Hard work, soft touch
Planting a seed for corporate change in agribusinesses
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