All eyes on Seed Co’s proposed merger

Zimbabwe Stock Exchange-listed seed producers, Seed Co Limited and its former subsidiary, Seed Co International Limited, have entered into negotiations that will see the two merge into one company.

If the deal goes through, it would be a reversal of their unbundling a few years ago
Before the 2018 unbundling, Seed Co Limited was the holding company running a diversified business including operations across the African continent.

But in its quest to mobilise capital that it said was needed to defend the investment already deployed in the region as well as fund other expansion opportunities, the then Seed Co Limited unbundled 71 percent of its regional operations and primarily listed them on the Botswana Stock Exchange.

There was also a private placement where US$31 million was raised for expansion projects.

However, not all of its shares were listed on the BSE as some were listed on the ZSE.
Seed Co International Limited’s ZSE listing has, however, been caught into widely reported allegations involving other dual-listed stocks PPC and Old Mutual.

While investigations concluded that dual-listed companies, including Seed Co International Limited (“the Company”), were not involved in activities on the parallel foreign currency market, they were still not allowed to continue trading on the ZSE but will now have to be listed on the yet to be established Victoria Falls Stock Exchange Limited (“VFEX”).

Management, however, believes Seed Co International Limited on its own cannot be “competitive and comparable to other Zimbabwean dual-listed counters.”

As a result, a proposal to merge the Zimbabwean operations, held under Seed Co Limited, and the international operations, held under Seed Co International, is being pursued, subject to regulatory approvals.

If approved, the merger will see, Seed Co Limited, which was previously the parent company, becoming the subsidiary.

While full details of the planned merger are still to be announced, market watchers have questioned the rationale of bringing Seed Co Limited into the equation more so as a subsidiary.

When they were unbundled, back in March 2018, Seed Co Limited was the bigger company with a net asset value of US$135,6 million while Seed Co International Limited had a net asset value of US$93 million.

Seed Co Limited is thus a bigger company than the BSE listed entity which, ironically, has a 26 percent shareholding.

Market watchers will also be interested in knowing which bourse, between the BSE and the VFEX will have the primary listing of the merged company.

If the BSE is to remain the primary listing of the merged company, then an asset, Seed Co Limited will now largely have a primary listing on a foreign bourse.

There will also be a keen interest in whether the company will continue to have a presence on the ZSE. If not, it will mean Zimbabwe shareholders, who might not have access to foreign currency might be prejudiced of an asset that they have had access to over the years.

A stockbroker, who requested anonymity questioned the rationale given so far that the merger is meant to make Seed Co International Limited “competitive and comparable to other Zimbabwean dual-listed counters.”

“That reason is not good enough, Seed Co International Limited, was previously listed on the same bourse (ZSE) with PPC Limited and Old Mutual Limited, so what’s the difference now?

“If Seedco Limited (Zimbabwe) is in need to raise foreign currency, the VFEX allows the listing of 20 percent of its shares in issue. That is the route it should take, not this one,” argued the stockbroker.

The ZSE might also have to manage this transaction carefully given the message that it sends to other companies that might want to delist from the ZSE and list on the VFEX.
Others, however, said from a shareholder point of view, the proposed deal gives current Seed Co Limited (Zimbabwe) shareholders a diversified portfolio in terms of regional reach.

“It’s good for future capital raise and for the local shareholder it diversifies geographical risk further,” said analyst Respect Gwenzi of Equity Axis.

Current Seed Co (Zimbabwe) shareholders will also find the proposed deal attractive as it will result in their shareholding assuming foreign currency value when listed on VFEX and BSE. – Herald