Bidvest was the big (major) news yesterday. Now the news struck us around midday, the stock spiked and then closed at 162 ZAR, up nearly five percent on the day. And the news is (drumroll): "Shareholders are advised that Bidvest has recently received various unsolicited proposals relating to its Foodservice Business." The first part that is most interesting is the word "various" that means more than one. And then the word "unsolicited" which basically means that someone else initiated it. So, the way I read it, a couple or a few investment banks or major shareholders have told the company to move-it-move-it (Madagascar style).
OK, we have had a look at Bidvest a few times, every six months or when there is news we write something. So, check it out from the last results release, at the end of February titled Bidvest half year results to December 2011. I have taken a few lines out for the purposes of looking at the Foodservice's business:
Listen in here carefully, because you can have all the sales in the world, it is actually all about profits. Margins across the group are not great, I must be honest. The most profitable (trading profit) of all the major divisions is the Foodservice division, 956 million ZAR, but that was lower by 7.4 percent when measured against the comparable period (H1 2010). Check out the commentary, "Revenues ... reflect continuing pressure on consumers in both the out-of-home eating and institutional sectors and the impact of the translation of the earnings of foreign businesses into rands. Margin squeeze and downtrading impacted trading profit..."
I did a quick trading profit margin calculation and of the big five divisions by sales and here goes, Bidvest Automotive (2.55%), Bidvest Foodservice (3.27%), Europe (2.18%), Asia Pacific (4.19%) and Bidvest Freight (4.16%), the margins are pretty low.
So the Foodservice business is the most profitable business of theirs, but as you can see margins across the group are not earth shattering. I must be careful, the guys are next door here to me, I might get tripped at street level or worse, tackled into touch on the pavement. Never a fun thing, and I might have to join those 21 chaps that are
being rested injured for the tri-nations. The interested parties are suggested to be food services business like (but might not or could not be) Sodexo. The other suggestions are private equity buyers in the form of Bain Capital (through Brake Bros.) whilst Blackstone with Wellspring own a food services business called the Performance Food Group.
AND the other two mentioned are KKR and Clayton Dubilier & Rice who own US Foodservice. WOW!! That is a whole lot to think about. Interestingly an acquisition of Brake Bros. was turned down 9 years ago by the UK competitions folks. And they were owned by Clayton Dubilier & Rice. Wow.
The suggestion is that the business could sell for as much as 4 billion USD Dollars, which is around 27 billion South African ZAR. Amazingly, the whole business was valued by the market at close of business yesterday at 53 billion ZAR. So roughly half the business. But then again, Foodservice is half of the businesses revenue. In fact at the full year stage Bidvest Foodservice generated 58.389 billion ZAR worth of sales out of an overall 112 billion in group sales. It could be for their European Services food business, which contributed 35.4 billion ZAR worth of sales, there could be a premium paid on that business. Or, it could be their Asia Pacific Foodservices business, which generated 17.5 billion ZAR worth of sales. The South African part is less than ten percent of the overall business.
What struck me is that in the presentation (
Interim financial results) in the strategy part, was the following: The Bidvest Foodservice was segregated with a chief. So you can take it that this sort of unbundling or segregation was thought out properly. I have heard the old sum of the parts being worth more than the conglomerate argument, the stock trades at 14.5 times earnings, the forward multiple (they closed their books last week) is less than 13 times earnings. Forward,
the analyst community is expecting the company to earn around 14 ZAR a share, which means that they are trading on 11 times forward. With a yield of around three and a half percent.
I guess all these movements and ructions from various folks are as a direct result of share price doing very little, but in July 2007 the stock traded above 150 ZAR a share. The world was different back then. As we said in the office here, it would be a bit hard to see Brian Joffe go from acquirer to someone who sliced and diced the business up.
I tried hard to find out how many shares Mr. Brian Joffe owns, the annual report is a bit too long for my liking (show me a short one), but I did find in the
Bidvest Annual Report 2010 (on page 134 and after) that Mr. Joffe had 127,986 shares held indirectly, 198,324 shares in the incentive scheme (carrying value of loan is 21.9 million ZAR), but the big slug is held as non beneficial, 3,335,296 shares. A grand total of 3,661,606 shares. At the current share price that is 593 million ZAR. You could be forgiven for saying, I thought he would have owned more than 1.12 percent of the business, bearing in mind that he was there at the beginning. What you think? Hey man, everyone I know would gladly love to even own 1 percent of that.