AFGRI, the JSE listed agricultural business announced on Friday, that it will reverse list AFGRI Foods, housing AFGRI’s poultry operations, feed milling and edible oils businesses, into Sovereign Food Investments (“Sovereign”). For the deal, AFGRI Foods was valued at R1.02 billion and Sovereign at R305 million. Sovereign will issue shares to AFGRI for the AFGRI Foods business resulting in AFGRI then owning approximately 77% of Sovereign.

When asked why AFGRI undertook the deal, Chris Venter, CEO of AFGRI indicated that, “It is AFGRI’s intended strategy to become a leading agricultural services and food manufacturing company. The Sovereign deal is part of that strategy and provides the opportunity to materially expand AFGRI’s poultry business by integrating it with Sovereign’s infrastructure, thereby establishing a combined poultry operation with significant market penetration and with a national footprint.”

Mike Davis, CEO of Sovereign Foods, said that, “We believe the combination of Sovereign and AFGRI Foods will establish another significant poultry operation in South Africa. We are particularly excited about the introduction of non-cyclical revenue streams, namely AFGRI Foods’ feed milling and edible oils businesses, which will complement the poultry business. This deal will result in Sovereign becoming a meaningful player in the food manufacturing market”.

“Sovereign will remain a separately listed entity and the parties agreed that both AFGRI and the current Sovereign shareholders should share in the upside of the deal”, says Davis. Venter says “We believe Sovereign will benefit from the unlocking of synergies between the two existing businesses and the separate listing will pinpoint that value for AFGRI.”

The transaction is subject to certain suspensive conditions, including regulatory approvals and approval by Sovereign’s shareholders. Once all conditions are met and the transaction implemented, Louis Wolthers, current CEO of AFGRI Products, will become Group CEO of Sovereign and Mike Davis will become CEO: Poultry Operations.

Earlier in the week Country Bird announced that it had acquired 13.4% of Sovereign’s shares in the market. Charles Davies, Chairman of Sovereign indicated that, “Country Bird is now a shareholder of Sovereign and the transaction will affect them in the same way it does all of Sovereign’s other shareholders. We believe the deal will add significant value to our current shareholders, as well as to those of AFGRI”.

The Country Bird announcement in no manner prompted the AFGRI deal and subsequent announcement. Davies, goes on to say, “The Sovereign Board commenced a process last year whereby various strategic initiatives and different options were evaluated. The possible AFGRI transaction, has for some time, been considered to make the most strategic, operational and financial sense for Sovereign and we are pleased to have reached agreement with AFGRI. We were not aware of Country Bird’s transactions until they made the announcement public”, he concluded.

Venter concludes that, “It is not AFGRI’s intention to make an offer to Sovereign shareholders to acquire all of Sovereign’s shares. It should be noted that this approach remains subject to the approval of the Securities Regulation Panel and Sovereign shareholders.”

Mike Davis said, “We are comfortable to recommend to our shareholders not to require an offer from AFGRI, as we strongly believe in the future of the combined businesses and would prefer the current Sovereign shareholders to participate directly in these.”