South Africa agribusiness merger hits rock

The possible merger of Afgri Sovereign Foods Investments has met a serious obstacle following poultry producer Country Bird's purchase of a stake in Sovereign.

By acquiring a stake in Sovereign, Country Bird has the power to block the possible merger, according to Alistair Lea, a portfolio manager at Coronation Fund Managers.

Lea said Country Bird started acquiring shares after initial talks between Sovereign and Afgri started in May.

Last month, Country Bird's stake in Sovereign surged from 13.4 percent to 22 percent, which may have led to Afgri's decision to withdraw its proposal, Lea said.

Afgri valued Sovereign at ZAR305 million (US$40 million) for its proposed transaction to reverse list its food division into the integrated poultry producer. Afgri Foods was valued at ZAR1.02 billion (US$132.6 million). The deal would have created the third largest poultry operator and resulted in significant synergies and cost savings.

Sovereign's board said it would explore other strategic options, which included further talks with Country Bird.