Two European sugar companies, Associated British Foods and Tereos, have both announced their interest in a partnership with Africa’s biggest sugar company, Illovo.
llovo has operations in South Africa, Malawi and Swaziland, among others.
Illovo yesterday (15 March) informed the Johannesburg stock exchange that it had received two takeover offers from UK and French companies.
A spokesperson for ABF informed just-food that European companies are showing such interest in the South African firm because sugar production in Europe has entered a transitional period. “There is a lot of jockeying for position going on because of the final content of European sugar regulations,” ABF said.
In 2009, Europe’s sugar market will be opened to developing countries and EU subsidies for the sugar industry will cease. When these changes come into effect profits made by sugar production in Europe will dramatically decline.
“The effect of the legislation, the effect desired by EU policy makers, is that the volume of European sugar production will decrease as inefficient manufacturers leave the industry,” the spokesman said.
“Efficient producers are looking at their strategic positioning going forward. One option, one that we are considering very seriously, is making a partnership with Illovo.”
Such a partnership would be strategically beneficial to European companies because it would provide access to a rapidly expanding market outside their traditional sphere of operation. Moreover, it is viewed as a potentially sound asset when the European sugar market is fully opened to competition from developing countries in 2009.
Neither party has made a formal offer, the Illovo statement said.
The rival bids are of a very different nature. ABF told just-food that its offer was relatively straightforward: “We are offering cash for 51% of the shares. The company will continue to be listed on the Johannesburg stock exchange.”
In contrast, French company’s bid involves the sale to Illovo of some of its overseas interests, notably a Brazilian sugar business. These assets, Tereos says, are worth between 51% and 75% of Illovo.
ABF has pinned its hopes on the simplicity of its proposal appealing to the African company.
“To accept Tereos bid,” ABF told just-food, “firstly, they would have to strategically decide that they wanted to move into those markets. Secondly, they would have to agree the value of Tereos assets.”
ABF stated that they would not make a hostile bid for the company: “We will only move in with the support of the board.”