“It’s a very important deal to us. As you know, our ambition for RCL Foods is to create a diversified food business with compelling consumer brands in sub-Saharan Africa. Clearly a deal of this nature is a significant step in that direction,” Miles Dally, chief executive officer of RCL Foods, formerly known as Rainbow Chickens, told CNBC Africa on Friday.
TSB Sugar is engaged in sugar cane, agriculture and sugar manufacturing businesses, operates three mills in the Lowveld of South Africa and owns brand names such as Selati sugar and Molatek animal feeds.
Investments holdings company, Remgro, currently owns 75.9 per cent of RCL Foods[DATA RCL:RCL FOODS LTD.] and 100 per cent of TSB Sugar. Remgro [DATA REM:REMGRO LTD.] will exchange its holdings in TSB sugar for 231 million new shares in RCL at an issue price of 17.32 rand.
The TSB deal will increase RCL Foods’ equity value to approximately 15 billion rand and follows the group’s ambition of building a diversified food business, which initially started with their acquisition of Foodcorp Holdings in April this year.
“TSB’s revenue as it was in Remgro’s account at the end of June, they turned over 5 billion rand in revenue and RCL Foods turned over 10 billion rand although that only included two months of food corp. Which every way you look at it, it’s a significant number in our lives,” he explained.
Dally further explained that their aim of diversifying is to turn the company into a quality cash generative business.
“Part of what we’re trying to do is diversify our revenue stream and getting into a quality cash generative business is another important step in that regard,” he said.
It is said the transaction will also incorporate two black economic empowerment (BEE) deals, including one that TSB Sugar was already in the process of implementing and a second one relating to the restructure of RCL Foods.
Dally added that African National Congress executive committee member, Dr Mathews Phosa, who is currently a director of TSB under their BEE deal will remain on board as a strategic partner while the RCL BEE deal will be structured due to their share price drop.
“There are two empowerment aspects to this. The first TSB was already down the track of concluding a BEE transaction with Dr Phosa as a strategic partner. He sits on the TSB board and has been very instrumental in assisting them with their strategic initiatives over the past few years,” said Dally.
“The second aspect is the RCL foods’ existing BEE scheme. It has not performed well given what has happened to the RCL share price, so we’ve agreed to redo that scheme and we will continue with the same partners and employees.”