the Offeror or its subsidiaries subsequent to the date of this Offer Document. Any new material information and any material error or inaccuracy which is capable of affecting the assessment of the Shares arising after the date of this Offer Document and before the expiry of the Offer Period (as defined below), will be published and announced as a supplement to this Offer Document in accordance with Section 7-15 of the Norwegian Securities Trading Act. Neither the publication nor the distribution of this Offer Document or the completion of the Offer shall under any circumstances create any implication that there has been no change in the Offeror’s or its subsidiaries’ affairs since the date hereof or that the information set forth in this Offer Document is correct as of any time since its date.
 
Unless otherwise indicated, the source of information included in this Offer Document is the Offeror. The information in this Offer Document pertaining to Cermaq has been extracted from publicly available information, including annual reports, interim reports, investor information and stock exchange notices published by Cermaq.
 
The contents of this Offer Document are not to be construed as legal, business or tax advice. Each reader of this Offer Document should consult its own legal, business or tax advisor as to legal, business or tax advice. If you are in any doubt about the contents of this Offer Document, you should consult your stockbroker, bank manager, lawyer, accountant or other professional advisor.
 
Unless otherwise indicated, or the context otherwise requires, all references in this Offer Document to the “Company” or the “Offeror” are to Marine Harvest ASA, and all references to “Marine Harvest” or the “Group” are to Marine Harvest ASA and its consolidated subsidiaries, including Morpol ASA (“Morpol”) of which the Company acquired a controlling interest in March 2013, but which will not be consolidated until the third or fourth quarter of 2013 cf. section 7.8.1, “Presentation of Marine Harvest—Material agreements—Acquisition of Morpol”, below.

 
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CONTENTS
 

1
RISK FACTORS
6
     
2
RESPONSIBILITY FOR THE OFFER DOCUMENT
27
     
3
RESTRICTIONS AND CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
28
     
4
THE VOLUNTARY OFFER
32
     
5
PRESENTATION OF CERMAQ
47
     
6
MARKET DESCRIPTION
60
     
7
PRESENTATION OF MARINE HARVEST
72
     
8
MARINE HARVEST SELECTED CONSOLIDATED FINANCIAL INFORMATION
89
     
9
OPERATING AND FINANCIAL REVIEW
96
     
10
UNAUDITED PRO FORMA FINANCIAL INFORMATION
105
     
11
CAPITAL RESOURCES
126
     
12
BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES
131
     
13
SHARE CAPITAL AND SHAREHOLDER MATTERS
141
     
14
SECURITIES TRADING IN NORWAY
145
     
15
TAXATION
149
     
16
GENERAL INFORMATION
157
     
17
NORSK SAMMENDRAG (NORWEGIAN SUMMARY)
160
     
18
DEFINITIONS AND GLOSSARY OF TERMS
173

 
APPENDICES:
 
Appendix 1:
Acceptance Form
A 1
     
Appendix 2:
Norwegian Acceptance Form (NW: Akseptformular)
A 2
     
Appendix 3:
Independent Assurance Report by Ernst & Young AS on the proforma financial information
A 3
     
     
 
 
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1
RISK FACTORS
 
This section 1 “Risk factors” contains an overview of the risk factors that are known to the Company and considered material by it. It should, however, be noted that the description of the risks related to Cermaq’s business in section 1.3.7 “—Risks related to the Offer and the combination of Marine Harvest and Cermaq—Risks related to Cermaq’s business" has been extracted from Cermaq’s annual report for 2012 (“Cermaq’s Annual Report”) and the Company and the board of directors of the Company (the “Board”) disclaim any responsibility for the accuracy and completeness of this information
 
Prospective investors should carefully consider all the information set out in this Offer Document and particularly the risk factors set forth below before making an investment decision and should consult their own expert advisors as to the suitability of an investment in the Shares.
 
An investment in the Shares is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of their investment.
 
The risks described below may have a material adverse effect on the business, financial condition, results of operations or cash flow of Marine Harvest and may therefore have a negative effect on the trading price of the Shares. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance.
 
1.1
Risks related to Marine Harvest’s business
 
1.1.1
Market risks
 
1.1.1.1
Salmon prices
 
Marine Harvest’s financial position and future development depend to a considerable extent on the price of farmed salmon, which has historically been subject to substantial fluctuations. Farmed salmon is a commodity, and the Company therefore assumes that the market price will continue to follow a cyclical pattern based on the balance between total supply and demand.
 
The demand for farmed salmon is affected by a number of different factors, such as changes in customer preferences, changes in prices and volumes of substitute products and general economic conditions. There can be no assurance that the demand for farmed salmon will not decrease in the future. Marine Harvest may have limited flexibility to adjust its product mix in order to accommodate changing circumstances. Export to Europe accounts for the main portion of the Group’s total sales. Many of the European countries to which Marine Harvest exports its products have experienced an economic downturn the recent years and such economic downturn may continue in the foreseeable future which in turn may adversely affect the demand for farmed salmon.
 
The total supply of farmed salmon fluctuates strongly due to variations in factors such as smolt release, biology and seawater temperatures. As a result of the long production cycle and a limited time window available for harvesting, Marine Harvest and other industry players have limited flexibility to manage their supplies from month to month. Farmed salmon is furthermore generally sold as a fresh commodity with limited time available between harvesting and consumption. Short-term overproduction may therefore result in very low spot prices obtained in the market. The entrants of new producing nations or the issuance of new production licenses could result in a general overproduction in the industry. The market has in recent years experienced a strong growth with an increase in global supply of 22 per cent from 2011 to 2012.
 
 
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Short-term or long-term decreases in the price of farmed salmon may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.1.2
Feed costs, supply and sustainability
 
Feed costs account for a significant portion, i.e. approximately 50 per cent of Marine Harvest’s total production costs, and an increase in feed prices could have a major impact on the Group’s profitability. The feed industry is characterised by large, global suppliers operating under cost plus contracts, and feed prices are accordingly directly linked to the global markets for fishmeal, vegetable meal, animal proteins and fish/vegetable/animal oils which are the main ingredients in fish feed. Increases in the prices of these raw materials will accordingly result in an increase in feed prices. Marine Harvest may not be able to pass on increased feed costs to its customers. Due to the long production cycle for farmed salmon, there may be a significant time lag between changes in feed prices and corresponding changes in the prices of farmed salmon and finished products to customers.
 
As the main feed suppliers normally enter into fixed contracts and adapt their production volumes to prevailing supply commitments, there is limited excess of fish feed available in the market. If one or more of Marine Harvest’s feed contracts were to be terminated on short notice prior to their respective expiration dates, the Group may not be able to find alternative suppliers in the market. Shortage in feed supply may lead to starving fish, accelerated harvesting, loss of biomass and reduced income. See section 7.7.2 “Presentation of Marine Harvest—Dependability upon licences, contracts and patents—Feed contracts” for a further details on the Group’s feed contacts.
 
Natural limitations in the marine resource base could furthermore lead to global shortages of fishmeal and fish oil. Sustainability with regards to the extensive use of fishmeal and fish oil combined with a growing fish farming industry is a challenge for the industry. Natural phenomenon, such as the recurring event El Niño in the Pacific Ocean, could result in a temporary reduction in global access to raw materials for feed production. El Niño causes an increase in seawater temperatures in the South East Pacific, particularly along the coasts of Chile and Peru. As the warm ocean alters the locations and types of fish stocks, fish catches of species suitable for fish feed such as anchovies may decrease significantly.
 
Marine Harvest also assumes operational risks linked to the quality and utilisation of feed. An increase in the feed price, shortage of feed or reduced quality or utilisation of the feed may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
 
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1.1.1.3
Food safety and perceived health concerns
 
Food safety issues and perceived health concerns may have a negative impact on the reputation of and demand for farmed salmon. As Marine Harvest’s end products are for human consumption, it is of critical importance that the products are perceived as safe and healthy in all relevant markets. The food industry in general experiences increased customer awareness with respect to food safety and product quality, information and traceability. A failure by the Company to meet new and exacting customer requirements may reduce the demand for its products.
 
Non-governmental organisations, such as environmental organisations and animal rights groups, campaigning groups, research communities or others may direct negative publicity towards the salmon farming industry. Negative media attention could raise consumer scares in relation to farmed salmon, which may result in declined demand. Various perceived health concerns, amongst others in relation to the level of organic contaminants, cancer-causing PCB (polychlorinated biphenyls) and dioxins in farmed salmon, have attracted negative attention in the media in the past. New perceived health concerns or food safety issues relating to farmed salmon may arise in the future and affect Marine Harvest’s ability to market and distribute its products.
 
Perceived health concerns and increased quality demands from customers in the future may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.1.4
Competition
 
The market for farmed salmon is global and highly competitive. There can be no assurance that Marine Harvest will be able to respond to existing and new sources of competition. Overcapacity, consolidation, increased competition and price pressure in the market may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2
Operational risks
 
1.1.2.1
Biological risks and diseases
 
Marine Harvest’s operations are subject to several biological risks which could have a negative impact on future profitability and cash flows. Biological risks include for instance diseases, viruses, bacteria, parasites, algae blooms, jelly fish and other contaminants. These elements as well as fluctuating seawater temperatures and oxygen depletion may have adverse effects on fish survival, health, growth and welfare and result in reduced harvest weight and volume, downgrading of products and claims from customers.
 
Salmon farming operations involves a considerable risk with regard to diseases. An outbreak of a significant or severe disease represents a cost for Marine Harvest through e.g. direct loss of fish, lost growth on biomass, accelerated harvesting, loss of quality of harvested fish and may also be followed by a subsequent period of reduced production capacity and loss of income. Diseases are also a threat to the environment and the welfare of the fish. Some diseases are subject to governmental control measures and are monitored closely by international and national governmental bodies. The most severe diseases may require culling and disposal of the entire stock, disinfection of the farm and a long subsequent fallow period as preventative measures to stop the disease from spreading. Market access could be impeded by strict border controls, not only for salmon from the infected farm, but also for products originating from a wider geographical area surrounding the site of an outbreak. Continued disease problems may also attract negative media attention and public concerns.
 
 
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Even though vaccines and cures have been developed for many of the diseases, the effectiveness of the preventions and treatments varies between diseases and geographical locations of the farms. New diseases could arise and excessive use of antibiotics by the industry could result in bacterial species developing antibiotic resistance and reviving diseases which today are subject to effective control.
 
Salmon farming has historically experienced several episodes with extensive disease problems. There can be no assurance that Marine Harvest will not experience extensive disease problems in the future. Epidemic outbreaks of diseases, including but not limited to the ones described below, may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
ISA (Infectious Salmon Anaemia)
 
ISA (Infectious Salmon Anaemia) is an infectious viral disease causing severe anaemia for the infected fish. The disease has been reported in Norway, Scotland, Ireland, the Faroe Islands, Canada, USA and Chile. ISA is subject to strict governmental control measures and will normally prompt compulsory culling of the entire stock and a subsequent fallow period. Suspected farms and farms in the vicinity of an outbreak will be placed under surveillance and subject to strict movement controls. The risk of an outbreak increases strongly with proximity to the source of infection, poor quality smolt and insufficient fallow periods. There is no medical treatment for ISA. Vaccines have been developed the recent years, but their effectiveness varies when exposed to severe infection pressure. The infected fish represent no health risk for humans and may in most jurisdictions be sold in the open market if it is without clinical signs of disease and above marketable size, which is approximately 1.2 kg. Fish below this size will normally be destroyed.
 
ISA has a large potential downside for Marine Harvest and the salmon farming industry in general. The serious epidemic hitting Chile in 2007 to 2009 lead to the closure of many farms, and the Group reported ISA related write-downs of more than NOK 2,500 million during the period. The disease led to substantial losses in Norway around 1990, and the epidemic on the Faroe Islands in 2000 to 2005 laid the whole industry on the islands fallow for several years. The number of global outbreaks was low in 2012. A concern of the Company today is whether the recently reported outbreaks in Chile will escalate into an epidemic.
 
PD (Pancreas Disease)
 
PD (Pancreas Disease) is an infectious viral disease caused by a salmonid alphavirus (SAV) and is frequently diagnosed in Norway, and more recently to a lesser extent in Scotland and Ireland. The disease attacks the pancreatic tissue, heart and skeletal muscles of the fish and results in lack of appetite, lethargy, reduced health and increased mortality. Chronic outbreaks could last several months and accumulated mortality could be high, normally in the range from 0 per cent to 20 per cent. More important is however the chronic damage that can occur to the survivors in terms of reduced growth capacity and scars in skeletal muscle. The scars can appear as patches of decolourisation or melanisation (black pigmentation) and cause downgrading and make the product unsuitable for smokehouses. There is no medical treatment to PD. Approved vaccines exist, but the effectiveness is variable when infection pressure is high. PD is subject to governmental control measures.
 
 
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Norway experienced a significant increase in PD outbreaks in 2012, such increase mainly resulting from the SAV2 virus, which is one of six known genetic variants of the SAV virus and generally regarded as less pathogenic. None of these outbreaks affected Marine Harvest. The increased number of diagnoses is a concern for the further spread of the disease in Norway.
 
HSMI (Heart and skeletal muscle inflammation)
 
HSMI (Heart and skeletal muscle inflammation) is another infectious disease which in recent years has become very widespread in Norway and Scotland. The disease affects the fish’s heart and skeletal musculature, normally in the first half of the seawater phase, with increased mortality, reduced health and periods of reduced growth being the most important loss factors. Mortality normally varies from 0 per cent to 20 per cent. As HSMI often occurs or intensifies following grading, movement and other management events which may stress the fish, the disease leads to challenges in relation to sea lice treatments and other events necessitating the fish to be moved. HSMI is assumed to be a viral disease, but the exact cause of the disease is not yet fully understood. Vaccines are under development, but are currently not in use in the industry.
 
CMS (Cardiomyopathy syndrome)
 
CMS (Cardiomyopathy syndrome), also known as heart rupture, is a disease primarily affecting the heart with secondary circulation failure and liver damage. The disease has been observed in Scotland, Canada and the Faroe Island, and has been increasingly diagnosed in Norway the recent years. CMS affects farmed salmon in the seawater phase and in connection with transport to the slaughter houses. Occasionally mortality may reach 30 per cent, but it is usually much lower. Because the disease normally attaches the fish at the end of the production cycle when the fish is ready for harvest, the economic losses can be more substantial even though the cumulative mortality is not high. There is no medical treatment or vaccine available for the disease.
 
IPN (Infectious pancreatic necrosis)
 
IPN (Infectious pancreatic necrosis) is an infectious viral disease caused by a Birnavirus found throughout the world in a number of wild fish species both in freshwater and in seawater. IPN is very prevalent in Norway, but is also found in Scotland and Chile. The disease is highly contagious, attacks the pancreas and causes swelling, lack of appetite, abnormal swimming and darkening of the skin of the fish. Juveniles and seawater phase smolt are more vulnerable to the disease and mortality could reach 40 per cent in these phases. Outbreaks may necessitate a greater degree of handling (grading) resulting in extra stress which may lead to increased mortality in already weakened fish. Surviving fish may develop a lifelong persistent infection. IPN is a significant cause of loss in Norway. There is no treatment for the disease. Commercial vaccines are available, but the effectiveness of the vaccine is variable under high infection pressure.
 
 
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IHN (Infectious haematopoietic necrosis)
 
IHN (Infectious haematopoietic necrosis) is an infectious viral disease virus found naturally in wild Pacific salmon. Atlantic salmon is however very sensitive to the virus and could be exposed to wild fish infection in the sea. Epidemic outbreaks of IHN have been reported mainly on the Pacific Coast of Canada and USA, but the virus is also found in continental Europe and Japan. The disease has several similarities with ISA, but is far more contagious. The disease can lead to mortality up to 80 per cent, and mortality is particularly high for young fish. IHN represents no health risk for humans and surviving fish from an infected site are freely sold on the open market. An effective vaccine is available and used by Marine Harvest.
 
SRS (Salmonid rickettsial septicaemia)
 
SRS (Salmonid rickettsial septicaemia) is caused by Piscirickettsia salmonis, a parasitic intracellular bacterium that causes a fatal septicaemic condition of salmonids. SRS occurs mainly in Chile, but has also been found in Norway, Scotland and Canada. The disease typically leads to mortality between 10 per cent and 30 per cent, but mortality in Chile has reached up to 90 per cent. Other symptoms are loss of appetite and lethargy. The disease is mainly controlled by vaccination and antibiotics and thus far the industry has been able to manage the disease. However, the dependence on antibiotics and risk of SRS becoming resistant towards commonly used drugs represent a risk of significant losses.
 
GD (Gill disease)
 
GD (Gill disease) is a general term used to describe gill pathology occurring in seawater. The changes may be caused by different infectious agents such as amoeba, viruses or bacteria, as well as environmental factors including algae or jelly-fish blooms. Little is known about the cause of many of the gill conditions and to what extent infectious or environmental factors are primary or secondary causes of disease. Gill damage can lead to respiratory distress and significant mortality may occur. Currently there is no general cure applicable to all types of GD.
 
In Scotland and Ireland, Marine Harvest experienced a dramatic increase in the prevalence of Amoebic Gill Disease (AGD) caused by a ubiquitous microscopic parasite (amoeba) in 2012. AGD was the main cause of mortality in 2012 both in terms of biomass and fish numbers and represent a challenge for the Group’s future operations in these countries. Treatments for AGD, when used systematically and in a coordinated manner, limits the impact of the disease.
 
Kudoa thyrsites
 
Kudoa thyrsites is a parasite that is naturally present in wild fish throughout the world. It is particularly prevalent on the Pacific Coast of Canada and USA. Kudoa thyrsites infects the salmon’s muscle cells without causing any illness in live fish. Upon the harvesting of the host, the Kudoa thyrsites parasite proliferates and activates the breakdown of the fish’s flesh, turning it soft and doughy 3-10 days after the harvest. Kudoa thyrsites represents no health risk for the consumer, but the soft-flesh condition presents a significant challenge to the fish farming industry by compromising product quality and lending to a negative consumer stigma of farmed fish products. The effects of infection are not seen until after the fish has been delivered to the customer and the economic impact of Kudoa thyrsites can therefore be substantial. There are no available treatments for infections.
 
 
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Other diseases
 
There are other diseases that have had and may continue to have economic influence on fish farming, such as VHS (Viral haemorrhagic septicaemia), BKD (Bacterial kidney disease), furunculosis, vibrio, Saprolegnia parasitica and others. Today there exist vaccine protections or cures for many of these diseases, but the efficiency can still vary.
 
Sea lice
 
Sea lice, of which there are many species, are a natural occurring type of crustacean parasite that attaches itself to the mucus and skin of several fish types, including salmon. Sea lice are a challenge in most of the countries where Marine Harvest operates. High density of sea lice can result in lesions and affect the fish’s health, welfare, growth and immunity to diseases. Sea lice are in most of the countries where Marine Harvest operates closely monitored by national governments. The governments set limits for the number of sea lice per fish, and treatment of the fish is mandatory if infestation exceeds such limits. The parasite is treated with medical delicing agents, hydrogen peroxide baths in well boats or enclosed cages, and biologically by using cleaner fish, which are different wrasse species that are caught wild or reared commercially and released in the salmon cages where they eat the parasites directly from the fish’s skin. Treatment of sea lice is costly and the increased resistance against several types of medicaments used in sea lice control is a growing concern in the industry. There are also great concerns over the interaction between wild and farmed salmon and the transmission of sea lice from one to another. As a response to these concerns, governments may require some of Marine Harvest’s sites to lie fallow for a certain period of time in order to control the raising and spreading of sea lice.
 
Algae and jelly fish
 
Algae and jelly fish are natural organisms with global prevalence in water environments. Most species of algae and jelly fish are harmless and serve as energy producers at the base of the food chain. Occasionally and when conditions are optimal, algae or jelly fish populations grow rapidly into a bloom and accumulate near the surface of the water. Algae can reduce the available oxygen in the water leading to reduced growth of the fish and in some cases to death from suffocation. Some algae species physically clog the gills, leading to damage on the fish, and a few species produce potent toxins such as neurotoxin. Harmful algae represent a particular risk in fish farming because the fish in the cages cannot swim away as they would normally do in the wild. Jelly fish may accumulate on the net pens affecting water flow and oxygen level. Some types of jelly fish can damage skin or gills and cause mortality. Blooms of algae and jelly fish are largely dependent on local marine, weather and temperature conditions. Algae and jelly fish have from time to time led to losses at individual sites, and represent a general threat to any open net cage facility. No uniform response is suitable for all types of algae and jelly fish and fish losses due to harmful algae and jelly fish blooms are difficult to predict and prevent.
 
 
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Production-related disorders
 
The biological limits for how fast fish can grow have been challenged as the aquaculture industry has intensified its production. Intensive farming methods may cause production-related disorders in particular relating to physical deformities and cataracts. These may lead to financial losses in the form of reduced growth and health, reduced quality on harvesting, and damage to the industry or Marine Harvest’s reputation. Research has shown that deformities can be caused by excessively high temperatures during the fish’s early life, too little phosphorous or imbalanced mineral content in the diet, light manipulation to speed up the rate of growth, acidic water, too much carbon dioxide in the water during the freshwater phase and too rapid growth in the freshwater phase.
 
1.1.2.2
Fish escape
 
Human error in connection with reception, grading, sampling and handling of salmon, damage to cages and net failure, as well as natural phenomena such as extreme weather conditions may allow fish to escape. Coastal waterways represent a risk of boats accidentally harming farm constructions and thus make escapes unavoidable. Marine Harvest is also exposed to risks relating to predation. Incidents of significant fish escapes could result in substantial loss of biomass as well as repair costs, spreading of diseases to and genetic interaction with wild salmon, negative publicity and penalties or other sanctions from governmental authorities which again could affect the licenses held by the Group. Frequent fish escapes could affect Marine Harvest and the industry’s reputation and possibility for further growth. Fish escapes may accordingly have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2.3
Weather condition and climate risk
 
The rate at which farmed salmon grows depends, among other things, on weather conditions. Unexpected warm or cold temperatures and altered oxygen levels in the sea resulting from annual variations can have a short-term, but significant negative impact on growth rates and feed consumption. Extreme weather conditions along the coastlines, such as storms or floods, could lead to incidents of fish escape, loss of biomass, lost feeding days and repair costs relating to damage on facilities. The frequency of extreme weather conditions has increased over the last years. Over time, rising ocean temperatures and ocean acidification resulting from climate changes may have a detrimental effect on the aquaculture industry and necessitate relocation of operations. Annual variations in and extreme weather conditions may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2.4
Contamination
 
Farmed salmon may be exposed to contamination by undesirable substances through raw materials and ingredients in the feed, polluted waters, poor processing hygiene and cross contamination during handling. Contamination could occur accidentally or on rare occasions deliberately through malicious product tampering and may affect food safety, fish health and the environment and reduce the public’s confidence in eating salmon. Potential contaminants include organic contaminants such as dioxins and PCB (polychlorinated biphenyls), mycotoxins, pesticides, anti-oxidants (such as ethoxyquin, BHA and BHT), brominated flame retardants, inorganic contaminants such as lead, mercury, arsenic and cadmium and bacterial contamination. Listeria monocytogenes is a potential food-borne bacterium that can grow at low temperatures and potentially cause disease if present in food products that are eaten without prior heat treatment such as cold smoked products, sushi and sashimi. In 2012 the Company detected Listeria in cold smoked salmon processed at its factory in Chile which resulted in a voluntary product recall followed by an inventory write-down of NOK 26 million. Future accidents of product contamination could result in recall of Marine Harvest’s products, product liability, negative publicity and governmental sanctions and may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
 
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1.1.2.5
Industry regulations
 
Marine Harvest’s activities are subject to extensive international and national regulations, in particular relating to environmental protection, food safety, hygiene and animal welfare. Salmon farming is furthermore strictly regulated by licences granted by the authorities in the countries where Marine Harvest operates. In general, changes in laws, regulations and licences may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group. Marine Harvest cannot predict the extent to which its future operations and earnings may be affected by mandatory compliance with new or amended legislation or licences.
 
Although salmon farming operations primarily is based on perpetual licenses, the authorities may amend or revoke licenses without demonstrating any non-compliance by Marine Harvest of any legislation, license or other permit. Licenses can for instance be revoked or amended if it is necessary due to environmental considerations, if there are changes in any material assumptions underlying the licence or if the licence is not used, or only used to a limited extent.
 
The authorities may introduce further regulations for the operations of aquaculture facilities, such as, enhanced standards of production facilities, capacity requirements, feed quotas, fish density, site allocation conditions or other parameters for production. Furthermore, authorities may impose stricter environmental requirements upon fish farming, e.g. restrictions or a ban on discharges of waste substances from the production facilities, stricter requirements to prevent fish escapes and new requirements regarding animal welfare. Investments necessary to meet new regulatory requirements could be significant and may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
Increased quality demands from authorities in the future relating to the food safety may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group. Legislation and guidelines with tougher requirements are expected and may imply higher costs for the food industry. In particular the ability to trace products through all stages of development, certification and documentation are becoming major components in food safety requirements. Further limitations on additives and use of medical products in the farmed salmon industry may be imposed.
 
 
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Marine Harvest may in the future consider possibilities for growth through further acquisitions of businesses or licences. In many jurisdictions there are consents or other regulatory requirements to be met when there is a change in ownership in a company holding licenses. Acquisitions run the risk of being denied the necessary consents from governmental bodies. See further section 1.3.5 “—Risks related to the Offer and the combination of Marine Harvest and CermaqApproval by the Norwegian Ministry of Fisheries and Coastal Affairs” below regarding ownership restrictions in Norway.
 
1.1.2.6
Negative impact on the environment
 
Salmon farming may have a negative impact on the environment by way of discharge of nutrients and medicaments in the marine environment through overfeeding and faeces from fish, infection of wild species or shedding of sea lice by the caged fish (see further section 1.1.2.1 “—Biological risks and diseases—Sea lice” above), incidents of fish escapes (see further section 1.1.2.2 “—Fish escape” above), use of unsustainable sourced feed (see further section 1.1.1.2 “—Market risksFeed costs, supply and sustainability” above) and CO2 emissions related to feed production and distribution of end products. From time to time it is also necessary for Marine Harvest to kill predators in order to protect fish welfare, employees and infrastructure and to avoid escapes.
 
Some of Marine Harvest’s sites are located close to protected areas or highly sensitive areas as regards biodiversity. The effect of salmon farming on the environment and biodiversity is intensively discussed among scientific groups. New know-how on the environmental impact of salmon farming may force closure of sites located in vulnerable areas and costly measures to be implemented. Specific additives in feed and medicaments could become prohibited if found to be negatively impacting the environment. If Marine Harvest is held liable for breaches of environmental laws and regulations it may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2.7
Insurance coverage
 
Marine Harvest has limited insurance coverage against adverse biological events. For certain biological events and fish diseases it is currently not possible to obtain insurance coverage at all or at premiums that the Company considers to be commercially viable. The fish farming insurance industry is moreover characterised by a limited number of providers. Even for insurable biological events, the coverage often involves a significant deductible in the form of an insurance excess or requirements regarding mortality per net cage or site. Coverage may furthermore be dependent on the insurance value of the fish, which may be at positive or negative variance with the book value. There will always be a risk that certain biological events or natural phenomenon may occur for which no or only partial indemnity is payable. The occurrence of biological events or other catastrophes for which Marine Harvest is not insured may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2.8
Smolt quality and supply
 
Marine Harvest’s operations depend on the quality and availability of salmon smolt. The quality of smolts impacts the volume and quality of harvested fish. Poor quality or small smolts may cause slow growth, reduced health, increased mortality, deformities, or inferior end products. Although Marine Harvest produces its own smolt, it may be necessary to purchase smolt from third parties in the open market. A shortage of available smolt in the market may increase Marine Harvest’s operating costs, reduce production and impede the Group’s ability to utilise its licenses in full. The failure by Marine Harvest to produce or secure supply of high quality smolts may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
 
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1.1.2.9
Retention of key personnel
 
Marine Harvest’s operations are to a significant extent dependent on a relatively small group of management and key operating personnel, the loss of whom may have a negative effect on the Group. In addition, many regions where Marine Harvest operates are remote areas and the location of its production facilities may negatively affect its ability to attract the necessary employee resources. The loss of key personnel or the inability to attract a sufficient number of qualified employees may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2.10
Restrictions on international trade
 
Future restrictions on international trade may have a negative effect on Marine Harvest. Farmed salmon is a commodity which is produced in a limited number of countries and sold globally. Many of the Group’s production locations are located outside its principle markets, and as Marine Harvest has a leading position in the main salmon farming countries it is exposed to the level of trade restrictions. Historically, trade restrictions have inhibited the optimal distribution of farmed salmon to the markets and impacted the price yield for the farmed salmon producers in the countries affected by such restrictions. Trade restrictions could include import prohibition, minimum import prices and high import duties and may cause suboptimal trading patterns and reduce the competitiveness of Marine Harvest’s products compared to other available products. Future trade restrictions may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.2.11
Legal proceedings or investigations
 
Marine Harvest may from time to time be involved in disputes. Marine Harvest could be involved in criminal or civil proceedings related to, among others, product liability, environment, food safety, anti-competitive or other integrity legislation or other forms of commercial disputes which may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group. See section 9.6 “Operating and financial reviewLegal and arbitration proceedings” for a description of disputes currently involving Marine Harvest.
 
1.1.2.12
Pollution of open sea
 
Fish farming is operated in open net cage systems located in marine environment and is hence exposed to pollution of open seas. Coastal waterways are subject to traffic by large cargo carriers. In areas attractive to the petroleum industry, sea transportation of oil is frequent. This represents a defined environmental hazard in form of a potential oil spill. Oil or petroleum products floating into a farm will severely affect the fish’s ability for normal oxygen uptake and shed an unpleasant taste on surviving fish, which practically makes the fish inedible. Marine Harvest’s concentrated location of farms in certain regions increases the vulnerability in case of oil spills. Oil spills and other pollution from accidents will accordingly affect farming locations negatively and may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
 
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1.1.2.13
Risk of sabotage
 
Environmental organisations, both in Europe and North America, have aims to eradicate salmon farming. The degree of fundamentalism varies from group to group, and the majority limit themselves to spreading disinformation and untruths about fish farming in general. However, a certain risk of sabotage (i.e. damage to production facilities with the intention of hurting Marine Harvest financially and/or exposing it to negative media coverage) cannot be ruled out and may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.3
Financial risks
 
1.1.3.1
Funding and working capital requirements
 
Salmon farming is a capital intensive industry. As the production cycle from eggs to finished products takes approximately 36 months, substantial working capital is required both in a steady state and in particular when increasing production. Marine Harvest’s future development and growth may be dependent on access to external capital in the form of debt and/or equity capital. A lack of access to such capital or material changes in the terms and conditions relating to the Group’s external financing, could limit Marine Harvest’s future growth and strategy and may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.3.2
Credit risks
 
Marine Harvest is exposed to the risk of losses, if one or more contractual partners do not meet their obligations. A significant proportion of the Group’s trade receivables are insured and credit ratings are undertaken of all new customers. However, there is still a risk that payment failures by Marine Harvest’s customers may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.3.3
Currency risks
 
Marine Harvest is engaged in substantial international activities and is exposed to changes in currency exchange rates as a natural part of its business operations. The Company’s reporting currency is NOK, its main financing currencies are EUR, USD, NOK and GBP, and its revenues are primarily in EUR, USD, GBP, YEN and NOK. The main exposure is accordingly to EUR, USD, GBP and YEN. Although Marine Harvest applies an extensive currency hedging policy which is aimed at reducing the cash flow implications from movements in currency exchange rates, fluctuations in the currency exchange rates may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.1.3.4
Interest rate risks
 
With exception of the EUR 225 million and EUR 350 million convertible bonds, Marine Harvest is generally financed using floating interest rates for debts to financing institutions and leasing debts. To minimise the risk related to fluctuations in floating interest rates, Marine Harvest shall at all times hedge 100 per cent of the Group’s non-current interest-bearing debt in its main financing currencies (EUR, USD and GBP). At initiation of this policy the interest rate hedges had duration of 5 years. Early 2012, the Board amended the policy to allow for hedging 50 per cent of the exposure for year 6 through 10.
 
 
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1.1.3.5
Liquidity risks
 
Liquidity risk is the risk that Marine Harvest will have trouble meeting those financial obligations which must be settled in cash or with other financial assets. The single largest factor influencing liquidity risks is fluctuation in salmon prices. Other key liquidity risks are fluctuations in production and harvest volumes, biological issues and changes in the price of feed.
 
1.2
Risks related to the acquisition of Morpol
 
1.2.1
Approval by competition authorities of the acquisition of Morpol
 
The acquisition of Morpol requires approval by the European Commission and the competition authority in the Ukraine. In anticipation of the processing of the application to the European Commission, the Company has taken over the shares of Morpol pursuant to on the exemption from the suspension obligation laid down in Article 7 no 2 of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the “EC Merger Regulation”). The Company is not entitled to exercise voting rights attached to the shares in Morpol or start integration of Morpol before approval by the European Commission is granted. The European Commission may require that the Company implements measures, including divestment of businesses before approval is granted. The Company has taken on all risks in this respect. If measures or conditions are required, there may be a risk that the Company’s acquisition of Morpol being implemented in a manner different from the one contemplated which may have an effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.2.2
Compulsory acquisition or de-listing failure
 
The Company currently owns 87.1 per cent of the shares in Morpol and neither the Company nor the shareholders of Morpol may require compulsory acquisition. The Company intends to apply for a de-listing of Morpol from Oslo Børs, but Oslo Børs may reject such application making the integration of Marine Harvest and Morpol more challenging.
 
1.2.3
Integration of Marine Harvest and Morpol
 
Marine Harvest may face risks and challenges in connection with the integration of Morpol into its existing business. The acquisition of Morpol may not improve, and may even adversely affect, the results of operations of the Group, and the integration of Morpol into Marine Harvest’s existing business may expose the Group to additional risks and losses unknown as of the date of this Offer Document. Achieving the anticipated benefits of the acquisition of Morpol depend in part of Marine Harvest’s ability to integrate Morpol’s businesses in an effective and efficient manner. The process of integrating the operations of the organisations is expected to take time and there can be no assurances that Marine Harvest will be able to accomplish the integration smoothly or successfully. Marine Harvest’s failure to do so may result in a significant diversion of management’s time from on-going business matters, and may have a material adverse effect on the business, results of operation and financial condition of the combined company.
 
 
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1.3
Risks related to the Offer and the combination of Marine Harvest and Cermaq
 
1.3.1
Completion risks
 
The Offer is subject to several conditions that need to be satisfied or waived by the Company before completion of the Offer. These conditions relate to (i) the Company becoming the owner of more than 1/3 of the Cermaq Shares; (ii) a successful due diligence of Cermaq; (iii) expiration or early termination of the waiting periods and no temporary or permanent order prohibiting closing under the applicable antitrust laws in U.S. and Canada; (iv) no intervention prohibiting the consummation of the Offer; (v) no changes to the share capital of Cermaq being made; (vi) Cermaq operating its business in the ordinary course of business; and (vii) no material adverse change having occurred. There can be no assurance that the above conditions will be satisfied or waived by the Company. Should any of the above conditions not be satisfied or waived, the Company will not be required to complete the Offer.
 
1.3.2
Shareholding of the Norwegian Ministry of Trade and Industry
 
As at the date of this Offer Document, the Norwegian Ministry of Trade and Industry (“NMTI”) owns 43.54 per cent of the Cermaq Shares. A failure by the Company to purchase the Cermaq Shares held by NMTI in the foreseeable future will result in a shareholder structure of Cermaq where two major shareholders have the ability to exercise negative control at general meetings. The interests of the two major shareholders may not always coincide and disagreements between the shareholders on important matters could prevent Cermaq from resolving a clear future strategy, result in inability to act and adversely impede the management of Cermaq. Furthermore the Company may be prevented from integrating Cermaq into its existing business which may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
1.3.3
Compulsory acquisition or de-listing failure
 
If the Company acquires more than 90 per cent of the Cermaq Shares it intends to require a compulsory acquisition of the remaining Cermaq Shares and apply for a de-listing of Cermaq from Oslo Børs. If NMTI elects not to sell its Cermaq Shares to the Company or if the Company otherwise does not acquire more than 90 per cent of the Cermaq Shares, neither the Company nor the Cermaq Shareholders may require compulsory acquisition. Furthermore, Oslo Børs may reject the Company’s application for de-listing which may make the integration of Marine Harvest and Cermaq more challenging. The liquidity of the Cermaq Shares can be adversely affected as a result of this Offer, and leave the remaining Cermaq Shareholders with few exit options.
 
1.3.4
Approval by competition authorities of the Transaction
 
The completion of the acquisition of Cermaq (the “Transaction”) requires notification to and approval by the European Commission and the competition authorities in the U.S. and Canada. Settlement of the Offer will not take place until the applicable waiting periods under U.S. and Canadian antitrust laws have expired or terminated early and no order is in effect prohibiting closing. The notification obligation to the European Commission depends on whether or not the Company obtains control in Cermaq. If the Cermaq Shares tendered results in the Company obtaining control in Cermaq, the notification obligation will be triggered and the Company will, in anticipation of the processing of the application to the European Commission, settle the Offer and take over the Cermaq Shares relying on the exemption from the suspension obligation laid down in Article 7 no 2 of the EC Merger Regulation. The Company will not be entitled to exercise voting rights attached to the Cermaq Shares or start integration of Cermaq before approval by the European Commission is granted. If the Cermaq Shares tendered does not result in the Company obtaining control in Cermaq, the notification obligation will be triggered at such future point in time when control is obtained. The European Commission and the competition authorities in the U.S. and Canada may require the Company to implement various measures, including divestment of businesses before approval is granted or to avoid contested proceedings. The Company has taken on all risks in this respect. If measures or conditions are required, there is a risk that the Transaction being implemented in a manner different from the one contemplated which may have a material adverse effect on the business, financial condition, results of operations or cash flow of the Group.
 
 
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1.3.5
Approval by the Norwegian Ministry of Fisheries and Coastal Affairs
 
Acquisition of a controlling shareholding in Cermaq requires application to and approval by the Norwegian Ministry of Fisheries and Coastal Affairs (the “NMFCA”). The Company currently holds permission to own up to 25 per cent of the total concessionary biomass in Norway. The Offer or acquisition of Cermaq Shares outside the Offer may result in the Company exceeding this 25 per cent threshold. Furthermore, the Norwegian Regulations relating to the regulation of ownership changes in companies etc. licensed to operate seawater rearing units for salmon and trout, established pursuant to the Norwegian Aquaculture Act, states that acquisitions resulting in a party gaining control of more than 25 per cent of the total concessionary biomass are not permissible. The NMFCA has proposed to replace this ownership limitation with a new system, whereby various ownership thresholds are accompanied by research and development (“R&D”) spending requirements, secondary processing requirements and contribution to the education of young talents. The proposed amendment to the regulations has not yet been adopted or implemented. In addition to approval by the Government, the proposed amendment to the regulations requires amendments to the statutory basis for the regulation in the Norwegian Aquaculture Act and accordingly also a resolution by the Parliament. The Company will settle the Offer and take over the Cermaq Shares, and if the Offer results in the acquisition of a controlling shareholding in Cermaq, the Company will apply for a temporary exemption from the regulations until the proposed increase of the ownership threshold has been adopted and implemented. There can however be no guarantee that such temporary exemption can or will be granted. If the temporary exemption cannot be granted, the NMFCA may withdraw the Company’s existing permits and licenses and impose other punitive sanctions on the Company, and even if a temporary exemption is granted it may be subject to material conditions. There can furthermore be no guarantee that the proposed increase in ownership thresholds is approved by the Parliament and the Government and that the Company obtains permission to increase its ownership under the new regime. The Company assumes all risk in this respect, and a failure to obtain the temporary exemption, non-approval by the Parliament or Government of the proposed amendment to the regulations or a failure by the Company to obtain an increased ownership permission may require the Company to divest parts of the Norwegian licenses acquired in the Transaction and may have a material adverse effect on the Company’s financial condition and results of operations.
 
 
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1.3.6
Integration of Marine Harvest and Cermaq
 
Marine Harvest may face risks and challenges in connection with the integration of Cermaq into its existing business. The Transaction may not improve, and may even adversely affect, the results of operations of the Group, and the integration of Cermaq into the Marine Harvest’s existing business may expose Marine Harvest to additional risks and losses unknown as of the date of this Offer Document. Achieving the anticipated benefits of the Transaction depend in part of Marine Harvest’s ability to integrate Cermaq’s businesses in an effective and efficient manner. The process of integrating the operations of the organisations is expected to take time and there can be no assurances that Marine Harvest will be able to accomplish the integration smoothly or successfully. Marine Harvest’s failure to do so may result in a significant diversion of management’s time from on-going business matters, and may have a material adverse effect on the business, results of operation and financial condition of the combined company.
 
1.3.7
Risks related to Cermaq’s business
 
There are a number of risks related to the business and operations of Cermaq. Cermaq is organised in two business areas; “Mainstream”, comprising its fish farming operations and “EWOS”, comprising its fish feed operations.
 
The fish farming business of Cermaq is subject to similar risks as Marine Harvest’s fish farming business. Cermaq’s strong presence in the feed industry exposes Cermaq to additional risk associated with the feed business.
 
The description of the risks related to Cermaq’s business below has been extracted from Cermaq’s Annual Report and the Company and the Board disclaim any responsibility for the accuracy and completeness of this information.
 
Risks and risk management related to Cermaq’s business are described as follows on pages 45 and 46 in Cermaq’s Annual Report:
 
Risk and risk management
 
The group is exposed to various risks of a financial and operational nature. The board of directors has established a framework for risk management and value creation to ensure that the group has good internal controls and appropriate systems for risk management adapted to the nature of and the risks related to its operations.
 
The company is engaged in both feed production and farming, which diversifies the risk. The positive effect of this strategy was prominent in 2012, where low salmon prices and significant production challenges resulted in operating losses in Mainstream, but where the more stable profits and cash flows of the feed business led to an operating profit for the group overall.
 
It is important that the group has the financial strength to carry significant fluctuations in profits as a result of price volatility or substantial production challenges such as major outbreaks of disease. The board considers a high equity ratio and diversification of risk as outlined, to be the primary foundations of the group’s financial risk management. The board has decided that the group’s equity ratio should normally be at least 45 per cent. At the end of 2012 the equity ratio was just above 47 per cent.
 
 
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Long production cycles in farming make it difficult to adapt production to fluctuations in salmon prices. Mainstream reduces market risk primarily by producing and selling Atlantic salmon in various markets globally and by diversifying production with three species of salmonides in Chile (Atlantic salmon, coho and trout). Mainstream enters into physical or financial contracts to hedge the salmon price when this is assumed profitable and/or risk reducing.
 
Biological risk is, together with market risk, one of the largest challenges to salmon farming and includes infectious and non-infectious diseases, environmental conditions as well as parasites and predators. Good fish health is essential to reduce the risk exposure and Mainstream has built up a global fish health team focusing on implementing preventive measures across the operating regions in areas such as monitoring of pathogens, implementing policies for use of vaccines, antibiotics, functional feeds and for lice treatment, neighbor area management and so on. The board is being kept up-to-date on a quarterly basis of the general fish health situation in all areas where we operate and for each company in the group, with particular emphasis on Chile. The risk is continually assessed in connection with decisions for stocking of smolts and with future investments.
 
The group is experiencing an increasing complexity in the supply of raw materials for production of feed, with scarcity of marine raw materials such as fish oil. EWOS has built an in depth knowledge of nutrition and fish health to be able to substitute such raw materials. In addition, EWOS have since 2009 developed a category based raw material sourcing and purchasing team with focus on reducing supply risk. Special attention is given to refine sourcing strategies, evaluate and develop new suppliers and raw materials and on enhanced monitoring of suppliers.
 
The group has decided that operational risks should be governed and controlled by way of management systems certified according to ISO standards or equivalent standards. The group has defined key areas to be quality (ISO 9001), environment (ISO 14001), food safety (ISO 22000) and health, environment and safety (HES) (OHSAS 18001). The group has made good progress the last year and all production companies, with the exception of EWOS Vietnam which was established in April 2011, are now certified for all four standards. EWOS Vietnam was last year certified on quality (ISO 9001), and have established a progress schedule to put in place the remaining standards.
 
Every quarter the board reviews a report on development in the risk factors assumed to have the largest financial impact should they occur and on key measures that have been implemented to manage these risks. The effect on reputation is also reviewed for operational risks relating to the environment and corporate responsibility issues.
 
The board undertakes a quarterly review of the company’s internal reporting on sustainability indicators. The reporting provides information to help identify development trends and address matters that increase operational risk, see paragraph on sustainability below.
 
Financial risk
 
As it was the case for 2011, 2012 was also characterised by unstable financial markets that resulted in increased financial risk. The board and the management believe that the best way to meet macroeconomic challenges is to sustain a solid balance sheet and maintain a good funding structure with a diversified maturity profile. Risk management activities focus on regular assessments of exposure and, to the extent possible, on mitigating risks by means of natural and operational hedges. This approach is in line with the group’s finance policy.
 
 
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A more detailed description of each risk category follows below. For further information about financial risks (currency, interest rate, credit and liquidity), please refer to note 24 in Cermaq’s Annual Report.
 
Currency risk
 
Upon translating foreign subsidiaries’ income statements and statements of financial position, the group’s largest exposure is to USD. Assets and revenues recognised in USD are predominantly hedged by loans in the same currency. At the end of 2012, 58.6 per cent (2011: 59.3 per cent) of the group‘s interest bearing debt was in USD. This provided a natural hedge for investments in Chile. 41.4 per cent (2011: 40.6 per cent) of the group‘s interest bearing debt was in NOK. Currency exposure in relation to future operational cash flows is primarily linked to USD and EUR against NOK, and USD against CAD. Currency exposure is significantly reduced by diversification, as companies within the group have individual exposures that offset each other for the group as a whole. Currency exposure is further reduced by cost price adjustment clauses in contracts with feed customers. Remaining net exposure is regularly monitored and is currently considered to be low. For this reason, hedging by means of financial contracts is utilised only to a limited extent.
 
Interest rate risk
 
The group is exposed to interest rate risk through its funding activities and only to a limited extent through management of any excess liquidity, as cash is either reinvested in operations or used to pay down existing debt. According to the group’s finance policy, the main objective of interest rate management is to minimize the risk of breach of debt covenants and avoid situations of financial distress that might jeopardize operational and strategic flexibility. Trading in interest derivatives is only practiced to hedge existing exposures. At the end of 2012, the group entered two interest rate swap agreements underlying USD 120 million and thereby swapped 38 per cent of USD denominated long term borrowings to fixed interest rates.
 
Credit risk
 
The board believes that the credit risk has been diversified since the group’s customers represent a range of industries and are located in different geographical regions. The counterparty risk in relation to financial institutions is also deemed to be limited. The group limits its volume of liquid assets at all times, rarely trades in derivatives and predominantly uses a small number of solid relationship banks for financing. Low salmon prices during 2012 led to an increase in the credit risk faced by the feed business as a consequence of the more challenging situation for the fish farming industry. In order to manage the increased risk to the group, the management has further improved its proactive strategy to mitigate risk, focusing on careful customer selection and adopting a tighter credit regime. The group seek to establish additional security by obtaining pledge on biomass, purchasing insurance coverage and other measures when possible.
 
 
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Liquidity risk
 
Following successful refinancing operations over the last three years and the issue of Cermaq’s first unsecured bond in 2012, the group achieved a diversification in sources of debt capital and a longer maturity profile. Despite a significant increase in net interest bearing debt during 2012, the group can still rely upon substantial available financial headroom (approximately NOK 2.7 billion in cash and unused credit limits as at 31 December 2012). The board and management have elected to retain a high equity ratio to be well positioned for financial and operational challenges.
 
Other descriptions of Cermaq risks
 
Risks related to Cermaq’s farming business are further described in Cermaq’s Annual Report on page 28:
 
Biological risk is one of the major challenges in fish farming, and includes environmental conditions (algae, oxygen), infectious and non-infectious diseases as well as marine predators. Mainstream has built up a fish health team with fish health experts working across the operating regions. Key elements in the preventive fish health approach are monitoring of relevant pathogens, vaccination policy, use of functional feeds, stress mapping, policies for antibiotic use and monitoring, improving water quality, and building general knowledge and competence. The team supports and complements skills of the local fish health teams. Mainstream also cooperates with renowned research institutes.
 
Area management is crucial for effective fish health measures, giving the possibility to work preventive and with long-term strategies. In 2012 all sites in Chile and Norway were included in area management agreements or located in areas fully controlled by Mainstream, whereas this counts for 16 of Mainstream’s 27 Canadian sites.
 
Algae blooms and low oxygen level in the sea naturally occur in British Columbia. This affects production and may cause mortality. Mainstream has developed experience in managing those natural events, and has as a result not experienced significant losses. However, the Canadian operations were severely hit by IHN which led to the culling of all fish at two sites. The disease is believed to have been transferred from wild fish.
 
In Chile, biological performance is followed closely and new regulations have increased the power of the authorities to act upon situations and conditions which constitute high risk. In Norway, detection of SAV-virus resulted in depopulation of one site in Finnmark.
 
With a production cycle of approximately two years, production is not very adaptive to changing prices. Mainstream addresses this risk by producing three species and entering into sales contracts when assumed profitable and/or risk-reducing.
 
See Cermaq’s Annual Report on page 33 for further description on diseases.
 
 
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The risks related to Cermaq’s feed business are described as follows in Cermaq’s Annual Report (see pages 23 and 24):
 
The main factors creating risk exposure to EWOS are:
 
 
(i)
Volatility in raw material supply markets
 
 
(ii)
Raw material supply chain risk
 
 
(iii)
Challenging conditions for EWOS customers in Chile and in Vietnam
 
 
(iv)
Changes in feed market share
 
 
(v)
Changes in feed market conditions
 
 
(vi)
New entrants to the feed market in Norway
 
1.4
Risks relating to the Shares
 
1.4.1
Price volatility of publicly traded securities
 
The trading price of the Shares could fluctuate significantly in response to quarterly variations in operating results, adverse business developments, interest rate changes, changes in financial estimates by securities analysts, matters announced in respect of major customers or competitors, or changes to the regulatory environment in which Marine Harvest operates.
 
1.4.2
Potential dilution of shareholders
 
The Company may require additional capital in the future in connection with financing of new capital intensive projects. In addition, Marine Harvest may incur unanticipated liabilities or expenses. There can be no assurance that the Company will be able to obtain the necessary financing in a timely manner or on acceptable terms. Where the Company issues Shares in the future, such issuance may result in the then existing shareholders of the Company sustaining dilution to their relative proportion of the equity of the Company.
 
1.4.3
Nominee accounts and voting rights
 
Beneficial owners of Shares that are registered in a nominee account (e.g., through brokers, dealers or other third parties) may not be able to vote for such Shares unless their ownership is re-registered in their names with the Norwegian Central Securities Depository (“VPS”) prior to the Company’s general meetings. The Company cannot guarantee that beneficial owners of the Shares will receive the notice for a general meeting in time to instruct their nominees to either effect a reregistration of their Shares or otherwise vote their Shares in the manner desired by such beneficial owners.
 
1.4.4
Enforcement of judgments
 
The Company is a public limited company organised under the laws of Norway. The majority of its directors and executives reside in Norway. All or a substantial portion of the assets of such persons and of the Company are located in Norway. As a result, it may not be possible for investors to affect service of process within their home jurisdiction upon such persons or the Company or to enforce judgments obtained against such persons in jurisdictions outside of Norway.
 
 
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1.4.5
Limited ability to bring an action against the Company
 
The Company is a public limited company incorporated under the laws of Norway. The rights of holders of Shares are governed by Norwegian law and by the articles of association. These rights differ from the rights of shareholders in corporations in other jurisdictions. In particular, Norwegian law limits the circumstances under which shareholders of Norwegian companies may bring derivative actions. Under Norwegian law, any action brought by the Company in respect of wrongful acts committed against the Company takes priority over actions brought by shareholders in respect of such acts.
 
1.4.6
No registration in other jurisdictions
 
The Shares have not been registered under the U.S. Securities Act, or the securities laws of other jurisdictions than Norway. The Shares may not be offered or sold in USA or in any other jurisdiction in which the registration of the Shares is required but has not taken place, unless an exemption from the applicable registration requirement is available or the offer or sale of the Shares occurs in connection with a transaction that is not subject to these provisions. In addition, there can be no assurances that shareholders residing or domiciled in USA will be able to participate in future capital increases or rights offerings.
 
1.4.7
Major shareholder
 
Geveran Trading Co Ltd (“Geveran”) which is indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family owns 1,068,233,302 Shares, constituting 28.5 per cent of the Company’s issued Shares. Geveran has significant voting power and could delay, defer or prevent a change in control, impede a merger, consolidation, takeover or other business combination involving the Company, or discourage a potential acquirer from attempting to obtain control of the Company. Furthermore, the interests of Geveran may not always coincide with the interests of other shareholders, and other investors may not agree with the manner in which Geveran acts.
 
 
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2
RESPONSIBILITY FOR THE OFFER DOCUMENT
 
2.1
Statement from the Company’s board of directors
 
The board of directors of the Company hereby confirms that, having taken all reasonable care to ensure that such is the case, the information contained in this Offer Document is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. The information regarding Cermaq set out herein, has exclusively been extracted from publicly available sources.
 
Oslo, 5 June 2013
 

 
Ole Eirik Lerøy
 
Leif Frode Onarheim
Tor Olav Trøim
Solveig Strand
Michael Parker
Cecilie Fredriksen
 
Hege Sjo
 
Turid Lande Solheim
 
Geir-Elling Nygård
 
 
Stein Mathiesen
 

 

 

 

 
 
 

 
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3
RESTRICTIONS AND CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
 
3.1
Restrictions
 
The distribution of this Offer Document and the making of the Offer may in certain jurisdictions (including, but not limited to Australia, Canada and Japan) be restricted by law. Therefore, persons obtaining this Offer Document or into whose possession this Offer Document otherwise comes, are required to, and should inform themselves of and observe, all such restrictions. The Offeror and the Financial Advisors do not accept or assume any responsibility or liability for any violation by any person whomsoever of any such restriction.
 
This Offer Document is not directed to persons whose participation in the Offer requires that further offer documents are issued or that registration or other measures are taken, other than those required under Norwegian law. No document or materials relating to the Offer may be distributed in or into any jurisdiction where such distribution or offering requires any of the aforementioned measures to be taken or would be in conflict with any law or regulation of such a jurisdiction. In the event of such distribution or offering still being made, an Acceptance Form (as defined below) sent from such a country may be disregarded.
 
This Offer Document and the Offer represent an offer by the Company to acquire Cermaq Shares and an offer of Consideration Shares to Cermaq Shareholders accepting the Offer. This Offer Document does not represent an offer by the Offeror to acquire securities other than Cermaq Shares or to issue other securities than the Consideration Shares.
 
The Offer is not open to any Cermaq Shareholder in any jurisdiction in which it is unlawful for any person to receive or accept the Offer. No action has been taken to permit the distribution of the Offer in any jurisdiction where action would be required for such purposes (except Norway and the U.S.). With respect to each member state of the European Economic Area (“EEA”)  other than Norway, and which has implemented the Commission Regulation (EC) No 908/2004 implementing directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding prospectuses requirements (the “Prospectus Directive”) (each, a “Relevant Member State”), no action has been undertaken or will be undertaken to make an offer to the public of the Company’s securities requiring a publication of a prospectus in any Relevant Member State. As a result, the Consideration Shares may only be offered to Cermaq Shareholders in Relevant Member States:
 
 
(i)
to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
 
 
(ii)
to any legal entity meeting two or more of the following criteria: (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43 million and (3) an annual net turnover of more than € 50 million, as shown in its last annual or consolidated accounts;
 
 
(iii)
to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or
 
 
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(iv)
in any other circumstances, not requiring the Company to publish a prospectus as provided under Article 3(2) of the Prospectus Directive.
 
Cermaq Shareholders who are located in jurisdictions where the public offering of the Consideration Shares is unlawful, but who are otherwise allowed to accept a voluntary tender offer, may still accept the Offer, but will receive cash only as compensation.
 
Notice to U.S. Cermaq Shareholders
 
The Consideration Shares that will be issued in connection with the Offer have not been registered under the U.S. Securities Act or the securities laws of any state of the United States, and will be issued in reliance upon the exemption from the registration requirements of the U.S. Securities Act provided by Rule 802 thereunder. The Company will furnish to the SEC a Form CB in respect of the offer and sale of such Consideration Shares.
 
Generally, if the Offer is completed, holders of Cermaq Shares that are “restricted securities” within the meaning of Rule 144 under the U.S. Securities Act will receive Consideration Shares that are restricted securities, while holders of Cermaq Shares that are not restricted securities will receive Consideration Shares that are unrestricted. Restricted securities cannot be resold in the United States without registration or an exemption therefrom under the U.S. Securities Act. Generally, shares of Cermaq acquired in open market transactions will be exchanged in the Offer for Consideration Shares that are unrestricted. However, a Cermaq Shareholder who is an affiliate of the Offeror should consult legal counsel to determine whether such shares are subject to any such restriction. An affiliate for this purpose is defined as a person who directly or indirectly controls, is controlled by or is under common control with an issuer. The SEC views a person’s status as an officer, director or 10 per cent shareholder as a fact that must be considered when determining whether such person is an affiliate.
 
The Offer is being made for the securities of a Norwegian company and is subject to Norwegian disclosure requirements, which are different from those of the United States. The financial information included in this document has been prepared in accordance with IFRS and the interpretations issued by the International Accounting Standards Board (“IASB”) as adopted by the European Union (“EU”), and thus may not be comparable to financial information of U.S. companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States. The Offer will be made in the United States under the Tier 1 exemption from the applicable U.S. tender offer rules, pursuant to Rule 14d-1(c) of the U.S. Securities Act and in accordance with the requirements of the Norwegian Securities Trading Act. Accordingly, the Offer will be subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments that are different from those applicable under U.S. domestic tender offer procedures and law.
 
The receipt of cash pursuant to the Offer by a U.S. holder of Cermaq Shares may be a taxable transaction for U.S. federal income tax purposes and under applicable state and local, as well as foreign and other tax laws. Each holder of Cermaq Shares is urged to consult his tax advisors regarding the tax consequences of acceptance of the Offer.
 
 
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It may be difficult for U.S. holders of Cermaq Shares to enforce their rights and claims arising out of the U.S. federal securities laws, since the Offeror is located in countries other than the United States, and some or all of its officers and directors may be residents of countries other than the United States. U.S. holders of Cermaq Shares may not be able to sue a non-U.S. company or its officers or directors in a non-U.S. court for violations of the U.S. securities laws. Further, it may be difficult to compel a non-U.S. company and its affiliates to subject themselves to a U.S. court’s judgement.
 
In accordance with normal Norwegian practice and pursuant to Rule 14e-5(b) of the U.S. Securities Exchange Act, the Company or its nominees, or its brokers (acting as agents), may from time to time make certain purchases of, or arrangements to purchase, Cermaq Shares outside of the United States, other than pursuant to the Offer, before or during the period in which the Offer remains open for acceptance. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Information about such purchases will be disclosed to the extent required by Norwegian law. Any disclosures about such purchases required pursuant to Norwegian legal requirements will be reported to Oslo Børs and distributed through its electronic information system and will be available on the Oslo Børs website, www.oslobors.no/ob_eng/.
 
Notice to UK Cermaq Shareholders
 
This Offer Document is directed only at persons who (i) are outside the United Kingdom or (ii) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (iii) are persons falling within Article 49(2)(a) to (d) (high net worth entities) of the Order (all such persons together being referred to as relevant persons).  This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this Offer Document relates is available only to relevant persons and will be engaged in only with relevant persons.
 
3.2
Cautionary notice regarding forward-looking statements
 
This Offer Document and the documents incorporated by reference herein contain forward-looking statements. All statements other than statements of historical facts are statements that could be deemed forward-looking statements, including statements preceded by, followed by or that include the words “estimate”, “plan”, “project”, “forecast”, “intend”, “expect”, “anticipate”, “believe”, “think”, “view”, “seek”, “target”, “goal”, or similar expressions; any projections of earnings, revenues, expenses, synergies, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations, including integration and any potential restructuring plans; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
 
Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which could cause the actual results of the Company or its consolidated subsidiaries to differ materially from those implied by such forward-looking statements, due to a number of factors, many of which are beyond the Companys control. If any of these risks or uncertainties materialises or any of these assumptions proves incorrect, the results of the Company could differ materially from the expectations in these statements. The Company does not undertake any obligation to update these forward-looking statements, except as required by law.
 
 
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No forward-looking statements contained in this Offer Document should be relied upon as predictions of future events. No assurance can be given that the expectations expressed in these forward-looking statements will prove to be correct. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealised. Some important factors that could cause actual results to differ materially from those in the forward-looking statements are, in certain instances, included with such forward-looking statements and in section 1 “Risk Factors”.
 
Readers are cautioned not to place undue reliance on the forward-looking statements contained in this Offer Document, which represent the best judgment of the Company’s management as of the date of this Offer Document. Except as required by applicable law, the Company does not undertake responsibility to update these forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further public disclosures made by the Company, such as filings made with Oslo Børs or press releases.
 

 
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4
THE VOLUNTARY OFFER
 
4.1
General
 
On 30 April 2013, the Offeror announced its intention to launch a voluntary offer of NOK 105 per share (including the proposed dividend of NOK 1) for all the outstanding shares of Cermaq to be settled with 50 per cent in cash and 50 per cent in Marine Harvest Shares, subject to certain conditions.
 
Following unsuccessful discussions with the board of directors of Cermaq the Offeror announced on 31 May 2013 (the “Announcement Date”) that it had resolved to increase the offer price and to put forward a voluntary offer for all the issued and outstanding shares of Cermaq. On 5 June 2013, the Offeror announced that it had resolved to reduce the acceptance level in the voluntary offer announced on 31 May 2013 to 33.4 per cent and to put forward the voluntary offer without any condition regarding due diligence.
 
The Offeror  hereby makes a voluntary offer to acquire all the issued and outstanding shares in Cermaq as of the date of this Offer Document that are not already owned by it on the terms set out in this Offer Document (previously defined as the “Offer”).
 
Cermaq Shareholders accepting the Offer will receive NOK 53.25 and 8.6 Marine Harvest Shares per each Cermaq Share. This represents the value equivalent of NOK 107 per each Cermaq Share based on the closing price of NOK 6.25 of the Marine Harvest Shares on 30 May 2013. For further details see section 4.5 “—Offer Price – consideration”.
 
The Offer is made to all the Cermaq Shareholders that can legally receive this Offer Document and accept the Offer. Cermaq Shareholders who are located in jurisdictions where the public offering of the Marine Harvest Shares is unlawful, but who are otherwise allowed to accept the Offer, may still accept the Offer, but will receive cash only as compensation.
 
As of the date of this Offer Document, the Offeror owns 5,033,544 shares in Cermaq, corresponding to 5.44 per cent of the total outstanding shares in Cermaq.
 
The Offer does not include Cermaq Shares that are issued after the date of this Offer Document. The Offeror is not familiar with any agreements which give a right to the issuance of new Cermaq Shares, other than the options granted to the management of Cermaq under a 2006 option programme. As per 31 December 2012, 346,667 options were vested and outstanding in Cermaq.
 
4.2
The Offeror
 
The Offer is made by the Offeror. The Offeror is a Norwegian public limited liability company, registered with the Norwegian Register of Business Enterprises under business registration number 964 118 191 and with headquarter and registered business address at Sandviksbodene 77 A/B, 5035 Bergen, Norway.
 
The Offeror is the world’s leading seafood company and largest producer of farmed salmon with in total 6,389 employees and revenues of NOK 15,464 million in 2012.
 
 
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The Shares are listed on Oslo Børs under the ticker “MHG” and are registered in the VPS under the International Securities Identification Number (“ISIN”) NO 0003054108. Further information about the Offeror is included in section 7 “Presentation of Marine Harvest”.
 
4.3
The target company – Cermaq
 
Cermaq is a Norwegian public limited liability company, registered with the Norwegian Register of Business Enterprises under business registration number 971 647 949 and with headquarter and registered business address at Grev Wedels plass 5, 0151 Oslo, Norway.
 
Cermaq is the parent company of an international fish farming and fish feed group with a diversified presence in the major salmon farming regions worldwide, having operating companies in Chile, Canada, Scotland and Norway and feed production in Vietnam.
 
The Cermaq Shares are listed on Oslo Børs under the ticker “CEQ” and are registered in the VPS under ISIN NO 0010003882. Please see section 5 “Presentation of Cermaq” for further details on Cermaq.
 
4.4
Background and reasons for the Offer
 
The Offeror believes that a combination of Marine Harvest and Cermaq will create a world-leading Norwegian seafood player, in the world’s leading seafood nation. A highly profiled and visible international company based in Bergen, built on Norwegian know-how, will yield positive effects also for other parts of the marine industry cluster in Norway.
 
In the Offeror’s opinion, no other industrial combination is more suited to lift both the companies and the Norwegian marine sector into a position of global leadership, than the combination of Marine Harvest and Cermaq. The Offeror will keep all significant parts of both companies in a strong, world class company; offering an integrated value chain from feed to retail sales.
 
The Offeror has recently acquired significant foreign operations in Poland, and Cermaq in Chile. In a challenging world economy, the underlying drivers that create increased demand for the two companies’ products have continued to have a positive development, and the challenges with regard to disease, cost control, financial preparedness and the need for R&D efforts have increased the need for building major and financially robust companies that can protect and develop Norway’s unique position in this industry.
 
4.5
Offer Price – consideration
 
Cermaq Shareholders accepting the Offer will receive NOK 53.25 (the “Cash Consideration”) and 8.6 Marine Harvest Shares (previously defined as the “Consideration Shares”) per each Cermaq Share (the “Offer Price”). The Offer Price represents the value equivalent of NOK 107 per each Cermaq Share based on the closing price of NOK 6.25 of the Marine Harvest Shares on 30 May 2013.
 
Fractional Marine Harvest Shares will not be issued and the number of Marine Harvest Shares that will be issued to each Cermaq Shareholder accepting the Offer will be rounded down to the nearest whole Marine Harvest Share.
 
 
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Shareholders in Cermaq as per 21 May 2013, the date of the ordinary general meeting of Cermaq, has in addition received a dividend of NOK 1.00 per Cermaq Share.
 
The Offer Price corresponds to a market capitalisation of Cermaq of about NOK 9.898 billion.
 
The Offer Price represents:
 
 
(i)
a premium of 26* per cent compared to the closing share price on 30 April 2013, the last trading day prior to the Offeror’s public announcement of its intention to make the Offer; and
 
 
(ii)
a premium of 36* per cent compared to the volume-weighted average of daily closing share prices for the twelve months ended on 30 April 2013.
 
*Taking into account that the Marine Harvest Shares and the Cermaq Shares have started to trade exclusive of dividend since the announcement of the intended voluntary offer on 30 April 2013.
 
The graph below shows the development in price and traded volume for the Cermaq Shares in the twelve-month period ending 5 June 2013 (the last trading day before the launch of the Offer).
 
 
Source: FactSet as of 5 June 2013
 
In the event Cermaq pays out any additional dividend or other distribution to its shareholders, for which the record date occurs prior to settlement of the Offer, the Offer Price will, if the conditions set out in section 4.7, “—Conditions for completion of the Offer” are waived and the Offer completed, be reduced with the amount distributed per Cermaq Share.
 
Foreign investors who are prohibited by law from receiving a partial equity settlement will be offered settlement in cash only.
 
4.6
Offer Period
 
The offer period under the Offer is from and including 6 June 2013 to and including 21 June 2013 at 09:00 hours (CET) (the “Offer Period”).
 
 
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The Offeror reserves the right to extend the Offer Period one or several times, but not beyond 14 August 2013. If the Offer Period is extended the reference to "Offer Period" will be to such extended offer period.
 
Any extension of the Offer Period will be announced prior to the expiry of the prevailing Offer Period and in accordance with section 4.14 “—Announcements and amendments to the Offer”. An extension of the Offer Period will be considered an amendment of the Offer, and will thus be subject to Oslo Børs’ review and approval.
 
Any extension of the Offer Period pursuant to the foregoing will be binding upon Cermaq Shareholders who have previously accepted the Offer.
 
In the event of an extension of the Offer Period, settlement (please see section 4.10 “—Settlement”) will be deferred accordingly.
 
Cermaq Shareholders accepting the Offer will be released from their Acceptances if the Offeror has not announced that the Closing Conditions (as defined below) have been met or waived by the Offeror by 30 December at 09:00 hours (CET) 2013 (the “Long Stop Date”). No interest compensation will be paid to the Cermaq Shareholders, including for the period from the expiry of the Offer Period until the settlement of the Offer.
 
4.7
Conditions for completion of the Offer
 
The completion of the Offer is subject to the following conditions (the “Closing Conditions”), each one of which may be waived by the Offeror in whole or in part:
 
 
(i)
the Offer shall on or prior to the expiration of the Offer Period have been accepted by sufficient Cermaq Shareholders for the Offeror to become the owner of at least 33.4 per cent of the share capital and voting rights in Cermaq (on a fully diluted basis taken into account any Cermaq Shares issued after the date of this Offer Document and any financial instruments or agreements giving the holder a right to acquire new Cermaq Shares) and such acceptances shall remain valid and binding and give the Offeror such ownership interest at the time of closing of the Offer (For the avoidance of doubt, any Cermaq Shares owned by the Offeror prior to the date of this Offer Document or acquired by the Offeror outside the Offer after the date of this Offer Document are included);
 
 
(ii)
the statutory waiting period must have been expired, waived or terminated in accordance with the the applicable antitrust laws in U.S. and Canada, as described in section 4.20 “—Notification to competition authorities”;
 
 
(iii)
no court or other governmental or regulatory authority of competent jurisdiction, including the antitrust agencies in U.S. and Canada as described in section 4.20 “—Notification to competition authorities”, shall have taken any form of legal action (whether temporary, preliminary or permanent) that in effect temporarily or permanently prohibits the consummation of the Offer;
 
 
 
 
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(iv)
there shall after the Announcement Date not have been made any proposal or passed any resolution to (i) change or authorise a change of the share capital of Cermaq or the number of shares, or (ii) issued any rights which entitles the holder to any form of equity interest in Cermaq or (iii) distribute any dividends or other forms of distributions to the Cermaq Shareholders;
 
 
(v)
following the Announcement Date, Cermaq and its subsidiaries shall in all material respects have conducted its business in the ordinary course and in accordance with applicable laws, regulations and decisions of competent governmental and regulatory authorities, and not have entered into, executed or announced that they have any intention of enter into or execute, any agreement providing for material acquisitions, dispositions or other transactions not in the ordinary course, including the acquisition of Copeinca;
 
 
(vi)
following the Announcement Date, no change, effect, development or event that is or would reasonably be expected to have a material adverse effect on the financial condition, business, assets or results of operation of Cermaq and its subsidiaries taken as a whole shall have occurred; and
 
 
(vii)
the Independent Audit Report described in section 4.11 “—The Consideration Shares” must have been issued.
 
If the above conditions are not satisfied or waived by the Offeror on or before the Long Stop Date, the Offer will lapse. An announcement with respect to whether the conditions are satisfied or waived will be made as soon as this has been determined in accordance with the procedure described in section 4.14 “—Announcements and amendments to the Offer” below.
 
4.8
Acceptance of the Offer
 
In order for a Cermaq Shareholder to accept the Offer, an Acceptance Form must be correctly filled out, signed and received by Arctic Securities (the “Receiving Agent”) prior to the end of the Offer Period (as extended, if applicable). The Acceptance Form sets out details on the settlement and the transfer of the Cermaq Shares tendered. The Acceptance Form is enclosed in Appendices 1 (English) and 2 (Norwegian) to this Offer Document.
 
The Acceptance Form shall be correctly and fully completed and signed, and sent by mail or e-mail, faxed or delivered to the Receiving Agent:
 
Arctic Securities ASA
 
Haakon VII’s gt 5
P.O. Box 1833 Vika
0123 Oslo
Norway
 
Tel: (+47) 21 01 30 40
Fax: (+47) 21 01 31 36
E-mail: settlement@arcticsec.no
 
 
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Acceptance of the Offer (“Acceptance”) is binding for the Cermaq Shareholder accepting the Offer (the “Acceptor”) from the time the Acceptance Form is received by the Receiving Agent and no withdrawal of such Acceptance, in whole or in part, will be permitted. The Acceptance Form must be received by the Receiving Agent no later than 21 June at 09:00 hours (CET) (or at such later date and/or time to which the Offer Period is extended). Neither the Offeror nor the Receiving Agent will be responsible for delays in the postal system or for Acceptance Forms forwarded by fax that are not received in time. The Offeror reserves the right to accept Acceptance Forms received after the end of the Offer Period, but will not be obligated to accept such late Acceptances. Such right will only be exercised in accordance with the principle of equivalent treatment of all Cermaq Shareholders as set forth in Section 6-10 (9) of the Norwegian Securities Trading Act.
 
Acceptances are only valid if made by way of a fully and correctly completed Acceptance Form being returned to the Receiving Agent within the Offer Period. The Offeror and the Receiving Agent reserve the right, at their own discretion, to accept or refuse any improperly completed, delivered, sent, or executed Acceptance Forms, or any Acceptance that may be unlawful within the limits of the requirements in the Norwegian Securities Trading Act Section 6-10 (9) regarding equal treatment of shareholders.
 
Returning the Acceptance Form to the printed return address, e-mail address or fax number will imply that the Cermaq Shareholder has accepted the Offer on the terms described in this Offer Document, and that an agreement on sale of all the Cermaq Shareholder’s Cermaq Shares has been entered into on the terms set forth herein and in the Acceptance Form. The Cermaq Shareholder cannot sell or otherwise dispose, encumber or transfer the Cermaq Shares accepted hereunder.
 
Cermaq Shareholders whose Cermaq Shares are split between several VPS accounts will receive a separate Acceptance Form for each account and are required to submit a separate Acceptance Form for each account.
 
The Acceptance covers all the Cermaq Shareholder’s Cermaq Shares as stated on the Acceptance Form, as well as any Cermaq Shares which, in addition to the number of shares stated on the Acceptance Form, have been or will be acquired prior to the settlement of the Offer, and which will be registered on the VPS account stated on the Acceptance Form.
 
Any Cermaq Shareholder whose Cermaq Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such Cermaq Shareholder desires to accept the Offer for such Cermaq Shares.
 
In order for the Cermaq Shareholder to validly accept the Offer, the Acceptance Form must be signed by the Cermaq Shareholder or the authorised signatory or attorney-in-fact of such Cermaq Shareholder.
 
The Cermaq Shares shall be transferred to the Offeror free and clear of any encumbrances and third party rights whatsoever and with all shareholder rights attached to them. If there are registered rights holders on the VPS account of a Cermaq Shareholder accepting the Offer, such rights holders must, by signature on the Acceptance Form, waive their rights therein and consent to the Cermaq Shares being transferred to the Offeror free and clear of any encumbrances and any other third party right whatsoever. Procuring consent from the rights holder is the sole risk and responsibility of the accepting Cermaq Shareholder.
 
 
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By executing, sending and delivering the Acceptance Form, each accepting Cermaq Shareholder irrevocably authorises the Receiving Agent (i) to block the Cermaq Shares covered by the Acceptance in favour of the Receiving Agent on behalf of the Offeror and (ii) to subscribe for the Consideration Shares on behalf of the accepting Cermaq Shareholder. It will not be possible for Acceptors to administer or dispose of the Cermaq Shares after blocking has been established. All Cermaq Shareholder rights shall to the extent permitted under Norwegian law, be vested with the Acceptors until completion of share purchases pursuant to the agreements created by Acceptances of the Offer.
 
The blocking will only be in effect in relation to the Cermaq Shares encompassed by the Acceptance and will not have any effect on other securities which are registered at the same VPS account. The Receiving Agent is given irrevocable authorisation to debit the Acceptor’s VPS account, and to transfer the Cermaq Shares covered by the Acceptance to the Offeror or its nominee upon settlement of the Offer. In the event the Offer is cancelled, the blocking of the Cermaq Shares will be terminated.
 
4.9
Shareholder rights
 
Cermaq Shareholders accepting the Offer will not be able to sell, pledge or otherwise encumber the Cermaq Shares covered by the Acceptance after the Cermaq Shares have been blocked as described in section 4.8 “—Acceptance of the Offer” above.
 
Cermaq Shareholders accepting the Offer will, however, remain owners of their Cermaq Shares and maintain all shareholder rights, including retaining their right to vote their shares and other shareholder rights, until settlement pursuant to the Offer is completed (see section 4.10 “—Settlement” below) unless otherwise follows from applicable laws.
 
4.10
Settlement
 
Settlement of the Offer will be made in accordance with legal requirements and practices in Norway and shall take place as soon as possible, and the settlement steps as described below shall be completed at the latest 14 days after the Offeror has announced that the Closing Conditions set out in section 4.7 (ii) and (iii) have been fulfilled or waived by the Offeror. The Closing Conditions set out in section 4.7 (i), (iv), (v), (vi) and (vii) shall, however, still apply until settlement. The latest day on which settlement may occur is 14 days after the Long Stop Date.
 
Upon settlement:
 
 
(i)
the Offeror will transfer the aggregate Cash Consideration to a client account with the Receiving Agent. At the same time the Receiving Agent will transfer the Cermaq Shares tendered to the Offeror. The Receiving Agent will then immediately make payments of the Cash Consideration to the Cermaq Shareholders who have accepted the Offer; and
 
 
(ii)
the Offeror will as soon as possible following receipt of the tendered Cermaq Shares register the share capital increase following from the Offer and issue and transfer the Consideration Shares to the Cermaq Shareholders who have accepted the Offer.
 
 
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Payment of the Cash Consideration will be made in NOK, by way of transfer to the accepting Cermaq Shareholder’s bank account registered in VPS for dividend payments. If there are no records of such bank account, settlement will be made in accordance with bank account details provided by the accepting Cermaq Shareholder or by issuing of a bank giro or check.
 
The Consideration Shares will be delivered to the VPS account specified in the Acceptance Form.
 
4.11
The Consideration Shares
 
The Consideration Shares will be issued by the Board based on an authorisation to issue the aggregate number of Consideration Shares granted to the Board at the Offeror’s annual general meeting on 23 May 2013.
 
The resolution as adopted is included below:
 
 
(i)
“The board of directors is authorized pursuant to the Public Limited Companies Act Section 10-14 (1) to increase the company’s share capital by up to NOK 615,000,000 through the issuance of up to 820,000,000 new shares, each with a nominal value of NOK 0.75. Subject to this aggregate amount limitation, the authority may be used on more than one occasion.
 
 
(ii)
The authority may only be used to issue shares to shareholders in Cermaq as fully or partially consideration for transfers of shares in Cermaq ASA to the company.
 
 
(iii)
The subscription terms for new shares issued pursuant to this authority shall, within the limits stated herein, be set by the board.
 
 
(iv)
The authority covers capital increases against contributions other than in cash.
 
 
(v)
The pre-emptive rights of the shareholders under § 10-4 of the Public Limited Companies Act may be set aside.
 
 
(vi)
The authority includes the right and obligation to change article 4 of the articles of association in accordance with the amount of any capital increase(s) resolved on the basis of the authority.
 
 
(vii)
The authority shall be valid until 31.12.2013.”
 
The auditor RSM Hasner Kjelstrup & Wiggen will have to issue a statement in accordance with section 10-2, cf. section 2-6 of the Public Limited Companies Act regarding the value of the Cermaq Shares (the “Independent Audit Report”) before the Board may use the authorisation to issue the Consideration Shares.
 
 
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The Consideration Shares will rank pari passu in all respects with the existing Shares and carry full shareholder rights from the time of registration of the share capital increase pertaining to the Offer in the Norwegian Register of Business Enterprises. The Consideration Shares are eligible for any dividends declared by the Company after said registration. All Shares, including the Consideration Shares, have voting rights and other rights and obligations pursuant to the Norwegian Public Limited Companies Act, and are governed by Norwegian law. See section 13 “Share capital and shareholder matters” for a further description of the rights which will be attached to the Shares.
 
The Consideration Shares will be listed on Oslo Børs as soon as possible following their issuance as part of the settlement.
 
4.12
Financing of the Offer
 
The aggregate Cash Consideration will be financed through a new bank facility the Offeror is in the process of securing.
 
4.13
Contact with Cermaq prior to release of the Offer
 
The Offeror submitted a letter to the board of directors of Cermaq on 8 April 2013 with a proposal to solicit a voluntary offer recommended by the board of directors of Cermaq. The Chairman and the chief executive officer of the Offeror met with the chairman and the chief executive officer of Cermaq on 12 April 2013, where the Offeror was informed by Cermaq that its board of directors could not evaluate or support any offer, due to agreements already entered into with shareholders in Copeinca. On 24 May 2013, the Financial Advisors met with the financial advisor of Cermaq. The chairman of the board of the Offeror met with the chairman of the board of Cermaq on 28 May 2013, where the two parties exchanged views on the level at which a bid could be made and be recommended by the board of Cermaq. Following a board meeting in the evening of 28 May 2013, a message was sent from the chairman of the Offeror to the chairman of Cermaq indicating an adjustment to the offer to meet the price request. A message was returned indicating that the increase was insufficient. A further proposed increase to the offer was made in the evening of 29 May 2013. Following discussions by phone, messages and e-mail correspondence between the chairmen and the respective financial advisers, the offer was turned down in the evening of 30 May 2013. Subsequently, the chairman and advisers of Cermaq were informed in the morning of 31 May that the board of the Offeror meant to launch its revised bid before the opening of the stock exchange that morning.
 
4.14
Announcements and amendments to the Offer
 
Announcements issued by or on behalf of the Offeror regarding the Offer and/or the Offer Document will be deemed to have been made once they have been received by Oslo Børs and distributed through its electronic information system. In this respect, the Offeror will have no obligation to publish, advertise or otherwise communicate any such announcement other than by making such release to Oslo Børs.
 
The Offeror expressly reserves the right to amend the conditions, Offer Price, Offer Period and all other aspects of the Offer in its sole discretion at any time during the Offer Period, provided however that the Offeror may not amend the Offer in a manner which disadvantages the Cermaq Shareholders.
 
 
39

 
 
Any Acceptance received by the Receiving Agent is binding even if the Offer Period is extended and/or the Offer is otherwise amended in accordance with the terms of this Offer Document. Shareholders who have already accepted the Offer in its original form or with previous amendments will be entitled to any benefits arising from such amendments. In accordance with applicable law and practice in Norway, there will not be withdrawal rights in respect of Acceptances received prior to any such amendments.
 
Any amendments to the Offer will be announced prior to expiry of the relevant Offer Period at 09:00 (Norwegian time) on 21 June 2013 (or at such later time if the Offer Period is extended).
 
Any amendments to the Offer will be subject to Oslo Børs’ review and approval.
 
4.15
Mandatory offer requirements
 
If this Offer is completed and the Offeror becomes the holder of Cermaq Shares representing more than 1/3 of the voting rights in Cermaq, the Offeror will be required under the Norwegian Securities Trading Act to either sell the exceeding number of Cermaq Shares or to make a mandatory unconditional offer for the remaining Cermaq Shares. The offer price in such mandatory offer must be equal to or higher than the highest price paid by the Offeror for Cermaq Shares during the six-month period prior to the date on which the obligation to make the mandatory offer is triggered. The Offeror will put forward a mandatory offer if the threshold is passed.
 
The Offeror has not acquired or agreed to acquire Cermaq Shares at a price above the Offer Price during the last six month period.
 
4.16
Compulsory acquisition
 
If, as a result of the Offer, or otherwise, the Offeror acquires and holds more than 90 per cent of the total issued and outstanding Cermaq Shares representing more than 90 per cent of the voting rights in Cermaq, the Offeror will have the right (and each remaining Cermaq Shareholder would have the right to require the Offeror) to initiate a compulsory acquisition of remaining Cermaq Shares not owned by the Offeror pursuant to Section 4-25 of the Norwegian Public Limited Companies Act and Section 6-22 of the Norwegian Securities Trading Act. If the Offeror presents a notice of compulsory acquisition in writing to all the remaining Cermaq Shareholders with a known address, and the compulsory acquisition is announced in the Norwegian Register of Business Enterprises’ electronic bulletin for public announcements and in a newspaper generally read at the Company’s place of business, the Offeror may set a time limit of not less than two months for each Cermaq Shareholder to contest the price offered in such compulsory acquisition. Cermaq Shareholders who contest the price offered may require that the price is determined by Norwegian courts.
 
If, as a result of the Offer, or otherwise, the Offeror acquires and holds more than 90 per cent of the total issued and outstanding Cermaq Shares representing more than 90 per cent of the voting rights in Cermaq, the Offeror intends to carry out a compulsory acquisition of the remaining Cermaq Shares at a price equal to the Offer Price in accordance with the procedures outlined above.
 
 
40

 
 
 
Notification to and approval by the European Commission will be required if the Company obtains control in Cermaq as a result of the Offer and/or acquisition of Cermaq Shares outside the Offer, see section 4.20 “—Notification to competition authorities”. The Offeror will not be entitled to exercise the voting rights attached to the Cermaq Shares before such approval has been obtained. Initiation of the compulsory acquisition proceedings may accordingly be delayed.
 
4.17
De-listing of the Cermaq Shares
 
The Offeror intends to propose that Cermaq apply for a delisting of the Cermaq Shares upon completion of the Offer if the Offeror following completion of the Offer owns Cermaq Shares representing more than 2/3 of the Cermaq Shares and voting rights. If, upon completion of this Offer, the Offeror owns Cermaq Shares representing more than 2/3 of the Cermaq Shares and voting rights, but not more than 90 per cent of the Cermaq Shares and voting rights, delisting will be subject to the discretion and approval by Oslo Børs based on an evaluation by Oslo Børs which will inter alia take into consideration the interest of the minority Cermaq Shareholders.
 
Initiation of the de-listing may also be delayed due to lack of voting rights as a consequence of the European Commission notification requirement, see section 4.20 “—Notification to competition authorities”.
 
Oslo Børs may also decide on its own initiative to have the Cermaq Shares de-listed should the conditions for listing no longer be fulfilled.
 
4.18
Expenses
 
The Offeror assumes that each party covers its own costs associated with the Offer.
 
The Offeror’s total costs related to the Offer are expected to be in the range of NOK 35 million to NOK 60 million.
 
4.19
Dilution
 
The existing shareholders of the Offeror will be diluted by 16.71 percentage points as a consequence of the Offer and issuance of the Consideration Shares to the Cermaq shareholders, assuming that 100 per cent of the Cermaq Shareholders accept the Offer.
 
4.20
Notification to competition authorities
 
Based on the information publicly available, the Transaction requires a notification to and approval by (i) the competition authorities in Canada and (ii) the European Commission and the competition authorities in the United States if the Offeror obtains control in Cermaq as a result of the Offer and/or acquisition of Cermaq Shares outside the Offer.
 
Settlement of the Offer may not be made until the acquisition has been cleared by competition authorities in the United States and Canada. The Offeror intends to file the required notifications as soon as possible.
 
European Commission:
 
 
41

 
 
Notification to the European Commission is required if the Offeror obtains control in Cermaq as a result of the Offer or acquisition of Cermaq Shares outside the Offer.
 
Settlement of the Offer may be made before the acquisition has been cleared by the European Commission, but the Offeror will not be entitled to exercise the voting rights attached to the Cermaq Shares acquired. The notification will be filed if the Offeror obtains control in Cermaq.
 
The case handling period for the European Commission is 25 working days from the submission of the notification (phase I proceedings), but may be extended to 35 working days if the parties offer commitments or if national competition authorities apply for referral. If the transaction is not cleared or deemed to be cleared within this deadline, the case handling process will proceed to an in-depth investigation which may last up to 125 working days from the opening of the proceedings (phase II proceedings).
 
The European Commission may require the Offeror to implement various measures, including divestment of business before approval is granted.
 
Canada:
 
Completion of the Offer is conditional upon the statutory waiting period having expired, waived or terminated in accordance with the Competition Act (Canada) and there not being an order in effect temporarily or permanently enjoining the Offeror from completing the Transaction. As the Transaction is an unsolicited offer, the statutory waiting period expires within 30 days after the Offeror has submitted a complete notification, unless the Canadian Commissioner of Competition issues a formal supplementary information request in which case the statutory waiting period will be automatically extended and will instead expire 30 days following compliance with the supplementary information request. So long as the Offer is unsolicited, the applicable waiting periods begin to run upon the Offeror’s submission of the required filings; in the event that the Offer ceases to be unsolicited, depending on when this happens in the process, the applicable waiting period will not begin to run until both parties have submitted the required filings. The statutory waiting period is separate from the Commissioner’'s review. Except where an advance ruling certificate has been issued, the Commissioner of Competition has the right to challenge the transaction before the Competition Tribunal up to one year after closing and may require the Offeror to implement various measures, including the disposition of assets or shares as required by the Competition Tribunal.
 
United States:
 
Completion of the Offer is conditional upon the expiration or early termination of the statutory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”). As the Transaction is a tender offer, the HSR Act statutory waiting period terminates within 30 days after the Offeror has submitted a complete notification, unless the Antitrust Authorities issue a formal request for additional information or documentary material.
 
 
42

 
 
The Antitrust Authorities have the right to seek a court injunction to block the consummation of the Offer, or require the Offeror to implement various measures, including divestment of business in order to remedy competitive concerns.
 
4.21
Plans for the operation of Cermaq’s business
 
The Offeror has not made ​​any operational assessment of potential economies of scale and synergies that are possible following a successful combination of the two companies, but assume they will be substantial. The Offeror assumes continuation of all significant areas of activity of the two companies. Subsidiaries which for competition reasons, licensing reasons or other reasons cannot continue in the combined company’s possession will be sought divested and not discontinued. It is the Offeror’s assessment not only that the combined company will have more employees than the two companies would have separately, but also that the combined company’s market position and robust business foundation will create the basis for safer jobs than the companies do today. Nevertheless, streamlining of operations will be evaluated on all levels.
 
The Offeror has resolved that if the Offer is completed, the shares that Cermaq has purchased in Copeinca will be sold.
 
If the Offer is completed without the Offeror securing control of Cermaq, the Offeror may not be able to combine the operations of the two companies as desired or affect a sale of the shares in Copeinca.
 
4.22
Consequences for Cermaq’s employees and management
 
The feed producing activities of Cermaq will be a key part of Marine Harvest’s new feed production operations, while the farming units of Cermaq will be included in Marine Harvest’s farming operations. Jointly with Cermaq’s management team, a detailed integration plan will be developed. The aim is to combine Cermaq’s production facilities, its product development capabilities and its strong market positions with the Offeror’s worldwide sales presence and unique sourcing opportunities. The Offeror does not plan to close any Cermaq sites, but any changes to Cermaq’s organisation with legal, financial or employment related consequences cannot be completely excluded. The new organisational structure will be adapted to leverage the strengths of both companies going forward.
 
If the Offer is completed without the Offeror securing control of Cermaq, the Offeror may not be able to combine the operations of the two companies as desired.
 
4.23
The significance of the Offer for Marine Harvest
 
The Offeror will, if the Offer is completed, seek to combine its operations with those of Cermaq. Hence the Offeror will, if the Offer is completed, significantly increase its harvested volumes. In Chile the Offeror will enter the market for coho and trout and through EWOS the Offeror become the largest provider of salmonid feed in the world. A combined company will also improve its position against key customers and will be able to coordinate effort on disease, cost control, financial preparedness and R&D.
 
As a result of the above, a combined company can protect and develop Norway’s unique position in this industry.
 
 
43

 
 
If the Offer is completed without the Offeror securing control of Cermaq, the Offeror may not be able to combine the operations of the two companies as desired.
 
4.24
Other legal consequences of the Offer
 
The Offer will, if completed, result in the Offeror becoming the owner of all Cermaq Shares validly tendered under the Offer in addition to the Cermaq Shares already held by the Offeror and any Cermaq Shares acquired outside the Offer.
 
Notification to the European Commission is required if the Offeror obtains control in Cermaq as a result of the Offer or acquisition of Cermaq Shares outside the Offer. Settlement of the Offer may be made, but the Offeror will not be entitled to exercise the voting rights attached to the Cermaq Shares acquired, before the acquisition has been cleared by the European Commission.
 
Following such clearance an ownership interest of 2/3 or more of the Cermaq Shares will, inter alia, give the Offeror the right to approve mergers and demergers, changes in capitalisation and changes in the articles of association of Cermaq.
 
An ownership interest of more than 50 per cent of the Cermaq Shares will inter alia give the Offeror the right to appoint directors and resolve payment of dividends.
 
For certain other legal consequences of the Offeror’s acquisition of Cermaq Shares in the Offer please see sections 4.16 “—Compulsory acquisition” and 4.17 “—De-listing of the Cermaq Shares”.
 
If the Offeror does not obtain a controlling interest in Cermaq through the Offer, but at least 33.4 per cent of the Cermaq Shares, the Offeror will be entitled to exercise the voting rights attached to the Cermaq Shares acquired and will be able to block the resolutions referred to above in the third paragraph of this section.
 
The Company currently holds permission to own up to 25 per cent of the total concessionary biomass in Norway. Acquisition of a controlling shareholding in Cermaq will result in the Offeror exceeding this 25 per cent threshold and requires application to and approval by the Norwegian Ministry of Fisheries and Coastal Affairs. Obtaining the required approval is not a condition for the Offer. The Offeror will settle the Offer and file an application to the Norwegian Ministry of Fisheries and Coastal Affairs if required. The Company assumes all risk in this respect. See section 1.3.5 “Risk factors—Risks related to the Offer and the combination of Marine Harvest and Cermaq—Approval by the Norwegian Ministry of Fisheries and Coastal Affairs” for the risks assumed by the Company in this respect.
 
To the Offeror’s knowledge, the Offer will not have any legal consequences for Cermaq other than those described in this Offer Document.
 
4.25
Purchase of Cermaq Shares outside the Offer
 
The Offeror reserves the right to, and may exercise the right to, acquire Cermaq Shares outside the Offer during and after the Offer Period, provided such transactions comply with applicable laws and regulations.
 
 
44

 
 
4.26
Tax
 
Cermaq Shareholders accepting the Offer will be responsible for any tax liability as a consequence of accepting the Offer and selling the Cermaq Shares. A general description of certain tax matters is included in section 15 “Taxation”.
 
4.27
Choice of law and legal venue
 
The Offer and any Acceptance thereof are subject to Norwegian law. Any dispute arising out of or in connection with the Offer or the Offer Document shall be subject to the exclusive jurisdiction of the Norwegian courts with Oslo city court as the agreed legal venue.
 
4.28
Special rights or benefits
 
No agreements to the benefit of the members of the board of directors or management of the Offeror or Cermaq have been or will be entered into, and no special rights or benefits shall accrue to the members of the boards of directors or management of the Offeror or Cermaq in connection with the Transaction, cf. Section 13-6 (1) no 6 of the Norwegian Public Limited Companies Act.
 
4.29
Miscellaneous
 
This Offer Document will be sent to all persons registered with the VPS as Cermaq Shareholders as of the date of this Offer Document to the addresses registered with the VPS at such date, except for Cermaq Shareholders in jurisdictions in which this Offer Document may not be lawfully distributed. Confirmations on receipt of Acceptances will not be issued.
 
4.30
Other information
 
Arctic Securities has acted as Financial Advisor and Receiving Agent, and Nordea Markets has acted as Financial Advisor to the Offeror in connection with the Offer. Nordea Markets is participating solely in that portion of the offer conducted outside the United States. Advokatfirmaet Wiersholm AS has acted as Norwegian legal counsel to the Offeror. Further information on the Offer is available from Arctic Securities or (outside the United States only) Nordea Markets:
 
Arctic Securities ASA
Haakon VII’s gt 5
P.O. Box 1833 Vika
0123 Oslo
Norway
Tel: (+47) 21 01 30 40
Fax: (+47) 21 01 31 36
E-mail: settlement@arcticsec.no
 
Nordea Bank Norge ASA
Markets, Investment Banking, Advisory
P.O. Box 1166 Sentrum
NO-0107 Oslo
Norway
Tel: (+47) 22 48 50 00
 
 
 
45

 
 
5
PRESENTATION OF CERMAQ
 
Please note that at the date of this Offer Document there are conditions for closing of the Offer. The content of this section 5 “Presentation of Cermaq" will only be of relevance if the Offer is completed.
 
The Company and the Board disclaims any responsibility and liability for the accuracy and completeness of the Offer Document in respect of the information relating to Cermaq presented herein, all of which has been extracted from publicly available sources, including annual reports, interim reports, investor information and stock exchange notices published by Cermaq. Please see www.cermaq.com for further information.
 
5.1
General
 
Cermaq is a public limited liability company organised and existing under the laws of Norway, registered with the Norwegian Register of Business Enterprises under business registration number 971 647 949 and with headquarter and registered business address at Grev Wedels plass 5, 0151 Oslo, Norway. Cermaq’s main telephone number at that address is +47 23 68 50 00 and it website can be found at www.cermaq.com.
 
Cermaq was incorporated on 18 January 1995. Cermaq is an international fish farming and fish feed group. Cermaq has a diversified global presence in all major farming regions, with operations in Chile, Canada, Scotland, Vietnam, and Norway. Cermaq is organised in two business units; Mainstream, comprising its fish farming operations and EWOS, comprising its fish feed operations.
 
The Cermaq Shares are listed on Oslo Børs under the ticker “CEQ” and are registered in the VPS under ISIN NO 0010003882.
 
See section 5.4  “—Business description” for a description of Cermaq’s business.
 
 
46

 

5.2
Legal structure of Cermaq and its subsidiaries
 
Cermaq’s consolidated financial statements for 2012 (“Cermaq’s Financial Statements”)  include the following consolidated entities and associated companies of significant size:
 
Company
 
Country
 
Ownership per cent
         
SUBSIDIARIES – NORWAY
       
Statkorn Aqua AS
 
Norway
 
100
EWOS AS
 
Norway
 
100
EWOS Innovation AS
 
Norway
 
100
Mainstream Norway AS
 
Norway
 
100
Norgrain AS
 
Norway
 
72.5
         
SUBSIDIARIES – OUTSIDE OF NORWAY
       
EWOS Ltd.
 
Scotland
 
100
EWOS Canada Ltd – group*.
 
Canada
 
100
EWOS Chile Alimentos Ltda
 
Chile
 
100
Mainstream Chile S.A.
 
Chile
 
100
Cultivos Marinos Chilóe.
 
Chile
 
100
EWOS Vietnam JSC.
 
Vietnam
 
51
         
ASSOCIATED COMPANIES
       
Denofa AS**.
 
China
 
49
         
* Activities in Canada are organised in one legal entity, which includes Mainstream Canada
** Ownership through Norgrain AS
 
 
47

 
 
5.3
Selected financial information
 
5.3.1
Consolidated statement of profit and loss and statement of comprehensive income
 
   
For the
three months ended 31 March
   
For the
year ended
31 December
 
   
Unaudited
   
Audited
 
NOK million
 
2013
   
2012
   
2012
   
2011
   
2010
 
Operating revenues
    2,860       2,328       11,782       11,634       9,991  
Cost of raw materials
    -1,834       -1,514       -8,039       -7,447       -6,271  
Write-down of biological assets
    -       -       -79       -       -  
Personnel expenses
    -279       -226       -1,013       -829       -723  
Depreciation and amortization
    -101       -82       -354       -317       -339  
Bargain purchase gain
    -       -       137       -       -  
Other operating expenses
    -552       -405       -1,956       -1,673       -1,315  
Gain/(loss) from disposal of assets
    46       -       -       -       97  
Operating result before fair value adjustment of biological assets
    141       101       478       1,369       1,439  
Fair value adjustment of biological assets
    286       -210       -152       -362       512  
Operating result
    427       -108       326       1,007       1,952  
Share of net income from associates
    3       -3       14       37       32  
                                         
Financial income
    n/a       n/a       9       14       8  
Financial expenses
    n/a       n/a       -102       -68       -81  
Net foreign exchange gain/(loss)
    n/a       n/a       5       -14       -4  
Fair value adjustments on financial instruments
    n/a       n/a       0       30       -6  
Net gain/(loss) on financial assets and liabilities
    n/a       n/a       57       0       43  
Financial items, net
    -42       -18       -31       -39       -39  
Net income/(loss) before taxes
    387       -130       309       1,005       1,944  
Income taxes
    -101       32       -68       -212       -429  
Net income/(loss)
    287       -97       240       793       1,515  
                                         
ATTRIBUTABLE TO
                                       
Owners of the parent
    288       -95       243       789       1,514  
Non-controlling interests
    -1       -2       -2       4       0  
                                         
OTHER COMPREHENSIVE INCOME, NET OF TAX
                                       
Currency translation differences
    116       -132       -195       77       74  
Change in fair value of cash flow hedge instruments
    1       -9       -20       21       -  
Available-for-sale investments – change in fair value
    -       -       -58       -1       -50  
Total other comprehensive income
    117       -141       -272       97       24  
Total comprehensive income
    403       -238       -32       890       1,539  
                                         
ATTRIBUTABLE TO
                                       
Owners of the parent
    404       -237       -29       884       1,538  
Non-controlling interests
    -1       -2       -3       6       0  
 
 
48

 
 
5.3.2
Consolidated statement of financial position
 
   
As at the
three months ended 31 March
   
As at the
year ended
31 December
 
   
Unaudited
   
Audited
 
NOK million
 
2013
   
2012
   
2012
   
2011
   
2010
 
ASSETS
                             
Fish farming licences
    n/a       n/a       1,484       1,225       1,224  
Goodwill
    n/a       n/a       786       819       806  
Deferred tax assets
    n/a       n/a       100       20       19  
Other intangible assets
    n/a       n/a       10       4       -  
Total intangible assets
    2,461       1,998       2,380       2,067       2,048  
Property, plant and equipment
    3,153       2,622       3,104       2,621       2,289  
Investments in associates
    n/a       n/a       155       147       183  
Investments in other companies
    n/a       n/a       9       80       80  
Other non-current receivables
    n/a       n/a       12       27       116  
Total financial fixed assets
    179       242       176       253       378  
Total non-current assets
    5,793       4,863       5,660       4,942       4,715  
Inventory
    1,593       1,031       1,368       1,121       904  
Biological inventories
    2,482       1,849       2,320       2,026       2,097  
Accounts receivables
    2,065       1,385       1,929       1,609       1,263  
Prepaid income tax
    n/a       n/a       35       56       n/a  
Other current receivables
    343       170       259       143       154  
Cash and cash equivalent
    369       526       510       459       479  
Total current assets
    6,852       4,961       6,421       5,415       4,897  
Total assets
    12,645       9,823       12,081       10,357       9,613  
                                         
EQUITY  AND LIABILITIES
                                       
Total equity attributable to the stakeholders in Cermaq ASA
    6,040       5,878       5,656       6,113       5,729  
Non-controlling interests
    41       44       42       46       23  
Total equity
    6,081       5,922       5,698       6,159       5,752  
Pension liabilities
    n/a       n/a       53       46       58  
Deferred taxes
    n/a       n/a       776       740       759  
Total provisions
    953       705       829       786       818  
Interest bearing non-current debt
    n/a       n/a       3,235       1,408       1,618  
Other non-interest bearing non-current liabilities
    n/a       n/a       2       3       -  
Total interest bearing non-current liabilities
    3,092       1,477       3,237       1,411       1,618  
Total non-current liabilities
    4,044       2,182       4,066       2,197       2,436  
Interest bearing current liabilities
    389       92       275       103       41  
Accounts payables
    1,768       1,260       1,668       1,465       884  
Income taxes
    n/a       n/a       42       166       n/a  
Other non-interest bearing current liabilities
    363       368       332       267       500  
Total current liabilities
    2,520       1,720       2,318       2,001       1,425  
Total equity and liabilities
    12,645       9,823       12,081       10,357       9,613  

 
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5.3.3
Consolidated cash flow statement
 
   
For the
three months
ended 31 March
   
For the
year ended
31 December
 
   
Unaudited
   
Audited
 
NOK million
 
2013
   
2012
   
2012
   
2011
   
2010
 
Net income/(loss) before taxes
    387       -130       309       1,005       1,944  
Gain/(loss) on sale of tangible and intangible assets
    -52       -0       -1       -1       -97  
Depreciations and amortisations
    101       82       354       317       339  
Bargain purchase gain
    -       -       -137       -       -  
Fair value adjustment of financial items
    1       2       -58       -30       -64  
Net interest expense
    39       17       94       55       n/a  
Change in fair value of biological assets
    -286       -210       152       362       -512  
Write-down on biological assets
    -       -       79       -       n/a  
Income taxes paid
    -49       -38       -139       -233       -197  
(Income)/loss from associates
    -3       3       -14       -37       -32  
Dividends received from associates
    0       -       10       6       11  
Change in inventory, accounts receivable and accounts payable
    -49       -45       -1,109       -210       -728  
Change in other current operating assets and liabilities
    4       -3       67       -49       56  
Net cash flow from operating activities
    93       98       -528       1,185       719  
                                         
Proceeds from sale property, plant, equipment (PPE) and intangible assets
    61       -       5       1       42  
Purchase of PPE and intangible assets
    -112       -97       -449       -568       -353  
Proceeds from sale of operations, net of cash disposed
    -       -       -       66       349  
Purchase of operations, net of cash acquired
    -       -1       -78       -12       -22  
Proceeds from sale of shares and other investments
    n/a       n/a       72       12       304  
Purchases of shares and other investments
    -4       -       -0       -1       -192  
Net cash flow from investing activites
    -55       -97       -450       -501       127  
                                         
Proceeds from borrowings
    326       113       3,311       631       n/a  
Payment of borrowings
    -535       -6       -1,713       -905       -588  
Net change in drawing facilities
    78       -7       -22       83       n/a  
Interest received
    n/a       n/a       5       5       5  
Interest paid
    -40       -16       -77       -46       -54  
Received/(paid) other financial items
    -       -       -14       34       20  
Acquisition of non-controlling interests
    -18       -       -7       -       -  
Paid dividends, including distribution to non-controlling interests
    -       -       429       -511       -140  
Change in treasury shares
    -       -       0       0       -0  
Net cash flow from financing activities
    -188       85       1,054       -710       -797  
                                         
Foreign currency effect
    9       -20       -26       6       9  
Net change in cash and cash equivalents for the period
    -141       67       51       -19       58  
                                         
Cash and cash equivalents at the beginning of the period
    510       459       459       479       420  
Cash and cash equivalents at the end of the period
    369       526       510       459       479  
 
 
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5.3.4
Operating segments
 
Cermaq has two operating segments: fish feed production (EWOS) and fish farming (Mainstream). The operating income for the segments for the years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 and 2012 are set out in the table below:
 
   
For the
three months
ended 31 March
   
For the
year ended
31 December
 
   
Unaudited
   
Audited
 
NOK million
 
2013
   
2012
   
2012
   
2011
   
2010
 
Feed
    2,010       1,861       10,276       9,367       7,388  
Farming
    1,238       757       3,267       3,593       3,502  
Other/activities
    3       19       32       58       301  
Eliminations
    -391       -309       -1,793       -1,383       -1,200  
Total operating revenue
    2,860       2,328       11,782       11,634       9,991  

 
5.4
Business description
 
Cermaq has one strategic business area; aquaculture, which consists of fish feed production (EWOS) and fish farming (Mainstream). Fish feed involves the production and sale of fish feed. Fish farming involves the breeding and on-growing, harvesting, processing, sale and distribution of salmonid species. The company also has investments in companies which are not regarded as core business, most of which Cermaq has stated will be divested when the conditions are favourable.
 
5.4.1
Fish feed
 
5.4.1.1
General
 
Cermaq’s fish feed operations are organised in the EWOS business unit. EWOS is one of three major global salmonid fish feed companies.
 
EWOS supplies extruded feed for the full life cycle from hatch to harvest of salmonids and pangasius. Feed is also supplied for a number of other seawater and freshwater fish species, positioning EWOS to take part in the expected growth within these species.
 
EWOS is present in all of the four large salmon-producing countries, with three production facilities in Norway, and one in each of Chile, Canada and Scotland, in addition to its production presence in the pangasius feed market in Vietnam. Production and sales are run locally in each region. The EWOS companies cooperate closely on functions such as purchasing, product development, R&D, marketing and information systems. In addition to supplying local markets, EWOS also exports feed into a range of countries both in Europe and in Asia.
 
5.4.1.2
EWOS Canada
 
EWOS Canada has its main activities in Surrey outside Vancouver on the west coast of Canada. The company’s plant, administration and sales management are all based there. The company also has a sales office in Campbell River.
 
 
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5.4.1.3
EWOS Chile
 
EWOS Chile has concentrated its main activities in Coronel (plant) and in Puerto Montt (sales and administration).
 
5.4.1.4
EWOS Norway
 
EWOS Norway has its head office in Bergen. The company has three plants of which the largest one is in Florø (Sogn & Fjordane) and two smaller plants are in Halsa (Nordland) and Bergneset (Troms). Sales offices are located along the coast from Bergen in the south to Tromsø in the north.
 
5.4.1.5
EWOS Scotland
 
EWOS Scotland is based in Westfield outside Edinburgh, where the plant, administration and sales organisation are located.
 
5.4.1.6
EWOS Vietnam
 
EWOS Vietnam is a joint venture with a local partner Anova Corporation Group (“Anova”). The company produces feed for the pangasius feed market in South East Asia. Pangasius is a white fish and when the joint venture was established in 2010 it was the first time EWOS entered into a feed market for non-salmonid species. EWOS Vietnam has its plant in Ben Luc, Long An Province outside Ho Chi Mihn City. It has a sales office in Can Tho, a research facility in Vinh Long and an office in Ho Chi Mihn City. As at the date of this Offer Document, Cermaq owns 51 per cent of EWOS Vietnam. It has been agreed between Cermaq and Anova that Cermaq shall take over Anova’s minority stake in EWOS Vietnam in 2013. See section 5.6.2 “—Material agreementsAcquisition of shares in Advance Nova Aquafeed” below for a further description of the joint venture.
 
5.4.1.7
EWOS financials
 
In 2011, EWOS passed a total production of 1 million tonnes fish feed and in 2012 EWOS’ sales growth of 12 per cent exceeded market growth. Total sales for the year 2012 ended at 1.208 million tonnes with revenues of NOK 10,276 million and an EBIT pre fair value of 713 million. EWOS had a total of 1,024 employees, including EWOS Innovation, EWOS’ R&D operations.
 
5.4.2
Fish farming
 
5.4.2.1
General
 
Cermaq’s fish farming operations are organised in the Mainstream business unit, one of the largest players in the global salmon farming industry. Mainstream has operations in Chile, Canada and Norway, and produces Atlantic salmon, trout and coho salmon. Mainstream employs more than 4,500 people. The Mainstream companies cooperate closely on quality and fish health issues.
 
5.4.2.2
Mainstream Chile
 
Mainstream Chile produces three species; Atlantic salmon, coho salmon and trout, and covers the value chain from brood fish to value added processing. The company has 12 land based freshwater sites and is present in three lakes for smolt production (coho and trout). In 2012, all Atlantic smolt stocked was produced in land based facilities. The company has 89 sea water lisenses and four processing plants. Most of the seawater sites for coho and trout are located in the area of Chiloé Island, in region X, (Región Los Lagos), while almost half of the Atlantic salmon is produced in region XI (Región de Aysén del general Carlos Ibáñes del Campo) and XII (Región de Magallanes y la Antártica Chilena). The company is managed from the head office in Puerto Montt in Region X. In October 2012, Mainstream Chile acquired the salmon farming company Cultivos Marinos Chiloé S.A. (“CMC”). CMC has a normalised annual production capacity of approximately 32,000 tonnes gutted weight equivalents (“HOG”), and is therefore a significant contribution to Mainstream Chile’s production capacity. See section 5.6.1 “—Material agreementsAcquisition of Cultivos Marinos Chiloé S.A.” below for a further description of CMC.
 
 
 
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5.4.2.3
Mainstream Canada
 
Mainstream Canada operates both on the west and east coasts of the Vancouver Island in British Columbia. The company produces Atlantic salmon and has 27 seawater sites and three freshwater sites. Salmon is processed at an owned facility in Tofino and under contract at a processing plant near Campbell River. All operations are managed from the head office in Campbell River.
 
5.4.2.4
Mainstream Norway
 
Mainstream Norway produces Atlantic salmon with operations in Nordland (17 licenses and two processing plants) and in Finnmark (27 licenses and one processing plant). Mainstream Norway has four freshwater sites, all of which are located in Nordland. The head office is located in Steigen, Nordland.
 
5.4.2.5
Mainstream financials
 
The reported operating revenue for Mainstream was NOK 3.3 billion in 2012. This was a decrease of 8 per cent from 2011 (NOK 3.6 billion). Compared to 2011, sales volume grew by 10 per cent, to a total of 120,000 tonnes HOG of salmon and trout delivered during 2012. CMC was consolidated into Cermaq’s accounts from the fourth quarter in 2012. If CMC had been consolidated into Cermaq’s accounts for the full year 2012, total sales volumes for Mainstream’s operations in 2012 would have been 139,000 tonnes HOG. EBIT pre fair value showed a loss of NOK 102 million in 2012, down from a profit of NOK 772 million in 2011.
 
5.4.3
Non-core business
 
Cermaq has investments in companies which are not regarded as core business. Cermaq has stated that most of this portfolio will be disposed of when the conditions are favourable. The most important companies in this portfolio are the Norwegian companies Norgrain AS and Denofa AS.
 
5.4.3.1
Norgrain AS
 
Norgrain AS is trading raw material for animal and fish feed production in Norway as well as providing logistic services to feed producers in Norway. The business is based on highly specialised and skilled employees that can meet customer needs in a cost efficient way. The company has six employees located in Oslo and Stavanger. Norgrain AS is well positioned through a combination of market expertise in international agricultural commodities and excellent logistics solutions. Cermaq holds 72.5 per cent of the shares in the company.
 
 
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5.4.3.2
Denofa AS
 
Denofa AS has a strong position within the Nordic market as a supplier of oils, proteins and lecithin to the food manufacturing and animal feed industries, both in Norway and in other countries. Denofa AS operates from Fredrikstad in Norway and has 60 people employed at the plant. Denofa AS performed very well through 2011, with revenues of approximately NOK 1,478 million. In July 2009, Norgrain AS sold its majority share in Denofa AS to the Brasilian company Amaggi, a division of the André Maggi Group. Amaggi and Norgrain AS entered into a shareholders agreement including an option for Norgrain AS to sell its remaining shares in Denofa AS to Amaggi after four years at a predetermined price. Norgrain AS currently owns 49 per cent of the shares in Denofa AS.
 
5.5
Board of directors, management, employees and auditor
 
5.5.1
Board of directors
 
The current board of directors in Cermaq comprise eight directors (of whom five are elected at the general meeting and three are representatives of the employees in Norway).
 
Name
 
Position
Bård Mikkelsen
 
Chairman of the board
Rebekka Glasser Herlofsen
 
Vice chairman
Åse Aulie Michelet
 
Board member
Helge Midttun
 
Board member
Reidun Karlsen
 
Board member, employee representative
Jan Helge Førde
 
Board member, employee representative
Ted Andreas Mollan
 
Board member, employee representative

5.5.2
Management
 
The following table lists the present members of Cermaq’s executive management, including their positions as at the date of this Offer Document.
 
Name
 
Position
Jon Hindar
 
Chief executive officer (CEO)
Tore Valderhaug
 
Chief financial officer (CFO)
Synne Homble
 
Director legal and corporate functions
Geir Molvik
 
Chief operating officer (COO) farming
Geir Sjaastad
 
Project director
Einar Wathne
 
Chief operating officer (COO) feed

5.5.3
Employees
 
Pursuant to Cermaq’s Annual Report, Cermaq employed 5,993 people as per 31 December 2012.
 
5.5.4
Auditor
 
Cermaq’s auditor is Ernst & Young AS, business registration number 976 389 387, having its registered address at Dronning Eufemias gate 6, 0191 Oslo, Norway.
 
 
54

 
 
5.6
Material agreements
 
Since 1 January 2010, Cermaq has reported to have entered into the following material agreements outside the ordinary course of business:
 
5.6.1
Acquisition of Cultivos Marinos Chiloé S.A.
 
On 1 October 2012, Cermaq entered into an agreement with the shareholders of Cultivos Marinos Chiloé S.A. to acquire 100 per cent of the shares in the company, a medium sized salmon farming company with production of Atlantic salmon and trout in the regions Los Lagos (X) and Aysén (XI) in Chile. CMC owns 12 smolt facilities and two processing plants with value added processing capacity. CMC controls a total of 29 licenses, of which 20 are in region Los Lagos and nine are in region Aysén giving an annual farming capacity of approximately 32,000 tonnes HOG equivalents. Three licenses are rented from other farmers and the remaining licenses are owned by the company. In addition to the existing production, CMC has applied for four new licenses in region XI and 58 new licenses in region XII. There is no knowledge as to if and when such applications may be approved. At the time of acquisition, CMC had approximately 1,500 employees.
 
The transaction was completed on 5 October 2012. The total enterprise value was USD 110 million (NOK 627 million), of which a cash consideration of USD 15.4 million (NOK 88 million) was paid to the shareholders.
 
Acquiring CMC enables Cermaq’s production capacity in Chile to increase by almost 50 per cent and strengthen Mainstream Chile’s ability to control neighbourhoods where the company is present. After the acquisition, Mainstream Chile will be operating in three new neighbourhoods, out of which two will be fully controlled. Balancing the company’s operations between all three regions is one of the four cornerstones in Cermaq’s strategy for sustainable farming operations in Chile. Furthermore, the transaction will increase Cermaq’s activity within value added processing as more than 90 per cent of CMC’s production is supplied as portions, filets and smoked salmon to customers.
 
CMC was consolidated in the Cermaq’s accounts from 5 October 2012. CMC contributed with NOK 294 million in revenues and had a net loss of NOK 9 million in the period between the date of consolidation and 31 December 2012. If CMC had been included from the beginning of the year, the effect on revenues would have been NOK 838 million and a net loss of NOK 166 million, excluding interest expenses related to the financing of the acquisition and excluding eliminations. The numbers are not necessarily indicative of the result of operations which actually would have been the result had the acquisition been effective from the beginning of the reporting period or of future results.
 
5.6.2
Acquisition of shares in Advance Nova Aquafeed
 
On 17 December 2010, Cermaq entered into an agreement with Anova Corporation Group to acquire 51 per cent of the shares in the company Advance Nova Aquafeed in Vietnam, a feed producer for farmed white fish species like pangasius and tilapia. The transaction was completed on 1 April 2011 by a total consideration of NOK 29.5 million via a combination of share acquisition from Anova and capital contribution in the acquired company. Cermaq gained control through the shareholder agreement. The value was set based on fair value after negotiations between the parties. Advance Nova Aquafeed has been renamed to EWOS Vietnam JSC. EWOS Vietnam was consolidated in Cermaq’s accounts from 1 April 2011.
 
 
55

 
 
Obtaining control of EWOS Vietnam enabled Cermaq to enter into the non-salmonids feed production, in particular the pangasius farming market.
 
5.6.3
Sale of shares in Aqua Gen AS
 
In January 2013 Cermaq announced the sale of its 12.34 per cent stake in Aqua Gen AS to Aqua Gen AS’ majority owner EW Group GmbH for a consideration of NOK 70 million. The transaction resulted in a booked gain under net financial items of NOK 56 million in the fourth quarter of 2012.
 
5.6.4
Sale of Chilean processing plant
 
In the first quarter of 2013 Mainstream Chile sold the processing plant in Calbuco. The sale resulted in a reported gain of NOK 46 million.
 
5.6.5
Acquisition of shares in Copeinca
 
In April 2013 Cermaq entered into irrevocable agreements with several of the largest shareholders in Copeinca, including Dyer Coriat Holding SL and Weilheim Investments SL, holding in total 22,663,230 shares in Copeinca, to sell their shares in Copeinca at a price of NOK 59.70 per share, out of which 40 per cent will be paid in cash and 60 per cent in shares in Cermaq. Shareholders holding 342,373 shares have entered into irrevocable agreements to sell their shares for NOK 59.70 per share in cash. In addition, Cermaq has purchased 11,700,000 shares in Copeinca through a directed issue of new shares and 852,993 treasury shares from Copeinca. Shortly thereafter, Cermaq launched a voluntary cash offer for the remaining shares in Copeinca with a consideration of NOK 59.70 per share. Cermaq has after the announcement of the intention to bid for the entire company purchased shares so that the total ownership at the date of this Offer Document is 19.4 per cent. To finance Cermaq's offer for Copeinca, Cermaq intended to raise capital through i.e. a rights issue. On Cermaq's annual general meeting on 21 March 2013, the board's proposal to carry out the rights issue did not achieve the necessary majority of votes and was therefore not approved. On 23 March 2013, Cermaq issued a statement declaring that the voluntary offer for all the shares in Coepinca would not be completed.
 
5.7
Legal and arbitration proceedings
 
Cermaq has not reported to be involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened) over the last 12 months which may have, or have had in the recent past significant effects on Cermaq’s financial position or profitability.
 
5.8
Significant change in Cermaq’s financial or trading position sine 31 December 2012
 
Cermaq has not reported any significant changes in the company’s financial or trading position between 31 December 2012 and the date of this Offer Document other than as set forth below:
 
 
56

 
 
 
(i)
In January 2013, Cermaq increased the bond issue Cermaq ASA 12/17 FRN (ISIN: NO001065771.1) with NOK 300 million to a total loan amount of NOK 900 million. Settlement date for the increase was 17 January 2013.
 
 
(ii)
In April 2013, Cermaq entered into irrevocable agreements with several of the largest shareholders in Copeinca which will sell their shares in Copeinca at a price of NOK 59.70 per share. In addition, Cermaq has purchased 11,700,000 shares in Copeinca through a directed issue of new shares and 852,993 treasury shares from Copeinca. The total ownership at the date of this Offer Document is 19.4 per cent. For further information see section 5.6.5 “—Material agreements—Acquisition of shares in Copeinca”.
 
 
(iii)
In January 2013 Cermaq sold its 12.34per cent stake in Aqua Gen AS to Aqua Gen’s majority owner EW Group GmbH for a consideration of NOK 70 million. For further information see section 5.6.3 “—Material agreements—Sale of shares in Aqua Gen AS”.
 
5.9
Significant trends and events
 
Cermaq has not reported any significant trends or events between 31 December 2012 and the date of this Offer Document nor any significant trends or events that are reasonably likely to have a material effect on Cermaq’s prospects for the current financial year other than as set forth below:
 
5.9.1
Mainstream Chile
 
The consolidation of CMC and higher than expected coho volumes led to an 89 per cent increase in volumes sold in the fourth quarter compared to last year. Achieved average price per kilogram for Coho and trout dropped approximately 32 per cent and 19 per cent. Still, a continued challenging situation for some Atlantic salmon sites is experienced due to presence of SRS as well as in general a high level of sea lice in the industry. The increased cost for Atlantic salmon and trout compared to first quarter last year are mainly due to harvesting from sites with low performance due to a more challenging sanitary situation.
 
5.9.2
Mainstream Norway
 
Profit increase compared to last year on the back of significantly improved sales prices as well as higher volume. Finnmark experienced higher production cost and poor performing sites including the PD site at Tuvan, Finnmark. The PD outbreak has impacted the result through lower sales prices and increased cost due the low harvest weight. A higher than normal incident of winter wounds has significantly reduced the level of premium quality (reduced superior share).
 
5.9.3
Mainstream Canada
 
Realised prices were significantly higher than the previous period. Production costs are down despite lower biomass due to the culling of two IHN sites in 2012.
 
5.9.4
EWOS
 
Volumes dropped in the period mainly due to a decrease in Norwegian volumes on the back of lower sea temperatures which again translates to lower feed consumption. Chile and Norway reported higher revenues despite lower sold volumes as increased unit prices caused by higher raw material prices more than offset the volume effect.
 
5.9.5
Expected trends and events
 
With the exception of the Transaction, the Company does not anticipate any new regulatory requirements, commitments and/or events that may materially affect Cermaq’s financial or operating position for the current year.
 
 
57

 
 
6
MARKET DESCRIPTION
 
6.1
Market overview
 
The principal market for Marine Harvest is related to the supply of salmon.
 
The salmon sector is a relatively small but fast growing part of the global protein supply. As can be seen from the figure below, total global protein consumption for 2008 was estimated to approximately 180 million tonnes live weight (“WFE”), of which only 11 million tonnes WFE was related to seafood.
 
Figure 1: Protein sources for human consumption, 2008, million tonnes WFE
 
 
Source: FAO, Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision, Marine Harvest Salmon Farming Industry Handbook 2013
 
Even with an increase in production of Atlantic salmon of more than 600 per cent since 1980, total global supply of salmonids is still marginal compared to most other seafood categories. Whitefish is about ten times larger and consists of a much larger number of species. Farming of whitefish is less industrialised than farming of salmon and is mostly done in Asia. The largest salmonid specie is Atlantic salmon, with other notable species being coho and trout.
 
Figure 2: Seafood species volumes 2011, million tonnes WFE
 
 
Source: FAO, Marine Harvest Salmon Farming Industry Handbook 2013
 
 
58

 
 
The supply of salmon has been growing rapidly over the last several years, as illustrated from the figure below.
 
Figure 3: Atlantic salmon supply and demand, million tonnes WFE
 
 
Source: Kontali
 
6.2
Market drivers
 
The historical growth within the salmonid value chain is principally driven by increasing population, increasing wealth, limitations on catch, consumer appeal and the sustainability of salmon farming.
 
6.2.1
Increasing population
 
The last half century has seen a rapid growth in global population from 2.5 billion in 1950 to 6.9 billion in 2010, largely as a result of medical advances and substantial increases in agricultural productivity. The global population is forecasted to grow by a further 2.4 billion to 9.3 billion between 2010 and 2050, 96 per cent of which is expected to come from the developing world. This increase in population is expected to provide fundamental support for growth in total protein demand.
 
Figure 4: World population, billion
 
 
 
 
59

 
 
6.2.2
Increasing wealth
 
Overall protein consumption increases as the population become wealthier. In particular there is a strong historical correlation between per capita income and demand for animal protein. Animal protein consumption levels increase with growth in disposable income. This effect is particularly significant for pre-tax gross domestic product (GDP) per capita between USD 2,000 and USD 20,000. The range of incomes includes most of the major emerging markets (China, Brazil, Russia, India and others), where animal protein intake has the potential to increase from current levels to 60 per cent of total protein consumption as seen in the major developed markets.
 
6.2.3
Limitations on catch
 
Wild fish captures reached peak levels in the 1990s but have in recent years returned to broadly constant levels of 50 million tonnes per year. This is most likely due to production reaching the maximum long-term sustainable potential of the world’s marine capture fisheries. Today 3/4 of the major marine fish stocks are either depleted, overexploited or being fished at their biological limit. As a result, virtually all growth in fish production will occur from aquaculture.
 
Figure 5: Farmed and wild Atlantic salmon in thousand tonnes WFE
 
 
Source: Kontali Analyse, FAO, OECD
 
Note: Graph sourced from Marine Harvest Salmon Farming Industry Handbook 2013
 
6.2.4
Consumer appeal
 
Protein provides essential amino acids for the body that are a vital source of energy and important during growth and development, and fish is one of the best sources from which the body can obtain these. These health benefits of salmon help to drive a strong consumer appeal. Atlantic salmon is a high-protein, low-fat meat that provides a range of health benefits. Atlantic salmon, white-fleshed fish, such as cod, pangasius and tilapia, are low in saturated fat compared to other sources of animal protein, especially red meat. A high intake of saturated fat can lead to an increased risk of cardiovascular disease, cancer and other related disorders. Fish such as salmon are also rich in omega-3 fatty acids in contrast to other meats. It has been demonstrated that healthy sources of omega-3 fatty acids help reduce the risk of various diseases and disorders.
 
 
60

 
 
Salmon is also more than omega-3s and cannot be substituted by taking supplements. Salmon contains highly digestible protein with all amino acids needed in a balanced diet as well as being a rich source of vitamins and minerals.
 
Figure 6: Protein content across various sources
 
 
Source: USDA National Agriculture Library
 
In the face of increasing obesity and decreasing food health standards, governments and food and health advisory bodies in Europe and the U.S. are actively encouraging their populations to consume more fish as part of their diets. The U.S. National Institute of Health, the UK National Health Service, the Norwegian Ministry of Health and Care Services and several other national health organisations, recommend people of all ages to eat fish at least twice a week in order to achieve optimal health benefits.
 
6.2.5
Sustainability
 
Two key measures of economic and resource efficiency of animal protein production are the feed conversion ratio and the edible yield. Both of these measures indicate that Atlantic salmon has a competitive advantage compared to other farmed animals.
 
The feed conversion ratio measures the kilograms of feed needed to increase the animal’s bodyweight by 1 kilogram. For farmed salmon the ratio is only ~1.2 kilograms of feed per additional 1 kilogram of body weight, significantly below other animals. Furthermore, most of the fish is edible (salmon has an edible yield of 68 per cent, sea bream 54 per cent and cod 47 per cent). Other sources of meat have higher levels of waste or non-edible meat (i.e. lower edible yields). These advantages are particularly important in emerging markets, especially China, where food security is considered a strategic issue at the governmental level. As a result, aquaculture is seen as an important future source of protein and there is strong support for the expansion and industrialisation of the industry.
 
 
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Figure 7: Sustainability metrics across key protein sources
 
 
Source: Norwegian University and Life Sciences (2002), Marine Harvest Salmon Farming Industry Handbook 2013
 
6.3
Activities across the salmon supply chain
 
The figure below illustrates the aquaculture value chain. Marine Harvest is active within feed, farming and value added processing, which will be described in the following.
 
Figure 8: Salmon supply chain
 

 
6.4
Feed
 
Salmonid feed is created by converting various raw materials such as fishmeal, vegetable meal, animal proteins and fish/vegetable/animal oils into fish feed.
 
6.4.1
Overview
 
Salmonid feed producers have in recent years enjoyed significant growth, driven by increased demand from salmon farmers. Furthermore, capacity has been stretched, which has allowed feed producers to earn high returns on capital. Growth is however looking somewhat more limited over the coming years, due to limited short-term opportunities for increased growth within salmon farming.
 
Historically, feed producers have relied heavily on fish meal and fish oil as ingredients for fish feed. In an effort to focus on sustainability, and in order to reduce dependency on marine ingredients, feed producers have put significant efforts into substituting fish meal and fish oil with other feed stocks such as agricultural crops and other oils. EWOS has been particularly successful with reducing the marine content in its feeds. The figure below illustrates the development in marine ingredients in EWOS’ feed:
 
 
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Figure 9: Marine ingredients in EWOS feeds
 

 
6.4.2
Industry structure
 
The three largest players in the global feed sector are Skretting, EWOS and BioMar. In addition, Marine Harvest will enter the industry through its greenfield development.
 
EWOS (Norway): EWOS is an international player in the production of feed for the fish farming industry producing primarily feed for salmon and trout. EWOS is the world’s number one supplier of salmonid feed by volume. EWOS is a part of Cermaq. EWOS has facilities in all key salmon farming regions, including Norway, Chile, Canada and the UK. In addition, EWOS has activities in Vietnam focusing on delivering feed to pangasius. EWOS delivered 1,208,000 tonnes of feed in 2012. From these operations, EWOS exports feed to a range of countries in Europe, South America, Asia, Russia, and to the U.S.
 
Skretting (Netherlands): Skretting is the world leader in the production and supply of feed for farmed fish and shrimp. Skretting has operating companies on five continents to produce and deliver feeds from hatching to harvest for more than 50 species of farmed fish and shrimp. Skretting is wholly owned by the international feed group Nutreco.
 
BioMar (Denmark): BioMar is the world’s third-largest manufacturer of quality feed for industrial fish farming.  BioMar is head-quartered in Aarhus and has production in Norway, Scotland, Denmark, France, Spain, Greece and Chile. The company is wholly owned by Schouw & Co.
 
Marine Harvest (Norway): Marine Harvest has traditionally focused on salmon farming and value added processing. In 2012, Marine Harvest however announced its intention to enter into feed production through establishment of a 220,000 tonnes facility in Norway.
 
 
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6.5
Farming
 
Salmon farming entails transforming salmon spawn into a full-grown salmon of 4-5kg over a process of 24-40 months.
 
6.5.1
Overview of key production regions
 
Location is of great importance within salmon farming, as the seawater temperature and currents have a major impact on the growth and well-being of the salmon. Salmon is a cold-blooded animal, and the optimal temperature range for Atlantic salmon is 8-14 degrees Celsius. High seawater temperatures lead to increased risk for diseases, while cold temperatures lead to mass mortality. As a result, the production of farmed salmon takes place in countries that have low and stable seawater temperatures and an extensive shoreline.
 
Figure 10: Harvest of Atlantic salmon across regions in tonnes WFE
 
 
Source: Kontali
 
Norway is by far the largest producer of farmed salmon globally and has the most developed aquaculture industries. Harvest of Norwegian salmon has grown by 10 per cent annually since 2007 and was approximately 1,183,000 tonnes WFE in 2012. The growth has been supported by an increase in the number of licenses; up from 929 in 2007 to 963 in 2012, corresponding to an annual growth of 1 per cent. The main driver of increased harvest is however related to an improved utilisation of each license. Utilisation of each license is regulated through the maximum allowed biomass, which stipulates that the biomass within each license should at no point exceed 780 tonnes WFE (945 in Troms and Finnmark). Norwegian salmon farmers have in recent years significantly increased their utilisation of each license, and are now reaching the limit of the maximum allowed biomass. Norwegian authorities are planning to issue approximately 5 per cent new license capacity during 2013. But with limited room for continued improvement of the utilisation of each license, growth is generally expected to slow down in the short term future.
 
 
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Figure 11: Utilisation of licenses in Norway
 
Source: Kontali
 
Over the last 20 years Chile has developed into one of the most important aquaculture producers globally and is now the second largest producer of salmonids. Atlantic salmon is the main specie, but there is also significant production of coho salmon and rainbow trout. Chilean production has in recent years been significantly impacted by challenging biological conditions. Disease problems in Chile started escalating after 2005 and by 2007 the consequences of a lack of focus on health management became apparent. The disease and sea lice problems resulted in poor biological performance. Mortality increased rapidly as a result of the appearance of the ISA virus and the growth of fish reduced, sharply affecting yields. As a result there was a 68 per cent drop in Atlantic salmon harvest between 2008 and 2010. In response to the biological challenges, Chilean authorities have sought to revamp the regulation of the Chilean salmon farming industry. The new regulation have strengthened the rules for revoking a license, have lowered the threshold for which events that can lead to revocation, eliminate overlapping regulatory regimes and impose potential reduction in production in cases of high density.
 
The UK has been the third largest producer of salmonids, after Norway and Chile, for many of years. However, while the production volumes have more than doubled and tripled in Norway and Chile respectively, the volume harvested in the UK has remained relatively stable over the last 10 years. The main factors that have limited the growth of aquaculture in the UK are the lack of availability of suitable sea sites and the reluctance of the regulatory authorities to grant new licenses. Despite these limitations, the high market prices following the ISA crisis in Chile fuelled optimism and harvest has increased by 3 per cent annually from 2007 to 2012. Even though production growth in the UK has not kept pace with Chile and Norway, the market is well managed with strong infrastructure and strict regulatory control. There are also well established home and export markets, most of which are willing to pay a premium price for Scottish products.
 
 
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Canada is the World’s fourth largest producer of Atlantic salmon, and has been growing by 2per cent annually from 2007 to 2012. The Canadian production has been impacted by events causing elevated mortality (e.g. algae blooms), and several Norwegian salmon farmers have experienced low profitability in Canada. Hence production growth is lower in Canada than it has been for Norway and Chile.
 
Other producers include the Faroe Islands, Ireland and Australia.
 
6.5.2
Industry structure
 
Historically, the salmon industry has been made up by many, small firms. This has been the case in Norway, and to some degree in Scotland and in Chile. During the last decade the salmon farming industry has been through a period of consolidation in all regions.
 
Figure 12: Number of players that comprise 80 per cent of production
 
 
Source: Kontali
 
The four largest salmon farmers by farming volume are Marine Harvest, Lerøy, Cermaq and SalMar.
 
Marine Harvest (Norway): Marine Harvest is the world’s largest salmon farmer, with a 2012 harvest of 392,306 tonnes HOG. Marine Harvest is present in all key production regions, but the bulk of production is from the mid and southern parts of Norway.
 
Lerøy (Norway): Lerøy is the world’s second largest salmon farmer, with a 2012 harvest of 153,403 tonnes HOG. Lerøy has predominant production activity in Norway and the UK, through its 50/50 joint venture with SalMar.
 
Cermaq (Norway): Cermaq is the world’s third largest salmon farmer, with a 2012 harvest of 119,600 tonnes HOG. In 2012, 43 per cent of sold volume derived from  Norway, 42 per cent from Chile, and 16 per cent from Canada. In 2013, Cermaq’s Chilean exposure will be greater, as the acquisition of CMC will be fully consolidated into Cermaq’s figures. Through its Chilean operations, Cermaq has significant farming of coho and trout. In 2012, Cermaq harvested a total of 16,000 tonnes HOG of coho and 12,000 tonnes HOG of trout; in combination corresponding to 23 per cent of Cermaq’s total harvest.
 
 
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SalMar (Norway): Salmar is the third largest salmon farmer in Norway, where it owns 81 licenses. Salmar also owns 50 per cent of Norskott Havbruk AS, which owns 100 per cent of Scottish Sea Farms Ltd, Great Britain’s second-largest salmon farmer with production capacity in excess of 30,000 tonnes HOG. In addition, Salmar owns 14.9 per cent of P/F Bakkafrost, a listed Faeroe Island fish farming company. Salmar operates a comprehensive processing activity, co-located with SalMar's main office at Frøya in Sør-Trøndelag.
 
6.6
Value added processing
 
Salmon processing can be divided into primary and secondary processing. Primary processing includes slaughtering and gutting and is typically undertaken by the salmon farmer. Secondary, or value added processing (“VAP”) entails removing the head, filleting, fillet trimming, portioning, marinating or cooking the salmon. Secondary processing requires different processing facilities than primary processing and is often undertaken by dedicated salmon processing companies.
 
6.6.1
Overview of key markets
 
The EU, the USA, Japan and Russia are the main markets for Atlantic salmon, as can be seen from figure below.
 
Figure 13: Demand of Atlantic salmon across markets in tonnes WFE
 
 
Source: Kontali
 
EU is the world’s largest market for Atlantic salmon. In the EU, the supply of Atlantic salmon increased from 706,700 tonnes WFE in 2007 to 914,400 tonnes WFE in 2012, constituting an annual increase of 5 per cent. Growth was especially large in 2012, where demand in the EU markets increased by 17 per cent relative to 2011. This was driven by a drop in the salmon price, as the salmon price was low in 2012 relative to other years. The bulk of the salmon supplied to the EU market is exported from Norway and the UK.
 
USA is the world’s second largest individual market for Atlantic salmon. The supply of Atlantic salmon to the U.S. market was approximately 344,800 tonnes WFE in 2012, up by an average 2 per cent annually from 2007. Growth was negative in 2007-10, due a significant drop in the supply of salmon from Chile in those years. The U.S. market is predominantly supplied by the Chilean and Canadian salmon farmers.
 
 
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Russia has during the last couple of years increased its importance as a major market for Atlantic salmon. The total supply of Atlantic salmon to the Russian market was approximately 171,700 tonnes WFE in 2012, up from 72,600 tonnes WFE in 2007, constituting a 19 per cent annual increase over a 5-year period. Norway is by far the largest supplier of Atlantic salmon to the Russian market.
 
Japan is another key market for salmon. The supply of Atlantic salmon to Japan has increased by 8 per cent annually from 2007 to 2012. Japan has traditionally had much higher seafood consumption per capita than any other country in the world. However, the major part of Japanese seafood consumption is traditional fish species. And even within salmonids, Atlantic salmon constitutes a relatively small segment in Japan compared to large trout and coho. The main suppliers of Atlantic salmon to Japan are Norway and Chile.
 
Other markets include Eastern-European countries not part of the EU, Asian countries including China and Brazil. These markets are experiencing substantial population and income growth, and the salmon markets have grown by 13 per cent annually in the period from 2007 to 2012.
 
6.6.2
Industry structure
 
The salmon processing industry is fragmented, with more than 4,000 players in Europe alone. Most of the companies are fairly small, but there are also several companies of significant size involved in the secondary processing industry.
 
Morpol (Poland): Morpol is the world’s largest salmon processor with a 2012 production of approximately 68,000 tonnes. Morpol’s major production site is located in Ustka (Poland), but the company has also been investing significantly into processing capacity in the UK, as well as slicing and packing sites in Germany and France. Morpol’s main markets are Germany, France, the UK and Italy, but Morpol also supplies frozen products to the U.S. and specialty sushi products to Japan. In addition to its value added processing activities, Morpol harvested a total 29,768 tonnes HOG of salmon from sites in Norway and the UK. Marine Harvest is the largest shareholder in Morpol, with a shareholding of 87.1 per cent as of the date of this Offer Document.
 
Labeyrie (France) is the second largest salmon processor selling most of its products to France, but Labeyrie products are also found in UK, Spain, Italy and Belgium.
 
Marine Harvest (Norway): Marine Harvest has significant processing activities of both Atlantic salmon and other species. In Europe, Marine Harvest has capacity for 60,000 tonnes of finished VAP products from facilities in France, Belgium, Holland, the Czech Republic and Poland. In the Americas, Marine Harvest has processing capacity of 13,400 tonnes from plants in the USA and Chile. In Asia, Marine Harvest produced 2,100 tonnes of finished products at its’ processing plants in Japan in 2012.
 
 
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Other noticeable players include Alfesca (Iceland), Meralliance (France), Suempol (Poland) and Friedrichs (Germany).
 
Most of the largest players are basing their processing on Atlantic salmon, producing smoked salmon, portions or ready meals with different packing as vacuum or modified atmosphere.
 
According to Kontali Analyse, in the EU in 2009 more than half of the Atlantic salmon went to retailers, while 45 per cent went to hotels, restaurants and catering. Of whole salmon and salmon fillets almost 2/3 were sold as fresh fish and about one third as frozen. In the EU, salmon fillets and smoked salmon have an equal market share of 32 per cent each, while whole fish has about 19 per cent.
 
Figure 14: European smoked salmon producers (2012E)
 
 
Source: Kontali Analyse
 

 
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7
PRESENTATION OF MARINE HARVEST
 
7.1
General
 
Marine Harvest ASA is a public limited liability company organised and existing under the laws of Norway, registered with the Norwegian Register of Business Enterprises under business registration number 964 118 191 and with headquarter and registered business address at Sandviksbodene 77 A/B, 5035 Bergen, Norway. The Company’s main telephone number at that address is +47 21 56 23 00 and its website can be found at www.marineharvest.com.
 
Marine Harvest is the world’s leading seafood company and largest producer of farmed salmon with in total 6,389 employees and revenues of NOK 15,464 million in 2012.
 
The Shares are listed on Oslo Børs under the ticker “MHG” and are registered in the VPS under ISIN NO0003054108.
 
See section 7.5 “—Business overview” for a description of Marine Harvest’s business.
 
7.2
Legal structure of Marine Harvest ASA and its subsidiaries
 
7.2.1
Consolidated entities
 
The Company has ownership interest in the following companies as of the date of this Offer Document:
 
Company
 
Country
 
Ownership per cent
         
SUBSIDIARIES – NORWAY
       
Marine Harvest Holding AS
 
Norway
 
100
Marine Harvest Norway AS
 
Norway
 
100
Marine Harvest Ingredients AS
 
Norway
 
100
Sterling White Halibut AS
 
Norway
 
100
Marine Harvest Minority Holding AS
 
Norway
 
100
Marine Harvest Labrus AS
 
Norway
 
100
         
SUBSIDIARIES – AMERICA
       
Marine Harvest North America Inc.
 
Canada
 
100
Marine Harvest Canada Inc.
 
Canada
 
100
Englewood Packing Company Ltd.
 
Canada
 
100
Marine Harvest Chile S.A
 
Chile
 
100
Ocean Horizons S.A
 
Chile
 
100
Fjord Seafoods Chile S.A
 
Chile
 
100
Cultivadora de Salmones Linao S.A
 
Chile
 
100
Salmones Americanos S.A
 
Chile
 
100
Salmones Tecmar S.A
 
Chile
 
100
Salmones Lican S.A
 
Chile
 
100
Processadora De Productos Marinos Delifish S.A
 
Chile
 
100
Salmoamerica Corp
 
Panama
 
100
Aquamerica International Holdings S.A
 
Panama
 
100
Panamerica International Holdings S.A
 
Panama
 
100
Marine Harvest USA Holding LLC
 
USA
 
100
Ducktrap River of Maine LLC
 
USA
 
100
Marine Harvest USA LLC
 
USA
 
100
 
 
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Company
    Country     Ownership per cent
         
SUBSIDIARIES – ASIA
       
Marine Harvest China Co. Ltd.
 
China
 
100
Marine Harvest Hong Kong Cy Ltd.
 
Hong Kong
 
100
Marine Harvest Japan Inc.
 
Japan
 
100
Marine Harvest Food Service Inc.
 
Japan
 
100
Marine Harvest Korea Co. Ltd.
 
Korea