Introduction
Recently, mergers and acquisitions have taken a centre stage in Nigeria’s manufacturing sector.
For a sector that went into recession in the second quarter of 2015, these M&As signify a gradual rebound, and points to renewed optimism among investors in Nigeria’s manufacturing industry.
According to analysts, the M&As, which took place in the food and beverages as well as foam/ furniture industries, portray that investors are seeing growing opportunities in the manufacturing retail sub-sector of Africa’s most populous nation, at a time the oil sector is in doldrums.
“Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses,” said Rob Renaud, an investment analyst at Investopedia, while stating reasons behind M&As.
“Mergers can give the acquiring company an opportunity to grow market share without having to really earn it by doing the work themselves. Any M&A deals allow the acquirer to eliminate future competition and gain a larger market share in its product’s market,” Renaud said.
BUA divestment to Olam
BUA Group, one of Nigeria’s foods and infrastructure conglomerates, recently announced the divestment of its flour business to Olam International in a deal worth $275million.
The investment of the Singapore-based holding company was for the acquisition of Amber Foods Limited, which through its 100 percent owned subsidiary, Quintessential Foods Nigeria Limited, owns the wheat milling and pasta manufacturing assets of the BUA Group in Nigeria.
The BUA Group has wheat milling capacity of 3,760 metric tonnes (MT) and pasta making capacity of 700 MT.
The BUA Group has wheat milling capacity of 3,760 metric tonnes (MT) and pasta making capacity of 700 MT.
The details of the deal show that assets to be acquired by Olam include two wheat mills and a pasta-making facility in Lagos, a mill in Kano, and a wheat mill and a pasta manufacturing plant under construction in Port Harcourt.
The deal is expected to strengthen Nigeria’s flour milling industry and inject strong experience and management in the sector. There is also hope that this deal will create more jobs in the wheat milling value chain.
Olam had, six years ago, acquired Crown Flour Mills (CFM) in Nigeria and consequently expanded its capacity and set up milling operations in Ghana, Senegal and Cameroon.
With this deal, stakeholders believe that Crown Flour Mill’s position as the number two wheat miller by sales volume has been consolidated.
“This is good for our economy. This sector needs monetary ease to be able to import raw materials. It also means that in spite of not-too-good news coming from flour milling industry recently, investors are still upbeat,” said Ike Ibeabuchi, managing director of a chemical making firm.
Others believe that Crown Flour Mill’s total wheat milling capacity of 2,380 TPD will rise above 6000 TPD once the plant takes off later in the year.
Mukul Mathur, country head of Olam Nigeria, re-echoes investors’ sentiment.
“We are confident about the growth prospects in Nigeria. So expanding our participation here is a logical step to capitalise on the opportunity. Our value-added export business in the country puts us in a strong position to generate the much required foreign exchange and actively support the Produce-Add-Value-Export (PAVE) initiative of the federal government of Nigeria,” Mathur said.
Anurag Shukla, managing director of Crown Flour Mills, added that the acquisition would help it provide low cost food staples to the Nigerian population that have been manufactured in-country.
“Wheat-based products, such as pasta, have grown in popularity among Nigerians due to changing tastes, the gradual rise of convenience and, for many, as an affordable option to meet carbohydrate requirements. “We are pleased to acquire the BUA Flour and BUA Pasta brand. Both brands are very well known and respected in the industry and we look forward to further developing them and increasing their reach across Nigeria, leveraging our extensive sales and distribution network,” he said.
Speaking at the signing ceremony, Abdulsamad Rabiu, founder, BUA Group, said: “This signing marks a major milestone in our medium term strategy. Over the years, we have run one of the largest and most efficient flour milling businesses in Nigeria and are confident in the value it will add to the buyer’s operations.”
Coca-Cola stake in Chi Limited
The recent announcement of Coca-Cola’s 40 percent investment in Nigeria’s Chi Limited was not unexpected in certain quarters. According to an authoritative source, the parent company of the Lagos-based Chi, Tropical General Investments (TGI) Group, had been considering the sale of the company for some time.
The recent announcement of Coca-Cola’s 40 percent investment in Nigeria’s Chi Limited was not unexpected in certain quarters. According to an authoritative source, the parent company of the Lagos-based Chi, Tropical General Investments (TGI) Group, had been considering the sale of the company for some time.
Cola-Cola intends to increase ownership to 100 percent within three years, subject to regulatory approvals, while working on other long-term commercial structures. Chi, makers of Chivita juice brand, Hollandia yoghurt and many other brands, is the market leader in juices and value-added dairy and its product portfolio includes iced teas and snacks.
Although neither Coca-Cola, TGI nor Chi were willing to disclose the financial terms of the 40 percent equity investment, it is speculated that Coca-Cola may have paid between $250 million and $400 million, though Chi was said to have valued the deal at about $1billion last year.
The Coca-Cola Company, whose flagship brand (Coca-Cola) is the world’s most recognized brand with a brand value of $84 billion, is the largest player in the Nigerian beverage industry and its brands are present in almost every home. The company’s decision to invest an undisclosed amount to acquire 40 per cent of Chi Ltd is a strategic step to leapfrog into value- added dairy which is an emerging and high growth beverage category where Chi has gained leadership and built a strong competitive advantage over the years.
The planned full acquisition, if actualised, will enable Coca-Cola to reclaim leadership of the Nigerian juice market which it lost to Chi Limited a couple of years ago and also build a strong capability to expand its West African portfolio of still beverages. This investment is clearly aimed at consolidating Coca-Cola’s leadership of the Nigerian beverage market.
Kelvin Balogun, president of Coca Cola for Central, East and West Africa, a region that comprises 30 countries, told BusinessDay that “this deal puts us in a very important category, value-added dairies, which is one of the very fast growing categories on the African continent and also offers us a platform to potentially expand our West Africa portfolio of still beverages.”
Balogun said the multinational company, which has been in Nigeria for over 65 years, has built a robust local knowledge and a very strong business system that have sustained its leadership of the soft drinks market over the decades. “We have tremendous confidence in the future of this market; we feel excited about the opportunities it offers and that we are well positioned for it going forward”, he said.
To market analysts, the evolving relationship between Coca-Cola and Chi signals a joining of forces to position for the growth opportunities and the increasingly more competitive landscape in the beverage industry in Nigeria and Africa.
He echoed the statement in the joint press release that the Coca-Cola and Chi partnership will allow both companies to leverage their respective investments and expertise to further drive innovation, optimise efficiency and strengthen route-to-market to accelerate growth and increase consumer availability and choice.
For Chi, in particular, the relationship with Coca-Cola marks the beginning of the next big stage in their evolution. “We strongly believe in this journey we are starting with the Coca‑Cola Company. The relationship will allow us to expand our regional footprint and product portfolio,” Cornelis Vink, chairman of TGI Group and Chi Ltd said in the joint statement announcing the partnership.
Speaking further in a chat with BDSUNDAY after the announcement, Rahul Savara, group CEO of TGI Rahul said: “Chi’s ambition is not just to be the largest juice and value added dairy company in Nigeria. We have achieved this as well as market presence in about 12 African countries. But we want to be recognised as the largest in Africa with a strong portfolio of favourite products across the continent. This is the next stage for us, and we need a credible partner to complement our capabilities and help accelerate our regional ambition. Coca-Cola fits this bill best. This is why this partnership is very strategic for Chi.”
Market analysts say that Coca Cola’s 40 percent equity in Chi, which was founded in 1980 as a small trading company, with eventual takeover in three years, will create a mega player in the Nigerian market.
Vita Foam/Vono merger
The merger of Vita Foam and Vono Products is, perhaps, one piece of good news that has come out of the foam and furniture industries in recent times.
Some analysts say this merger is targeted at ensuring that both firms gain sufficient strength at a time economic vagaries are pulling down businesses.
The merged entity is targeted at providing economies of scale, saving costs, while enhancing improved operational and administrative efficiencies.
The merger is expected to improve shareholder value and provide customers with innovative products.
Taiwo Adeniyi, group managing director, Vitafoam Nigeria plc, said the merger was concluded because investors believed in the ability of the management to turn the fortunes of the company around.
“If we produce foam and Vono produces furniture, they are complementary,” said Adeniyi.
“It is a strategic decision for Vitafoam to have Vono as a subsidiary. As you are aware, we have other subsidiaries such as Vitabloom, Vitagreen and Vitapur. Each of them produces distinct products. But they have something in common and this defines the unity of purpose,” he said.
“We are truly a national company. We have a full fledged factory in Ikeja, Kano, Aba and Jos. We also have factories offshore. We operate at Sierra Leone and Ghana strategically to position the centres for inflow of foreign exchange in the long term because these are dollar based business environment. They may not be generating expected profit for now but they have high prospects. The key issue is that Vitafoam as a group, has a very bright future and the shareholder value would be greatly enhanced. As a mark of competence, Vitafoam is ISO certified,” Adeniyi said.
Olatunji Anjorin, Vitafoam’s group executive director, corporate services, said the merger was a vertical one as the furniture produced by Vono Products would complement Vitafoam’s foams.
Like analysts pointed out, Anjorin said the merger would end past challenges militating against Vono’s growth, help shore up expertise, shared value and improved technology.
Suntory negotiating a take-over of GSK’s brands
GSK Consumer Nigeria plc has received a non-binding offer from Suntory Beverage & Food Limited as the latter plans to take over the former’s drinks business.
Suntory is offering to take over the bottling and distribution of GSK’s flagship drinks- Ribena and Lucozade- as well as part of Agbara manufacturing plant. Agbara is an industrial zone in Ogun State, south-west of Nigeria.
The board of GSK is considering the offer and expects to make a decision after the appointment of its professional advisers and negotiation with SBF.
While the negotiations are ongoing, the company stresses that any potential sale would be subject to shareholder and regulatory approvals and, until that completes, the drinks business belongs to GSK Nigeria.
“The board of GSK has a duty to consider the non-binding offer and ensure that stakeholders are informed and engaged,” said Uche Uwechia, legal director and company secretary, GSK Consumer Nigeria Plc, in a statement.
“We operate in a very challenging environment and it is the company’s responsibility to consider all options to increase shareholder value,” Uwechia said.
The board of GSK has granted Suntory access to certain due diligence information in GSK, but there is no assurance that Suntory will make a binding offer following the completion of their due diligence review or whether the terms of offer of any such offer would be acceptable.
GSK maintains that the decision is subject to shareholder and regulatory approvals. If the transaction is agreed and the shareholders and regulators approve the sale, GSK Nigeria will still maintain its Wellness, Oral Healthcare, Nutrition and Pharmaceurical/Vaccines businesses and the company will remain listed on the Nigerian Stock Exchange.
Suntory is a leading soft drinks company headquartered in Japan.
Conclusion
The M&As are indications that investors are willing to tap into growing opportunities in Africa’s biggest economy.
DANIEL OBI & ODINAKA ANUDU
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