31, 2021 / 11:42 AM / by FBNQuest Research / Header Image
Event: UAC of Nigeria (UACN) announces a binding agreement to acquire Tiger Brands Limited's (Tiger) minority shareholding in UAC Foods Limited (UAC Foods). The transaction is expected to close on 1 September 2021.
Implications: UACN will control 100% of UAC Foods when the transaction is concluded. This deal is coming 10 years after Tiger Brands acquired a 49% minority stake in UAC Foods. According to a statement by Tiger, management revealed that the decision to exit UAC Foods was as a result of an assessment of Tiger Brands' long-term strategic objectives and primary competencies by UACN. The assessment showed that UAC Foods will be better positioned under the full ownership of UACN. We note that this is the third divestment by Tiger Brands away from Nigeria over the last three years. In 2019, the business sold its majority shareholding in Dangote Flour Mills, writing off its investments in the company (which amounted to about USD276m). Also, in 2020, Tiger sold 100% of its equity stakes in Deli Foods Limited, after the company suffered continuous loss in market share amidst management inefficiencies. Nonetheless, Tiger brands stated that Nigeria remains a market with significant potential, and it will seek to maximise other opportunities in the market.
Post-transaction, UAC Foods will be fully owned by UACN, with its three product verticals remaining in place: (1) Snacks (Gala & Funtime), (2) Dairy (supreme ice cream) and (3) Water (swan). Management has confirmed to us that the transaction will cash-based, given that the group has a robust cash balance of NGN17.27bn (USD41.9m). UACN's healthy cash position is consequent on the group's divestment of some businesses which include: (1) Majority holding in MDS Logistics and (2) Majority holding in UPDC. UACN's management has also consistently noted that it's focus over the near to medium term is to aggressively grow the group via organic and inorganic sources. Management notes that the acquisition of Tiger Group's stake is in line with its objectives to grow the group, and re-engineer all of its businesses to deliver returns. We see the transaction as likely to be EPS accretive, with the elimination of the minority interest. We also note that this transaction poses a notable valuation implication for UACN Group as the group's cash balance may be depleted. We await more clarity from management on the agreed valuation of the 49% minority stake, and the eventual cash payment for this transaction.