Grupo Nutresa – Ifs, Buts, Maybes etc.

Back in 2010 I was mortified to read that one of the UK’s oldest institutions, one of the country’s pioneers of social welfare, was to be sold – yes those overseas raiders from the US, Kraft, had taken over Cadbury. What would become of my Dairy Milk, or Whole Nut – and what about the chocolate factory – I was deeply perturbed.

Eleven years later and 5,000 miles away the same questions are being asked. Some years ago in a national survey, Colombians were asked to name the country’s most iconic emblems. One and two, unsurprisingly, were the national anthem and the flag – but number three was a small blue chocolate bar called ‘Jet’ – produced by Grupo Nutresa’s Compañia Nacional de Chocolates.

Much has been written since the tender offer for Grupo Nutresa was launched recently by the Gilinski family (under the Nugil S.A banner), reportedly backed by parties from overseas. The purpose of this short note is not to speculate as to why they are seeking to buy between 50.1% and 62.62% of the company, nor to give credence to those who somehow believe this is some sort of attack on the Medellin company, or to speculate on the price offered, that can be left for others. The idea is to simply look at the facts and consider the most likely outcomes.

 The Details

The Superfinanciera approved the tender offer by Nugil S.A at a price of US$7.71 for a minimum of 50.1% (229,455,976 shares) and a maximum of 62.62% (286,819,970) of the outstanding shares. The tender will run from yesterday (November 29) until December 17.

 Scenario 1: As has been very well documented and as anyone with access to a shareholders list will tell you. If Grupo Argos, Grupo Sura and AFP Proteccion decide they do not wish to sell, which is their democratic right let us not forget, then the Gilinski family will not, under the current terms on offer, reach their minimum threshold. No shares will be purchased, and life will return to normal.

Grupo Argos (December 3) and Grupo Sura (December 9) in order to avoid any conflict of interest will hold an open vote of their shareholders via EGMs before making a decision. Proteccion will make their own decision and whilst there are WhatsApp chain emails declaring (I quote):

‘Today the funds are being pressured by the media, to believe that they are obligated to sell to the Gilinskis….’

I have no doubt that all of the AFPs in Colombia are big enough to make their own decisions based on the offer on the table, balancing the prospect of a short-term gain versus a long term investment in one of Colombia’s finest companies.

Scenario 2: The Gilinski family DO attain the 51% minimum and take control of Grupo Nutresa. This would leave, if they don’t sell, both Grupo Sura and Grupo Argos as minority partners and with less say in the decision-making process.

The fear of many market watchers is a disruptive domino effect within the GEA  (note the name GEA is a misnomer as the GEA does not exist and is only a label used by outsiders). The new control group could ‘potentially’ decide to sell down their stakes in other related entities, in this case Grupo Sura and Grupo Argos where they have holdings of 13.04% and 12.26% respectively.

Again this is speculation but after years of a stable cross holding structure within the Medellin companies, there is a fear of disruption. None of this is cast in stone, far from it but analysts and market watchers, after years of thinking the Medellin cross holdings were as permanent as the Andean mountains that surround the city, are busy extrapolating away.

These are the two binary outcomes but there are two other scenarios that may come into the reckoning further down the road, we shall touch on them very briefly.

The Gilinski family could alter the terms of the tender. This could be a higher price (they already offering a 37.4% premium) although that isn’t likely to be a game changer or decide to purchase a lower amount of shares. For example, they tender for and buy 30%. The fear here is that if that were to occur, between themselves and the current controllers, something like 80% of the shares would no longer be negotiable, impacting greatly day to day liquidity.

Finally an alternative tender appears. This could be another ‘hostile’ tender, or even a White Knight who is prepared to work with the current controlling group.

These are though, discussions for a later day

There are a lot of ‘Ifs, buts and maybes’ and even some ‘possibles and probables‘ thrown in and there will be a lot more headlines over the coming weeks as the tender takes place. However, this is all part of the healthy activities of capital markets. Grupo Nutresa is a freely traded company on a public stock market and as such under the rules of that market, any entity fulfilling the correct conditions, is within their rights to launch a tender offer. This appears to have been lost in the zeitgeist.

As per normal with tender offers the BVC will publish a daily list of shares offered up for tender – as of day one, there were zero offers and in reality, that may be the case until Grupos Argos and Sura make their decisions.

In the meantime, after eleven years, I can happily report that my Whole Nut and Dairy Milk still taste as wonderful as ever, even though Americans have no idea about chocolate and constitute around 3kg of my luggage every time I return to Colombia – I have no doubt whatever the outcome, that the Jet bar will also taste the same in 2032.

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That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops