The companies have headquarters some distance from each other, but BKB has an extensive geographic footprint through its diverse agri service operations.
Though best known for its wool and mohair operations, BKB has in recent years diversified profitably into livestock auctioneering, grain storage, property leasing and financial services.
KLK overlaps with BKB in auctioneering and financial services, but also offers further operational diversification through interests in meat handling, fuel distribution and vehicle dealerships.
A combined BKB-KLK operation would carry annual turnover of around R4bn — ranking the new entity as one of the bigger agri businesses in SA. KLK’s board has not yet made a recommendation to shareholders on the BKB offer.
The offer pitches a cash and scrip offer and a cash-only offer. KLK shareholders have been offered 500c/share plus one share in BKB for every two KLK shares held. The cash portion offers 915c/share for every two KLK shares held. KLK earned around 66c/share in its past financial year — so BKB is trying to buy the business on a historic p:e of roughly 7,5.
That may seem cheeky in relation to listed companies on the JSE (especially those in the broader food segment). But there might be considerable temptation to take scrip in BKB, which showed sturdy aftertax profits of R70m in the year to end-February 2011.
BKB has also recently shown it can successfully bed down acquisitions, with the successful integration of the East Cape Agricultural Co-operative.
By contrast KLK managed pre tax profits of R16m from turnover of R1,2bn in the year to February 2011, reflecting a slender net margin of 1,5%. Its interim performance to end-August 2011 was slightly better, with pre tax profits of R8,3m from turnover of R660m.
It is interesting to note that BKB already owns 20,1% of KLK, having bought the shares owned by PSG-aligned empowerment vehicle Thembeka and its agri business investor Zeder Investments. Thembeka CEO Tonie Fuchs has confirmed that Thembeka had recently sold out its 5% holding in BKB.
If the KLK takeover is successful, the enlarged BKB will certainly hold sufficient critical mass for a listing on the JSE’s main board.
Pure agri businesses, which are often seen as alternative food sector plays, are scarce on the JSE, with only three listings: Afgri, Zeder and Ububele.
Article source: http://www.fm.co.za/Article.aspx?id=169470