Tolaram splashes over N100bn for Diageo’s 58.02% stake in Guinness

… stock price rises first time in weeks

Tolaram, a Singapore-based holding company is set to spend about N103billion ($70million) to acquire Diageo’s 58.02 percent shareholding in Guinness Nigeria following Tuesday’s signing of the terms of agreement by parties to the deal, according to those familiar with the transaction.

Guinness Nigeria, listed on the beverages – Brewers/Distillers subsector of the Consumer Goods sector of the Nigerian Exchange Limited (NGX) has 2.190billion shares outstanding each valued at N50.55 as at June 10.

The deal value implies that Tolaram is putting a premium on the share price which had traded flat for weeks until Tuesday when the news of the transaction broke and triggered buyside activities on the stock at the NGX pushing it to N54.8, adding N4.25 or 8.41percent.

Diageo Plc is the parent company of Guinness Overseas Limited. The Diageo’s 58.02 percent shareholding in Guinness Nigeria which Tolaram is acquiring represents about 1.274 billion units, according to NGX trading information on the brewer.

The company’s financial statement for the year ended June 30, 2023 shows the issued and fully paid-up share capital is 2,190,382,819 ordinary shares of 50 kobo each (2022: 2,190,382,819 ordinary shares of 50 kobo each).

The Register of Members shows that the following shareholders held 5 percent and above of the issued share capital: Guinness Overseas Limited (a subsidiary of Diageo plc) with 1,099,230,804 ordinary shares (2022: 1,099,230,804 ordinary shares) constituting 50.18percent shareholding (2022: 50.18percent shareholding); Atalantaf Limited (a subsidiary of Diageo plc) with 171,712,564 ordinary shares (2022: 171,712,564 ordinary shares) constituting 7.84percent shareholding (2022: 7.84percent shareholding).

Also, Stanbic IBTC Nominees Limited owns 140,075,979 ordinary shares in Guinness Nigeria (2022: 136,610,979 ordinary shares) constituting 6.40percent shareholding (2022: 6.24percent shareholding); and Mutima Opportunity Fund LP with 122,857,111 ordinary shares (2022: 112,502,111 ordinary shares) constituting 5.61percent shareholding (2022: 5.14percent shareholding).

Tolaram after acquiring the majority stake in Guinness Nigeria will enter into long-term license and royalty agreements for the continued production of the Guinness brand and its locally manufactured Diageo ready-to-drink and mainstream spirits brands, the company told the investing public.

Following completion of this transaction, Guinness Nigeria will remain listed on the Nigerian Exchange Limited and, subject to regulatory approvals, Tolaram intends to launch a mandatory takeover offer (MTO) in compliance with local law requirements.

The transaction is expected to be completed during Fiscal 2025, subject to obtaining the requisite regulatory approvals in Nigeria.

Diageo said it remains deeply committed to Nigeria and will retain ownership of the Guinness brand, which will be licensed to Guinness Nigeria for the long-term, enabling the next phase of growth and development of Guinness Nigeria under the stewardship of Tolaram.

“As at June 30, 2023 -Guinness FY23, Diageo (Guinness Oversees Limited and Atalantaf Limited owned 50.18percent and 7.84percent) total of 58.02percent controlling stake in Guinness Nigeria Plc. And that’s the exact stake Tolaram is acquiring, meaning there’s no significant change or dilution in Guinness capital structure. Just Diageo exiting their stake and Tolaram seeing opportunity to expand its footprint and rich portfolios into brewer space,” said Goke Adetoyinbo, brewer research analyst, CSL Stockbrokers Limited.

He noted that Guinness stock which has been flat for weeks now rose as investors reacted to the news. “You can see the market already reacting to the news, stock up 8.41percent already today, owning to the fact that possible capacity expansion and brand building could drive growth for Guinness, enrich Tolaram portfolio – synergistic effect.

“However, in-house, the brewer sector overall is repressed (consumption has been low as consumers are adapting their spending preferences towards essential commodities like food). Only revenue driver is price increase for now, not volume. and the top 3 players have greatly exposed to FX losses recently. For us, the valuation stays the same till their FY 24 numbers (June) drops. We still maintain our buy recommendation on the stock which is N93.01 per share,” Adetoyinbo said.

Read also: Tolaram plans to buyout Guinness shareholders after acquiring Diageo’s 58.02% stake

In 2023 financial year, Guinness Nigeria reported revenue of N229.440billion from N206.822billion in 2022, up by 11percent. In the same year, it reported after tax loss of N18.168billion, as against profit of N15.651billion in 2022, representing 216percent decrease. Meanwhile, it declared dividend of N15.639billion in 2023, from N1.007billion in 2022, representing 1,452percent increase. Its basic and diluted earnings per share was in negative of 829kobo from a positive of 715kobo in 2022, down by 216percent.

With a five-decade presence in Africa, Tolaram is one of the largest consumer packaged goods companies on the continent and has forged joint venture partnerships with several leading consumer multinational companies.

In partnership with Guinness Nigeria and Tolaram, Diageo will continue to drive the brand and marketing strategy for Guinness in Nigeria, to ensure Diageo’s exceptional capabilities in brand building and innovation continue to drive long-term growth for Guinness in Nigeria.

Omobola Johnson, Board Chair, Guinness Nigeria, said: “Today’s announcement represents a significant opportunity for the next phase of growth for Guinness Nigeria.

This partnership brings together Tolaram’s deep expertise in manufacturing and distribution, and Diageo’s exceptional capabilities in brand building and innovation. I believe this is a winning combination which leaves Guinness Nigeria extremely well placed to drive further growth in this market.”

Adebayo Alli, Managing Director/Chief Executive Officer, Guinness Nigeria, said: “Today’s announcement marks an exciting moment for Guinness Nigeria, our employees and our customers. I look forward to working alongside Tolaram, which is one of the largest and most respected consumer goods companies in Africa, and I am pleased to note Tolaram’s alignment with Guinness Nigeria’s values and its strong commitment to build an enduring and sustainable business”.

Haresh Aswani, Managing Director, Tolaram Africa, said: “We are thrilled to welcome Guinness Nigeria, a company with such a rich legacy and strong consumer loyalty, into our ecosystem.

“This strategic move will expand our significant footprint in the Nigerian market and presents an opportunity to leverage our combined strengths to foster innovation and deliver immense value to our customers and shareholders across the nation.”

“Tolaram was quietly Nigeria’s 2nd or 3rd largest FMCG conglomerate for a very long time (19 products from 6 or 7 locations across the country). We know Indomie but they have partnerships with Arla and Kellogg and are behind other products that are probably in our homes. This Guinness move is not strange or out of character but it’s certainly big,” said a competition lawyer and former commissioner for justice/attorney general.

A tech founder and competitive strategist recently said, “Tolaram is the next competitive strategy case study I’m writing after I finish the one I’m currently doing! Most of this news commentary will understandably be on Diageo/Guiness move and perhaps commentary on what it says about Nigeria, but for me, this is more about a brilliant strategic move by Tolaram 11 or 12 years ago!

“Fascinating. As everyone was saying how impossible it was to bring consumer goods to market in Nigeria, they’ve “virtualized” the infrastructure they used to manufacture and bring Indomie to market and now offering that same infrastructure to Kelloggs, Colgate, and now Diageo! As we say in strategy there are only two things you do about undesired costs: you kill them or you share them!”

According to him, “There are always multiple sides to every company and I’m sure they are not saints, maybe even devils in some respect I don’t know, but from my competitive strategy lens, Tolaram is an under-appreciated play. Very deeply strategic long-term operators. Smart, silent, effective.

“They seem to invested in scale to reduce the costs of go to market in Nigeria by sharing it across multiple brands, which would have to bear the cost entirely on their own. Investment in scale to share costs. The conversation will be about Diageo, but amazing Tolaram story here from my own particular professional world view,” he said.

Speaking further, he said, “That’s why I find it interesting to see whether or not Tolaram will succeed. The obvious version of the story all these exits are telling us (which we all already feel in our companies) is that to “make” in Nigeria for Nigerian consumers can barely work anymore given the economics.

“A Tolaram twist to the ‘standard story’ would be about whether there is a different ‘how’ to make in Nigeria. Perhaps dealing with Nigeria’s high costs needs a “different” approach such as specialisation, or minimum scale, or a degree of scope focus etc?

The bad news is already known. A play like Tolaram’s would tell us whether the bad news is taking us to an unavoidable destiny where it will be impossible to manufacture and distribute anything here for Nigerians, or to a world where a reconfigure of the manufacturing business models, we inherited from the 1980s may birth a new approach to manufacturing and distributing to locals that is better able to deal with Nigeria’s extremely high operating costs.

“Time will tell, (and academics do have the luxury of contemplating the longer-term question while the operators …are feeling the current pain), but if Tolaram can come up with a business model that works in this market given the economics, it should be something that many others are able to adopt and spread, which would be good for all of us in my opinion,” he further said.