Heinz/Cottco deal details revealed

Vincent Kahiya



WHILE US company Heinz’s cession of its shareholding in Olivine continues to be mired in controversy, amid industry fears that the exit of the compa

ny marks the start of government’s corrosive policy of nationalisation, the Zimbabwe Independent this week sheds light on the deal.


There were conflicting views during the week after state media reported that government had taken over the giant basket-goods manufacturer through the Industrial Development Corporation (IDC) and listed counter Cottco. This was followed by a statement from Information permanent secretary George Charamba who tried to pour cold water on the issue by announcing that there were still exploratory discussions between Heinz and government. In between these statements Indigenisation minister Paul Mangwana was pitching the deal as the start of the indigenisation process in which government has said it wants black Zimbabweans to acquire a majority shareholding in all companies.


The Independent can reveal that the government of Zimbabwe, which already had a 49% stake in the giant food and detergent manufacturer, was made aware of Heinz’s decision to sell off its local shareholding in Olivine as far back as December last year. The government, exercising its pre-emptive rights to acquire the shareholding, expressed an interest but did not have the requisite funds to pay for the shares.


Prior to informing government of its intention to cede the shareholding, Heinz were already engaged in discussions with a Mauritian company, Admiral Apex Ltd, which had placed a US$6,8 million offer for the stake. The company listed as one of its directors local bus manufacturer AVM Africa boss Kenneth Musanhi.


By choosing to exercise its pre-emptive rights, the government stepped into the shoes of Admiral Apex and therefore accepted to match the Mauritian company’s offer for the stake on the same terms and conditions set by the Indian Ocean suitor.


Representatives of the new owners, IDC and Cottco, this week remained mum on the mechanics of the deal leaving political rhetoric to cause confusion and speculation on the actual architecture of the transaction.


Documents to hand however show that the cession is signed and sealed and that Cottco rescued the deal by paying the US$6,8 million to effectively control a 49% stake in Olivine. Government has ceded its stake in Olivine to IDC but Cottco now has effectively assumed management control.


There has been market concern over the valuation of the deal which has been described in some quarters as a bargain. Documents to hand, prepared by a technical committee dealing with the acquisition of Olivine show that the team had placed the value of the 51% shareholding at US$14,6 million. The team said that as at October 2005 the gross replacement value (GRV) of Olivine’s fixed assets stood at US$115 million which “placed some considerable value on the business as a going concern.


“GVR is not nearly a measure of market values but then again Olivine is in a position to produce and based on their current production levels using the income-based valuation, we valued the 51% (stake) at US$14,6 million,” the team said. The team however adjusted the net asset value based on the based on reduced capacity utilisation due to feedstock shortages and depreciation of plant and equipment at the firm.


Despite the reduced valuation, the US$6,8 million figure was beyond the reach of government hence the fashioning of a recovery plan put together by together by Kantor & Immermann senior partner, Addington Chinake. The government firstly ceded its 49% shareholding in Olivine to IDC, a statutory body established under an act of parliament.


IDC then courted Cottco as a technical partner to acquire the Heinz stake in a back-to-back transaction which resulted in the cotton company acquiring a 49% stake in Olivine. Industry sources this week said under the Chinake-brokered deal, Cottco beat the August 19 deadline, to pay US$6,825 million to Heinz. The money was deposited in Mellon Bank based in Pittsburg, USA last month. This was a full US-dollar transaction.


As a sweetener to the deal Cottco also paid a further US$460 947, this however in local currency converted at the ruling Old Mutual implied rate at the time at US$1: 125 000. The deal completely localised the operation with Cottco assuming management control of Olivine. It has also been established that Cottco had been privately courting Olivine as early as last year when news of the Heinz’s intention to exit Zimbabwe began to circulate in the market. Cottco, despite having the financial muscle, lacked the leverage to land the deal without the blessing of the government which had pre-emptive rights.


Also as part of the deal Olivine which manufactures at least 250 products will stop using the Heinz brand which is a household name with its baked beans and tomato ketchup. The company will however continue with all other brands under its portfolio before the new tie-up.


Shareholders agreements were signed by IDC’s boss Mike Ndudzo and Cottco’s MD Happymore Mapara.


Olivine owns 100% shareholding in Olivine Industries, Chegutu Canners and Oil Seed Processing. The company also controls 40% of Royal Baking Powder. Cottco’s investments include 50,52% interests in regional seedhouse Seedco, which is also listed on the Zimbabwe Stock Exchange, 75% in spinning enterprise Scottco, and 100% in frozen vegetables concern Exhort Enterprises.

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