AB Foods Makes Offer for Rest of South Africa's Illovo Sugar

  • U.K. firm offers 20 rand/share for Illovo stock it doesn't own
  • Offer values Illovo at about $569 million; shares advance 9.7%

Associated British Foods Plc made an offer for the shares of Illovo Sugar Ltd. it doesn’t already own, valuing the South African producer at 9.2 billion rand ($569 million) and expanding the U.K. company’s sugar business.

The London-based owner of discount-clothing retailer Primark and Kingsmill bread is offering 20 rand a share for about 49 percent of Illovo, both companies said in separate statements on Monday. There’s no certainty the discussions will result in a deal, they said. AB Foods already has a 51 percent stake in Mount Edgecombe, South Africa-based Illovo, which it bought in 2006 for 21 rand a share.

“The African sugar market is an attractive market where consumption is growing," AB Foods Chief Financial Officer John Bason said in a phone interview. “We are the perfect home for Illovo."

A buyout of Illovo would bolster AB Foods’ portfolio of sugar businesses, which include operations in the U.K., Spain and China. Over the past two years, the company’s profits from the commodity have dwindled as prices fell. AB Foods aims to generate a pretax return on its Illovo investment of more than 10 percent over the next few years, Bason said.

“The bid valuation for Illovo properly reflects the current sugar market,” the CFO said.

Illovo shares gained 9.7 percent to 20.15 rand at the close in Johannesburg, the highest since May 25. The stock fell almost a third last year as the company’s earnings plunged amid falling prices and the worst South African drought for 23 years. AB Foods declined 1.5 percent to 3,052 pence in London, extending the decline this calendar year to 8.7 percent.

AB Foods earnings have largely stagnated since 2013, as plummeting profit in the company’s sugar-production business has offset the growth of Primark, which expanded into the U.S. last year, and other units. The company said in January that profit in the year through September will show a “modest decline,” as the weakness of emerging market currencies weigh on the business.

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