Flour Mills acquires Honeywell Flour in N80bn deal

Flour Mills of Nigeria Plc (FMN), the food conglomerate and owners of the iconic Golden Penny Food brand, has acquired a 71.69 percent stake in Honeywell Group,

In a joint statement issued on the Nigerian Exchange (NGX), the two companies announced they have signed an agreement for a proposed combination of FMN through its affiliates and Honeywell Flour Mills Plc, a portfolio company of Honeywell Group Limited.

The deal is estimated at N80 billion.

“Flour Mills of Nigeria Plc. (“FMN”) and Honeywell Group Limited (“HGL”) today announced that they have signed an agreement for the proposed combination of FMN through its affiliates and Honeywell Flour Mills Plc. (“HFMP”), a portfolio company of HGL,” the statement said.

“At a total enterprise value of NGN80 billion, HGL will dispose of a 71.69% 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,” the statement said. Following the announcement, the shares of Honeywell Flour was rallied 9.73 percent to N3.72 per share and a total market capitalisation of N29.5billion, barely 36.9 percent of the N80 billion enterprise value placed on it by FMN. Notably, the effective share price and market value of the acquisition would be determined by adjusting the enterprise value for net debt and net working capital at the date of transaction closure. Contrarily, shares of FMN remained static at N29.25 per share and a market capitalisation of N119.9 billion.

“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 and leverage opportunities stemming from the African Continental Free Trade Area (“AfCFTA”),” it added.

The combination is subject to regulatory approval, the statement explained.

Beyond the regulatory approval of the Securities and Exchange Commission, which would be required for the two publicly quoted companies to merge, the transaction is expected to be subjected to the consideration and approval of the Federal Competition and Consumer Protection Commission.

This is because the merger of the two leading flour producers may exacerbate the current oligopoly structure in the flour industry, giving FMN further dominance edge and tendency towards monopolistic behaviours, as the merger of Honeywell may give FMN about a two-third market share of the flour market, undermining the competitiveness of major peers such as Dangote Flour, BUA, and Crown Flour,

FMN is also buying FBN Holdings Plc’s 5.06 percent holdings in Honeywell Flour, thus taking the total acquired shares to 76.75 percent of the company’s share capital, a clear majority stake which may prevent it from doing a tender Offer, as FMN may seek to retain the listing of Honeywell on the NGX, with a minimum float of about 25 percent for minority shareholders, similar to its strategy in Northern Nigerian Flour Mills, it’s subsidiary which is listed independently on the NGX.

On the news of FMN acquisition of FBN Holdings’ position in Honeywell, shareholders of FBN seem excited with the shares rallying 4.76 percent to N12.10 per share, as gains on disposal of the asset are expected to buoy FBN Holdings earnings performance in the quarter.

According to the arrangement, the 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.

It said the complementary transaction combines FMN’s market-leading offerings that include grain-based foods, sugar, starches, oils, spreads and breakfast cereals with HFMP’s market-leading diverse and differentiated range of carbohydrate products.

Continuing, it noted further as follows:

Stakeholders would benefit from the more than 85-year combined track record of FMN and HFMP and their shared goal of making affordable and nutritious food available to Nigeria’s population.

The scale of the transaction provides employees of the consolidated company with more career development opportunities in a larger organisation, with the potential to create more jobs in the economy as it will have more brands and categories, and a larger and more geographically diverse footprint.

Customers across the nation will benefit from access to a wider product range and a robust pan-Nigerian distribution network, accessing a greater number of points of sale supported by enhanced customer-focused sales teams and redistribution capabilities.

The combination will also serve as a catalyst for an even stronger stream of innovation that is focused on local content offerings.

The country and its food security agenda will benefit from both companies’ focus on developing Nigeria’s industrial capability, its agricultural value chain, and specifically backward integration of the food industry.

Nigeria presents vast opportunities, particularly in light of the country being the largest market on the continent as well as a signatory of AfCFTA.

HFMP’s listing will be retained for the foreseeable future. Minority shareholders of HFMP will be treated fairly and in line with capital market regulation. Further information will be provided within the required channels and timeframes.

Commenting on the transaction, Honeywell Group Limited Managing Director, Obafemi Otudeko said: “Today’s announcement is in line with the evolution of Honeywell Group and our vision of creating value that transcends generations. For over two decades, we have supported Honeywell Flour Mills to build a strong business with a production capacity of 835,000 metric tonnes 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.”

Also commenting, Omoboyede Olusanya, Group Managing Director of Flour Mills of Nigeria, said: “The proposed transaction is aligned with our vision not only to be an industry leader but a national champion for Nigeria. We believe that this will create an opportunity to combine the unique talents of two robust businesses. As a result, we will have a better-rounded and more comprehensive skill set available to us as a combined diversified food business, thus enabling us to better serve our consumers, customers, and other stakeholders, whilst providing employees with access to broader opportunities.”

FMN, which has its year-end has 31 March, reported N771.6 billion revenue and N25.7 billion profit after tax for the year ended 31 March 2021. With earnings per share of N6.38, FMN paid N1.65 dividend per share, translating to a 5.65 percent dividend yield.