Listed investment holdings group Remgro could buy out minorities in its operating subsidiary RCL Foods after the group bought about seven-million shares in the owner of Yum Yum, Selati and Nola brands in December.
RCL Foods’ share price rose 12.4% in early trade on Thursday before it retreated, closing 8.77% up at R15, the highest in three weeks.
The decision to buy the shares in the open market could be a precursor to Remgro’s buyout of minority shareholders in its listed operating subsidiary, according to Brendon Hubbard, a portfolio manager at ClucasGray.
RCL, which has a market capitalisation of R13.6bn, is one of the largest processors and marketers of chicken in Africa, with around 24-million chickens on the ground at any time on over 180 farms countrywide.
Hubbard said on Thursday the move, which takes Remgro’s interest in RCL to about 78%, could be part of a broader strategy by Remgro to “clean up” its portfolio of investments, while also on the look-out for attractive investment options. “Food is a priority area for them,” he said, pointing out Remgro’s acquisition of Unilever’s Spread business in 2018.
In a transaction valued at R11.9bn, Unilever acquired Remgro’s 25.75% interest in Unilever in exchange for the Spreads business, as well as a cash consideration of R4.9bn. That put the value of the Spreads business at R7bn. The Spreads business manufactures and markets well-known brands which include Rama, Flora and Stork.
As at June 30 2018, the company, which was established in the 1940s by Anton Rupert, had investments in more than 30 companies, spanning banking, healthcare, consumer products, insurance, industrial, infrastructure and media sectors.
Hubbard said Remgro could in future buy out RCL minorities and combine the manufacturer of food products with the Spreads business. He said Remgro’s strategy could be to increase its stake before making a bid.
Remgro did not respond to requests for comment on Thursday.
At the end of June 2018, RCL was SA’s leading sugar producer, accounting for one third of the country’s sugar output and processing 700,000 tons of sugar a year.
In the 2018 financial year, RCL’s contribution to Remgro’s headline earnings increased by 52.6% to R647m, compared to R424m in 2017.