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Nigeria’s oldest conglomerate eyes leaner structure to ease control

Core investors and other major shareholders in UACN plc, Nigeria’s oldest conglomerate, are progressing with plans to have a leaner corporate structure for the holding company (Holdco) while doubling down on profitable ventures for ease of control.

The journey by UACN to transit from a centrally-run conglomerate to a lean holding company was revealed in 2018, but has become more pronounced lately.

UACN on September 1 bought back the shares of Tiger Brands in UAC Foods while it plans to unbundle its loss making subsidiary, UPDC. It has merged Chemical and Allied Products plc (CAP) and Portland Paints –its paint subsidiaries.

Industry analysts say through a relatively slimmer structure, UACN’s core investors will achieve streamlined management and have better visibility and control.

“They are seeking to consolidate their holdings, restructure the company with focus on their key interests, with the objective of repositioning the company for growth. You would recall they have sold off the property business, UAC-Property to Custodian and Allied Investments,” an informed source says.

UACN, which has gone through some major restructuring in recent times following investments by core investors, has over the years transformed from a very large conglomerate with footprints in key sectors of the economy with interest in manufacturing, food and beverage, logistics, agro-allied industry and paints.

In 2018, these three investors – Blakeney GP 111 Limited, Stanbic Nominees Limited, and Themis Capital Management – got into UACN and took up significant stakes in the conglomerate. In August 2020, Blakeney LLP reduced its stake with the sale of 80 million additional shares. The 80 million units were then sold at N5.75 per unit, amounting to N460 million in purchase consideration.

The shareholders information as of December 31, 2020, showed those with 5 percent stake and above are: Themis Capital Management (279.398m units) or 9.7 percent, and DALIO Property Development Limited (150m units or 5.21%). Except from those listed above, no other individual or entity holds 5 percent and above of the company’s issued share capital.

Themis Africa Capital was co-founded by Fola Aiyesimoju and Peter Mombaur. “My understanding is that Themis is the major firm controlling UACN, as the current CEO of UACN is even the founder of Themis,” our informed source further notes.

In the half-year (H1) to June 30, 2021, UACN group revenue grew by 27 percent to N46.49 billion from N36.633 billion in H1’2020. Gross profit increased by 19 percent to N8.32 billion from N6.99 billion in H1’20. Operating profit was 105 percent higher at N1.7 billion, supported by revenue growth.

Profit after tax from continuing operations was N765 million, up 258 percent from N214 million in H1 2020. Its earnings per share (EPS) from continuing operations increased to 5 kobo from 7 kobo loss per share (LPS) in H1 2020.

UACN shares, which traded at N10.35 as at close of trading on Friday, September 10, imply positive return of 42.8 percent this year.

Read Also: UAC of Nigeria to acquire Tiger Brands’ minority interest in UAC Foods

“We are gaining traction in our focus on growth. Higher sales across all our operating platforms translated to 27 percent revenue growth year-on-year,” UACN group managing director, Fola Aiyesimoju, says.

Established in 1879 as a trading company, UACN has evolved to become a holding company, owning businesses with manufacturing facilities across Nigeria. In 2019, UACN announced the spinoff of UPDC and UPDC REIT.

Last year, UACN sold a further 8 percent stake in MDS Logistics, giving Imperial Logistics control. Early this year, Chemical and Allied Products (CAP) and Portland Paints (paint subsidiaries of UACN) merged.

“Our focus remains on executing growth strategies for our businesses in order to generate sustainable value for our shareholders. We will also explore acquisitions that accelerate growth while improving risk-adjusted returns,” Dan Agbor, chairman, UACN plc, said on the company’s outlook for 2021.

He noted that in spite of the challenging outlook, “We are cautiously optimistic about UACN’s prospects on account of the recent investments we have made in people, processes, brands, technology, manufacturing and distribution.”

UAC announced the decision of the Board of Directors to unbundle the company’s 24.34 percent interest in UPDC Real Estate Investment Trust (UPDC REIT) to UAC’s shareholders via a Scheme of Arrangement under Section 715 of the Companies and Allied Matters Act, 2020 as amended (CAMA) incorporating a reduction in share capital under Section 131 of CAMA (the Scheme).

Under the terms and conditions of the Scheme and the allocation ratio of 0.2254, UAC shareholders will receive 226 UPDC REIT units for every 1,000 UAC shares owned. This will provide UAC shareholders with a capital return of N1.28 per share or 13.1 percent based on the respective market prices of UAC and UPDC REIT as of June 30, 2021.

“Our aim is to generate attractive long-term, risk-adjusted returns for you, our shareholders, by growing our businesses into market leaders in their respective segments,” Agbor had told shareholders of the company in a July 15 note on the proposed scheme of arrangement between UAC of Nigeria plc and the holders of its fully paid ordinary shares.

The Court-Ordered Meeting of the shareholders of UACN is scheduled for September 20, 2021, as indicated in the proposed scheme’s expected timetable of principal events.

Recently, UAC of Nigeria (UACN) announced a binding agreement to acquire Tiger Brands Limited’s (Tiger) minority shareholding in UAC Foods Limited (UAC Foods). The transaction was expected to be closed on September 1, 2021.

The implication of this new deal is that UACN will control 100 percent of UAC Foods and it is coming 10 years after Tiger Brands acquired a 49 percent minority stake in UAC Foods.

“According to a statement by Tiger, management revealed that the decision to exit UAC Foods was as a result of an assessment of Tiger Brands’ long-term strategic objectives and primary competencies by UACN. The assessment showed that UAC Foods will be better positioned under the full ownership of UACN. We note that this is the third divestment by Tiger Brands away from Nigeria over the last three years.

“In 2019, the business sold its majority shareholding in Dangote Flour Mills, writing off its investments in the company (which amounted to about $276million). Also, in 2020, Tiger sold 100 percent of its equity stakes in Deli Foods Limited, after the company suffered continuous loss in market share amidst management inefficiencies. Nonetheless, Tiger brands stated that Nigeria remains a market with significant potential, and it will seek to maximise other opportunities in the market,” Abiola Gbemisola, an analyst at FBNQuest Limited stated in an August 31 note to investors.

“Post-transaction, UAC Foods will be fully owned by UACN, with its three product verticals remaining in place: (1) Snacks (Gala & Funtime), (2) Dairy (supreme ice cream) and (3) Water (swan). Management has confirmed to us that the transaction will be cash-based, given that the group has a robust cash balance of N17.27billion ($41.9million).

“UACN’s healthy cash position is consequent on the group’s divestment of some businesses which include: (1) Majority holding in MDS Logistics and (2) Majority holding in UPDC. UACN’s management has also consistently noted that it’s focus over the near to medium term is to aggressively grow the group via organic and inorganic sources.

“Management notes that the acquisition of Tiger Group’s stake is in line with its objectives to grow the group, and re-engineer all of its businesses to deliver returns. We see the transaction as likely to be EPS accretive, with the elimination of the minority interest. We also note that this transaction poses a notable valuation implication for UACN Group as the group’s cash balance may be depleted. We await more clarity from management on the agreed valuation of the 49percent minority stake, and the eventual cash payment for this transaction,” the FBNQuest analyst stated.

Early this year, after a successful merger, Chemical Allied Products (CAP) was authorised to receive all the assets, liabilities, product offerings, and property rights of Portland Paints and Products Nigeria following resolutions passed at the court-ordered meeting of the Shareholders of CAP Plc, which was held on February 18.

The enlarged CAP aims to control about 15 percent of the Nigerian paints market, the largest by any company in the highly fragmented sector, while enhancing its leadership with 26 products offerings, an all-inclusive product portfolio that includes decorative, industrial, marine and protective paints as well as distribution network of 91 stores across 32 states of the federation.

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