A YEAR ago, it was a sleepy, penny stock that took all year for the price to rise by the same percentage as heavyweights such as Delta rose in a day. But CFI, an agro concern has become the centre of attraction as a bidding war has erupted between British tycoon Nick Van Hoogstraten and Stalap Investments (Private Limited).
The CFI shares rocketed on Monday after Stalap’s 22c per share offer to minorities opened, a mere 50 shares worth $11 traded at 21,60c which was 20 percent firmer than the previously traded price.
On Tuesday, the counter did not trade but team Van Hoogstraten put in a bid of 25,90c which is 15 percent higher than Stalap’s offer price.
On Wednesday, CFI traded at 25,90c with just 400 shares going through as most investors are waiting to see how much they can benefit from the bidding war. Both Stalap and Van Hoogstraten through their respective stockbrokers’ have a significant war chest to ensure that they get as many shares as possible.
Since dollarisation CFI Holdings has experienced operational difficulties, which have resulted in the business reporting losses for several successive years.
Attempts to re-capitalise the business have been unsuccessful largely because of shareholder differences on the timing and mechanism of any capital raise.
The failure by the business to raise fresh capital has, among other things, resulted in the placement of two of its key subsidiaries (Victoria Foods and Agri-foods) under judicial management. NSSA and ZHL have therefore decided to pursue a strategy to gain control of CFI through a series of transactions that will result in NSSA and ZHL, working through a special purpose vehicle, emerging as the majority shareholders of CFI.
Prior to the offer to minorities CFI management have in the past weeks approached NSSA and other major shareholders with a proposal for a $12 million rights offer to raise much needed capital for the business ZHL and NSSA are in agreement that this rights issue is necessary and intend on helping CFI achieve it however opposition from Van Hoogstraten has delayed this transaction hence the move by Stalap to make an offer to minorities with the intention of acquiring a controlling stake.
Stalap is an Investment vehicle controlled by ZHL in which NSSA and Government have a 40 percent interest. According to NSSA chairman, Robin Vela “It is a typical and stand restricting that any corporate finance literate person would understand is done to gain control.”
The alliance of ZHL and NSSA came into existence through a mutual understanding that, CFI needed to have a single strong shareholder who could dispel with the shareholder fight issues.
If Stalap do not achieve its target of 51 percent shareholding it will be paramount for CFI for the two parties to agree on the rights issue as it would be the only way to save the sinking group.
The proposed rights issue, post the offer to minorities, is primarily motivated by the need to address CFI`s viability challenges and creating value for shareholders through among other things providing working capital funding to its operating businesses, retooling and restructuring operations to the current operating environment.
It is proposed that funds being raised be utilised to underpin the restructuring proposals that are being pursued by the judicial manager (Reggis Saruchera of Grant Thornton Camelsa). This is in agreement with Stalap’s intentions for the company.
The retail business currently has a working capital deficit which is constraining operational efficiencies and limiting it from taking advantage of existing market opportunities.
The recapitalisation will capacitate Farm and City to reclaim lost market share and expand its distribution network. The Groups’ milling business of Victoria Foods and Agrifoods now have an opportunity to reset their overhead cost bases following the rationalisation measures undertaken in 2016.
Stalap has made its intentions clear that they intend to recapitalise the group in the short term, oversee resumption of operations for the businesses that were put under judicial management, enhance the Group’s overall competitiveness and improve its market positioning whilst improving returns on shareholders’ funds and they intend maintain the ZSE listing of the Company subject to meeting all ZSE Listings Requirements.
On the other hand, the intentions of Van Hoogstraten are unknown, the only sure thing that we know is his front man, Shingai Chibhanguza who is the deputy CEO at CFI, was last week accused of abusing office and company funds and is now under suspension. So could this be how Van Hoogstraten intends to run the company if he gains control?
However, he is prepared to fight for CFI including offering serious premiums and cash offers in a bid to also get to the key 51 percent. — Finx.