New twist in battle for Sovereign control

SOVEREIGN Food Investments’ share price hit a record high of R9.70 on Monday, prompting speculation of moves afoot to challenge the R9-per-share offer from Country Bird Holdings (CBH).

The spike in the share price came in the wake of the release on Monday of a trading update by Sovereign, which showed that in the six months ended-August management had coped reasonably well with the tough trading environment.

The share price ended at R9.30, the same as on Friday. Unfortunately for the board, the performance was not sufficient to avoid the devastating effect of cheap imports and the drought. The company is expected to report a loss of 38.5c-56.5c per share for the six months. In the previous interim period, Sovereign reported earnings of 89.6c per share.

The operational update is good news for Sovereign shareholders, but better news lies in the possibility of an attempt to frustrate CBH’s bid to get control, according to analysts, who declined to be named.

While it is difficult to imagine who might be behind such a bid, which would primarily benefit Sovereign’s incumbent management team, it would ensure the share price continued to outperform its much stronger competitor, Astral. Analysts say that, given the tough trading conditions now and for the medium term, the CBH bid is the only thing supporting the Sovereign share price at its current level.

CBH has confirmed it had acquired 34.9% of Sovereign, and related parties hold an additional 15.1%. In most situations, this would give it a clear run at control. But every inch of the battle for Sovereign has been hotly contested, and commentators say control will not be settled until one party holds more than 75%. Less than 75% would mean the dominant shareholder could not guarantee the passing of special resolutions.

Commenting on the trading update, Vunani analyst Anthony Clark said operationally the company performed well, with the ongoing benefits of the Gauteng business adding to sales volumes and improvement in the Eastern Cape plant. But intense competition and the effect of the drought led to a hefty decline in profit. “Financial 2017 will not be pretty either,” Clark said.

The update noted that if the controversial empowerment transaction initially proposed by management in December 2015 were implemented, the loss would be 38.5c-47.5c per share. Without the transaction, which included a share repurchase, the loss would be 47.5c-56.5c per share.

Control will not be settled until one party holds more than 75%