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But Tiger Brands has not yet made a formal offer. The cautionary announcement yesterday referred only to a "potential offer".
Last month, AVI said it had not yet received a formal offer from Tiger Brands.
AVI said at the time it was not prepared to let Tiger Brands conduct a due diligence study because it would give a competitor access to AVI's information, and that Tiger's proposal presented "a high degree of execution risk".
But AVI seemed to have changed its tune yesterday, saying Tiger had made "further formal communication" to it and that shareholders should exercise caution until a further announcement was made. But the two companies refused to give further details.
Public Investment Corporation (PIC) CEO Brian Molefe said yesterday the corporation, which owns 12,3% of AVI and 13% of Tiger, would await the details of the offer. "We have not seen what the offer entails so we can't comment at the moment," Molefe said.
Coronation Fund Managers, which holds 25% of AVI and 9% of Tiger Brands on behalf of clients, was not available to comment. Tiger Brands CEO Peter Matlare said: "I have nothing further to add to the cautionary announcement Tiger Brands issued to our shareholders this morning, in which Tiger confirms further formal communication with the board of AVI regarding a potential offer."
Chris Gilmour, an analyst with Absa Asset Management Private Clients, said it was interesting that the two groups were now prepared to sit down and talk about the potential offer.
"It is difficult to see how much Tiger Brands can increase the offer, which seems to be fair at the moment. But it is possible that Tiger might be persuaded to sweeten the offer in order to make AVI management and shareholders happy," Gilmour said.
Tiger Brands, one of SA's top three fast-moving consumer goods groups, has proposed an R8bn deal valuing AVI's shares at R24 each, which represents a 62% premium on the R14,80 price that AVI closed at on the day the offer was first suggested.
Tiger suggested an offer of 60% cash with the remainder to be funded by shares.
AVI, maker of Frisco coffee and Five Roses tea, rebuffed the initial approach, saying it wanted to see proof of funding and did not believe a tie-up made strategic sense.
Tiger has a 60% share of the grocery market and 30% of the overall foods market, while AVI dominates in niches -- with 60% market share in biscuits and a 40% share in tea and coffee.
Tiger's main shareholders -- the PIC and Coronation -- also have holdings in AVI.
Tiger Brands closed 3,54% lower yesterday at R135.
AVI was 2,12% down at R20,80.
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