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South African Poultry Company Merger Stumbles

by 5m Editor
24 July 2009, at 8:28am

SOUTH AFRICA - An investment analyst says that merger talks between Sovereign Food and Afgri may have come to a halt as rival, Country Bird, has been acquiring a growing stake in Sovereign.

Poultry producer, Country Bird, has possibly killed talks between Sovereign Food Investments and Afgri, according to Business Report of South Africa. Country Bird might have done this by steadily acquiring a stake in Sovereign, which could enable it to block a possible merger between Afgri's food business and Sovereign.

This is the view of Alistair Lea, a portfolio manager at Coronation Fund Managers, who said Country Bird started acquiring shares after initial talks between Sovereign and Afgri started in May.

Last month, Country Bird increased its stake from 13.4 per cent to 22 per cent, steadily tightening its grip on the company.

"By now Country Bird has a shareholding of almost one quarter in Sovereign, which may have led to Afgri's decision to withdraw its proposal," Mr Lea said.

Afgri had valued Sovereign at 305 million rand (ZAR) for its proposed transaction to reverse list its food division into the integrated poultry producer. It valued Afgri Foods at ZAR1.02 billion. The deal would have created the third-largest poultry operator and resulted in significant synergies and cost savings.

Country Bird said in May that it was considering extending an offer to all shareholders of Sovereign, which might exclude Afgri.

"Afgri has probably realised that it would not be able to get this deal through," Mr Lea said. Shareholders of Sovereign were advised that some of the conditions precedent to the Afgri deal had not been fulfilled. Sovereign said these conditions were unlikely to be met. The companies declined to say what the conditions were.

Mr Lea added that when Country Bird bought its initial 13.4 per cent stake in Sovereign, it considered this a "ticket to talks".

The Business Report article continues that Sovereign's board said it would explore other strategic options, which included further talks with Country Bird.

Shares in Sovereign leapt 10.78 per cent to close at ZAR11.10 yesterday. Those for Afgri were up 4.25 per cent to close at ZAR5.15, while Country Bird's shares were unchanged at ZAR2.75.