NIGERIA – Tiger Brands will divest its 65.7% stake in Tiger Branded Consumer Goods in Nigeria — previously Dangote Flour Mills — to Dangote Industries for a nominal $1.
The group bought a majority stake in the business for R1.6bn in 2012 from Nigerian tycoon Aliko Dangote, but has since written down R2.7bn in the subsidiary. It is selling it back, pending regulatory approvals.
Dangote Industries will provide the entity with an immediate cash injection of R700m. In return, Tiger will write off its shareholder loans to the business to the tune of about R700m, and settle debt of R400m.
Tiger Brands chief operating officer Noel Doyle, who will become acting CEO in January, said on Monday the proposed deal was a “good outcome” for the group, as it protected the interests of 3,200 people in Nigeria. “It has given us as elegant an exit as is possible in the circumstances.” The huge impairments had put a heavy damper on solid gains from the core South African operations.
Mr Doyle said the total write-downs for Tiger Branded Consumer Goods were R2.7bn, as indicated during its results presentation last month. This included the R400m in debt.
Tiger Brands had announced in late September that CEO Peter Matlare had reached an agreement with the board regarding “his decision” to step down as CEO.
His tenure had been under strain after losses at the group’s main Nigerian venture lurched from bad to much worse.
Mr Matlare had earlier taken “full responsibility” for the write-downs, saying substantial new flour capacity had come on stream in Nigeria between 2010 and 2012, when the deal was negotiated.
Nigeria’s economy had more recently collapsed on the rout in global oil prices and Islamist militant group Boko Haram’s activities, which had affected trade with neighbouring Niger.
But the market took some joy from the news that Tiger Brands would rid itself of this millstone, with the share gaining 6.16% at the close on the JSE on Monday.
“Tiger Brands bought 65% of Dangote Flour Mills for $200m in 2012, selling for $1, also assuming debt R400m — urgent management change needed,” Ian Cruickshanks, chief economist at the South African Institute of Race Relations, tweeted on Monday.
“I look at what’s being going on at Tiger Brands — it has lost its reputation,” he later told Business Day. “What did they recover — $1, and they still have to pay R400m in debt — that’s real money,” he said.
Shareholders had not been warned about the investment risk of the Nigerian venture and some CEOs in SA were “getting off lightly”, just like the country’s politicians, he said.
He had earlier questioned the due diligence process in relation to the Nigerian venture, including by the auditors.
“Someone is responsible here. Was the due diligence done properly and who did it? Were the numbers checked out by auditors and if so, let’s ask the auditors how far their professional insurance cover goes.
“The chips are down now, it’s raining disaster. The sellers saw South Africans with deep pockets coming. We have shown ourselves to be totally naive in negotiating outside our own borders and have been taken for a ride,” Mr Cruickshanks said.
Tiger Brands said the proposed deal with Dangote Industries would ensure Tiger Branded Consumer Goods was maintained as a “viable going concern” that would retain employees and meet obligations to stakeholders.
It said the investment had been fully written down as at the end of September and would not be a loss incurred on disposal.