Astral, one of the biggest chicken producers in South Africa, is alarmed that the sale of a major stake in Quantum Foods can open doors for competitors to secure valuable supplier agreements with the company.
Very recently, Astral acquired a 6.42% stake in Quantum Foods. Their products range from fresh to frozen chickens, under brands such as Festive, Goldi, County Fair and Mountain Valley. They’ve been receiving 500,000 broiler chickens from Quantum on a weekly basis over the last 5 years, effectively making up a whopping 30% of their production capacity.
Quantum Foods is an integrator that produces and distributes eggs, broiler chickens and animal feed. Its share price has skyrocketed in just over a month.
This was when Zeder, an agribusiness investment company, sold its 30% stake in Quantum to Astral’s competitor, Country Bird Holding (CBH).
“It worked well for us and it worked well for them, we were at peace. Then … what ruffled the feathers, was when Zeder had a [32%] interest in Quantum and they sold 30% to CBH,” said Ferreira, CEO of Astral.
Ferreira’s biggest concern was its competitor’s intention to become a controlling shareholder in Quantum, ultimately jeopardising the independence of its supplier contract with his company.
“So the whole rationale from Astral’s point of view was to protect its vested interest in the supplier agreement,” continued Ferreira.
“Losing the agreement means Astral would have to start increasing capacity in its breeding and broiler operations, and such an investment is huge because it’s new capital; as we’d have to buy land and do environmental studies, and that’s very time-consuming,” said Ferreira.
Dynamic shifts in the sector
Zeder’s unloading of its Quantum stakes shook the sector; with Silverlands II SCSp, a Luxembourg-based investment fund, swooping in to get 32% of shares in the company.
Anthony Clark, an analyst for SmallTalk Daily reported that the company’s directors now own about 8% of its shares.
“The fact that Quantum Foods itself has bought shares in the business and they have said that they are very happy that Silverlands partners are on board as long-term strategic shareholders, this can be suggestive that they never wanted CBH to make the bid,” he said.
“it made strategic sense for Astral to buy its stake in Quantum because of the broiler agreement the two have, which constitutes 11% of Quantum’s production.”
Fellow chicken producer Sovereign Foods also has a similar contract, and if it walks away from its agreement and Astral follows suite, then Quantum would lose 40% of its business.
However, Clark stated that it was Zeder’s selling of its shares that set everything in motion as well as the peak in interest for Quantum’s shares, which effectively doubled in value, closing at 9.90R (South African Rand).
He added that Quantum will now likely sell its 8% stake to Astral Foods or to Silverlands, since CBH is unlikely to get a controlling share in the company. (Unless it somehow acquires Silversands’ very expensive shares).
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