Wednesday, February 18, 2009

Investments in Zimbabwe: ALCO spurns US$10m offer for Olivine

Monday, 16 February 2009 - Shame Makoshori 

A US$10 million bid to takeover Olivine Industries by Johannesburg Stock Exchange-listed African Sunoil Refineries ran into trouble last week after one of the shareholders in the food and detergents manufacturer, ALCO Africa, rejected the offer saying its 49 percent stake was not up for grabs.

ALCO together with the Industrial Development Corporation (IDC) became major shareholders in Olivine Industries two years ago after the Heinz Group of the United States of America pulled out of Zimbabwe.

The IDC now controls 51 percent of Olivine Industries.

Sources told The Financial Gazette this week that Sunoil Refiners has been pushing for the outright takeover of Olivine Industries through the purchase of ALCO and IDC's stakes at no less than US$10 million.

As part of its proposal for the takeover of Olivine Industries, a German plant manufacturer, KHS, had been contracted to provide new machines for the Zimbabwean concern to transform it into a viable regional food and detergent manufacturing giant supplying margarine, cooking oil and soaps into the Southern African Development Community (SADC).

Sunoil Refiners is the manufacturer of the Sunstar brand of cooking oil, Star Brite soap, Sunspread magarine and many other products that are fast becoming household names in Zimbabwe.
It employs more than 5,000 workers at its Durban plant and in other centres in South Africa.
"Our market has always been South Africa, which has a remarkable growth," Africa Sunoil Refineries chief executive officer (CEO) Anwa Moosa said in a letter to Economic Development Minister Sylvester Nguni dated January 28 2009.

"However after 20 years of operation in South Africa, demand from SADC has now grown too big. The time has come for us to service fully this market, outside South Africa. This we cannot do from South Africa, as our plants are fully capitalised for local consumption. We have to establish production outside South Africa. Now for the past two years, we have been trying to establish ourselves in Zimbabwe through Merzim Distributors. We have tried to move into Olivine as an outright purchase for us to properly manufacture our products and distribute them in SADC. To this day, we have not had any notable successes. We have so much business to do in SADc and a company like Olivine, with its present infrastructure, we can enhance production and meet our target market obligation," Moosa added.

Moosa said; "Olivine can be turned into a good investment considering our experience in the industry. We will not rush into quick buck and exit on this but first we seek to establish ourselves and our products on the market and offer stiff competition to Lever Brothers in SADC," the letter added.

ALCO CEO Happy Mapara this week denied the takeover bid by Sunoil saying, "your sources are lying to you".

But The Financial Gazette obtained a copy of a letter he wrote on Saturday telling Moosa to hold on with Sunoil's investment.

"At the moment we have no intention of disposing of our shareholding in Olivine," Mapara wrote in the letter dated February 3 2009, copied to Merzim Distributors managing director, Paul Musodza.
"We have actually been working on refurbishing sections of the plant," he added.

Sources at Olivine Industries said workers had pinned hopes on the rejuvenation of the company by Sunoil. They said after splashing US$6,8 million on the Heinz stake, ALCO had done little in terms of expansion and refurbishing the company's plant resulting in staff morale hitting rock bottom.
They said ALCO was much smaller than Olivine and lacked the financial muscle to recapitalise the company.

"It is like a snake swallowing an elephant, they (ALCO) do not have the capacity," the source said.

Reports last year suggested that 200 workers were earmarked for retrenchment as Olivine, weighed down by poor capacity utilisation and low output, struggled to weather the storm.

The retrenchment programme had to be shelved due to an acute shortage of cash to pay for the retrenchment packages, the reports said then.

The rejection of the 20-year old South African company's offer came at a time when government this week told industrialists to explore jointer ventures and synergies with South African companies to open lines of credit and enabling them to source raw materials needed to beef up capacity in their companies.

On Monday, Industry and International Trade permanent secretary Christian Katsande told industrialists that the government was ready to support local companies in forming alliances with South African partners.