Grindrod paid R444 million for the stake, at an average price of R12.29 a share – a 6.8% premium to the ruling price. It bought the shares from Senwes’ former BEE partner Treacle as well as from Senwesbel, the holding company.
The deal has been presented as an opportunity for the two companies to partner to fast-track growth. Grindrod Trading, in which the acquisition will be housed, trades in commodities including metals, minerals, oil and agricultural products.
It is a small business within the Grindrod stable, but its growth supports the bigger logistics business, hence it is strategic.
In the same way that Grindrod Trading is strategic to Grindrod, so the greater company is strategic to Remgro which 18 months ago bought a 23.5% stake for R2.08 billion. Senwes’s main business is the provision of input products for agricultural production and the storage and handling of grain products. It also provides financial, technical and logistical services to grain producers. It operates across South Africa and has footprints in Malawi, Zambia and Mozambique.
“We like their agenda,” says Wayne Hartmann, Grindrod Trading CEO. “We have similar objectives which are to grow our businesses in sub-Saharan
However, a closer look at the businesses suggests that while they are complimentary, there are some joint venture partners that may not be too charmed.
For instance, Senwes is in a joint venture with Bunge, a global agribusiness. The partners are involved in the international trading of wheat, yellow maize and oilseeds. As far as the transport of wheat and other grain products is concerned, Senwes is in a joint venture with Imperial Logistics. And Senwes’ financial services business is backed up by Wesbank. These are all areas in which Grindrod has very specific strengths.
“I think you need to look at this deal from 10 000m up,” says Francois Strydom, CEO of Senwes. “You need to factor in Remgro which has effective control over Grindrod and which is busy restructuring its investment platforms into food (Rainbow and Foodcorp); energy and sugar (TSB) and logistics (Grindrod and now Senwes).”
In this process, he adds, you reorganise in a way that makes sense. This could entail taking one division from one company and putting it into another. “From there you specialise the value chains.”
The joint ventures will be complemented by the deal, he says.
“This is an extremely elegant deal,” says Vunani Securities small and mid cap analyst Anthony Clark. “Senwes is the primary beneficiary – initially anyway. There have been thorny relations between Senwes and Treacle and the removal of the BEE structure will enable Senwes to fully realise the capital expansion and organic and acquisitive growth that will power the company forward.
“Remgro has extensive operations across the food supply chain. From the second a bushel of wheat is sold until a consumer buys a pie, Remgro is involved somewhere. We will see greater interaction between Senwes and Remgro,” he says.
What is disappointing for shareholders is that with a rich “sugar daddy” in the form of Remgro behind it, Senwes will not need to raise capital via a JSE
listing (it trades over-the-counter), which could result in the share re-rating.
However, Clark believes the share still offers good value at its current price of R11.50 and he assumes the deal will accelerate growth.
An immediate priority for Senwes and Grindrod will be to take advantage of the
consolidation mood in the sector and snap up “more of the same”. In other words, agricultural co-operatives.
This means they will run into PSG-controlled Zeder, which owns small stakes in agri-co-ops NWK and Suidwes, and has expansive ambitions in the agri-sector in South Africa and beyond.
However Piet Mouton, CEO of PSG believes the space is big enough for many more serious players.
“I wish them all the best with the investment … I don’t think a race has started – investments into agri co-ops take time as the shares are held by many shareholders – so to build up meaningful stake is not that easy.”
Beyond the acquisitions, Grindrod and Senwes will look at broadening their footprint into Africa.