The long-awaited acquisition deal of Honeywell Flour Mills by Flour Mills of Nigeria, which was initially announced in November 2021, has now been approved by relevant regulatory bodies and is expected to be one of the biggest deals in the Nigerian consumer goods industry.
The deal involved the transfer of 71.69% stake of Honeywell Flour Mills, a subsidiary of Honeywell Group Limited to Flour Mills of Nigeria. This transaction will produce a bigger consumer goods firm in Nigeria with improved capabilities to drive sustainable growth in the industry and affect Nigeria’s economy positively.
The deal, which was recently approved by regulatory bodies is believed to be pivotal in driving Nigeria’s food supply chain, and improving international trade, especially with other African countries through the African Continental Free Trade Area (AfCFTA).
In light of these, we take a look at five key areas in which the Honeywell Flour Mills and Flour Mills deal will effectively have an impact:
1. Solve Nigeria’s supply chain disruption
Nigeria’s inflation rate has been on the rise largely due to the surge in the food index, rising as high as 17.11% in February 2021. The uptick in food inflationary pressure can be attributed to supply chain disruptions, food shortages, and over-reliance on importation.
- In the previous year, Nigeria imported agricultural goods worth N1.97 trillion, representing a 71.8% increase compared to N1.15 trillion recorded in the previous year. It was also the highest Nigeria has ever spent on agricultural imports.
- On the other hand, despite Nigeria being blessed with vast natural resources and agriculture accounting for over 20% of the economy, Nigeria only exported agric goods items worth N504.89 billion in 2021, leading to a ₦1.46 trillion deficit.
- Whilst the African Continental Free Trade Area (AfCFTA) is set to redefine trade on the African continent. A more formidable giant will not just cater to the needs of the largest market on the continent, it will also give Nigeria a strong voice to facilitate trade on a continental scale.
- With more development and an expansion of its capacities, the combined entity will naturally become a critical source of Africa’s demand for food, hence, helping in ameliorating the inherent food supply chain disruption ravaging the Nigerian economy.
2. Growth in the food-production industry
The Nigerian food-producing sector has recorded significant growth in recent years, growing by 1.5% and 5.73% in real terms in 2020 and 2021 respectively. The improvement recorded in the sector is mainly due to increased activities in food and beverage production.
Meanwhile, Nigeria and its food security agenda will benefit from both companies’ focus on developing Nigeria’s industrial capability, its agricultural value chain and specifically backward integration of the Nigerian food industry.
The Central Bank of Nigeria has made several interventions in the agric sector over the years. However, this has not been reflected in the macro numbers as the sector GDP grew at a rather tepid rate in the previous year.
Meanwhile, the combined efforts of the two FMCG giants are poised to create more opportunities in the consumer goods sector, thereby resulting in a significant expansion in the economy.
3. Customers with range of buying options
As much as the country stands to benefit from this merger, the customers across the country will also benefit from improved access to a wider product range and a robust pan-Nigerian distribution network, accessing a greater number of points of sale supported by enhanced redistribution capabilities.
This implies that Nigerian consumers will be able to leverage the merger to have access to varying consumer goods, which ideally places the power of choice in the hands of the final consumers.
4. Value to shareholders
Its shareholders also stand a big chance of gaining from the combined resources of the two giants. Honeywell Flour Mills, which had recorded a rally in the Nigerian stock market in the past year, gaining over 172% in market value in less than a year, is positioned for further growth with financial fundamentals being in place.
The company has stated that HFMP’s listing will be retained for the foreseeable future. Minority shareholders of HFMP will be treated fairly and in line with capital market regulation.
5. Employees’ job security
Finally, but exhaustively, 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, a larger, and more geographically diverse footprint.
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