Implications of the Proposed Merger Between CAP Plc and Portland Paints


Tuesday, October 27, 2020 / 09:15 AM / by FBNQuest Research / Header Image Credit: Ecographics

Event: Proposed merger between UAC of Nigeria (UACN) subsidiaries Chemical and Allied Products (CAP) and Portland Paints and Products (Portland)

Implications: Cost and/or revenue synergies


UACN's paint subsidiaries CAP and Portland yesterday announced that their boards of directors have agreed on a merger of their respective businesses. According to the publication, CAP - the larger subsidiary, is offering Portland shareholders a choice to either receive a cash payment of N2.90/share for every Portland shares or 1 new ordinary share of CAP for every eight Portland shares held. The proposed payment represents a c.41% premium to Portland's current share price.


In our view, the proposed merger aligns with UACN's ongoing restructuring exercise which was put in motion following the appointment of Folasope Aiyesimoju as CEO in April. Indeed, we recall that UACN in August signed a binding agreement to sell 51% equity interest in real estate subsidiary UPDC to Custodian Investment. We therefore cannot rule out a possible merger between Animal Feeds subsidiaries Grand Cereal and Livestock Feeds over the foreseeable future.


We expect efficiency gains from this to contribute meaningfully to UACN's bottomline considering that its paints business (which solely comprises CAP and Portland) is the most profitable within the group. Given that this is subject to regulatory and minority shareholder approvals, we have not yet modelled the merger into our forecasts. That said, our current estimates for 2020E imply a 42% contribution to UACN's overall PBT by the paints business.


Year-to-date, UACN shares have shed -17%, underperforming the broad market index by -24%.


We have a Neutral rating on UACN shares.

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