Battle of the agribusinesses: Senwes vs Subtropico
Proposed deals to take over KLK come after last year’s mega-merger between Acorn Agri and Overberg Agri
Further consolidation in the local agribusiness sector looks on the cards with two takeover pitches in play at KLK, a R2.2bn-a-year farming services specialist based in the Northern Cape.
In November agribusiness Subtropico, which already holds an influential 30% shareholding in KLK, issued a takeover bid at R17.50 a share. A scrip alternative offers one Subtropico share for every six KLK shares held.
But late last month Senwes, one of SA’s biggest agribusinesses, also launched a takeover bid for KLK, offering R18.50 a share.
The Senwes proposal also provides a scrip settlement alternative, offering shares in Senwes — or its holding company Senwesbel — in the ratio 1.4 shares to 1.8 shares per offer share.
Both Senwes and Senwesbel shares are listed on ZAR X, one of SA’s new stock exchanges.
At the time of writing, KLK’s independent board was still evaluating the merits of both proposed deals.
The Subtropico offer represents a 12% premium to KLK’s R15.60 over-the-counter share price as at September 27, while the Senwes offer represents an 18.4% premium.
However, both offers are pitched lower than KLK’s NAV of R19.58 a share reflected at the end of February 2018.
The proposed takeover deals follow the mega-merger last year between Acorn Agri and Overberg Agri.
Subtropico — which has the Patrice Motsepe-aligned African Rainbow Capital as a funding partner — has argued that it made strategic sense to increase its shareholding in KLK.
The main strategic rationale for Subtropico’s takeover move is that KLK shareholders would have a more diversified geographical footprint and product service offering — as well as indirect shareholdings in Vleissentraal (livestock and game auctions), the Subtropico Market Agency group of companies (which sells fresh produce on 11 municipal and private markets), and Farmwise (a supplier of vegetables to retailers).
Senwes, on the other hand, believes the strategic fit between the two operational companies, in terms of diversification, is highly appropriate. It is a sprawling business with over 68 grain silo complexes and depots that speaks for more than 25% of the total SA commercial grain storage capacity.
Senwes argues that by joining forces, an enlarged entity will protect the interests of farmers in a holding structure as well as allow for participation in further consolidation of the agrisector.
A deal would also reinforce Senwes and KLK in meeting competition from international role players which have been increasing their interests in the local agrisector.