Pioneer announces unbundling of Quantum Foods division

Image courtesy of Simon Howden / FreeDigitalPhotos.net

The proposal was announced late on Thursday‚ 5 September 2013, only a day after agricultural conglomerate Afgri disclosed devastating losses from its poultry business and warned of a crisis in the local chicken industry.

Pioneer financial director Leon Cronjé said the unbundling and separate listing of Quantum - subject to "any other acceptable corporate action" - would happen in the next 12 months.

The reference to corporate action is intriguing since ongoing market speculation has matched Quantum with Afgri's poultry division.

Asked whether any corporate action might transpire prior to the unbundling and separate listing‚ Cronjé would only say that "12 months is a long time".

Quantum comprises eggs‚ chicken products‚ animal feed and commercial laying hens.

Quantum would be treated as an "asset-held-for-sale" with Cronjé saying that from next month the business would be ring fenced as a separate legal entity.

The unbundling is largely seen as the first strategic shift at Pioneer since former Tiger Brands executive‚ Phil Roux‚ took the reins as CEO.

A market watcher‚ who wished to remain anonymous‚ argued Roux was probably more comfortable building on Pioneer's branded business segments - which include Sasko (bread) and Bokomo (cereals).

Initial market reaction to Pioneer's proposals were cynical‚ with some market watchers suggesting the move was a desperate capitulation from the profit-plucked poultry sector.

In the year to end March 2013‚ Quantum managed to hike revenue 16% to R1.8bn but operating profits slumped R33m into the red. Chicken accounted for 37% of revenue and eggs another 23%.

But Coronation Fund Managers (CML) small cap expert Alistair Lea reckoned Pioneer's proposals were a good idea. "The main attraction at Pioneer is undoubtedly the brand business like Sasko and Bokomo‚ and the company will get a higher rating by removing what is in effect a big discount on the company."

Lea also argued that it was more prudent for Pioneer to offer shareholders shares in Quantum than trying to sell a poultry business at the bottom of the cycle.

"Shareholders have a choice whether to stay invested at this low point of the poultry cycle‚ or to get out."

This is not the first time a food brands conglomerate has unbundled a poultry business. Tiger Brands (TBS) unbundled Astral Foods (ARL) in 2001‚ a move that unlocked huge value for longer-term shareholders.