Flour Mills acquires Honeywell Flour Mills Plc for N80bn to settle indebtedness to First Bank

 

As a way out of huge indebtedness of Oba Otudeko-owned Honeywell Group Ltd to the First Bank, the company has been acquired by Flour Mills of Nigeria Plc by N80 billion to settle debt.

However, both companies in a statement posted on the website of the Nigerian Exchange Ltd. (NGX) on Monday claimed they have signed an agreement for a proposed business combination.

“FMN and HGL today announced that they have signed an agreement for the proposed combination of FMN through its affiliates and Honeywell Flour Mills Plc (“HFMP”), a portfolio company of HGL.

“At a total enterprise value of N80 billion, HGL will dispose of a 71.69 per cent stake in HFMP to FMN.

“The proposed transaction will combine two businesses with shared goals and create a more resilient national champion in the Nigerian foods industry, ensuring long-term job creation and preservation,” said the statement.

It said a combination of FMN and HFMP would bring together two trusted brands, creating a food business better positioned to benefit the growing Nigerian population and leverage opportunities stemming from the African Continental Free Trade Area (AfCFTA).

The statement added that the final equity price per share payable would be determined based on HFMP’s adjusted net debt and net working capital at the date of completion.

According to the statement, the proposed combination is subject to approval by the appropriate regulators.

Commenting on the transaction, Managing Director, Honeywell Group Ltd., Mr Obafemi Otudeko, said the announcement was in line with the evolution of Honeywell Group.

“Today’s announcement is in line with the evolution of Honeywell Group and our vision of creating value that transcends generations.

“For over two decades, we have supported Honeywell Flour Mills to build a strong business with a production capacity of 835,000 metric tonnes of food per annum.

“Following the transaction, Honeywell Group will be strongly positioned to consolidate and expand its investment activities, including as a partner of choice for investors in key growth sectors,” said Otudeko.

Mr Omoboyede Olusanya, Group Managing Director, Flour Mills of Nigeria, said the proposed transaction was aligned with the vision to be a national champion for Nigeria.

“We believe that this will create an opportunity to combine the unique talents of two robust businesses.

“As a result, we will have a better-rounded and more comprehensive skill set available to us as a combined diversified food business, thus enabling us to better serve our consumers, customers and other stakeholders, whilst providing employees with access to broader opportunities,” Olusanya said.

The statement further said the complementary transaction combined FMN’s market-leading offerings that included grain-based foods, sugar, starch, oil and breakfast cereals with HFMP’s market leading diverse and differentiated range of carbohydrate products.

It added that stakeholders would benefit from the more than 85-year combined track record of FMN and HFMP and their shared goal of making affordable and nutritious food available to Nigeria’s population.

“The scale of the transaction provides employees of the consolidated company with more career development opportunities in a larger organisation, with the potential to create more jobs in the economy as it will have more brands and categories, and a larger and more geographically diverse footprint.

“Customers across the nation will benefit from access to a wider product range and a robust pan-Nigerian distribution network, accessing greater number of points of sale supported by enhanced customer-focused sales teams and redistribution capabilities.

“The combination will also serve as a catalyst for an even stronger stream of innovation that is focused on local content offerings,” it said.

The issue of loan from the bnak to Honeywell Group has becoming controvercial for quite some time.

At the istence of the CBN that the debt to the bank be settled, Honeywell Flour claimed then that it was servicing loan facilities obtained from First Bank of Nigeria Limited and other financial institutions across the country.

The company in a statement then said like most companies, it utilises its own equity and borrows from banks and other financial institutions to carry out its operations.

The company was reacting to the furore over the board composition of First Bank and credit facility obtained from the bank.

The Central Bank of Nigeria (CBN) expressed concern that First Bank “has not complied with regulatory directives to divest its interest in Honeywell Flour Mills despite several reminders.” The apex bank also expressed worry over the need to restructure credit facility to the company.

In the midst of the furore, the Chairman of the Honeywell Group, Oba Otudeko, was removed as the Chairman of FBN Holdings Plc, the parent company of First Bank Nigeria Limited.

In the same vein, Ibukun Awosika was also removed from office as chair of First Bank, alongside all the board members of the bank.

The decision, the regulator said, was made “to protect 31 million customers, minority shareholders of First Bank of Nigeria Ltd”.

The CBN also announced the immediate appointment of Tunde Hassan-Odukale as Chairman of the bank. Mr Hassan-Odukale, until his appointment, was the Managing Director of Leadway Assurance Company.

Honeywell Group in its reaction said it has a strong track record of mutually beneficial successes with its local and international financiers based on honouring obligations and delivering returns to all shareholders.

The statement said since 1972, Honeywell Group and First Bank of Nigeria have had a professional business relationship that preceded its investment in the bank over a decade later.

It said the company’s relationship with First Bank “has always been professional, at arm’s length and in accordance with all regulatory and industry practices and norms”. The credit facilities accessed from First Bank and other banks were granted after due negotiations, with the necessary documentation and in line with regulatory policies and industry standards, the statement said.

It added that the Honeywell Group has serviced all its credit facilities in line with the terms agreed with First Bank and at no point has any of these facilities been non-performing.

The company said in 2015, First Bank under the directive of the Central Bank of Nigeria (CBN), drew its attention to a 2004 circular (BSD/9/2004) which required that insider related facilities must not exceed 10 percent of paid-up share capital.

It said based on this directive, the Honeywell Group subsequently entered negotiations with the bank to agree an appropriate repayment structure and the final negotiated position was duly approved by the CBN, adding that it is important to note that the facilities have been performing from inception and to date.

The company said in accordance with agreed terms, its facilities with First Bank are adequately secured with collaterals in place at over 170% of Forced Sales Value and 230% at Open Market Value.

It said the Honeywell Group has continued to meet all its obligations on its facilities with First Bank according to agreed terms and has reduced its exposure by nearly 30% in 2.5 years.

“The facilities were charged at market rates and the lender continues to earn significant interest therefrom,” the statement said.