CBH moots reverse listing into Sovereign

Poultry group Country Bird Holdings (CBH) flighted the possibility of a reverse listing into smaller rival Sovereign Food Investments on Tuesday after news emerged that a rival private equity bid had strong support from shareholders.

CBH holds a 34.1% stake in JSE-listed Sovereign and has made its takeover ambitions clear over the past 18 months. But in a recent twist, CBH is now being wooed by private-equity player Capitalworks, which already has the support of 54% of the Uitenhage-based poultry company’s shareholders for a R12 per share buyout offer.

Speaking at Sovereign’s annual general meeting, CBH CEO Marthinus Stander complained that Sovereign executives had not properly engaged with his company. “Having not had the opportunity to engage with you, how can you come to the conclusion that it [CBH’s bid] is not beneficial to Sovereign shareholders?”

Stander said CBH had exhausted all options in trying to engage with the Sovereign board. “You have not heard our views as a chicken producer about how value can be created for the two companies.

“We have never sat across the table to explain our plans … potentially a reverse listing of CBH into Sovereign.”

Sovereign CEO Chris Coombes maintained there had been engagement, but Stander countered that this had only been by correspondence.

Coombes stressed there was no onus on Sovereign to engage with CBH in any other manner.

Sovereign, in its latest annual report, outlined plans to expand operations markedly and diversify its rand-based earnings.

On paper, CBH — with a turnover of about R4.4bn and sizeable operations in several African countries — could help Sovereign rapidly realise its strategic goals.

But events at the annual meeting suggest Sovereign

executives view CBH as a competitor that should be kept at arm’s length rather than a strategic shareholder.

Stander contended that without proper engagement, the annual meeting was the only platform allowing a major shareholder to question executives. He asked for details on Sovereign’s plan to expand production at its Hartbeespoort plant in Gauteng and questioned the realism of its plans to rapidly expand its foreign exchange earnings.

Coombes replied that strategy was a process.

“As you are a competitor, we won’t share this with you.”

Speaking after the annual meeting, Stander said CBH was faced with two choices: pitch a higher buyout offer in September in a bid to trump the Capitalworks offer or accept the Capitalworks buyout offer. It was unlikely CBH would remain a shareholder in Sovereign in an unlisted environment, he said.

Capitalworks plans to delist Sovereign from the JSE if its offer is successful. CBH would make a neat profit on its Sovereign shareholding if it accepted the Capitalworks offer. But it would be the second time in 10 years that CBH retreated from a takeover attempt on Sovereign, having last tilted at the business in 2008.

Stander argued that Sovereign executives were not acting in the best interests of shareholders by intimating CBH was the “big bad wolf. We worked together well in the past.”

Sovereign chairman Tom Pritchard said the board had full confidence in its management team. “This is the best management team in the country.”

Opportune Investments CEO Chris Logan pointed out that, despite claims of having the best management team, Sovereign’s RoE (return on equity) was just 6.4%. “The company used to highlight a 15% RoE target. With hindsight, was this unrealistic?”

Pritchard was optimistic that Sovereign, with the additional scale offered by the Hartbeespoort plant, would improve its RoE markedly.

The meeting also had some prickly moments, most notably when Stander asked why Sovereign no longer contributing funds to the South African Poultry Association (Sapa). He asked pointedly: “Is this anything to do with my role at Sapa?”

Stander is a board member of Sapa and a former chairman.

Coombes said the question was out of line.

Stander also asked why Sovereign did not take the opportunity to buy feed from CBH subsidiary Nutrifeed in relation to the Hartbeespoort operation. “This could have saved millions?”

Coombes said this was a commercial decision.

“There is no need to secondguess the decisions of the management team,” he said.