South Africa’s agricultural produce specialist, AFGRI, stands to be taken over by North American investors who are acting in concert with the company’s executives and are also promising a broad based black economic empowerment (BBBEE) angle.
The JSE listed AFGRI announced on Friday that it was entertaining a R2.4bn takeover proposition from AgriGroupe. The suitor, AgriGroupe, is a South African registered private equity investor owned by Joseph Investment Holdings which is incorporated in Mauritius and largely owned by North American investors. They are offering a buyout of R7.00 per AFGRI share which represents more than 40% premium to AFGRI’s average trading price over the past few months.
The proposition is significant in adding to the rising number of high profiled foreign direct investment (FDI) flowing into South Africa with an eye on launching an Africa wide expansion. The proposal joins another high profiled proposition made by Chilean firm CFR Pharmaceuticals to takeover local pharmaceutical giant Adcock Ingram Holdings. This makes for a growing list that may include the Barclays/Absa affair, Walmart/Massmart, Norton Rose/Dennis Reitz, Kansai Paint/Freeworld Coatings etc.
The AFGRI proposition is especially significant as impacting on a highly sensitive theme of food security. AFGRI is one of the largest agricultural produce specialist in the African continent with activities touching grain, animal feed, poultry production and milling. The company also has a strong services focus touching on equipment and financial services. As shown in the takeover of local retailer Massmart by US giant Walmart, such transactions can be hobbled by geopolitical wars. This explains the decoration of such takeovers with the localisation theme and BBBEE. Addressing these themes does make such takeovers palatable.
The special role of AFGRI and the localisation factor were addressed extensively in the statement released on Friday.
The statement said “AgriGroupe strongly believes its offer is in the best interests of AFGRI, its stakeholders (including over 7,000 farmers, 4,500 employees and millions of consumers currently served) and the long-term food security interests of South Africa and the African continent”.
It added that “AgriGroupe has a strong commitment to social development and ongoing transformation goals, including broad-based BEE, and supports the South African government’s objectives and policies towards transformation in the agricultural sector”.
The localisation factor is partly addressed by the inclusion of certain members of AFGRI’s management who are expected to ultimately hold an interest of approximately 5% in AgriGroupe post the takeover.
The statement added that “Negotiations are ongoing which may result in local shareholders, including a new Black Economic Empowerment consortium and other parties acquiring an interest of up to 35% in AgriGroupe.
This BEE shareholding in AgriGroupe will provide additional BEE ownership in AFGRI’s business, incremental to the current 26.77% broad-based BEE ownership in AFGRI Operations Limited with Izitsalo Employee Investments that was announced on 4 June 2013. Following this proposed investment, AFGRI would be amongst the most empowered large companies in South Africa”.
The statement added that the AFGRI suitor, AgriGroupe, believes food security is a major concern worldwide and that AFGRI has the necessary assets, skills and expertise in agriculture and grain management to make a substantial impact by increasing agricultural productivity and access to market for smallholding and large commercial farmers across South Africa and Africa.
“AgriGroupe further believes AFGRI has the potential to build critical supply chain infrastructure and provide logistics solutions at scale in Africa, but that substantial capital investment will be required over the medium-term”.
“AgriGroupe further believes that the strategic growth opportunity for AFGRI lies in its ability to deploy its comprehensive grain management solutions and expertise in selective attractive markets on the African continent, as has already been demonstrated on a limited scale in Zambia and Congo Brazzaville. This will require a large and long-term commitment of capital expenditure and management resources, which AgriGroupe does not believe can be effectively accomplished through a public company with traditional institutional shareholders requiring shorter term results”.
AgriGroupe supports AFGRI’s strategic vision for pan-African growth and will maintain management continuity as it offers a ‘friendly hands’ solution to safeguard AFGRI’s assets and business model over the long term for the benefit of Africa and its people”.
The proposed deal is subject to a long list of preconditions.