Fight or flight?
Country Bird could up its offer to buy the shares in Sovereign it doesn’t already own, or, as once before, give up the attempt
Will unlisted poultry group Country Bird Holdings (CBH) fly the coop at listed rival Sovereign Food Investments?
Last week private equity firm Capitalworks made a surprise takeover play for Sovereign, in which a predatory CBH holds a commanding 34.1% stake.
CBH has made it abundantly clear that it is determined to gain outright control of Sovereign after pitching a 900c/share takeover offer last year. But it can only make a new bid for Sovereign in midseptember.
In the meantime Capitalworks has thrown the cat among the birds with a R12/share offer — a proposal that has received support from more than 50% of Sovereign’s shareholders, which include longtime institutional shareholders such as Prudential.
On a fundamental basis the offer by Capitalworks, which has previous food sector experience through a 2012 investment in Rhodes Food Group, is attractive. The R12/share offer represents not only a premium to the volume weighted average price for Sovereign’s shares (30 days prior to the deal being announced), but, more importantly, it’s a hefty 30% premium on the 900c/share takeover offer tabled by CBH last year.
The question now is whether CBH — whose advances have been strenuously resisted by Sovereign executives and certain institutional shareholders — will abandon its takeover ambition.
This would be the second capitulation by CBH at Sovereign in less than 10 years. In 2008 CBH aggressively built a significant minority stake in Sovereign — but sold out after Sovereign opted to embark on a rights issue to raise fresh capital.
Noting the support of more than 50% of Sovereign shareholders for the Capitalworks proposal, poultry sector sources reckon CBH could throw a curve ball by pitching a higher offer.
An offer for the shares it does not already own in Sovereign could cost CBH more than R600m, but there would be significant costcutting synergies in feed procurement, production, marketing and distribution.
On the other hand, some market watchers believe there would be no dishonour in CBH accepting the offer by Capitalworks. CBH’S average price to build its stake in Sovereign is probably about 850c/share, meaning a highly profitable exit at the Capitalworks offer price of R12/share.
The proceeds earned from selling the Sovereign stake could then be mobilised for other poultry opportunities — possible Zedercontrolled Quantum Foods or even parts of RCL’S Rainbow Chicken.
Of course, Sovereign — possibly geared up by Capitalworks — could well be swooping on the same poultry assets. The company’s recent annual report hinted that acquisitions were under consideration.