Halewood a surprise bidder for KWV

Johannesburg - UK-based liquor company Halewood on Thursday emerged as a rival bidder for Paarl-based liquor group KWV Holdings.

Documentation in Fin24’s possession shows Halewood expressing “a strong interest in entering into discussions with KWV, which may result in Halewood being part of a transaction designed to meet the combined interests of both companies and their shareholders”.

The letter stressed that Halewood was making a non-binding expression of interest to engage KWV in further discussions.

No possible offer price was mentioned in the letter, although an "indicative conditional non-binding offer" was pencilled in for mid-January.

Halewood did say, though, that a combination of KWV and Halewood would maximise synergies between the two businesses and be able to utilise Halewood’s UK and international operations over 30 territories to sell and distribute KVW brands.

Perhaps most significant is Halewood’s contention that a deal would enhance shareholder value and prepare the business for a main board listing within two years.

Halewood churns around £250m (R2.6bn) a year, and handles brands like Lambrini, Lamb’s Navy Rum, Crabbies Alcoholic Ginger Beer and Red Square Vodka.

The company has interests that stretch from SA to Romania. KWV, which earns most of its keep from exports of Roodeberg and Cathedral Cellar wine, generates about R800m in annual sales.

The expression of interest from Halewood comes only days after Pioneer Food Group [JSE:PFG] confirmed a 1 200 cents per share (cash and paper) offer to KWV shareholders.

Approached for comment on an alternative offer on Wednesday evening, KWV chairperson Thys du Toit told Fin24: “I unfortunately (at the moment) cannot comment”.

Earlier on Thursday, Fin24 reported that rumours of alternative bids (purportedly also involving local conglomerates Hosken Consolidated Investments [JSE:HCI] and Remgro [JSE:REM]) were swirling.

Fin24 has questioned whether these rumours have any substance, or whether they are just mischievous utterances aimed at perhaps forcing a higher offer from Pioneer.

Pioneer’s offer has already been rejected as too low from various shareholding quarters. At this juncture it seems that any concerted resistance to the Pioneer offer (which has not been finalised yet) hinges on empowerment shareholder Withmore.

If Withmore resists, other shareholders - including a large contingent of traditional farmer shareholders – could presumably rally around a united front.

It is understood that KWV’s major shareholder Zeder Investments (which is also indirectly the major shareholder in Pioneer Foods) will accept the Pioneer offer.

Chris Logan of Opportune Investments has already slammed the Pioneer offer as derisory.

He says that KWV reported earnings of 83c/share in the past financial year, but that a presentation at a recent annual general meeting inferred earnings of 300c/share by 2014.

Logan reckons KWV, which has only recently managed an operational turnaround, could increase productivity further and reduce costs as well as reap the benefits of the appointment of four high-calibre brand directors.

“Using an earnings multiple of eight times, this forecast suggests a target price 2 400c/share – which is double the Pioneer offer.”

Logan, however, sees an upside from Pioneer’s bid.

“What stands out is that Pioneers bid has the potential to be a powerful catalyst for KWV.”

He reckons if Pioneer’s advances are successfully seen off, the developments could spark sharpen the operational focus at KWV.

“Prior examples would include Nedcor’s bid for Standard Bank Group [JSE:SBK] and the Investec [JSE:INL] bid for BOE. In both cases the unsuccessful bid saw the targeted companies getting a wake-up call, and outperforming their peers in ensuing years.”

Well-known wine farmer Danie de Wet (a former long-serving chairperson of KWV) told Fin24 on Thursday that there was a great deal of resistance from farmers to the Pioneer offer.

“I have spoken to farmers as far as Upington. These are the farmers that helped build KWV, and have stuck with the company through all these years. It’s a very emotional issue."

De Wet argues that if there is value to be unlocked, the farmers’ single dream would be to list KWV on the JSE.

“We’ve got nothing against Pioneer - it’s a good company. But I don’t think KWV is the right fit for Pioneer’s Ceres Beverages Company. There are not many examples in the world of such a deal working.”
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