Clover factory. Picture; FINANCIAL MAIL
Clover factory. Picture; FINANCIAL MAIL

The market is nervously considering the implications of empowerment company Brimstone’s decision to review its role in the much-awaited takeover of local dairy giant Clover.

Last week Israel-based Central Bottling Company (CBC), owner of a wide range of beverage brands, pitched a R4.8bn takeover deal for Clover via the newly formed Milco consortium.

Milco breaks down into lead investor International Beer Breweries (IBB), with Sub-Saharan food and beverages specialist IncuBev and Ploughshare Investments as junior partners (with stakes of 8.3% and 10.9% respectively).

IBB is a subsidiary of CBC which, though Israel-based, has operations in Turkey, Romania, and Uzbekistan. International franchisers include The Coca-Cola Company, Carlsberg, AB InBev, the Müller Group and Diageo.

Brimstone (with a 15% stake) and Clover’s management team (with a 6.3% stake) were also named as participants in the deal.

On paper, Brimstone’s concerted effort to build a food-brands hub — with existing investments in JSE-listed Oceana and Sea Harvest — would have been boosted by Milco’s plans to accelerate sales, distribution and efficiency opportunities within Clover’s product portfolio in SA and into Sub-Saharan Africa territories.

Frank Kahumba, an equity analyst at Momentum Securities, says Clover has already moved closer to becoming a fully fledged fast-moving consumer goods business, following the exit and transfer of its non-value-added dairy business to Dairy Farmers SA — a separate entity, in which Clover retained a strategic 26% stake. "This could expand Clover’s business into the international market," he says.

But only days after the announcement, Brimstone announced that its participation in the Clover deal was under review. This followed strong opposition from certain community-based shareholders and pressure from human rights groupings and trade unions.

Palestine solidarity organisation BDS SA said it had received reports concerning the intended takeover of Clover. BDS claimed CBC was complicit in human rights abuses and violations of international law. "If the deal proceeds, we will actively initiate, support and/or join the call for direct action and a militant but peaceful campaign, including protests and disruptions, against Clover and a boycott of all its products."

The Food & Allied Workers Union also called on Brimstone and others involved in the Clover buyout to withdraw or find another anchor shareholder for the deal.

Brimstone executives were not keen to elaborate on what the review process entailed. But the FM hears reliably it is unlikely Brimstone will take up a R726m shareholding in the new-look dairy group. The FM also understands that Brimstone executives face serious personal threats if the Clover investment is pursued.

The problem is: how can Brimstone extricate itself from the Clover deal at this advanced stage? One worry is that withdrawing from the Milco consortium could be costly for Brimstone.

One asset manager noted: "We have been told CBC has been looking at Clover for years. There was another bidder … so they were determined to do this deal. Where else could you find a company with the reach of Clover at a six-times ebitda multiple? Clearly changing the deal now will not be easy, or something that CBC or Clover will be too keen on doing. Hopefully this is all a storm in a teacup."

With hindsight, it seems odd that Cape Town-based Brimstone – with a number of Muslim shareholders – did not anticipate a backlash over co-investing with an Israeli firm.

That said, Brimstone did report that 54.74% of its shareholders had already given irrevocable support for the transaction.

Some market watchers regard Brimstone’s decision to review the Clover deal as a dangerous capitulation in allowing "political considerations" to overshadow the attractive fundamentals of the transaction.

However, threats of a consumer boycott would extend beyond just Clover brands — with the products of Sea Harvest (which now also owns the Ladismith Cheese Company) and Oceana (Lucky Star canned pilchards) most likely to be targeted as well.

The bigger question is whether resistance to CBC’s tilt at the local dairy sector could threaten the entire Clover buyout.

One large shareholder, who asked not to be named, says it still seems to be "all systems go".

But Clover’s share price has, in the past few days, drifted away from the R25 a share buyout offer, suggesting there are some misgivings.

If the deal breaks down, there will be a good number of sour Clover shareholders — the group’s shares were trudging along at around R13.70 in September last year and were still only R16.50 as recently as mid-December (when the possibility of a takeover was already well-known).

Large shareholders Allan Gray, the Clover Milk Producers Trusts, Arisaig Africa Consumer Fund and ClucasGray Investments — representing about 35% of Clover’s issued shares — have given irrevocable undertakings to support the Milco offer.