FBNQuest sees Tiger’s transaction posing notable valuation implication for UACN

UAC of Nigeria (UACN) early this week announced a binding agreement to acquire Tiger Brands Limited minority shareholding in UAC Foods Limited. UACN will control 100percent of UAC Foods when the transaction is concluded.

Abiola Gbemisola, research analysts at FBNQuest Limited while looking at the implications of the transaction ahead of the September 1, 2021 conclusion date noted: “We see the transaction as likely to be earnings per share (EPS) accretive, with the elimination of the minority interest”.

FBNQuest further said: “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”, it added.

Post-transaction, UAC Foods will be fully owned by UACN, with its three product verticals remaining in place: Snacks (Gala & Funtime), Dairy (supreme ice cream) and 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: Majority holding in MDS Logistics and Majority holding in UPDC.

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

“UACN’s management has also consistently noted that its 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”, FBNQuest further noted in the recent note.

“This deal is coming 10 years after Tiger Brands acquired a 49percent 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,” the FBNQuest analysts stated in an August 31 note to investors.

“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 100percent 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”, FBNQuest further indicated.