ABF’s offer of R25 per share undervalues Illovo — analyst
ASSOCIATED British Food’s (ABF’s) takeover bid for Illovo Sugar may need to be sweetened to make it more palatable to minority shareholders.
UK-based ABF, a diversified retail group, announced on Friday its firm intention to acquire the remaining 48.65% of Illovo shares at a cash consideration of R25 per share.
Anthony Geard, an analyst at Investec, said the R25 share price offer undervalues Illovo, Africa’s largest sugar producer.
“It is true that the share price traded a lot lower, but that is a poor reflection of what the stock is actually worth,” he said.
“I think replacement cost for Illovo would be about R50 and the stock has traded in the mid30s and I think your prospects for the sugar industry look very good over the next few years, particularly because of a likely multiyear deficit in the world sugar market,” Mr Geard said.
In the mid-2013, Illovo’s shares traded at a high of about R38, while competitor Tongaat Hullett reached a high of about R126 in October last year.
In 2006, when ABF acquired its 51% majority stake, it offered R21 per share, which represented a 42% premium to the share price. The bid for the shares it does not already own is lower than the 2006 initial offer and comes in at a 36% premium.
But on Friday, ABF chief financial officer John Bason said: “The Illovo board obtained an independent fair and reasonable deal of the value of the share ... this is a price that is deemed fairly reasonable and acceptable to the stakeholders in Illovo.”
ABF’s offer will value the remaining 224.2-million shares at R5.604bn and represents 1% of the group’s market capitalisation of £26.8bn.
The retailer, the 22ndbiggest company on the London Stock Exchange, has sugar operations in China, Europe and subSaharan Africa, which represented £1.818m of adjusted operating profit last year, according to ABF’s annual report.
Illovo CEO Gavin Dalgleish said: “ABF have always conducted themselves as members of our board in an exemplary way. We’ve worked very effectively with the ABF teams, and that’s certainly helped us and assisted us in many investments.”
But Mr Bason said he wanted Illovo to maintain a low-cost base to improve competitiveness. “We’ve enjoyed a 10-year relationship with Illovo ... The importance here is about making sure that Illovo remains a low-cost producer of sugar. The world of sugar is a tough one; there is a lot of competition on a global basis out there.
“ABF invested here because of the growth potential; it’s not easy growth, but it is the growth potential that we are interested in,” Mr Bason said.