Hard work, soft touch

Plant­ing a seed for cor­po­rate change in agribusi­nesses

Finweek English Edition - - Companies & markets - MARC HASENFUSS

PSG’S ZEDER IN­VEST­MENTS is find­ing that plough­ing for op­por­tu­ni­ties in the lo­cal agribusi­ness sec­tor re­quires some hard toil­ing and some del­i­cate diplo­macy.

Zeder CEO An­tonie Ja­cobs ad­mits as much: “It’s not easy to ac­quire shares in agribusi­nesses. Some­times you have to go through a ten­der process, which only hap­pens once a month. Other times you are faced with re­stric­tions on buy­ing shares, like hav­ing to be a farmer to qual­ify for shares.”

So is Zeder, which has in­di­cated a will­ing­ness to se­cure stakes of around 20% in a variety of agribusi­nesses, re­ally go­ing to work?

Clearly the mar­ket, which has marked the share up en­thu­si­as­ti­cally since list­ing in early De­cem­ber last year, thinks Zeder is go­ing to un­lock con­sid­er­able value from its un­der­ly­ing in­vest­ments. Over 50m shares have changed hands since list­ing, rep­re­sent­ing a chunky 10% of the is­sued share cap­i­tal.

The latest quar­terly up­date from Zeder shows that the group is mak­ing steady progress in build­ing up its ar­ray of agribusi­ness stakes. There are no ma­jor

Zeder has in­di­cated a will­ing­ness to se­cure stakes of around 20% in a variety of agribusi­nesses.

port­fo­lio shifts, but rather a strength­en­ing of a variety of po­si­tions.

Cur­rently Zeder has a 14% stake in liquor group KWV Lim­ited and owns around 5% of Swart­land-based Pi­o­neer Foods. Col­lec­tively th­ese two in­vest­ments – each val­ued at close to R250m – make up roughly 80% of Zeder’s port­fo­lio (ex­clud­ing the cash pile).

Net as­set value on 31 Oc­to­ber – as re­flected in the snap­shot fi­nan­cials used in the list­ing – was 212c/share. One can as­sume – not­ing the up­ward shift in KWV shares – that that fig­ure must now be be­tween 230c/ share and 250c/share.

At this stage de­trac­tors may ar­gue that Zeder is sim­ply a play on KWV and Pi­o­neer – a back­door en­try to th­ese two wellestab­lished (and highly prof­itable) un­listed ven­tures.

That, how­ever, would be un­fair at this early stage of Zeder’s cor­po­rate life.

The re­main­der of the port­fo­lio re­flects rel­a­tively small (but hardly ir­rel­e­vant) stakes in clas­sic “old co-oper­a­tive” com­pa­nies – most no­tably Kaap Agri (5%), Sen­wes (2,7%), KLK Land­bou (7%), OVK Op­er­a­tions (5,9%), Suid­wes In­vest­ments (2,3%), BKB (2,7%) and NWK (2,9%).

It seems prob­a­ble that Zeder has a bet­ter chance of in­creas­ing its stakes in some of the smaller agribusi­nesses in the months ahead. We say this be­cause more than a few share­hold­ers in KWV and Pi­o­neer would prob­a­bly opt to re­tain their shares in th­ese com­pa­nies not only for the strong div­i­dend flows but also for a pos­si­ble list­ing in years to come.

Most of the smaller agribusi­nesses in Zeder’s port­fo­lio – with the ex­cep­tion of Sen­wes (which has hinted at a JSE list­ing) – will prob­a­bly not be head­ing for the JSE at any time soon. Swop­ping illiq­uid shares in a re­gional based agribusi­ness for shares in the more di­ver­si­fied and in­fin­itely more liq­uid Zeder does seem an at­trac­tive op­tion.

If the Zeder share price heads higher – which would sug­gest main­stream in­vestors are grasp­ing the un­der­ly­ing strat­egy – more farmer-share­hold­ers may con­sider swop­ping their in­di­vid­ual agribusi­ness in­vest­ments for Zeder pa­per.

Ob­vi­ously one of the big­gest chal­lenges for Zeder is to build trust in the lo­cal farm­ing com­mu­ni­ties. Per­haps sig­nif­i­cantly, PSG chair­man and Zeder ex­ec­u­tive di­rec­tor Jan­nie Mou­ton was last month ap­pointed to the board of KWV, an or­gan­i­sa­tion that ini­tially (at least in me­dia ad­ver­tise­ments) dis­played some trep­i­da­tion about Zeder’s in­ten­tions.

One might ar­gue that if KWV opens its board­room door, oth­ers may fol­low.

Ja­cobs, how­ever, is at pains to stress that Zeder does not want to be per­ceived as a hos­tile or op­por­tunis­tic cor­po­rate by the farm­ing com­mu­ni­ties. “We sim­ply want to be a share­holder of ref­er­ence.”

In other words, Zeder wants to use its sig­nif­i­cant in­flu­ence as a ma­jor share­holder in the var­i­ous agribusi­nesses to be a cat­a­lyst for change – a process that will hope­fully add value to as­sets that have been built up over decades.

This could mean in­duc­ing cor­po­rate ac­tion – like we are see­ing at Sen­wes and Suid­wes at the mo­ment and are likely to see with BKB and Grainco shortly.

Ja­cobs says: “We are con­stantly on the road, talk­ing to farm­ers. Most prob­a­bly change will hap­pen…what you mustn’t do is try and achieve this change overnight.”

So far no other com­pa­nies in which Zeder has built mean­ing­ful stakes have in­vited any of the group ex­ec­u­tives aboard.

Ja­cobs says: “We won’t vote our­selves in…they (the com­pa­nies) must in­vite us in. Hope­fully in the next two years we will have board rep­re­sen­ta­tion in most of the com­pa­nies in which we hold stakes.”

As for new op­por­tu­ni­ties for Zeder, Ja­cobs notes: “There are still op­por­tu­ni­ties…but they are scarce. There might be other sit­u­a­tions we can take a look at…. es­pe­cially if con­trol struc­tures go.”

He says Zeder is look­ing mainly at es­tab­lished un­listed ven­tures span­ning the agri­cul­tural, bev­er­age, food and re­lated sec­tors. “At the mo­ment we are avoid­ing start-ups and con­cen­trat­ing on es­tab­lished ven­tures with good track records.

“We won’t spend our cash on silly things…if there’s noth­ing worth­while to in­vest in we’d rather wait longer for the right op­por­tu­ni­ties.”

Ja­cobs also stresses that Zeder’s port­fo­lio hold­ings are not sub­ject to any hard and fast hold­ing pe­riod rules and will be con­tin­u­ously as­sessed against avail­able op­por­tu­ni­ties. List­ings and pro­pos­als to fa­cil­i­tate trans­ac­tions could trig­ger such as­sess­ments, which one would as­sume could re­sult in spe­cial dis­tri­bu­tions to share­hold­ers if no new in­vest­ment op­por­tu­ni­ties are in sight.

Still ,it’s early days for Zeder and the real po­ten­tial of this spe­cialised in­vest­ment com­pany may only be­come ap­par­ent by mid2008 once the un­der­ly­ing port­fo­lio starts tak­ing a strate­gic shape.

Un­til then, Fin­week re­gards Zeder as a most in­ter­est­ing in­vest­ment ve­hi­cle and a share that in­vestors with a pen­chant for left­field op­por­tu­ni­ties can ac­cu­mu­late with some vigour.

We won’t vote our­selves in. An­tonie Ja­cobs


Source: I-Net Bridge

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