SOUTH AFRICA – Tiger Brands said on Monday it would cut funding to its struggling Nigerian venture after nearly R1bn in write-downs.
Three years ago, it bought a two-thirds stake in Dangote Flour Mills from renowned businessman Aliko Dangote for about R1.6bn.
But the venture proved costly as competition grew in that market and the naira was devalued due to plunging oil prices, Nigeria’s main export.
Tiger Brands said it was “exploring various alternatives” for its shareholding in the business — now called Tiger Branded Consumer Goods — but this did not apply to other companies in which it held stakes in Nigeria, or the rest of Africa.
On Monday, Mr Dangote, the chairman of the business, and three other directors resigned from the company.
Tiger Brand’s share closed up 5.47% on the news.
CEO Peter Matlare is set to quit his position at the end of next month, saying new leadership was needed after acknowledging his misstep in Nigeria.
Jiten Bechoo, an analyst at Avior Capital Markets, said on Monday that Tiger Brands had not said whether it would dilute its stake in Dangote Flour Mills, or whether it would sell the business.
“We are just unsure,” he said. But he said that as far as he could gather, new money would not be allocated to low-return investments.
“It is difficult to say whether the share price movement is justified or not. It is based on sentiment.
“The market feels they are not throwing good money after bad,” he said.
Tiger Brands said it would comment further at its results presentation on Thursday.
Mr Matlare said last year that he took “full responsibility” for the write-downs.
He also said that Tiger Brands should have been “more circumspect” in its approach to buying up the Nigerian assets.
In addition, Tiger Brands had written down R68m in goodwill in biscuit maker Deli Foods in the 2014 financial year. This had been part of the deal to acquire a majority stake in Dangote Flour Mills, but the biscuit company was not mentioned in Monday’s announcement.
In December last year, the group also sold the Dangote Agrosacks packaging unit back to the Dangote Group for about R500m, saying it was noncore to business.
The West African conglomerate had originally sold Dangote Flour Mills to Tiger Brands – With Reuters