SOUTH AFRICA – South Africa’s largest dairy producer and branded foods company, Clover Industries has reported that it was in negotiations with a third party for its potential acquisition.

Business Day reports that Clover’s share price rose by 13.55% to US$1.12 after the announcement was made.

The group which also operates in branded foods and beverages category is reportedly looking to focus on value-added and non-dairy food products, away from its central focus, dairy business.

A focus on value-added products may be a way of becoming less exposed to raw milk sales which are grappling with pricing variations as well as tough trading conditions.

Company results for the year ended June showed that Clover recorded its first loss in more than a decade after a writing off a US$29 million loan to Dairy Farmers of SA (DFSA), its subsidiary responsible for the procurement of raw milk as well as the selling, marketing and distribution of non-value-added drinking milk.

The impairment was attributed to financial uncertainty surrounding the subsidiary, which will appoint a new CEO and board chair for a turnaround.

Potential buyers

According to Ron Klipin, portfolio manager of Cratos Wealth, interested parties could include Zeder which could be looking to diversify from its holdings in Pioneer Foods.

He however ruled out an interest from Tiger Brands which is trying to scale down its portfolio, especially after it disposed of its 51% stake in its Kenyan business, Haco Tiger Brands.

“Clover management has done the right things in terms of restructuring the business, making it more appropriate to current market conditions,” Klipin said.

The dairy producer last transferred its low margin business to DFSA to develop higher-margin, value-added products in dairy and other related food categories.

With the successful unbundling of DFSA, Clover is moving away from volume-driven raw milk as focus shifts on value-added dairy products such as yoghurt and custards.

Anthony Clark, an analyst with Vunani Securities indicated that the food and beverage firm could mostly attract a private-equity deal, mostly from Nestle, reported to have had talks with Clover a few years ago.

He said: “It wouldn’t be Danone or Parmalat as they are both in this country.”