Dairibord, the country’s largest dairy company, is in talks to merge with smaller rival Dendairy, according to industry sources.
ZSE-listed Dairibord is currently trading under a cautionary announcement, first released in July, on current talks with “an unlisted entity”.
“Further to the cautionary announcement published in the press on 1 July 2020 and subsequent updates on 22 July 2020 and 13 August 2020, shareholders are advised that Dairibord Holdings Limited is still in discussions with an unlisted entity, for a merger and acquisition transaction which if successfully concluded will have a material effect on the price of the company’s shares,” says the cautionary.
While Dairibord cannot comment beyond the cautionary, officials familiar with the talks said Dairibord was targeting Dendairy’s milk processing capacity. Post-merger, Dendairy would focus more on the production side; growing its heifer investment and extending a new farming venture in the Lowveld.
The two companies target to conclude discussions by year-end, the sources said.
Dairibord accounts for 38% of the national milk intake, and a merger with Dendairy would dwarf number three rival Prodairy, which takes in 20% of the country’s milk. In the six months to June, Dairibord’s sales volumes were 27.3 million litres, down 32% below the same period last year. Raw milk intake for the period was 13 million litres, which was 6% below prior year in line with the national drop in national milk output.
Acquisitions have had mixed results for Dairibord, the first state company to be privatised when government sold its 75% stake in 1997. The company’s takeover of Lyons Zimbabwe in 2001 has worked well, as the company managed to grow Lyons’ already strong brands.
However, last year, Dairibord had to sell its underperforming Malawi business, Dairibord Malawi, which it bought in 1998. By the time the business was sold to Lilongwe Dairy, liabilities of the subsidiary exceeded assets.
Kwekwe-based Dendairy, formed in 2004, is owned by the Coetzee family, with Scandinavian private equity firm Spear Capital holding a minority stake in the company. Spear bought 27% of Dendairy in 2015.
In 2018, Dendairy started a project to expand operations at its Kwekwe plant. The plan would see Dendairy adding three new packaging lines to double production from 4.6 million litres per month to eight million litres. The project was, however, delayed by funding and, this year, by the COVID-19 crisis which disrupted procurement.
The company has been looking beyond processing, which is Dairibord’s core business, to invest more in raw milk production by investing directly in dairy farming. Part of this plan includes a project to grow the drought-resistant Lucerne grass over 6000 hectares in Chilonga, Chiredzi.
That project will see the company granted land to grow the grass, which is prized fodder for dairy cows. According to Dendairy, the project will also involve local outgrowers and community feedlots, watered by canals from Tugwi-Mukosi Dam. Government, Dendairy and community leaders started consultations on the project 2019, as it may involve relocations.
The company has recently stepped up imports of heifers as part of its push into production.
According to a recent Government report on the state of the industry during the lockdown period, Dairibord invested US$1.1 million in plant upgrade while Dendairy invested US$3 million during the second quarter of this year.
Dendairy exports dairy products into Malawi, Mozambique and Zambia. Recently, the company acquired land near its Kwekwe plant, on which it reportedly plans to build a brewery, signalling further diversification beyond milk processing.
Previously, Dendairy director Darryl Archibald said Dendairy’s location in the Midlands gave it a distribution advantage over rivals.
“In Midlands we enjoy the geographical advantage, for example, we have formed partnerships with dairy farmers,” Archibald said last year. “Being in Kwekwe in the Midlands gives us an advantage over our competitors in Harare.”