AVI management under less pressure after Tiger backs off
March 9, 2009
By Tom Robbins
AVI management will breathe easier when it reports interim results on Monday following Tiger Brands' decision to withdraw its proposed offer for the company, but questions will continue to be asked about AVI's strategy.
Analysts had expected a successful takeover would result in Tiger Brands focusing on AVI's core portfolio of food and beauty businesses and forsaking the smaller apparel businesses. This would have resulted in Tiger Brands selling off the shoe components of AVI's fashion business, such as the Spitz retail chain.
Tiger Brands walked away from making a formal offer last week after deciding that without support from AVI management the premium it was offering was too risky in a depressed market.
AVI shareholders might be disappointed at the withdrawal of the R8 billion potential offer, which represented a 62 percent premium to AVI's market capitalisation at the time.
But potential new investors, with an inclination towards the defensive food sector at this time of increasing uncertainty, will have to consider AVI's ownership of high-end shoe stores, such as Spitz and Jimmy Choo.
Mass market food firms have been among the steadiest performers in recessionary times. If the economy continues to decline, a recovery in demand for non-essential items, such as fashionable shoes, will be delayed. Even if AVI wanted to sell Spitz, it might struggle to find a buyer.
Reuben Beelders, a portfolio manager at Gryphon Asset Management, said that the company had managed its balance sheet well, returning excess cash to shareholders.
It was almost a text book example of what a bloated conglomerate should do to unlock value for shareholders, spinning off assets such as glass packager Consol and distributing excess cash, Beelders said.
But Beelders questioned AVI's acquisitive strategy, which he said inevitably introduced risk. The acquisition track record had been less than stellar, including its purchase of South American fishing business Alpesca.
Alpesca is struggling and AVI has been unable to sell it.
Shoe retailer Spitz, another acquisition, might face a tough immediate future, he added.
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