Just over six months ago, Tiger executives looked ready to pounce on new acquisitions, with CEO Noel Doyle referring to a culture of “bigger and bolder”.
That dream seems to have been shelved, however, with divestment, for the most part, being the order of the day.
In recent years, Tiger has unbundled its majority stake in fishing group Oceana, sold its processed meats division Enterprise and its 49% stake in Nigeria-based UAC Foods. The group also plans to sell its fruit farming and processing operations, the old Langeberg Foods.
About the only thing it has bought is its own shares back from the market — between February and July last year, it spent a not-insubstantial R898m on this. (Its current price of R163 presents another opportunity to mop up some of the weaker hands in the market.)
Speaking to the FM, Doyle says he is still aggressively eyeing opportunities. But, he adds, “we won’t spend like a drunken sailor. We need to be careful that we don’t do something that is accretive in the short term [but that] ultimately ends up destroying shareholder value measured against a proper weighted average cost of capital.”
To temper expectations, he arrives at meetings in his 17-year-old car. ‘No-one knows where I come from when I rock up in this old car’
It’s not easy being a Tiger on the prowl. As Doyle says: “When Tiger comes knocking at the door, I think the price goes up automatically.”
To temper expectations, he arrives at meetings in his 17-year-old car. “No-one knows where I come from when I rock up in this old car,” he says.
There are other considerations. Doyle reckons if Tiger were buying an asset from a multinational then, from a cost perspective, the two parties would not be far apart. “But when you are buying a business out of private equity ownership or private ownership, we find there are very big gaps — particularly on payroll costs.”
Tiger has looked at opportunities over the past couple of years that weren’t worth following through on. “The arbitrage between the [acquired business’s] payroll today and what it would look like ultimately in Tiger Brands can be sometimes as much as double,” he says. “Tiger is a high-quality employer from a pay perspective relative to the market.”
When Tiger comes knocking at the door, I think the price goes up automatically
— Noel Doyle
At issue is whether Tiger is too risk averse — and whether it carries too many scars from acquisitions elsewhere in Africa that haven’t delivered. Doyle says this legacy means the company needs to find a balance between rushing out to spend money, and being so cautious it misses opportunities.
He remains adamant, however, that Tiger Brands will be ready when the opportunities come — but only if the price is right.
With the food sector under pressure, the chances of a meaningful consolidation phase seem reasonable. There has been some movement already, with food brands giant Mondelēz briefly coveting AVI’s snacks, RCL Foods semi-separating its poultry business, and the listing of Premier Group on the JSE.
The consensus is that Tiger and Premier — and possibly RCL — could be the major consolidators.
The FM wonders too whether Tiger’s efforts to build a foothold in the vibrant private-label segment would be served by taking a stab at Libstar, a R12bn annual revenue business that commands a viable niche with top food retailers.
There are, however, structural obstacles to acquisitions, says Doyle. “Many of our competitors have advantages in not having the breadth we have, and therefore would not have the regulatory hurdles from a competition perspective.”
Interestingly, Tiger’s venture capital fund made its first investment in Herbivore Earthfoods, which supplies plant-based and vegan products. So if Fry’s — one of South Africa’s larger purveyors of vegan products — were up for sale, would Tiger take a bite?
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.