JSE-listed agricultural business Afgri and unlisted Senwes on Tuesday, 31 July 2012, announced they would merge their retail businesses.
After suspensive conditions for the merger are satisfied, Afgri's wholly owned Afgri Operations will sell its retail businesses, consisting of Town and Country and Farm City, as well as its shareholding in Partrite, to the new entity. Senwes will sell its retail outlets, including Senwes Village, Village Grocer and Quick Serve, to the new business.
The parties, which would each hold 50% of the issued shares in the new as yet unnamed business, also envisaged cost-saving benefits from shared overhead structures, including updating and integrating an IT system. Afgri said its 50% shareholding in the entity was indicatively valued at about R440m.
Afgri CEO Chris Venter told Business Day that the constantly changing market environment had required a more cost-efficient business that could produce larger volumes to ensure the sustainability of agricultural retailers. The deal aimed to "reduce cost structures" and ultimately allow the groups to offer more products to their clients, he said.
The success of the retail businesses was based largely on volumes, and the transaction would combine two similar businesses that could supply bigger volumes together, he said.
The first step would be to focus on the synergies and relationships, and thereafter the new company would look to grow in SA, Mr Venter said.
Afgri said yesterday that the diversification of operations would decrease the geographic and crop-specific risks that the groups faced, while economies of scale would be created through the ability to negotiate improved volume discounts with large suppliers for key inputs. It would also allow for "more efficient central management of important operational elements such as procurement and logistics".
The party whose operations' value was the lower of the two would contribute a cash adjustment to the other to ensure the values were equal.
The merger was subject to the fulfillment, or waiver, of the companies' boards of directors unconditionally approving the transaction, as well as a shareholders' agreement in respect of Newco, approval by competition authorities, and the companies approving the final valuation of each business.Source: Business Day