Fees endanger Sovereign’s future
• Fight to stave off Country Bird hostile bid results in headline loss
Country Bird Holdings chairman Kevin James said the hefty legal and advisory fees notched up by Sovereign Foods were jeopardising the company’s future.
Country Bird Holdings (CBH) chairman Kevin James says the hefty legal and advisory fees notched up by Sovereign Foods are jeopardising the company’s future.
James was speaking after Sovereign released a trading update, advising shareholders of an expected headline loss of between 42c and 54c a share for the year to February 2017, compared with headline earnings a share of 108.4c in the previous year.
Sovereign’s announcement revealed that the expected 2017 loss includes R 31.4m, equivalent to 41.2c a share, of legal and advisory fees relating to the board’s efforts to defend itself from a hostile bid by CBH. Sovereign is in a closed period.
Despite the trading statement, Sovereign’s share price remained unchanged at 900c on Tuesday. Analysts said the share price was underpinned by expectations that CBH would increase its offer in a bid to secure control of the company.
R 31.4m is the amount Sovereign spent on legal and advisory fees to fight off Country Bird’s hostile bid
Vunani Securities analyst Anthony Clark said it was reasonable to expect a board and management team to fight to stay independent.
“But for executives of a small company to spend an eyewatering R 31.4m to protect themselves is staggering.”
Not included in the R 31.4m are expenses related to the board’s decision to take the Competition Commission’s approval of a merger between CBH and Sovereign on review.
At the halfway stage, Sovereign management reported a headline loss of 48.8c a share compared with headline earnings of 89.7c a share for the 2016 interim. Clark said at that stage sales were up 35%.
However, competition and the effect of the drought on input prices turned it into a decline at earnings level. Input prices have eased back and the rate of imports has abated but this may be too late to help the secondhalf operational performance.
Particularly galling for James is that CBH’s 34.1% stake in Sovereign means it will be sharing the burden of the legal and advisory fees that were incurred to fight off the bid.
“It’s ridiculous that the shareholders are allowing the executives to spend this sort of money protecting their position,” said James. He said CBH had been unsuccessful in its bid to engage with the Sovereign chairman and CEO.
In October 2016, the Takeover Regulation Panel (TRP) ruled that CBH’s 900c-a-share offer for Sovereign, launched in July 2016, had lapsed in September. This meant CBH could not make another offer or take its holding above 34.9% until September 2017.
After the TRP ruling, Sovereign filed a review application with the Competition Commission in a bid to have set aside the commission’s finding that the merger would not be anticompetitive.
Clark said that as CBH remained intent on the acquisition and Sovereign determined to block the bid, CBH’s 900c offer would probably have to be increased to get the necessary shareholder backing.
41.2c is what this loss equates to per share