Rainbow Chicken expands wings

Published Nov 15, 2012

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Nompumelelo Magwaza

In a bid to spread its wings in the consumer goods sector, Rainbow Chicken has bought a 64.2 percent stake in Foodcorp for about R1 billion, a deal which will add popular brands to its basket.

The chicken producer said yesterday that the deal with Foodcorp, which owns brands such as YumYum peanut butter, Ouma Rusks, Pieman’s meat pies, Sunbake breads, Nola mayonnaise, Mageu No.1, Bobtail and Dogmor pet food, would help it get closer to the fast-moving consumer goods sector and also grow its brand footprint elsewhere in Africa.

Foodcorp management would retain a 23.9 percent holding in the company and would continue to manage the company’s day-to-day operations. The company sells about 200 million loaves of bread, 280 000 tons of flour, 120 million pies, and 60 million litres of Mageu No.1 a year.

In January last year, the company announced its plans to restructure the company into two operating units, Rainbow and Vector Logistics. The two operating units would each be managed by its own board and managing directors.

Chief executive Miles Dally said the group was looking to transform the company to a consumer and brand-driven business. “When we restructured the company last year, part of the rationale in doing so was that we could look at growth opportunities. I believe that in order to carry long-term value, we can do it through brands.”

In the past 10 years, the company has been building its consumer brands. Dally said this was evident when the Simply Chicken brand hit supermarkets’ shelves. “This brand has become a phenomenal brand and number one in the market.”

The Foodcorp transaction would allow Rainbow Chicken to diversify and enter new attractive food categories with a range of market-leading brands while harnessing synergies and economy of scale benefits.

The deal would enable the group to combine strengths in consumer insight to support product innovation and development. Dally said Rainbow Chicken had done a lot of work increasing its chicken supply to KFC and Chicken Licken.

“We will not move away from our chicken business, the only thing that we have done was that we have broadened our brand basket which will give an opportunity to diversify our earnings.”

Dally agreed that the poultry industry was facing the challenges of rising input costs and cheap imports, saying this deal would present diversified earnings outside of chicken.

The transaction was also an important step for the group to pursue compelling acquisitions of consumer brands in South Africa and sub-Saharan Africa.

Ross Heyns, an equity analyst at Kagiso Asset Management, said Rainbow had been repositioning itself over the last number of years away from the pure commodity side of the poultry business and had been increasing its exposure to value-added products and chicken supplied to quick-serve restaurants.

“While the Foodcorp acquisition is a strategic shift for Rainbow, it is in line with the business’ strategy to try and reduce its exposure to the volatility inherent in the commodity broiler business,” Heyns said.

Coronation Fund Managers analyst Jason Kombo said although the Foodcorp deal was not expected, Rainbow had communicated its appetite to grow the business.

Kombo said the acquisition would bring further diversification and defensiveness to the group. The integration would be relatively easy as the management of Foodcorp remained in the business and both companies were in the food space.

Shares closed 3.7 percent higher at R13.79 yesterday.

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