Sovereign 'not a financial burden'

Chris Coombes.

Picture: Financial Mail

Stander said CBH not only had sufficient funds for the purchase of Sovereign, but had the resources to fund the merged entity’s growth plans. Far from planning to rationalise the merged business, "CBH considers it likely that jobs will be created by the future growth of the combined entity", said Stander.

CBH, which owned 34.1% of Sovereign, was blocked from acquiring a controlling share by the Takeover Regulation Panel. In November, the panel ruled that CBH’s offer had lapsed and it had to wait 12 months to make another offer.

Before the offer lapsed, CBH applied to the Competition Commission for approval of the deal. The commission gave its approval in November.

Within weeks Sovereign announced it was taking that decision on review.

In its application, CBH gave an undertaking to the commission that there would be no retrenchments as a result of the merger and said that all employees, including management, would be retained with conditions of employment that were no less favourable than those they enjoyed now.

The undertaking would be in place for three years.

In its application to review the commission’s decision, Sovereign said CBH was financially constrained and that this would raise adverse public interest concerns. Sovereign also said the merger would lead to a reduction in competition and would increase the incentive to foreclose.

Stander said that for several months Sovereign had been trying to create perceptions in the marketplace that CBH did not have the necessary financial resources. He said this was part of Sovereign board’s attempt to stymie the deal. "This perception is simply incorrect. Synapp International, Proterra Investment Partners and the International Finance Corporation are united in their resolve to conclude the successful acquisition of Sovereign." CBH had outperformed Sovereign in the past two financial years, he said.

Sovereign recently reported a R36.4m loss for the six months to August. CBH, which is unlisted and does not publish results, said it had made an after-tax profit of about R30m over the same period. CBH had also been investing outside SA and Stander said it had just spent R500m in Nigeria "towards one of quite a few expansion projects in Africa".

Stander said it was regrettable that Sovereign CEO Chris Coombes had rejected a number of attempts to set up a meeting.

"CBH continues to believe that the combined entity will be appropriately diversified across a great number of product categories with the requisite scale to weather the severe headwinds currently facing the industry," he said.

Vunani analyst Anthony Clark said "no matter the cost, no matter the time or impact on earnings, Sovereign management will do anything to stay independent and keep their jobs and perks".

Sovereign’s share price, which dropped from a high of 930c when the Takeover Regulation Panel announced CBH’s offer had lapsed, closed at 780c on Monday, up 2.63% on the day.

Analysts said this level, which was comparatively strong given the outlook for the industry, suggested that investors believed there was still an opportunity for a deal.