Acquisition of Honeywell by Flour Mills of Nigeria: Feasibility of Transaction

  • How acquisition will affect minority shareholders of Honeywell

The stock market last week was hit with the news that Flour Mills of Nigeria is planning to acquire 71.69% stake in Honeywell. Flour Mills of Nigeria announced that it has reached an agreement with Honeywell Group Limited, the majority shareholder of Honeywell Flour Mills Plc, to acquire 71.69% majority interest in Honeywell Flour Mills Plc.  In addition, Flour Mills of Nigeria also entered into an agreement with the FBN Holdings to acquire the Group’s 5.06% equity in Honeywell Flour Mills Plc.

Consequently, upon the completion of the acquisition and subject to obtaining all requisite regulatory approvals, Flour Mills of Nigeria is set to hold a circa 76.75% equity interest in Honeywell Flour Mills Plc.

Ecobank in response to the proposed acquisition news released a caveat that Honeywell is indebted to the bank. Ecobank warned prospective buyers that Honeywell Group Limited is hugely indebted to the bank, and that the debt is currently the subject of litigation.

According to Ecobank, it advanced several loan facilities which included working capital disbursements to Honeywell Flour Mills Plc. Due to the company’s failure to liquidate the said loan facilities, Ecobank was constrained to commence winding up proceedings against Honeywell Group Limited at the Federal High Court, Lagos.

Honeywell and Flour Mills also responded to the caveat released by Ecobank to douse the tension already created in the market. Flour Mills stated that it is aware of the situation between Ecobank and Honeywell and the proposed acquisition is not in breach of any subsisting court order in matters relating to any third party.

Looking critically at the matters arising as regards this acquisition transaction, is it really feasible? Is the caveat by Ecobank strong enough to stop the transaction? In case the acquisition is successful, how will it affect minority shareholders of Honeywell? What does Flour Mills of Nigeria stand to benefit from the acquisition?

Commenting on the proposed acquisition of Honeywell by Flour Mills, Mallam Garba Kurfi, MD/CEO of APT Securities and Funds Limited, stated thus:

“Honeywell wants to sell and Flour Mills wants to buy. The issue is with the caveat released by Ecobank. It is sure that that the buyer must be aware of the court issue. The court issue could actually stop the transaction.

Unless Flour Mills go and reconcile this issue with Ecobank and pay them off, I do not see how that transaction will go through. Because the issue is already in court; and Ecobank can at any time go and get a restriction order against that transaction.

When the issue about the debt of Honeywell was raised by Ecobank, Honeywell’s response was not substantial. How will Honeywell ignore the winding up issue raised by Ecobank? How will Ecobank recover their money without winding up process? How can Honeywell deny that that one. When GT Bank had the same issue with Afe Babalola, they had to wind-up Afe Babalola for MM2. It is normal for a bank to ask any company to wind-up if they are owing; because without winding up, how will they recover their money?

The possibility of the acquisition transaction of Honeywell by Flour Mills is shaking since the matter is still in court; unless Flour Mills reconcile with Ecobank”. 

What happens to the shareholders in Honeywell?

“If the winding up comes through, if will affect the minority shareholders. Ecobank is a creditor and not a shareholder. In the event of winding up, the creditor gets its money first. What is left is for the ordinary shareholders”.

Flour Mills have said it is aware of the Court case with Ecobank. However, being aware is not enough to resolve it. Nothing stops Ecobank to seek Court Injunction to stop that transaction. In anyway, that transaction cannot go without the approval of the regulators. They need the approval of SEC and Consumer Protection. Knowing full well that there is a caveat, the regulators will not ignore it. Without regulatory approval, the transaction cannot be consummated. If the needful is done about the caveat on ground, then the transaction will go through”.

What will Flour Mills benefit from the acquisition of Honeywell?

“Flour Mill of Nigeria Plc is interested in the acquisition of Honeywell because they are desperate. Initially, they were leading in the flour mill industry in Nigeria; then they became reluctant. By the time Olam acquired Crown Flourmill, BUA Flourmill and Dangote Flourmill, they left Flour Mills of Nigeria behind to become number one in Nigeria. So you that was number one before are now number two; what do you do? You go all out to retain your position. Flour Mills of Nigeria is in desperate need to acquire more in order to retain their position in the industry. 

Flour Mills only need to agree with Ecobank to resolve the debt of Honeywell; and that would be all with the caveat raised by Ecobank.

Investors in Honeywell that entered when it was N1 and N2 have made their money, they should take their profit and move on. From all indication, Flour Mills of Nigeria do not intend to merge Honeywell with Flour Mills. If they are not merging them, then what is the benefit of minority shareholders in it? The stock is currently trading at N3.96. It paid dividend of 7 kobo. How can 7 kobo dividend sustain the N3.96 price?

Even if Flour Mills will merge the two companies, you still remain as a minority shareholder still. So why should you remain there. Don’t forget that Flour Mills owns about 60% of Northern Nigeria Flour Mills and they never merge the two”.

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