The plausible strategy behind the acquisition of Honeywell by Flour Mills of Nigeria Plc
Two of Nigeria’s largest flour mills, Flour Mills of Nigeria and Honeywell Flour Mills Plc yesterday announced a mega deal that will see the former acquire the latter. According to the press release, Honeywell Group Limited has agreed to sell a 71.69% stake in Honeywell Flour Mills to Flourmills of Nigeria.
He stated, “For the proposed combination of FMN through its affiliates and Honeywell Flour Mills Plc (“ HFMP ”), a holding company of HGL. At a total enterprise value of NGN 80 billion, HGL will sell a 71.69% stake in HFMP to FMN.
Enterprise value includes the debt of the business. Honeywell Flour Mills currently has a market value of N29 billion. The purchase price for the transaction has not yet been announced. Flour Mills issued a press release informing investors that he will answer questions about the deal during an earnings conference call.
Read: Flour Mills and Honeywell owe CBN, FBNH, combined bond holders 220 billion naira
As we wait for more details, early indications suggest that the trigger for the deal may not be purely financial. Analysts who spoke to Nairametrics believe the deal may have been sanctioned by the Central Bank of Nigeria, a joint lender to Honeywell and Flour Mills of Nigeria Plc. The analyst also suggests that it was strange for Flour Mills to acquire the company from Honeywell which was in a very difficult operational and financial situation.
The flour milling business is very low margin and therefore provides limited impetus for such a transaction. Honeywell also lost money in its Pasta business which, combined with its noodle business, is relatively small compared to its flour mill business. It is therefore logical that there are more “political” reasons behind this agreement.
According to another source familiar with the deal, a plausible reason for Flour Mills’ decision to acquire Honeywell was to avoid potential job losses and other negative economic consequences that could have arisen had the CBN forced Honeywell to repay its loans.
The Central Bank had previously ruled out bank financing for the company following the removal of Oba Otudeko from the board of directors of FBN Holdings. In response, Honeywell issued a press release informing investors that it planned to repay the loans. She claimed that her First Bank loans were in service and that she had repaid the loans by 30% over a two-year period.
Read: Acquisition: Honeywell shares up 9.73%
“Honeywell Group has continued to fulfill all of its obligations on its facilities with the Bank on the terms agreed and has reduced its exposure by almost 30% in 2.5 years. The facilities were billed at market rates and the bank continues to earn significant interest ”, they declared.
Subsequently, he announced that he had entered into plans to issue a commercial paper, the opportunity to refinance and restructure the debt profile of the company, as the company “enters a phase of more aggressive growth. of its operations “.
The announcement of this deal therefore suggests that the use of commercial papers to finance loans may not have failed or may have been suspended for now. Without funding, the business could have been more exposed to dire financial straits. Thus, a timely way to save the company, as well as that of its shareholders, was to facilitate a friendly acquisition.
Another analyst who spoke on condition of anonymity believes it was a win-win situation for everyone involved. Honeywell manages to repay its loans, which gives it time to recover and continue to operate. Honeywell also remains a separate entity and continues to exist on the stock exchange.