Johannesburg - Sovereign Food Investments’ share price gained more than 16.55 percent on the JSE yesterday, following news that the unlisted company, Country Bird Holdings (CBH), had made an offer to buy the remaining share of the company.
Country Bird currently holds a minority 9.75 percent stake in Sovereign Food Investments. Sovereign Foods said the company was not in a position to comment.
Country Bird wants to increase its role in the poultry industry in the country as it currently holds 7 percent of the broiler industry in SA, which is dominated by Astral and Rainbow according to the 2013 Best SA Exporters statistics. It has proposed buying out all Sovereign shareholders at R9 a share.
Explaining why Country Bird decided to make an offer instead of building up a minority stake, chief executive Marthinus Stander said: “We require executive and management control, in order to best extract value from the acquisition.”
Stander said they would try to push through the bid even though they were not convinced that the shareholders would accept their offer.
Opportunity
“We do not know, but we believe this is a solid offer in tough times for the industry. We have been consistently trying to talk to the Sovereign board. Talks never materialised, but we will now have the opportunity to engage with Sovereign shareholders. They can then decide for themselves,” Stander said.
The offer by CBH values Sovereign at about R685 million.
Ian Cruickshanks, an independent analyst, said: “The buyout has been expected to happen for a long time. I don’t know why it has taken this long. It is beneficial for both the players and the industry as a whole.
“We know the competition our poultry producers are facing from poultry importers. It is a fair offer made by Country Bird in my opinion, as it will combine two poultry producers and make them competitive in the tough environment they operate in.”
Cruickshanks said the merger was the best option available as local poultry producers found it difficult to compete with importers on equal terms. “With the share price climbing more than 15 percent… the shareholders might be supporting the deal,” Cruickshanks said.
Daniel Isaacs, an analyst at 36ONE Asset Management, said: “I think consolidation in the industry is inevitable given the considerable pressures the poultry industry is facing.”
Tough environment
Stander said if the offer was accepted by the shareholders they would endeavour to extract the maximum from the combined capabilities and capacities provided by the sum of the two companies.
“This will provide better sustainability in a tough poultry environment,” he said.
Stander said Country Bird wanted Sovereign Food not to implement the black economic empowerment (BEE) scheme. “We believe the so-called BEE scheme is designed to create negative control, entrenching the current management team.”
Sovereign Food shares rose 16.55 percent on the JSE yesterday to close at R8.38.
BUSINESS REPORT