South African poultry producer Country Bird Holdings has bought a 13.4% stake in competitor Sovereign Food Investments.

The company said it financed the ZAR23.6m (US$2.7m) purchase with the proceeds of the sale of its investment in Elite Breeding Farms, which it sold to Astral in November last year.

Country Bird said the acquisition was a “strategic” one and that it does not constitute a firm intention to make an offer for the balance of Sovereign shares.

“The decision to proceed in that respect is subject to an internal strategic review by Country Bird and appropriate discussions with the Board of Directors of Sovereign Foods,” said Country Birds group financial director Robbie Taylor. “This in no way constitutes a corporate action with hostile intent; it is simply a strategic investment.”

Country Bird described Sovereign Foods as a “high-quality company with an excellent industry track record and good growth prospects”, and that a combination of the two companies would allow them “compete more effectively” with the larger South African poultry producers.

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“Added to this are the attractions of a broader geographical footprint, amalgamation of the diverse markets the two companies serve, and the fact that both companies are using the highly successful Arbor Acres breeding stock,” the company said.

In an announcement on the Johannesburg stock exchange today (15 May), Sovereign said it “remains involved” in negotiations which, if successfully concluded, may have an effect on the price of the company’s securities.

Sovereign advised shareholders to “continue to exercise caution when dealing in the company’s shares until a further announcement is made”.