It’s a bit like having the neighbours from hell not just move into the neighbourhood but set up home on your front lawn. Whatever you want to do, they’ll be right there staring back at you.
That’s the feeling the Sovereign Foods board is going to have to get used to for the next 10 months or so — unless someone has a plan that hasn’t yet seen the light of day.
The most puzzling thing about the latest drama in the long drawn-out saga of Country Bird Holdings (CBH ) versus Sovereign is how CBH could have allowed Sovereign to win such an easy victory at the takeover regulation panel.
Most parties making a conditional offer reserve the right to waive the conditions. CBH didn’t when it made its bid for Sovereign. And because it didn’t, it cannot take its stake to 35% until after September 13 2017.
Following the panel’s ruling that CBH’s 900c/share offer lapsed (when it waived its acceptance condition) Sovereign is now sitting with a fairly hostile shareholder that has a 34.1% stake. That stake is large enough to prevent Sovereign from doing anything meaningful, or at least anything that would require a special resolution; most meaningful corporate moves require a special resolution.
According to CBH, which launched its offer in early July, its CEO and chairman have tried to make nice with their Sovereign counterparts, but to no avail.
Its offer was conditional on Sovereign not implementing its controversial BEE scheme and on the approval of the competition authorities. Critically, CBH also stated the offer was subject to it receiving a minimum of 50% plus one of the shares. On September 13, when it had built up a 34.1% stake (with an additional 13.4% offered and awaiting completion of the deal), CBH announced it was waiving the minimum acceptance condition. Essentially, it would accept unconditionally whatever shares it was offered, including the 13.4%.
Sovereign’s legal team, which has scored tens of millions of rand in fees from all the goings-on of the past year, was quick to pounce. You can’t just waive conditions like that, they said as they rushed off to the panel for a ruling. And, said the panel, they were absolutely right. It’s against the Companies Act and the regulations. As a result of their unilateral waiving, the 900c offer has lapsed.
This means that the 200 Sovereign shareholders holding the 13.4% no longer have a deal to sell to CBH at 900c.
As Sovereign said in its Sens announcement, these shareholders "are entitled to freely trade in their shares with immediate effect".
That news is unlikely to thrill them. Since the panel’s announcement the share has slumped from 919c to 710c, the level it was at before CBH made its offer.
Making it all a little murkier is the last-minute decision by Prudential Investment Managers, which owns 22% of Sovereign, to write to the panel in support of Sovereign and urge it to declare that the offer had lapsed. The letter was signed by Prudential head of equity Chris Wood, who happens to own 825,000 Sovereign shares in his own right. Ahead of the panel’s decision Wood’s stake was worth R7.5m; it’s now worth R5.8m.
Can it be the Sovereign board and Prudential have some plan that values the company at a lot more than CBH was offering?