Flour Mills Nigeria plc (FMN) will press ahead with its N80 billion acquisition of the flour mills unit of Honeywell Group Limited (HGL) and may escrow N900 million of the proceeds, BusinessDay has learnt.
Flour Mills of Nigeria and Honeywell Group Limited last month agreed to combine operations of FMN through its affiliates and Honeywell Flour Mills plc (HFMP), a portfolio company of HGL, at a total enterprise value of N80 billion, which will make Honeywell Group dispose of a 71.69 percent stake in HFMP to FMN.
The proposed transaction will combine two businesses with shared goals and create a more resilient national champion in the Nigerian foods industry, ensuring long-term job creation and preservation.
Days after this agreement to combine these two businesses, Ehimen Oriaifo, a lawyer representing Kunle Ogunba & Associates, widely circulated a caveat emptor warning against the transaction on the basis of an existing dispute over an alleged debt owed to Ecobank by Honeywell.
Flour Mills does not see any good reason why it should not push ahead to close the transaction as the conglomerate will choose to escrow N900 million in response to the tussle between Honeywell and its bankers, Ecobank Nigeria.
A combination of FMN and HFMP will bring together two trusted and iconic brands, creating a food business that is better positioned to benefit the growing Nigerian population, further enhance national food security objectives and leverage opportunities stemming from the African Continental Free Trade Area (AfCFTA) agreement.
BusinessDay learns that this dispute relates to a matter dating back almost nine years when senior executives of both Honeywell and Ecobank reached an agreement on the outline of a deal for Honeywell to pay N3.5 billion as full and final settlement of a N5 billion claim by Ecobank.
The agreement was negotiated by a team of Ecobank led by its erstwhile CEO Jubril Aku on the one hand and the chairman of Honeywell Oba Otudeko on the other hand.
Honeywell proceeded to pay the agreed N3.5 billion but about nine months after the deal was reached, the bank that had acknowledged receipt of the N3.5 billion came back to Honeywell to say management could not secure board approval for the settlement and that in any case Honeywell payment was not made within an agreed time frame.
Honeywell would not budge, insisting that it had fulfilled its own side of the bargain and that Ecobank had to do the same. At this time, Honeywell had the sum of N600 million in one of its accounts with Ecobank.
When Honeywell rebuffed requests by the bank for it to pay an additional N900 million to resolve the matter, Ecobank’s lawyer approached a Federal High Court in Lagos to secure an exparte order “restraining the respondent, chairman of Honeywell Group of Companies Limited, Oba Otudeko, its directors, staff, management, employees, officers, agents, privies or any other person or group of persons whatsoever under the respondent’s authority or any other authority (whatsoever derived or sourced) from operating, withdrawing from or otherwise tampering with the respondent’s funds under whatsoever name or guise in any bank or financial institution within Nigeria, pending the hearing and final determination of the application of the application for the appointment of provisional liquidator in furtherance of the petition herein.”
As time passed, the injunction secured via the ex-parte motion was dismissed and this dismissal was upheld at the Supreme Court. But both parties are still in court.
Opinion is divided on the appropriateness of the well published caveat emptor by Ecobank’s lawyers.
According to a senior business executive unconnected with the case, “there were questions to be asked as to why an aggrieved party should be aiming to spoil transaction of this size on account of a disputed claim of N900 million. You would have thought that the prospect of a massive acquisition like this will be seen as an opportunity for all credible and legal claims to be settled.”
However, others say it may well be an effective strategy even if strange to seek to declare a mighty man like Otudeko bankrupt.
Under the proposed transaction, which is subject to approval from the appropriate regulators, final equity price per share payable will be determined based on HFMP’s adjusted net debt and net working capital at the date of completion.
To Flour Mills, the proposed transaction aligns with its vision not only to be an industry leader but a national champion for Nigeria. The conglomerate believes that this will create an opportunity to combine the unique talents of two robust businesses.
As a result, it will have a better-rounded and more comprehensive skill set available to the company as a combined diversified food business, thus enabling it to better serve its consumers, customers and other stakeholders, while providing employees with access to broader opportunities.
To Honeywell Flour, the business combination is in line with the evolution of the Group and its vision of creating value that transcends generations.
For over two decades, Honeywell Flour Mills has built a strong business with a production capacity of 835,000 metric tons of food per annum. Following the transaction, Honeywell Group will be strongly positioned to consolidate and expand its investment activities, including as a partner of choice for investors in key growth sectors.
BusinessDay learns that Flour Mills Nigeria expects to receive full regulatory approvals for the transaction it sees as critical for consolidating its market leadership in the sector.