Never underestimate the value of a timely and prudent retreat when it comes to an overambitious acquisition campaign.
Too many listed companies have grimly hung onto acquired assets that either don’t fit strategically or markedly underperform the required return on capital. Perhaps executive egos preclude a pride-swallowing capitulation that would ultimately save time, effort and money.
When reality finally sets in, the damage has been done and the value of the assets in question has been eroded to levels well below the original purchase price.
So, shareholders in seafood business Sea Harvest can probably be thankful for the decision to sell off the dairy assets last week — even if that disposal puts paid to plans for the group to build a broader food group.
Other than creating a beachhead for advancing on other food assets, the dairy assets were to an extent also intended to counter the cyclicality and operational risk of Sea Harvest’s core hake fishing business.
The problem really was the incurred debt burden from the mediocre dairy assets pressing down on profit flows from the core fishing business, especially with the hake business riding a wave at the moment.
The sale price for the Ladismith Cheese Co seems most reasonable under the circumstances, representing roughly a quarter of Sea Harvest’s R3.1bn market value. And looking at the modest market rating applied to Libstar, another food business with a sizeable slice of dairy, one might argue Sea Harvest has done rather well.
These assets clearly fit better with the buyer, Woodlands Dairy Group, which will become a more formidable player across the dairy products spectrum. Perhaps a JSE listing beckons in the near future?
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