Over the past two years Finweek has stressed just what a bargain fruit exporting group Capespan was for investors who didn’t mind the inconvenience of trading their shares over-the-counter. In fact, it was only last month that we advised investors Capespan presented “a compelling value scenario” and noted “you can be damn sure
Zeder Investments [JSE:ZED] is probably scooping up any large parcels of shares it can lay its hands on”.
Last week PSG-controlled Zeder – which invests in an array of agribusinesses and has been gradually building its stake in Capespan – took the logical step and offered to buy out shareholders in the fruit-producing company.
Zeder currently holds just under 27,7% of Capespan and seems awfully determined to secure a far bigger chunk of the business. It’s clear from Zeder’s last reporting period it’s been actively buying Capespan shares in the open market.
In our opinion the offer for Capespan is generous and should secure a decent buy-in from minority shareholders.
Whether Total Produce plc, the other big shareholder in Capespan, will take the bait is another story. Finweek suspects there may be initial resistance from Total Produce but that may well dissipate if most of other minority shareholders capitulate.
The bid is pitched at 225c/share – which is a 67% premium to its six-month trading average of 135c for Capespan’s unlisted shares. The offer represents a premium of just under 30% to the 30-day average – obviously a period during which the market got a sniff of what Zeder may have been contemplating.
While Zeder’s offer is generous compared with OTC prices, the price still discounts Capespan’s last stated tangible net asset value of 250c/share.
The Capespan deal is a key development for Zeder. For one thing, it signals to the market there’s plenty life in the vehicle after its ambitions to merge KWV into Pioneer Foods were foiled. The transaction also means Zeder – which has its current R2,5bn portfolio dominated by Pioneer Foods – can bring another sizeable investment to the table.
If Zeder takes out all the shareholders in Capespan, the deal will cost R486m, of which R206m will be settled in cash (garnered from the sale of its stake in KWV) and R279m in borrowings. While some investors – especially those who like Zeder’s regular dividend payouts – might not like it incurring debt, we don’t believe some gearing is any cause for concern.
Capespan is likely to continue paying good dividends – especially if the business, now under the leadership of former Senwes boss
Johan Dique, starts performing to its potential. There are high hopes Dique will squeeze a much-improved performance from the R2,7bn/year business, with indications at a recent AGM presentation a double digit return on equity is one of his first goals.
Capespan will probably also be looking at selling off non-core assets and sharpening its focus on its logistics business.
While envisaging no changes to its board or operations, Zeder – if it gains outright control of Capespan – no doubt will play a key role in seeking out acquisitions that could secure strategic niches for the company. Gut feel is that with a new CEO on board plus a strategic shareholder, Capespan can finally cast off its co-operative past and emerge as a real contender in SA’s broader food sector.
Zeder appears to be at pains to stress Capespan is a long-term play. However, there are some short-term rewards in the offing. While Capespan’s profits for its 2010 financial year came in at R73m, we must remember it’s a business that generated a not insubstantial R130m in financial 2008.