Flour Mills of Nigeria announced on Monday that it has reached an agreement to acquire Honeywell Group. The announcement was contained in a press statement issued by the companies.
The statement says that Honeywell Group Limited has agreed to sell a 71.69% stake in Honeywell Flour Mills to Flourmills of Nigeria, giving the latter the majority stake of Honeywell shares. Flour Mills currently has market value of N29 billion.
“For the proposed combination of FMN through its affiliates and Honeywell Flour Mills Plc (“HFMP”), a portfolio company of HGL. At a total enterprise value of NGN80 billion, HGL will dispose of a 71.69% stake in HFMP to FMN,” it said. Enterprise Value includes the debt of the company.
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The majority of Honeywell shares is owned by billionaire Oba Otudeko, who was controversially removed recently as the chair of FBNH.
The two companies are heavily indebted, with Flour Mills having a larger share of the debt. The acquisition is aimed at consolidating Nigeria’s food industry, according to the statement.
“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” it stated.
The total cost of the 71.69% stake stood at N80 billion. The companies’ press statement further explained that 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.
“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,” it said.
Per Naira Metrics, Honeywell currently has a debt balance of N78.5 billion and a cash balance of N27.3 billion as of the latest results, while Flour Mills is also debt-laden with about N142.8 billion in debt and N52.6 billion in cash. While it’s not clear how the deal was executed, the companies’ debt burden suggests that Flour Mills funded the acquisition from debt.
Honeywell’s large volume of loans is scattered across Nigerian banks, but seems to be all covered by the acquisition.
Based on its last audited accounts for the period ended March 2021, Naira Metrics named some of the Honeywell’s and Flour Mill’s loans. They include a N10.4 billion loan from First Bank, N2.3 billion from Bank of Industry, N6.2 billion from Fidelity Bank, and N3.5 billion from Polaris Bank, for Honeywell. Flour Mills on the other hand owes about N50 billion in several intervention loans to Bank of Industry and the CBN, and N68.6 billion in commercial papers and bonds.
Honeywell Group Limited Managing Director, Obafemi Otudeko said the investment will help the company to expand its production capacity.
“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,” he said.
The agreement enables Flour Mills to purchase 71.69 per cent stake in Honeywell,
However, Premium Times reported, citing a regulatory filing at the Nigerian Exchange Limited on Monday, that separate pact with FBN Holdings Group allows the Mills to acquire the financial services group’s stake of 5.06 per cent in Honeywell, bringing its consolidated holding in Honeywell to 76.75 per cent.
Based on that, Flour Mills may have a claim over about 6.09 billion units of Honeywell’s 7.93 billion ordinary shares, priced at an opening price of N3.39 per unit on Monday.
Speaking on the acquisition, 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.”