Acquisition? Disposal? Takeover? Five Roses owner’s share price soars after vague announcement

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  • AVI has issued a cautionary announcement, informing shareholders that it has started negotiations which could have a "material effect on the price of the company’s securities".
  • AVI owns brands such as Bakers, Five Roses, Lacoste and I&J across its beverages, biscuits and snacks, frozen food, personal care and fashion brands categories. 
  • The two-sentence announcement warned shareholders to take care when dealing with their shares, until more details are provided.

Food and beverage group AVI is closing off the week on a high note, with a share price surge that passed the 10% mark on Friday, following an announcement that has left market speculating - but pleased. 

AVI’s stock jump came after its Thursday cautionary announcement informing shareholders that it has started negotiations which could have a "material effect on the price of the company’s securities".

The two-sentence announcement warned shareholders to take care when dealing with their shares, until more details are provided.

AVI owns brands such as Bakers, Five Roses, Lacoste and I&J across its beverages, biscuits and snacks, frozen food, personal care and fashion brands categories. 

Chantal Marx, head of investment research at FNB Wealth and Investments, said the market was speculating about whether AVI’s big news relates to a big acquisition, disposal or a takeover. But she thought the market was responding positively to the possibility of an acquisition.

However, she said it was too soon to point a finger at what the company could be cooking up. But it was possible that there has only been an expression of interest so far or there are negotiations that are still taking place and are at a sensitive stage.

As for whether AVI is better off selling or making an acquisition, she said the group is in a good position either way.

"They have high-quality assets that can be disposed of at good valuations or supplemented by new acquisitions [that they can comfortably fund]. The company is a good takeover target for a large multinational. The interest may be in the food business only which could see the sale of the other businesses in that event as well [I&J, Clothing and Footwear, Personal Care]," Marx said. 

Lester Davids, investment strategist at Unum Capital, reiterated Marx’s view, saying that although the announcement wasn’t clear it seemed to be about an acquisition.

"If it was a disposal of a particular division, then maybe they would [announce it] immediately. They wouldn’t first give you an announcement and then afterwards tell you that," Davids said.

He added that the management team lead by long-standing CEO Simon Crutchley is one of the most highly regarded of South Africa’s listed companies.

"And they have been known to allocate capital quite efficiently over the last number of years. So, an acquisition for them … we’ll have to see what it is and what they pay for it but the way the market is reacting at the moment, it’s very pleasing," he said.

He also noted the share price surge, but said the market sometimes discounts good news well ahead of time. And when an acquisition is announced and the details are clearer, then the share price might fall on the day of the announcement.

Davids added that if the company is able to make an acquisition during the current period, then it reflects how resilient the business is.

But, he cautioned: "Until the company makes an announcement, we won't know what has got the market this excited." 

In an interview on CNBC’s Power Lunch on Friday, Small Talk Daily analyst, Anthony Clark described the announcement as "ambiguous" and "interesting".

He said the company isn’t known for making large, bold transaction and the simple words it used in the announcement had a few possibilities to it. One was that AVI could be a target of an acquisition, an another, is that it may have been approached by a party interested in buying some of its assets.

"AVI only does transactions, which benefit the greater group. So, whatever they are buying or whatever they are potentially selling, there’s a very good reason behind it, which is why this cautionary, which is a rare cautionary for AVI, is so intriguing," he said.

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