Battle of the black farmers

2013-10-13 14:01

To take over SA’s big listed cooperative Afgri, US investors pay R2.4?billion, allegedly outmanoeuvring a BEE group

American investors are buying out South Africa’s major listed agriculture cooperative Afgri for R2.4?billion. They allegedly “manoeuvred” a black farmers’ group, the African Farmers Association of SA (Afasa) out of the deal.

This is said to have happened before they brought in a new, as yet unnamed, BEE consortium.

The new consortium has hit back, defending its participation as more in line with the new “black industrialist” agenda.

Afasa, which has called on government to block the takeover of the company that owns 25% of the country’s grain silos, was “informally” negotiating its own takeover of Afgri as part of a consortium since last year.

They viewed it as a unique opportunity to transform local agriculture by giving emerging black farmers access to all parts of the commercial-farming value chain.

The American private investment holding firm AgriGroupe was brought in to take a 30% share when, in May this year, the emerging Afasa consortium ran into a funding shortfall of R600?million.

Almost immediately, the Americans started talking about taking full control of the assets, says Andrew Makenete, Afasa’s negotiator and the previous head of Absa’s agribusiness division.

The Americans have raised funding allowing them to make Afgri shareholders an offer that locals can’t hope to match, Makenete claims.

After the offer was announced at the end of last month, Afasa lashed out at the foreign buyout of what it calls the country’s most strategic agricultural asset.

According to Afasa’s statement, the new “mystery BEE shareholders”, who are negotiating a 35% stake with AgriGroupe, “represent neither the black farmer groups or even workers on farms or rural dwellers, the real constituency of Afgri”.

City Press can reveal that the new consortium buying 35% of AgriGroupe consists of one of South Africa’s largest institutional investors, as well as the business of a scion of a famous Limpopo business family who will each buy 15%, with another 5% to go to a broad-based empowerment group.

The stake will apparently be bought for the same price AgriGroupe is paying Afgri shareholders – R7 a share, or R840?million for the 35%.

The Afasa consortium had aimed for about 60%, but at a lower price.

The leader of the new consortium told City Press that there “is no mystery”.

The parties simply cannot be named until certain conditions are met. “This will likely happen in the coming week,” he says.

He adds that his group represents the kind of “black industrialist” that has become the new target of empowerment, rather than more passive “beneficiaries” – a swipe at Afasa and its planned consortium partners.

The consortium leader had been in the process of negotiating an unrelated deal with Afgri when AgriGroupe started talks about a possible takeover.

He says they do have grand plans for incorporating black emerging farmers into commercial agriculture.

AgriGroupe’s offer has essentially priced Afasa completely out of the market to buy into Afgri.

“It is hard to justify,” says Makenete of the 49% premium that AgriGroupe and the new consortium will pay on Afgri’s R4.70 share price before the deal was announced.

“It discourages other bidders. For us that is very expensive, while, for the Americans, it is chump change.”

The offer makes absolute sense for the investors, he admits.

According to him, the Americans’ offer is too high for locals to realistically match, but is also far less than Afgri is actually worth to South Africa.

He believes the company is “easily” worth R10.5?billion, with its silos alone carrying a replacement value of R8?billion.

“If any black partner controls it, we are happy,” says Makenete – dismissing a charge of sour grapes.

Asked what the government can actually do, after Afasa asked for intervention, Makenete suggests that a state agency could make a counteroffer to beat AgriGroupe’s.

“We are spending billions on strategic infrastructure, but now the most strategic infrastructure is leaving the country,” he says.

Afasa’s pleas to the government are empty, says the new consortium leader.

There are no competition issues, meaning there is little basis on which to legally oppose the deal, he says.

AgriGroupe’s offer has the backing of Afgri management, who will remain in place, as well as institutional shareholders Allan Gray, Sanlam Investment Management and Stanlib Asset Management, who collectively own 42.6% of Afgri.

The strategic nature of Afgri, and the potential sensitivity of a foreign takeover, is implicitly admitted in the company’s formal announcement of the offer.

Afgri is at pains to emphasise that it is committed to food security in South Africa and Africa and supports government goals and policies around local smallholder farmers.

The deal with the new BEE consortium will also make Afgri “among the most empowered large companies in South Africa”.

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