Rainbow Chicken, South Africa’s JSE listed poultry producer with more than 3.6 billion rand ($406 million) market capitalisation, on Tuesday said it would buy a major stake in Foodcorp, another food retailer, for more than a billion rand ($113 million).
Rainbow, which has African expansion ambitions, will buy the stake in Foodcorp in partnership with Capitau, an independent debt originator.
This set of news saw Rainbow’s share price shoot the lights out, gaining 3 percent during late trade on the JSE to 13.70 rand ($2). This was during a flat trading day at the JSE, where resources and financials gained 0.15 percent.
Rainbow’s gains meant that investors liked the company’s idea of becoming a major shareholder in a company like Foodcorp as this move would boost the company’ earnings in the future.
Foodcorp is a leading South African manufacturer of quality branded and private label food products. It manufactures and markets and distributes a diversity of food products ranging from basic essentials to top end desserts and convenience meals.
The more than a billion rand transaction would allow Rainbow to diversify and enter new attractive food categories with a range of respected and market leading brands while harnessing synergies and scale benefits.
A Johannesburg-based analyst, who did not want to be named because he had not looked at the transaction announcement in detail, said the acquisition of Foodcorp would enable Rainbow to broaden the range of respected brands and categories in its portfolio to counter the cyclical nature of the industry.
“It will also combine strengths in consumer insight between the organisations to support product innovation and development. It will make the company to become a food player with significant scale to compete more effectively. It will also open up further opportunities for the company to expand into Sub-Saharan Africa,” the analyst said.
Rainbow would sell stock to fund the purchase of New Foodcorp Holdings and broaden its range to add items from peanut butter and meat pies to bread and dog food. Rainbow plans a rights offer underwritten by the JSE-listed Remgro to fund the deal.
Rainbow would embark on a series of transactions to buy London-based BlueBay Asset Management LLP’s 46 percent stake in New Foodcorp and a 22.5 percent holding owned by a Foodcorp employee trust. Once completed, Rainbow would own 64.2 percent of Foodcorp.
Foodcorp management would retain a 23.9 percent holding in the company and would continue to manage it following the implementation of the transaction.