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Multinationals acquire greater stakes in Nigerian subsidiaries

Major multinationals are acquiring more equity stakes to shore up their majority controlling equities in their Nigerian subsidiaries.

Most analysts regarded the acquisition of additional stakes as key strategies to reinforce their control over their Nigerian businesses as a major hub for African businesses under the African Continental Free Trade Area (AfCFTA).

Trading reports on insider transactions at the stock market obtained at the weekend indicated that Unilever United Kingdom increased its majority shareholding in Unilever Nigeria to 75.49 per cent while Netherlands-based Heineken N.V. increased its controlling equity stake in Nigerian Breweries to 55.9543 per cent.

The reports indicated that the acquisitions were consummated through direct dealings on the secondary market, taking advantage of the attractive valuation of the Nigerian companies.

Unilever UK, which had earlier indicated interest in increasing its majority equity stake in Unilever Nigeria up to 75 per cent, acquired additional 1.46 per cent equity stake in the Nigerian company. The deals were consummated through its holding company, Unilever Overseas Holdings B.V.

Heineken acquired about 0.0043 per cent additional equity stake through Heineken Brouwerijen BV. The reports indicated that Heineken struck several deals to acquire a total of 347,042 ordinary shares of 50 kobo each, equivalent to 0.0043 per cent additional equity stake in Nigerian Breweries. The transactions were consummated at price range of between N33.92 and N37.

Unilever Overseas Holdings acquired 84.117 million ordinary shares of 50 kobo each at between N12 and N12.5 per share in a deal valued at N1.04 billion.

Prior to the latest acquisitions, Unilever held 74.03 per cent majority equity stake in Unilever Nigeria while Heineken, through three subsidiaries, held 55.95 per cent majority stake. Heineken’s holdings were held by Heineken Brouwerijen B.V., 37.76 per cent; Distilled Trading International BV, 15.47 per cent and Heineken International B.V., which held 2.72 per cent. Heineken Brouwerijen BV’s holding now stands at 37.7643 per cent.

The latest acquisitions are significant for the two multinationals. Every additional share increases Heineken’s control on the Nigerian subsidiary. The single largest domestic stake in the widely dispersed Nigerian Breweries’ shareholding is 0.44 per cent held by Odutola Holdings Limited.

The latest acquisition placed Unilever Nigeria ahead of its five-year quest to attain 75 per cent controlling shareholding in the Nigerian company. Unilever has over a five-year period increased its shareholding in Unilever Nigeria by 25 per cent. Nigerian shareholders had in 2015 rejected a £144.5 million tender offer from Unilever, which sought to acquire shares from Nigerian minority shareholders to increase the foreign controlling equity to 75 per cent. Unilever held 50 per cent majority equity stake by 2015.

Over the five-year period, Unilever combined primary and second market acquisitions to acquire its long-term strategic intent in Nigeria. Unilever had cited “long-term strategic importance of Unilever Nigeria to its global business” as the major reason for the quest for increased equity stake.

Market analysts at the weekend said the foreign majority shareholders might be taking advantage of the foreign exchange (forex) lockup and the resultant devaluation of naira, which had trapped many foreign portfolio investors to undertake indirect buyouts that would, ultimately, reduce domestic institutional and individual retail shareholdings in the multinational companies.

Analysts, who spoke under anonymity because of confidentiality clause, said attractive valuation of Nigerian equities and the devaluation of naira have made Nigerian stocks soft targets for foreign investors.

Analysts said the new acquisitions were futuristic, citing the declining performance of the two multinationals in recent period. The AfCFTA seeks to create a single continental market for goods and services of African origin with free movements across the member countries. Nigeria has already signed the AfCFTA agreement.

Unilever Nigeria had recorded net loss of N519 million in first half of the year as the conglomerate saw steep declines in sales across product categories. Interim report and accounts of Unilever Nigeria for the six-month period ended June 30, 2020 had shown that turnover dropped by 35.9 per cent from N42.7 billion in first half 2019 to N27.3 billion in first half 2020. Gross profit dropped by 45.7 per cent from N11.346 billion to N6.156 billion.

As against profit before tax of N4.698 billion recorded in first half 2019, the company posted pre-tax loss of N567 million in first half 2020. After taxes, net loss stood at N519 million 2020 compared with net profit of N3.515 million posted in first half 2019. Loss per share stood at 9 kobo in first half 2020 as against earnings per share of 60 kobo recorded in comparable period of 2019.

The first half results worsened earnings outlook for Unilever Nigeria after it posted a pre-tax loss of N8.3 billion in 2019. Key extracts of the financial statement of the company for the year ended December 31, 2019 had shown that turnover dropped by 35 per cent from N92 billion in 2018 to N60.2 billion in 2019. Gross profit dropped from N27.4 billion in 2018 to N6.67 billion in 2019.

Notwithstanding cost control measures, the company relapsed from operating profit of N10.43 billion in 2018 to operating loss of N10.35 billion. Loss before tax stood at N8.3 billion in 2019 as against pre-tax profit of N13.6 billion in 2018. With a tax gain of N4.1 billion in 2019, net loss after tax stood at N4.2 billion as against profit after tax of N10.1 billion recorded in 2018.

“Unilever Nigeria remains focused on its short- and long-term growth ambitions with clear emphasis on cost and operational efficiencies, increasing market share across key categories, reinvesting behind our iconic brands and improved route-to-market,” Managing Director, Unilever Nigeria Plc, Yaw Nsarkoh said.

Nigerian Breweries’ turnover dropped by N18 billion to N152 billion in first half of 2020 as Nigeria’s largest brewer continued to struggle with macroeconomic headwinds, which were exacerbated by the COVID-19 pandemic.

Key extracts of the interim report and accounts of Nigerian Breweries for the six-month period ended June 30, 2020 showed that turnover declined to N152 billion in first half 2020 as against N170 billion recorded in comparable period of 2019. Net profit closed first half 22020 at N5.7 billion.

Directors of the company stated that the half-year results for the 2020 financial year showed a strong balance sheet despite several factors that negatively impacted on the company’s operations.

They listed macroeconomic headwinds against the company to include in Excise Duty, a rise in inflation, an increase in value added tax (VAT) from 5.0 per cent to 7.5 per cent in as well as the impact of the coronavirus pandemic on businesses worldwide.

“Despite these challenges, the company’s financial position shows stability and sustained profitability,” the board stated.

 

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