Companies
Why Tolaram’s N104 billion acquisition of Guinness Nigeria is a game changer
Story highlights
- On June 11, 2024, Diageo announced it would sell its 58.02% stake in Guinness Nigeria Plc to Tolaram, ending over five decades of direct ownership.
- Tolaram will acquire Diageo’s shares at N81.60 per share, with a total transaction amounting to N103.7 billion, pending regulatory approvals.
- Tolaram’s acquisition will integrate Guinness Nigeria into its extensive manufacturing, marketing, and distribution network, potentially reducing operational costs and improving financial stability.
On June 11, 2024, Diageo announced it had entered a deal to sell its 58.02% stake in Guinness Nigeria Plc to Tolaram, bringing an end to over five decades of direct ownership of the Nigerian subsidiary.
Guinness Nigeria Plc was first established in 1962 becoming the first brewery outside the British Isles. It was 100% owned by Arthur Guinness Sons & Co. which controlled the operations and strategic direction of the Nigerian entity.
It remained this way until the seventies when Nigeria’s indigenization policy of the country required that Nigerians also own shares in foreign multinationals.
In 1997, Diageo became the majority shareholder after Arthur Guinness merger with Grand Metropolitan in 1997.
Since then Diageo has been the majority shareholder of Guinness Nigeria and invested heavily in its local manufacturing capabilities and strategic operations, until the recent announcement of its divestment.
Diageo Divestment
As part of the terms of the agreement, Tolaram and Diageo will enter into a long-term license and royalty agreement, as Diageo remains the owner of the Guinness brand.
A significant part of the agreement is the cost implication, as Tolaram will be acquiring Diageo’s shares in Guinness Nigeria at a price of N81.60 per share, which is a 63% premium to the 30-day volume-weighted average price.
Diageo’s stake in Guinness Nigeria is managed through two subsidiaries: Guinness Overseas Limited, which owns 1,099,230,804 shares (50.18% shareholding), and Atalantaf Limited, which holds 171,712,564 shares (7.84% shareholding).
Essentially, Diageo holds 1,270,943,368.00 shares in Guinness Nigeria, thus, at a share price of N81.60, the transaction will amount to N103.7 billion.
However, the cost implications of the licensing and royalty agreement are not yet known.
After the announcement of the deal, Guinness Nigeria’s share price surged by 8.41% to close at N54.80, up from N50.50.
Although the selling share price of N81.60 reflects a 63% premium from a 30-day weighted price of N50.06, it is just a 14% premium on the year-high price of N71.50.
The transaction is expected to be completed by the 2025 fiscal year-end, subject to regulatory approvals. By FYE 2025, it is not known what Guinness’ share price will be like.
Tolaram’s footprint in Nigeria
Tolaram partly owns Dufil Prima Foods, which is a joint venture with Indofood and Kellogg’s. Dufil Prima Foods is famous for Indomie Noodles, Minimee Instant Noodles, Minimie Chinchin, Mimee Instant Noodles, and Power Oil. Minimee Pasta, Power Pasta, and Emperor.
Dufil Prima Foods also owns De United Foods Industries Ghana Limited (manufacturers of Indomie in Ghana).
Tolaram also owns Multipro Consumer Products Limited, one of the largest consumer goods distribution companies in Africa.
They are the exclusive distributors of Kimberly Clark products, Dufil Prima products, TG Arla, Colgate Palmolive, and Kellogg’s products in Nigeria.
TG Arla is another joint venture of Tolaram, this time with the Danish dairy company, Arla Foods. TG Arla imports and packages Dano milk in Nigeria.
Colgate Palmolive Tolaram is another joint venture by Tolaram, with Colgate. This joint venture is involved in the production of Hypo products and Colgate toothpaste.
Tolaram also has a footprint in the hair extension market through Lush Hairs, which is manufactured by its company, Lucky Fibres. Lucky Fibres was previously involved in the manufacture of Nobel Carpets and Rugs.
Tolaram’s infrastructure and logistics footprint is in the Lagos Free Zone and Lekki Port. The group has 96.72% equity in Lagos Free Zone Corporation, the managers of the Lagos Free Zone, as well as a 22.5% stake in Lekki Port.
Tolaram is the parent company of BHN Logistics, one of the largest haulage logistics companies in the country.
What the deal means for Tolaram
Tolaram’s acquisition of a majority stake in Guinness Nigeria expands the footprint of a group with a major stake in the Nigerian consumer goods sector.
The group has a very strong footprint in Nigeria through its joint ventures with other consumer goods companies across the world.
With its acquisition of Guinness Nigeria, Tolaram is stepping foot into the alcoholic beverage market, with a bid to assert its dominance in the Nigerian consumer goods market. However, certain concerns exist.
In Nigeria, the three biggest breweries in terms of market share and revenue size are Nigerian Breweries Plc, International Breweries Plc, and Guinness Nigeria Plc.
The other two are still owned by major brewing groups in the world, Heineken NV and AB InBev respectively.
While Guinness’ ownership is about to be transferred to a company with zero footprint in the alcoholic market.
It remains to be seen how Tolaram’s lack of experience in the alcoholic market will pan out for Guinness Nigeria, considering the operational differences in the alcoholic market from other consumer goods.
Tolaram is also acquiring a company that is on a run of losses. Guinness Nigeria posted a net loss of N18.2 billion during the fiscal year ending June 30, 2023.
In the current fiscal year, the group’s net loss hit N61.7 billion as of the nine months ending March 31, 2024.
Despite a 28% surge in revenue to N220.3 billion as of the first nine months of 2024, the group’s trade payables amounting to N47.1 billion and an additional N130.6 billion owed to its parent company raise concerns about Guinness’ operations.
What Tolaram integration means for Guinness Nigeria
Tolaram has one of the largest manufacturing, marketing, and distribution networks for consumer goods in Africa.
The group’s 50-year presence in Nigeria has helped it forge significant partnerships with consumer multinationals across the world.
By integrating into the Tolaram ecosystem, Guinness Nigeria is keying into a manufacturing, marketing, and distribution ecosystem that allows it to enjoy economies of scale and lower its operational costs.
For example, Multipro Consumer Products is arguably the largest consumer goods distribution company in Nigeria. This integration means Guinness can leverage an extensive distribution network that will effectively reduce its distribution costs.
Tolaram’s significant stake in the Lekki Port and BHN Logistics can translate into lesser logistics costs and much-improved supply chain management.
There is also a probability of strategic cash infusions by Tolaram into Guinness Nigeria to help the company’s quite ailing balance sheets.
However, a potential development is the delisting of Guinness Nigeria from the NGX.
Tolaram, despite its 50-year presence in the Nigerian market, has a history of not publicly listing any of its ventures.
The group, which likely generates more revenue than some FMCG giants like Flour Mills of Nigeria, Nestle Nigeria, and BUA Foods, consistently avoids public listings.
