FMN, Honeywell merger rekindles shareholders interest

The proposed merger between Flour Mills of Nigeria Plc (FMN) and Honeywell Flour Mills (HFMP) rekindled investors’ interest in both companies’ stock prices on the Nigerian Exchange Limited (NGX) last week.

Specifically, the stock price of HFMP appreciated by 0.57 per cent to close at N3.96 last week from N3.39 it opened for trading, while FMN stock price gained 0.25 per cent to close at N29.50 from N29.25 per share the stock market opened for trading.

Hitherto, the key fundamentals of both companies emerged stronger with significant increase in revenue and profits to match with dividend payout to shareholders.

For FMN, it grew its revenue by 34 per cent to N771.61billion in 2021 as against N573.77billion reported in prior year audited result and accounts, while HFM revenue’s for the period rose by 36.2 per cent to N109.59billion in 2021 from N80.45billion recorded in 2020.

The growth in both companies food business was driven by constant product innovation and transformation in new markets, as well as operational efficiency through route-to-market investments.

With significant increase in revenue and effective management of expenses, FMN’s profit before tax rose significantly by 116 per cent to N37.28billion in 2021 from N17.25billion in 2020.

Also, profit after tax also rose by N25.72billion in 2021, an increase of 126 per cent from N11.4billion in 2020. The growth in profits, positioned Basic earnings per share at N6.38 in 2021 from N2.55 in 2020.

The company has consistently maintained leadership focused on strong discipline in operational and capital efficiency by increasing local content in group-wide supply chains and supporting backward integration programs across all value chains.

Based on the performance, the board has proposed a dividend of 165 kobo per share up from 140 kobo per share last year, underlining its consistency as one of the most reliable companies when it comes to consistency in dividend payment.

On the flip side, HFM reported reported profit before tax increase of 24.13 per cent from N1.27billion in 2020 to N1.58billion in 2021.

In 2019, HFM reported a PBT significantly fell Y-o-Y by 87.53 per cent, but saw a rebound in 2020, although not as high as 2017 levels.

For 2020, the company’s profit after tax grew faster than PBT as it gained 73.08per cent to N1.13billion in 2021 from N650.49million recorded in 2020, because of a 27.25 per cent decline in tax and despite a 69.70per cent increase in Police Trust Fund Levy.

In 2021 financial year, the management proposed dividend of N0.07 in 2021 from N0.04 proposed in 2020.

Balance sheet size position

The balance sheet size position of HFM maintained marginal increase driven by growth in cash & cash equivalent that closed 2021 at N20.3billion from N12.3billion in 2020.

The company recorded about four per cent increase in total assets to N147.39billion in 2021 from N142.26billion recorded in 2020.

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Non-current assets dropped by nearly four per cent to N101.32billion in 2021 from N105.33billion in 2020, while current assets grew significantly by 24.5 per cent to n45.94billion in 2021 from n36.89billion in 2020.

On-current liabilities dropped to N27.5billion in 2021 from N3.46billion in 2020 as long term borrowing closed 2021 at N22.5billion from N26.77billion recorded in 2020.

Global perspective on merger

The Kraft Heinz Company in July 2015 announced the successful completion of the merger between Kraft and Heinz.

The transaction created the third-largest food and Beverage Company in North America and the fifth-largest food and beverage company in the world with an unparalleled portfolio of iconic brands.

The complementary nature of the two brand portfolios presented substantial opportunity for synergies, which will result in increased investments in marketing and innovation.

This historic transaction united two powerful businesses and iconic brands, and provided a platform for leadership in the food industry both domestically and internationally.

However, FMN and Honeywell Group Limited had announced signing an agreement 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 at N80 billion.

The agreement involved HGL disposing 71.69per cent stake in HFMP to FMN.

FMN noted that it also entered into an agreement with First Bank of Nigeria Limited to acquire the bank’s 5.06 per cent equity in HFMP.

The statement by FMN noted that: “Consequently upon completion of the acquisition, and subject to obtaining all request regulatory approvals, FMN is set to hold a circa 76.75 per cent equity interest in HFMP.

“Given FMN’s parallel negotiations for both stales culminating in the agreements being signed on the same date, the basis for arriving at key commercial terms including final equity price per share, will be the same. The price payable to FirstBank will be the same with HGL’s.”

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.
Both company in a joint statement stated that the transaction will bring together two trusted and iconic brands, creating a food business that is better positioned to benefit the growing Nigerian population, further enhance National food security objectives and leverage opportunities stemming from the African Continental Free Trade Area (AfCFTA).

“Under the proposed transaction which is subject to approval from the appropriate regulators, 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 statement added.

Boost to FMN expansion

Through its iconic Golden Penny brand of lour, paste, semolina, sugar, starch, oil among other, FMN has continued to build a diversified portfolio of accessible and wholesome food products. The flour processing company has increased its local content input in a substantive and sustainable way with its “farm-to-table” model in order to further mitigate reliance on import and exposure to external volatility in the food business.

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However, the merger is expected to bring about customers having access to a wider product range and strong stream of innovation that the combined entity would be able to deliver.
The proposed transaction creates an opportunity to combine talents that are unique to each side, applying FMNs’ strengths to HFMP.

FMN has continuously exploring opportunities for strategic partnerships to further enhance its competitive positioning in main lines of business in Nigeria and to one day extend business activities beyond the borders of Nigeria its home market.

In spite of prevailing economic headwinds, the Board is optimistic that FMN has a bright, robust and prosperous future and it continues to demonstrate its commitment to Feeding the Nation, everyday.

The management of the company has embedded quality standards into business processes and consequently invite business partners to understand FMN values, principles and policies which are the bedrock of our business conduct.

At FMN, the aim is to achieve business objectives within the ambit of applicable laws.

Further value has been created for stakeholders by reinforcing the Group’s commitment to educational advancement, health, safety, security and the wellbeing of employees in the working environment.

Analysts Position and reactions

Meanwhile, looking at the implications of the transaction, analysts at FBN Quest said plant capacity is a significant indicator of a company’s market share in the milling sector.

“Therefore, using industry capacity as a proxy, the combined entity will be the second-largest miller in Nigeria, with an estimated capacity of 9,600 MT/d, behind Olam’s 11,140 MT/d.

Since it entered the Nigerian (and West African) market in 2012, Olam has preferred acquisitions as a strategy to increase its competitive position, emerging as the largest miller after it acquired Dangote Flour Mills (DFM) in 2019,” the analysts said.

According to them, based on their estimates, Olam has an industry market share of 44 per cent, ahead of FMN’s current estimate of 32 per cent.

“With the completion of the acquisition, FMN’s market share will rise to 42 per cent.

“We note that BUA Flour Mills (1,600MT/d) is currently constructing an additional 2,600 MT/d milling capacity which was to come on stream in 2021, but is now unlikely (will bring its total capacity to 4,000 MT/d).

“While we believe the transaction has long-term competitive benefits for FMN, we also believe this deal is likely to be earnings accretive as long as FMN can sweat the assets better and derive synergies which are unquantified currently.,’ they said.

FBNQuest explained that on an annualised basis, FMN’s PBT margin is around 3.0 per cent compared with just under 1.0 per cent for HFM, noting that the final equity price payable will be determined by HFM’s “adjusted net debt and net working capital” on the date of completion.

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“Based on HFM’s H1’22 numbers, we would expect the acquisition price to be well above Friday’s price of N3.39, perhaps above N5.00/per share. We believe that FMN can comfortably finance the deal, using its robust cash balance of NGN52.7bn (as at H1’22) and would not have to use new debt,” they said.

The Group Managing Director of FMN, Omoboyede Olusanya had 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.”

The statement by both flour processing company added that: “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.

“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 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. 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, ”they said.

Managing Director, Honeywell Group Limited, Obafemi Otudeko in a statement 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.”


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