Flour mills buys into Honeywell.

Boniface Chizea

The press release announcing the agreement reached between the Flour mills of Nigeria for 80% acquisition of Honeywell Flour Mills as should be expected has generated quick reactions one of which is the concern whether this acquisition will not build up to monopoly situation in the Food market industry particularly against the background of a sector whose performance has been at best lackluster.

With the impact of the pandemic on the Nigerian economy throwing up challenges that have to do with run away inflation against the backdrop of a depreciating Naira exchange rate, an overall environment defined by the difficulty to source commensurate foreign exchange for importation which in the particular case of the food industry has triggered the race for backward integration coupled with a market demand which at best is not increasing, the challenge of the sector couldn’t have been more pronounced.

Therefore the focus right now should be on the sustainability of operations to preserve shareholders value, maintain and possibly grow employment opportunities and continue to contribute to the growth prospects of the Nigerian economy. This therefore is not the time to worry about the evolution of monopolistic situations or any such related considerations.

As has been reported  Nigerian Flour Mills currently sources about 25% of its raw materials locally with a view to attaining a laudable 40% by year 2024 thereby rising robustly to the reality of the situation of the Nigerian economy going forward and no doubt this development should brighten the prospects for the attainment of this objective following the concentration of resources.

And this is an arm’s length deal. It was not entered into, we have not been told due to any deterioration in commercial relationships between both companies leading to possibly hostile takeover. Analysts factoring the overall operating situations of both companies while not forgetting their respective plans have recommended this acquisition and therefore at the level of the individual companies, this must be a mutually, win-win beneficial acquisition. And for the country struggling to exit the negative impacts of the pandemic, this should be a welcome development.

Not surprising investors reaction to this development is bullish as the share value of Honeywell Flour Mills immediately appreciated at the Market rising from a value of N 3.72 per share by 9.73% while the share price of Flour Mills on the other hand remained so far neutral to this development. Analysts also believe that this is a deal which Nigerian Flour Mills could close without resort to short term borrowing leveraging on its robust cash in hand situation of approximately 52.7 billion Naira as at the end of first quarter of this year.

Infact we recommend such thoughtful market moves as companies embrace fully their survival instincts. Survival strategies should begin to transcend beyond debt restructuring, exploration of acquisition of more debts from alternative sources and general debt negotiations with the tendencies to retrench capacities. It is no brainer to observe that the operating environment post the pandemic promises to be radically different and challenging.

 Dr. Boniface Chizea , an economist and consultant  wrote from Lagos

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