Delta, Varun in fierce battle for Dairibord

A fierce corporate battle has emerged for control of Dairibord Holdings Limited (DHL), with beverage giants Delta Corporation and Varun Beverages locked in a multi-million-dollar race to acquire a controlling stake in Zimbabwe's largest listed dairy processor.

Sources familiar with the negotiations said the contest has intensified after Delta entered the bidding process with a higher offer in a bid to counter the rapid expansion of Varun Beverages, Pepsi's regional bottling partner, in Zimbabwe's beverages sector.

Negotiations are understood to be at an advanced stage, with the transaction expected to be concluded before the end of September, subject to shareholder and regulatory approvals.

The developments come as the Competition and Tariff Commission (CTC) reminded investors, stockbrokers and corporate advisers that acquisitions of shares through the Zimbabwe Stock Exchange (ZSE) or Victoria Falls Stock Exchange (VFEX) are not exempt from Zimbabwe's merger control laws where they result in a change of control.

The commission said any acquisition that confers a controlling interest and where the combined turnover or asset value of the parties is at least US$1.2 million must be notified to, and approved by, the regulator before implementation. It warned that transactions completed without approval could be reversed and attract penalties of up to 10% of the parties' annual turnover.

Well-placed sources said Varun initiated discussions several months ago and has since strengthened its position by steadily acquiring Dairibord shares on the Zimbabwe Stock Exchange while simultaneously negotiating with the company's largest shareholders.

"The discussions are centred on the acquisition of a controlling stake, not the whole company," one source said.

"Varun approached the major shareholders with an offer at a premium to the prevailing market price and has continued accumulating shares through the market as it moves closer to securing a controlling position."

The transaction, estimated to be worth between US$30 million and US$35 million, focuses on the approximately 51% stake held collectively by Equivest Asset Management, Mega Market and Mutare Mart & Exchange.

Last week, Dairibord confirmed the development in a cautionary statement, advising shareholders that the three investors had informed the company they were negotiating with an unnamed third party over the possible sale of their controlling interest.

The company warned that the proposed transaction, if completed, could materially affect the price of its shares and urged investors to continue exercising caution while trading. It said further announcements would be made should there be any material developments.

Despite Delta submitting what sources described as a superior financial offer, insiders believe Varun remains the frontrunner because it entered negotiations first and has continued buying shares on the market.

"Price is important, but transaction certainty is equally important," an insider said.

"Varun's position is strengthened by the apparent certainty of its cash offer and its continued acquisition of shares in the market."

The source added that Varun's sustained buying activity had contributed to Dairibord's recent share price rally, with the counter repeatedly hitting the Zimbabwe Stock Exchange's circuit breaker limits.

Sources also claimed Varun enjoys support within sections of government, although they stressed that the final outcome would ultimately depend on shareholder decisions and regulatory approvals.

Industry observers say the battle reflects Dairibord's growing strategic importance, with its manufacturing facilities, nationwide distribution network and established consumer brands making it an attractive acquisition target.

For Varun, acquiring Dairibord would provide an established production platform and strengthen its position in Zimbabwe's increasingly competitive beverages market.

For Delta, the deal is equally significant as it seeks to reinforce its non-alcoholic beverages business, which has come under increasing competitive pressure from Varun in recent years.

Analysts say whichever bidder succeeds will reshape Zimbabwe's beverages industry.

A Varun acquisition would likely intensify competition among Varun, Delta and Innscor-controlled Rutanhi Beverages, potentially resulting in greater product innovation and increased competition on pricing.

A successful Delta bid, meanwhile, would create a significantly larger integrated beverages group with an expanded footprint across dairy and soft drinks.

Responding to questions, Dairibord board chairperson Nobert Chiromo said the proposed transaction remained a matter between shareholders.

"As confirmed by the cautionary statement issued by DHL, this is a transaction taking place at shareholder level and the company is not involved at this stage," Chiromo said.

"Should the negotiations be successfully concluded, the company will be informed and the board will then ensure that the process complies with the ZSE Listing Rules and the Companies and Other Business Entities Act, especially as regards the protection of minority shareholders' interests."

Delta also declined to comment on reports linking it to the acquisition.

General manager for corporate affairs Patricia Murambinda said the company could neither confirm nor deny any interest in the transaction while the cautionary statement remained in force.

"Should there be any material developments requiring public disclosure, these will be communicated through the appropriate regulatory channels," she said.

Efforts to obtain comment from Equivest Asset Management, Mega Market, Mutare Mart & Exchange, Varun Beverages and the Competition and Tariff Commission were unsuccessful by the time of publication.

Sources cautioned that although negotiations were at an advanced stage, no agreement could be considered final until definitive contracts had been signed and all regulatory approvals obtained.

"There is a reasonable probability that the transaction will be concluded this year, but there can be no certainty until definitive agreements are signed and all necessary regulatory conditions have been satisfied," one insider said.

Delta Corporation, Zimbabwe's largest listed company, has a market capitalisation of approximately ZiG43.1 billion (about US$1.6 billion), while Varun Beverages Limited, the parent company of Varun Beverages Zimbabwe, is valued at more than US$15 billion globally.