Which Way for Nigeria’s Flour Milling Industry

The announcement of the proposed acquisition of Honeywell Flour Mills Plc by Flour Mills Nigeria Plc has lifted controversy and apprehension that the flour milling field in Nigeria is moving towards imperfect marketplace competitors, writes Dike Onwuamaeze

The announcement of the proposed acquisition of the Honeywell Flour Mills Plc (HFMP) by the Flour Mills of Nigeria Plc (FMN), would have enthusiastic stakeholders in the FMN as they look ahead to celebrating their 60th anniversary upcoming calendar year.

It is also envisioned that the takeover of a weak industrial establishment by a more robust competitor would be a moment of aid to regulators, employees, consumers and stakeholders in the financial system. Nonetheless, this was not the circumstance with the announcement of the agreement that would allow the FMN to acquire 80 for each cent shareholding in HFMP.
Previous 7 days, the Honeywell Team Restricted declared the proposed blend of the HFMP and FMN for a overall business price of N80 billion, which would permit FMN to purchase 71.69 for each cent stake in HFMP subject to regulatory acceptance.

The Honeywell Group claimed that this also meant that the “new firm will have even additional gas to inject much more employment into the financial system.”

The Handling Director of Honeywell Team Limited, Mr. Obafemi Otudeko, also mentioned: “This announcement is in line with the evolution of Honeywell Group and our vision of generating benefit that transcends generations.”

Speaking in the exact same vein, the Team Running Director of FMN, Mr. Omoboyede Olusanya, stated: “The proposed transaction is aligned with our vision not only to be an business leader but a countrywide champion for Nigeria. We consider that this will make an possibility to merge the one of a kind skills of two sturdy organizations.

“As a outcome, we will have a better-rounded and extra extensive skill established out there to us as a put together diversified food stuff enterprise, consequently enabling us to improved provide our buyers, buyers and other stakeholders, whilst providing employees with entry to broader options.”

Controversy and apprehension

Nonetheless, somewhat than calming strained nerves, this announcement has stirred up controversy and apprehension.
To start with was the swift response of the Ecobank Nigeria Confined. The financial institution on November 23 placed a caveat on any share of HFMP and enable the full entire world to know that it has commenced a winding up continuing in the regulation court docket towards the HFMP in excess of Honeywell’s indebtedness to it.

The caveat was contained in a assertion the bank produced via its Counsel, Kunle Ogunba & Associates, titled “Purchase of Honeywell Group Limited’s 71.69 for every cent stake in Honeywell Flour Mills Restricted- ‘Caveat Emptor.’”
Ecobank cautioned the typical public and the company bodies on the danger inherent in working in any shares of the HFMP. The financial institution alleged that it state-of-the-art a number of mortgage facilities, which incorporated performing money disbursements to HFMP and that owing to the failure of the firm to liquidate the mentioned bank loan services, it was constrained to start winding up proceedings in opposition to Honeywell Team Constrained at the Federal High Court, Lagos in match no: FHC/L/CP/1571/2015.

Ecobank mentioned that it filed an attraction (with appeal No: CA/L/1041/2016) at the Court of Charm, Lagos Division and that on overview of its circumstance, the appellate court identified merit in the enchantment, and held that the winding up proceedings was thoroughly commenced and that the Federal Significant Courtroom had jurisdiction to hear the explained petition. It additional that the result of the Attractiveness Court judgment is that there is now a winding-up motion/continuing pending towards the firm.
It drew consideration to the provisions of Section 577 of the Providers and Allied Matters Act (CAMA) 2020 which suggests: “Where a corporation is being wound up by the court docket, any attachment, sequestration, distress or execution put in force versus the estate or outcomes of the corporation following the commencement of the winding up is void.”

It additional that it is clear that Honeywell Team Restricted is legally estopped from sequestering and/or disposing any of its assets pending the final dedication of the winding up motion commenced versus it.

“Please be even further educated that the assets of both Honeywell Group Limited and HFMP are the matter of the winding-up motion and thus primarily based on the doctrine of “lis-pendens” (in addition to the provisions of CAMA provided above) you are recommended to chorus from dealing with the matter asset which sorts element of the matter subject of litigation. ”
Forging Forward

But established to move forward with the offer, FMN and HFMP in their response last 7 days Wednesday, claimed that the proposed acquisition is not in breach of any court get. The Business Secretary of the FMN, Mr. Joseph Umolu, reported the announcement by the team to think bulk shareholder position of Honeywell was built after carrying out essential because of diligence and obtaining correct lawful assistance.

It stated: “Consequently, FMN confirms that this agreement is not in breach of any subsisting order of court docket in matters relating to any third social gathering. This even more assurance has develop into important in watch of the publication captioned ‘Ecobank warns against acquisition of Honeywell Flour Mills, alleges organization dealing with winding up proceedings.’

“Stakeholders are, therefore, urged to maintain their belief in FMN’s management, whose actions are guided by world wide best tactics, as we function diligently to keep the group’s sterling reputation as one particular of Nigeria’s leading and oldest agro-allied organizations.”

Other than this controversy there is also an apprehension that the food and beverage sub-sector of the Nigerian financial system, as it pertained to four milling, is at finest heading towards an oligopolistic market place or at worst a monopolistic level of competition the place there is a lot more than one seller, each individual able to resolve a selling price, that is, each individual with some monopoly electrical power. But oligpoly is a industry circumstance with only few sellers, each and every anticipating the other people response.

Analysts Look at

An Economist and Main Govt Officer of Centre for the Marketing of Personal Organization (CPPE), Dr. Muda Yusuf, advised THISDAY that mergers and acquisitions are purely company choices that demand superior corporate governance to be certain that the passions of important stakeholders in the company entities were duly secured.

Yusuf famous that the roposed acquisition has a range of deserves. Initial is the reward of economies of scale, which a even bigger sizing conferred on firms as “the entity gets larger, unit expense would fall, turnover and earnings margins could improve, and aggressive strength would develop. Another critical advantage of acquisition is that it could save ailing providers from collapse or worth deterioration.”

He, nonetheless, observed that mergers and acquisitions could pose to stakeholders in an financial system. “There is the hazard of heightened monopoly powers which could lead to buyer exploitation, inefficiency because of to absence of opposition, and much less choice for people.

“There is also the possibility of loss of jobs especially from the entity currently being acquired. There are also worries about the fate of the suppliers of the obtained entity. There is also the obstacle of attainable conflict of lifestyle. These are the troubles to get worried about with the acquisition of HFMP.

“All of these considerations underscore the crucial of productive regulation to shield buyers in a monopolistic atmosphere, which requires that the regulatory authorities must be alive to their obligations. The Federal Level of competition Commission wants to step up and live up expectations,” Yusuf mentioned.

The Director Basic of the Nigerian Affiliation of Chambers Of Commerce, Field, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, advised THISDAY that NACCIMA has full self-assurance in the Securities and Trade Fee (SEC) which is charged with regulating the capital industry with a perspective to safeguarding buyers, to make sure that all rules for the acquisition of shares are complied with.

Olukanni stated: “In my check out, as lengthy as no non-compliance difficulties, the acquisition of bulk shares in HFMP of Nigeria is a welcome development, as it shows trader self-confidence in the Rapidly Relocating Customer Goods (FMCG) sector of the economic system.”
He, nonetheless, noted that the brief-expression result of this deal would be more robust oligopolistic tendencies in the meals phase of the Nigeria manufacturing sector. “It is my sturdy perception that in the medium to very long-time period, the sector would witness an inflow of expenditure as other entities request to compete in the area. While an oligopoly is much more likely, I firmly consider that the food stuff segment of the Nigerian manufacturing sector is as well significant for any single corporation,” he said.

But a Economic Analyst and Chief Govt Officer of BIC Consultancy Minimal, Dr. Boniface Chizea, advised THISDAY that it is too early for commentators to begin worrying about a possible emergence of a monopoly in Nigerian food market place marketplace.

Chizea reported: “This, hence, is not the time to fear about the evolution of monopolistic predicaments or any these types of linked considerations. The target appropriate now should be on the sustainability of operations to preserve shareholders benefit, retain and quite possibly expand employment options and keep on to add to the growth prospects of the Nigerian overall economy.

“Not stunning investors’ reaction to this progress is bullish as the share worth of Honeywell Flour Mills right away appreciated from N 3.72 for each share by 9.73{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} while the share price of Flour Mills on the other hand remained so much neutral to this improvement.”

State of Business

The danger of an emergence of monopolistic opposition in the flour milling sector in Nigeria must not be dismissed with a wave of hand. A KPMG report in 2016 said that the FMN, Olam Worldwide and Dangote Flour Mills had been Nigeria’s 3 major wheat flour millers, controlling 75 for each cent of the industry’s capability. The report stated that the trio of FMN, Olam and Dangote managed 32 per cent, 24 for each cent and 19 for each cent capacity respectively in the market as at 2016.

Nowadays, the rising scene factors toward a duopoly, which is a current market circumstance amongst two sellers, particularly involving the FMN and the Olam Team. Olam is the mother or father corporation of Crown Flour Mills (CFM) that obtained Dangote Flour Mills in 2019.
THISDAY’s investigation discovered that about 21 flour mills could possibly be functioning in Nigeria. A significant component of this number is owned by the FMN, the Olam Team and the Chaguory Group.

The flour mills are the FMN, HFMP, CFM, and Lifestyle Flour Mill Restricted which later on entered into partnership with the Mount Olive. Other folks are Northern Nigeria Flour Mill Plc in which the FMN is noted to have 53.06 per cent stake,.

There are also Cowrie Flour Mills Constrained, Gombe Dadaka International Flour Mill and Perfect Flour Mills. The Ikan Power Flour Mills, according to a person of its supervisors, Mrs. Josphine Kanu, suspended output since two yrs ago due to significant price of importation of raw resources. She told THISDAY on Saturday that she hoped that federal government would introduce steps to resuscitate the manufacturing facility.

There are also the Jos Flour Mills, Kabeer Flour Mills, Nigeria Eagle 4 Mills, Mercury Flour Mills Minimal and the Maiduguri Flour Mills, whose Running Director, Mr. Ma’aji Arfo, was not too long ago sentenced to 28 years imprisonment for N86.1 million contract fraud.

The Niger Delta Flour Mills Restricted and the Port Harcourt Flour Mills have been stated to be dominantly owned by the Chagoury Group. There are also Valleumbra Flour Mills Constrained, Upland Flour Mills Limited, Regular Flour Mills Constrained and the Niger Mills Company Constrained, which is noted to have been merged with the FMN.