Sovereign to get third crack at deal

SOVEREIGN Foods’ shareholders will head back to Port Elizabeth in July to vote on the third and probably final attempt to implement a deal.

If shareholders approve this scheme, it would put an end to any hope that Sovereign competitor Country Bird Holdings (CBH) will launch a hostile bid for control, at which stage the share is expected to fall to about 600c.

Expectations that CBH’s major shareholder, Kevin James, will make a last-minute bid for control has held Sovereign at about 700c since the original shareholder transaction was withdrawn. The initial transaction put to a shareholders’ vote in January was abandoned when too many dissenting minority shareholders demanded to be bought out.

The original plan was to create a trust with a 27% controlling stake in Sovereign. The dominant members of that trust would be the executive management team and newly introduced BEE shareholders.

In a bid to counter the dilutive affect of issuing shares to the new BEE partners, the chicken producer planned to repurchase 10% of its shares at 850c apiece.

In terms of the new Companies Act, the 10% buyback meant dissenting shareholders could demand to be bought out at a “fair value”.

In January, 85% of the shareholders voted in support of the scheme, and 11% applied to be bought out.

The bill for the repurchase and the appraisal rights was too steep, and the company decided to abort the scheme.

A second attempt ran foul of the high court, which ruled that the Sovereign board had deprived dissenting shareholders of their rights.

The latest version of the scheme retains the main aspects of the initial proposal, but the share repurchase, which is still pitched at 850c, has been reduced to 5%.

Dissenting minority shareholder Albie Cilliers, who joined a legal challenge to the second scheme, said he was happy about the introduction of BEE shareholders, but continued to oppose the creation of a control pool that included management.

Cilliers fears the share will weaken as soon as the deal is finalised and the company protected from a hostile bid.