Rainbow ventures into Zambia

2013-02-06 00:00

IN a move to break free from the strenuous and unprofitable conditions of the chicken industry in South Africa, Durban-based Rainbow Chicken (RCL) has opted to diversify its operations by acquiring a 49% share in Zam Chick Limited, one of the largest chicken producers in Zambia.

The JSE listed Rainbow Chicken said in an announcement this week that an agreement was reached with Zambeef PLC, that RCL would take over 49% of its shareholding in Zam Chick Limited for $14,25 million (about R126,1 million).

Late last year, Rainbow Chicken announced its intention to acquire an effective 64,2% interest in top food manufacturer Foodcorp, for more than R1 billion.

According to information supplied by Rainbow Chicken, Zam Chick currently manages and operates Zambeef’s chicken broiler business, “including the broiler houses, chicken abattoir and processing plant”.

Some analysts have not ruled out the fact that the acquisition could be a move to regain earnings that have been lost over the past few years, allegedly due to cheap Brazilian imports of certain types of chicken products in the SA market.

Jiten Bechoo, an equity analyst at Avior Research, said the company must have seen some valuable prospects by entering the Zambian market as the country saw a rise in income levels and growth where some staple foods such as maize has been replaced with protein diets. Chicken consumption in the country was on a rise, he said.

In addition, maize in Zambia was subsidised, which would result in lower pricing.

“Zambeef is self-sufficient and there is volatility to poultry earnings. Rainbow will also bring expertise to Zambeef … This is a step in the right direction for RCL,” he said.

Bechoo pointed out that the deal would also result in a diversification of Rainbow’s operations, especially under challenging market conditions since the economic downturn.

The current market condition would not change anytime soon for the local industry, which made sense for the company to acquire operations elsewhere.

Companies such as Rainbow Chicken, and Astral, the second largest poultry producer saw a drop in earnings of about 50% year on year, explained Bechoo.

Commenting on the transaction, which could be a gateway for RCL to gain access into African markets, RCL said Zam Chick Limited had an established track record in operating in Africa with operations in Zambia, Ghana and Nigeria.

“This is an exciting opportunity for both Zambeef and RCL to work together in order to take the poultry industry in Zambia to a new level,” said the company.

The transaction will be funded from a portion of the proceeds from the rights offer which was announced by the JSE in December.

The transaction is also subject to approval by the Competition and Consumer Protection Commission of Zambia, as well as the SA Reserve Bank.

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