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Lonrho deal seals Illovo's sugar gripSUGAR company Illovo Sugar is set to consolidate its leading position in southern Africa following the acquisition of Lonrho's sugar division for more than R1.6-billion. Analysts say the acquisition, which almost doubles Illovo's market capitalisation, is indicative of the company's core strategy to expand into the southern African region - one of the lowest-cost sugar producers in the world. The deal will create Africa's biggest sugar group with interests ranging across southern and eastern Africa. Lonrho Sugar has operations in South Africa, Mauritius, Malawi and Swaziland. Illovo, which has a 44% domestic market share, owns seven sugar mills in KwaZulu-Natal and has operations in Mozambique and Kenya. Lonrho Sugar had sales of R1.05-billion in the year to end-March 1997, while Illovo's turnover was R974-million in the half-year to end-March, 1997. Illovo managing director Don MacLeod says the new group will be strongly cash-generative. He expects the purchase to be neutral on earnings for the current financial year, but contribute to real growth in 1998. He says Illovo identified pre-tax merger benefits of at least R28-million a year. The link with Lonrho Sugar will create one of the world's lowest-cost sugar producers. "The acquisition of Lonrho Sugar is consistent with our strategy to focus on sugar, downstream products and expansion into Africa," says MacLeod. Analysts say the acquisition will give Illovo a more strategic position within the regional sugar industry. "Prior to this deal, Illovo was pretty much focused on Natal dry-land cane. By buying Lonsugar they have immediately captured a more secure strategic positioning within the whole southern African region," Investec Securities analyst Carolyn Windsor says. She says Illovo paid a premium for the Lonrho sugar division but it will probably sell the hotel interests of Lonrho's Mauritius-listed company Mon Tresor Mon Desert. The enlarged group will earn 38% of revenues from exports, but because of preferential agreements only about 16% of revenues will be subject to world market sugar prices. The deal is expected to halve Lonrho's debt to around £248-million, and pave the way for a sweeping restructuring involving the de-merger or sale of its African trading business. It is understood that Lonrho now plans to apply any spare cash within the group to the development of the core mining business. In particular, it wants to buy out the 27% of Lonrho Platinum controlled by SA mining group Gencor. In terms of the deal Illovo will buy Lonrho's 94.25% stake in Lonrho Sugar for R13.90 a share. Illovo says R1.1-billion of the purchase price will be raised via a rights offer with the remainder in cash and through preference shares. - Reuter, Financial Times
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