Tiger Brands mulls $786-million offer for AVI

Tiger Brands may make an R8-billion cash-and-shares offer for AVI to create a South African food and consumer goods heavyweight able to expand into Africa.

Consumer goods company Tiger Brands said on Monday it was considering offering R24 per share for the branded food and drinks group, which is behind Five Roses and Frisco and distributes Prada and DKNY brands in South Africa.

The deal, which will combine South Africa’s top two consumer goods firms and round out Tiger’s portfolio, is subject to competition authority approval, shareholder backing and financing. It would be funded through cash and domestic debt, CEO Peter Matlare told a conference call.

Tiger Brands said the R8-billion implied equity value represented a 62% premium to AVI’s share price on the last trading day prior to the announcement, and kicked AVI stock as much as 42% higher on Monday.

“It’s a premium on our fair value, but it makes Tiger Brands’ portfolio much more balanced,” said UBS Securities consumer goods analyst Renier Swanepoel. “AVI’s products will go hand-in-hand with Tiger Brands, yielding cost savings and helping with distribution.”

While some companies have opted to freeze expansion plans given global market turmoil and higher borrowing costs, the deal reflects a growing trend for some South African firms with strong balance sheets to snap up cheap assets.

“Obviously we have to borrow money,” Matlare said.
“However we have a fairly strong balance sheet, some in the past have said it’s a lazy balance sheet, so we believe we have the wherewithal to do so.”

Tiger Brands spun off its pharmaceutical unit Adcock this year to focus on food and consumer goods and an AVI tie-up would help give it the muscle to enter African markets and compete with European giants like Unilever or Nestle.

Matlare said Tiger Brands, which sells food and consumer healthcare products, was eyeing markets in East and West Africa, and said AVI offered products such as biscuits and beverages which would sell well in the poorest continent.

Tiger has already started to expand into African markets, buying a 51% stake in Kenya’s Haco Industries in October and a 74,4% stake in Cameroon chocolate maker Chococam in July from Swiss chocolate group Barry Callebaut.

Tiger Brands had approached AVI’s board and was canvassing its shareholder base, but declined to say how much backing the company had secured. It has already acquired about 4,6% of AVI shares on the market.

A spokesperson for AVI said the company could not immediately comment on the potential offer and was preparing a statement.

Asked about competition concerns, Matlare said he did not see any major overlap that would make approval contingent on asset sales. He noted Tiger Brands agreed last month to sell a majority stake in its Sea Harvest fishing unit, a sector where it competes with AVI.

The offer would include 14.40 rand in cash for every AVI share and 6.989 Tiger Brands shares for every 100 AVI shares. A firm offer was subject to the finalisation of funding and obtaining the support of shareholders.

Shares in AVI were up 35,14% at R20 at 11.15am GMT. Tiger Brands stock was down 2,9% to R133. - Reuters

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