PRUDENTIAL Investment Managers, the largest shareholder in Sovereign Foods, with a 22.3% stake, says it is "not wedded" to its Sovereign investment, and would consider any fair offer for the shares.
In a veiled reference to recent attempts by Country Bird Holdings executive director Kevin James to persuade some of Sovereign’s institutional shareholders to sell, Prudential spokeswoman Lynn Bolin said the offer would have to be a public one, and the company would "not negotiate through backroom discussions".
It gave no indication of what would constitute a "fair value", only that Prudential was "determined to protect shareholder value". Other Sovereign shareholders indicated that the price needed to sell could range between 850c and R12.
On Thursday, Country Bird CEO Marthinus Stander said that since February 2, Sovereign had declined all requests to engage.
He said the current environment threatened the sustainability of poultry producers in SA.
Stander was referring to the worst drought on record, high input costs, record levels of dumping of portions, a highly constrained consumer and water and electricity problems.
"The worst is still to come and consolidation within the industry is inevitable, but does provide opportunity," said Mr Stander, adding that Country Bird and Sovereign had good synergies.
"We think together we stand a better chance of not only addressing the challenges, but also converting specific and attractive market opportunities," he said.
Anthony Clark, of Vunani Securities, estimated a merged entity could save between R40m and R60m a year in head office-related costs — including a JSE listing, auditing fees and executive management costs — and there would be joint procurement savings.
However, Mr Clark said if something were to happen, it had to be within the next few months before Sovereign’s black economic empowerment (BEE) transaction was finalised. That transaction was designed to secure control of the company in the hands of management and BEE shareholders.
At this stage, the only likely bidder was Country Bird, whose controlling shareholders had built up a stake of about 10%.
This was Country Bird’s second tilt at Sovereign. In 2008, it built up a 23% stake around the time Sovereign was planning to merge with Afgri in a bid to get scale and secure control. Hostility between Country Bird and Sovereign management resulted in the former dumping their Sovereign shares and walking away in 2010, but not before they had scuppered any chance of a tie-up between Sovereign and Afgri.
Mr Clark said it was now time for Country Bird to "put up or shut up". If it walks away this time, it could not come back, as a third tilt at the company would not be taken seriously. (A sale of its 10% stake at current prices would be at a significant loss for the Country Bird shareholders.)
The combined entity would have a market share of about 10%, significantly less than the major competitors Astral (19%), Rainbow (17%), and imports (26% and growing). So, there would be few issues with the competition authorities.
Despite Mr Standers and Mr James’s promerger sentiments, it was unclear whether Country Bird’s shareholders actually had the funds for an offer, that, given the circumstances, would be hostile.
Mr Clark said an offer pitched at 850c could succeed. This offer, which was comfortably above the current market price of 650c, was in line with the "fair value" buyback offer initially put to the shareholders at the first scheme meeting on January 14, when the company was set to buy back 10% of its shares. The second scheme, due to be voted on by shareholders at a meeting earlier this week, pitched a 5% buyback offer, at a "fair value" price of 719c.
Long-term investor Asief Mohamed, of Aeon Investment Management, said he would want more than R12 to sell. "Last year’s earnings would have been 150c a share if management hadn’t awarded themselves that bonus; R12 is a reasonable p:e (price-earnings ratio)," he said.
It would also be in line with Sovereign’s net asset value.
But Chris Logan, one of Sovereign’s dissenting shareholders, said the net asset value was meaningless in the current market conditions. He would be happy with 850c, which was what he was hoping to get when he applied for appraisal rights ahead of the January 14 meeting.
"In the year to February 2017, Sovereign will probably make losses," he said.
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