Publications
Partners
COULD PIONEER FOODS, which up to now has specialised in staple foods, become a major player in the beverages sector – perhaps (we kid you not) including beer? Pioneer’s tilt at wine and brandy producer KWV took many by surprise as the two companies arguably operate in different fields (and corporate cultures). Pioneer’s MD André Hanekom says the move is a bolt-on acquisition of a company with “profitable growth in key wine and brandy markets”. KWV would tap into Pioneer’s wide distribution networks and both would reduce costs through collective buying of packaging material.
Nevertheless, the move may well indicate the food empire’s foray into the liquor market to diversify its revenue streams.
Hanekom says the company’s reduced net interest-bearing debt of R406m – representing just 9% of equity – should address concerns about how it would pay for its intended acquisition of KWV, which should also allay fears of a rights issue by the company staggering under a heavy load of fines for anti-competitive behaviour.
While Pioneer’s R1bn package of fines has severely compromised its financial position it may not be far-fetched to suggest nothing dramatic will need to be undertaken to keep its balance sheet shipshape. Skipping a dividend payout this year saved a chunk of cash – somewhere in the region of R250m. At worst, Pioneer might have to skip its interim dividend in financial 2011, perhaps resuming payouts with a nominal final payout at year-end 2011.
Just more than a week ago Pioneer submitted to KWV a firm expression of interest that may lead to an offer to acquire the entire company at R12/share or R828m. That’s a 10,93% premium to the volume-weighted average traded price of KWV shares for the 30 days preceding the first cautionary announcement. Pioneer intends to pay 25% of the total consideration – R207m – in shares and settle the remainder (R621m) in cash.
While some people feel a fine-lumbered Pioneer shouldn’t be contemplating transactions at this delicate juncture, the truth is over its past financial year the group was quietly accumulating additional brands and operations. Its financial results to September show Pioneer spent R144m on brands such as Liptons, Maize-in-a-Minute, Eggland Poultry Farm, Richmark Poultry and Opdiefontein Poultry farm.
Indeed, the KWV payment arrangement looks well tailored to accommodate Pioneer’s other capital expansion programmes. But just why Pioneer is interested in KWV remains intriguing. Pioneer seems to be looking beyond finding a home for its ready-to-drink (RTD) brand Hooch in KWV.
Pioneer’s beverage division – the ideal home for KWV should the merger go ahead – remains an area of growth. Together with Bokomo Foods and its agribusiness, Pioneer’s The Ceres Beverage Company collectively contributes less than 50% to the group’s R15,7bn revenue. The rest comes from Sasko. The acquisition of KWV would result in a R3,2bn to R3,5bn beverage business – not as big as Distell, but it may put Pioneer in the second league.
Hooch – believed to be turning between R80m and R100m/year – may spark the development of other applications; for example, a Pepsi/KWV brandy or a Liqui-Fruit, Ceres/KWV wine RTD. Niche acquisitions (Liptons) or perhaps more wine brands, RTD and cider brands will surely be sought. But that would take time and add potential risks.
What about a gorilla transaction? With the inventive Zeder boys behind KWV, perhaps we shouldn’t write off a major transaction – the obvious being Brandhouse (Amstel, Windhoek, Heineken). Beer would add considerable volume and round off a diversified brands basket. Hanekom says he hasn’t thought about the beer market but Pioneer’s intention is “always to grow its basket”. A deal with Brandhouse would certainly add critical mass and perhaps pave the way to separately list Ceres – something that might well appeal to KWV shareholders, who have an option of taking Pioneer scrip as part-settlement.
Nevertheless, the move may well indicate the food empire’s foray into the liquor market to diversify its revenue streams.
Hanekom says the company’s reduced net interest-bearing debt of R406m – representing just 9% of equity – should address concerns about how it would pay for its intended acquisition of KWV, which should also allay fears of a rights issue by the company staggering under a heavy load of fines for anti-competitive behaviour.
While Pioneer’s R1bn package of fines has severely compromised its financial position it may not be far-fetched to suggest nothing dramatic will need to be undertaken to keep its balance sheet shipshape. Skipping a dividend payout this year saved a chunk of cash – somewhere in the region of R250m. At worst, Pioneer might have to skip its interim dividend in financial 2011, perhaps resuming payouts with a nominal final payout at year-end 2011.
Just more than a week ago Pioneer submitted to KWV a firm expression of interest that may lead to an offer to acquire the entire company at R12/share or R828m. That’s a 10,93% premium to the volume-weighted average traded price of KWV shares for the 30 days preceding the first cautionary announcement. Pioneer intends to pay 25% of the total consideration – R207m – in shares and settle the remainder (R621m) in cash.
While some people feel a fine-lumbered Pioneer shouldn’t be contemplating transactions at this delicate juncture, the truth is over its past financial year the group was quietly accumulating additional brands and operations. Its financial results to September show Pioneer spent R144m on brands such as Liptons, Maize-in-a-Minute, Eggland Poultry Farm, Richmark Poultry and Opdiefontein Poultry farm.
Indeed, the KWV payment arrangement looks well tailored to accommodate Pioneer’s other capital expansion programmes. But just why Pioneer is interested in KWV remains intriguing. Pioneer seems to be looking beyond finding a home for its ready-to-drink (RTD) brand Hooch in KWV.
Pioneer’s beverage division – the ideal home for KWV should the merger go ahead – remains an area of growth. Together with Bokomo Foods and its agribusiness, Pioneer’s The Ceres Beverage Company collectively contributes less than 50% to the group’s R15,7bn revenue. The rest comes from Sasko. The acquisition of KWV would result in a R3,2bn to R3,5bn beverage business – not as big as Distell, but it may put Pioneer in the second league.
Hooch – believed to be turning between R80m and R100m/year – may spark the development of other applications; for example, a Pepsi/KWV brandy or a Liqui-Fruit, Ceres/KWV wine RTD. Niche acquisitions (Liptons) or perhaps more wine brands, RTD and cider brands will surely be sought. But that would take time and add potential risks.
What about a gorilla transaction? With the inventive Zeder boys behind KWV, perhaps we shouldn’t write off a major transaction – the obvious being Brandhouse (Amstel, Windhoek, Heineken). Beer would add considerable volume and round off a diversified brands basket. Hanekom says he hasn’t thought about the beer market but Pioneer’s intention is “always to grow its basket”. A deal with Brandhouse would certainly add critical mass and perhaps pave the way to separately list Ceres – something that might well appeal to KWV shareholders, who have an option of taking Pioneer scrip as part-settlement.
