The listing of Bid Corporation (Bid Corp), the food services spinoff of industrial conglomerate the Bidvest Group, will likely be the growth vector for the company as it looks to boost its clout in international markets.
This is the wide consensus held by market watchers following the long-touted listing of Bid Corp, which closed at R304 on Monday from its initial listing price of R270 – giving it a market capitalisation of R101.9 billion.
Bid Corp’s market capitalisation is nearly four times that of its parent company Bidvest, whose share price fell by 68%, valuing the company at R39.8 billion.
The drop in Bidvest’s share price was expected, as Foodservice (Bid Corp before it was unbundled) was the most profitable business unit in the company and made up half of Bidvest’s Ebitda. Also, the combined share price of the two companies is R422.55 – in line with Bidvest’s share price close of R370.33 on Friday.
Without the Foodservice business, Bidvest will now focus on its freight and office management, automotive, household durables, car rental, financial services, and businesses.
The listing of Bid Corp is arguably the last gift to Bidvest by Brian Joffe, the man who founded the Bidvest Group nearly 30 years ago, after he announced plans to step down back in February. At the time, Joffe said he planned to step down after the Foodservice unit had listed, paving the way for CEO of Bidvest SA unit Lindsay Ralphs to take the reins.
Bidvest’s plans to restructure its business operations – with the unbundling of the Foodservice division – were first mooted in 2012. Initially, the plan was to list the business on the London Stock Exchange (LSE), as it already had extensive operations outside of SA and the offshore listing would allow Bidvest to tap into offshore capital sources. But Joffe poured cold water on the LSE listing because the board felt it wasn’t in shareholders’ best interests.
On Monday, Bid Corp CEO Bernard Berson said the JSE-listing represents the company’s next step in becoming a global leader in the food service industry and “positions us superbly for our next phase of organic and acquisitive growth”.
“The focus we now have as a standalone company will strengthen management’s determination to continue generating and enhancing sustainable, long-term returns for all stakeholders as we continue to ensure the delivery of improved efficiencies and robust cash flows,” said Berson in a statement.
Sasfin Securities analyst Alec Abraham supported Berson’s views saying Bid Corp might be attractive to many more investors than Bidvest. “Bid Corp is one of the largest food distributors internationally and the listing gives it further merit for acquisitions and further margin uplift, as it was difficult to grow the international business from SA. The unbundling might support a higher dividend ratio from Bidvest,” Abraham tells Moneyweb.
Bid Corp is now expected to raise its own capital for expansion rather than Bidvest shelling out large sums of capital. In recent years, the Foodservice division has seen phenomenal growth, even attracting the attention of offshore buyers – which Joffe rejected.
Before the unbundling, Bidvest said shareholders would get one Bid Corp share for every one Bidvest share they held.
Bid Corp operations
Bid Corp in the UK, Australasia, Europe and emerging markets is positioned across the retail, distribution and industrial catering sectors. Its product and service range includes fresh produce, finished products, its own products, and meat, seafood, baking ingredients, logistics solutions and equipment.
The business has progressively built scale through acquisitions, as its operations now span the UK, Europe, Australasia, the Middle East, China, sub-Saharan Africa and more. Its most recent deals include the £95 million (R2.2 billion) acquisition of a 60% stake in Gruppo DAC S.p.A. (DAC), an Italy-based food and beverages distributor and a 75% stake in PCL, a specialist chilled products storage and distribution business in the UK. It acquired the remaining stake in PCL for £15 million (R347 million) and has the option to increase its stake in DAC over time.
And with growing scale, the division was the most profitable business unit in Bidvest, accounting for more than half of the group’s turnover of R116.6 billion and trading profit of R4 billion for the year to June 30 2015.
Despite its roots, SA operations make up about 8% of Bid Corp. Its Australasia operations are the biggest profit generator, with the group’s turnover of R28.2 billion and trading profit of R1.4 billion.
Momentum Asset Management portfolio manager Wayne McCurrie said the JSE listing could be a precursor to listing overseas. “For now, I see the listing as more of a first step to list the business overseas,” McCurrie added. The listing might be in the UK or Australia, where its main offices are based.
McCurrie rates Bid Corp as a hold given its “good earnings potential going forward.”