Poultry Company Deals to Boost Market Competition

SOUTH AFRICA - Market watchers think a new rival - Country Bird/Sovereign/Afgri - is soon to arrive on the poultry scene to rival Astral Foods and Rainbow Chickens.
calendar icon 18 May 2009
clock icon 3 minute read

It's all happening in the local poultry sector, reports Fin 24 of South Africa, and market leaders, Astral Foods and Rainbow Chickens, may well be looking at an early-stage formation of a significant rival company.

Last week, poultry group Country Bird Holdings (CBH) announced it had acquired a 13.4 per cent stake in Uitenhage-based chicken producer, Sovereign Food Investments, according to the same source. This was achieved by buying shares on the open market over the last six months.

At the time, Fin24 said it would be surprising if CBH did not follow up its initial foray in Sovereign with a full take-over offer.

However, CBH's announcement was followed a day later by another announcement, this time detailing plans by agribusiness Afgri to reverse list its Afgri Foods business into Sovereign.

Afgri Foods – comprising poultry (Daybreak Farms and Midway Chix) and feed interests – is valued at some one billion rand (ZAR). The proposed transaction will see Afgri owning 77 per cent of Sovereign, and the merged entity would rank as the third largest poultry producer in South Africa.

For CBH, the Sovereign/Afgri transaction means holding a significantly smaller stake – perhaps three or four per cent – in a larger entity.

While this may not be a bad thing economically speaking, Fin24 says it raises questions around whether CBH still wants to pursue consolidation opportunities in the poultry sector. More succinctly, would CBH consider making a counter offer?

Speaking to Fin24.com on the weekend, CBH financial director, Robbie Taylor, said a counter offer would probably be in "everybody's best interest".

While a bidding war between CBH and Afgri would certainly be in the interests of Sovereign shareholders (who have seen their company's shares languishing since mid-2008), could there be an alternative arrangement that suits all three companies?

Fin24.com believes that a three-way merger between CBH, Sovereign and Afgri Foods could create enormous shareholder value going forward in terms of economies of scale, geographical foot prints, improved marketing, cost savings and increased competitiveness.

But clinching a three-way merger would be a remarkable achievement, knowing that strong corporate personalities often battle to agree on the terms and conditions that need to be tagged to a deal of this nature.

In the interview, Mr Taylor acknowledged that there is merit in forming a large poultry player that could match both Astral and Rainbow Chickens in size.

"If there are more players of equal size in the local poultry industry, it would certainly be better for competition."

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