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Acquistion by Tiger Brands of 63.35% of the total issued ordinary share capital of DFM and withdrawal of cautionary
Tiger Brands Limited
(Incorporated in the Republic of South Africa)
(Registration number 1944/017881/06)
Share code: TBS ISIN: ZAE000071080
("Tiger Brands" or “the Company”)
ACQUISITION BY TIGER BRANDS OF 63.35% OF THE TOTAL ISSUED ORDINARY SHARE
CAPITAL OF DANGOTE FLOUR MILLS PLC (“DFM”) FROM DANGOTE INDUSTRIES LIMITED
(“DANGOTE”) AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders are referred to the announcements dated 7 May 2012, 18 June
2012, 4 July 2012 and 16 August 2012 regarding discussions between Tiger
Brands and Dangote (collectively, “the Parties”) in respect of Dangote’s
shareholding in DFM, a market leader in the flour and pasta market
segment of the Nigerian Consumer Food Sector.
In the announcement dated 4 July 2012, shareholders were advised that
the Parties had reached in principle agreement regarding the terms of a
potential transaction that would, if implemented, result in Tiger Brands
acquiring 63.35% of the total issued ordinary share capital of DFM (“DFM
Shares”) from Dangote (“the Transaction”). In addition, shareholders
were advised that the Parties had agreed a share sale and purchase
agreement (“SSPA”) and had submitted the Transaction and its terms as
contained in the SSPA to the Securities & Exchange Commission of Nigeria
(“SEC”) for approval.
Tiger Brands is pleased to announce that the Parties have received
written confirmation from the SEC that the Transaction has been
approved. The Parties have therefore signed the SSPA and will cooperate
to implement the Transaction.
2. RATIONALE FOR THE TRANSACTION
DFM is a market leader in both the flour and pasta market segment of the
Nigerian Consumer Food Sector with strong branding, production and
distribution capabilities. The Transaction will add significant scale to
Tiger Brands’ existing Nigerian businesses and represents a further
important step in Tiger Brands' expansion strategy on the balance of the
African continent. In addition to adding new competencies and food
categories to Tiger Brands’ existing Nigerian businesses, Tiger Brands
will bring its proven competence in milling to bear to further develop
and grow DFM.
DFM will be Tiger Brands’ third, and largest, acquisition in Nigeria,
following the acquisition of 100% of biscuit manufacturer, Deli Foods
Nigeria Limited, in April 2011 and the acquisition of a 49% joint
venture interest in UAC of Nigeria Plc’s (“UAC”) Food and Beverage
businesses (“UAC Foods”) in May 2011.
Nigeria is a key strategic growth market in West Africa, the second
largest African economy and one of the fastest growing economies in sub-
Saharan Africa. With an estimated population in excess of 160 million
and projected average real GDP growth forecast over the next three years
of approximately 7% per annum, Tiger Brands believes, particularly for
consumer goods, that the potential of the Nigerian market is significant.
The Transaction will substantially add scale to Tiger Brands’ existing
Nigerian businesses and strategically positions Tiger Brands to take
advantage of the market opportunities within the Nigerian milling sector
and related essential food categories.
Tiger Brands views its strategic relationships with both the Dangote and
UAC groups as crucial to its continuing success within the Nigerian FMCG
sector. Over the medium term, operational synergies and efficiencies
will be leveraged to ensure all parties benefit from these strategic
alliances.
Turnover from Tiger Brands’ international operations (including exports
and the deciduous fruit business, but excluding the equity accounted
associates UAC Foods (49%), Empresas Carozzi (24%) and National Foods
(37%)) on a pro forma annualised basis for the year ended 30 September
2011 represents approximately 15% of total group turnover for the same
period. Tiger Brands’ African footprint currently includes operations in
Nigeria, Cameroon, Ethiopia, Kenya and Zimbabwe. The contribution from
Tiger Brands’ international operations to group turnover for the year
ended 30 September 2011 increases to 26% after the inclusion, on a pro
forma basis, of DFM’s turnover for the year ended 31 December 2011.
3. NATURE OF BUSINESS OF DFM
DFM commenced its flour milling business in 1999 as a division of
Dangote, the largest industrial conglomerate in West Africa. DFM was
incorporated as a public limited company in 2006 and Dangote’s entire
flour milling business was transferred to DFM. DFM listed on The
Nigerian Stock Exchange (“NSE”) in February 2008.
DFM is involved in the business of flour milling, processing and
marketing of branded flour, as well as the production and marketing of
pasta and noodles, and is currently the second largest flour milling
company in Nigeria with a market share of approximately 30%. It also has
a market share of approximately 40% in pasta.
DFM's main product portfolio consists of wheaten flour products
(including bread flour, confectionery flour and semolina), but it is
also engaged in the manufacture of downstream value-added products
through its three majority owned subsidiary companies, namely:
- Dangote Pasta Limited: manufactures and markets spaghetti and macaroni;
- Dangote Noodles Limited: manufactures and markets noodles; and
- Dangote Agrosacks Limited: manufactures a variety of packaging materials.
DFM has a total installed milling capacity of 7,300MT per day and
manufactures its flour and flour products from five strategic locations
in West North, South, East and Central Nigeria.
In addition to DFM’s approximately 30% market share in flour and
approximately 40% market share in pasta, its world class equipment,
production facilities and national distribution footprint will enable
DFM to maintain and continue to grow its strong market presence.
DFM achieved a total turnover of NGN68,024 million (equivalent to
approximately ZAR3.2 billion) for the financial year ended 31 December
2011.
4. THE PURCHASE PRICE
On the effective date as set out in paragraph 7 below, Tiger Brands will
pay Dangote NGN9.50 per DFM Share, implying an aggregate purchase price
of NGN30,093 million (equivalent to approximately ZAR1.5 billion)
(“Purchase Price”). Excluding the once-off impact of an amount of
NGN1,484 million relating to a provision for irrecoverable claims
against two insurance companies, the Purchase Price represents a
Transaction Enterprise Value to EBITDA ratio of 8.5x based on DFM’s
published unaudited annual financial results for the year ended 31
December 2011 prepared in compliance with International Financial
Reporting Standards (“IFRS”).
In addition to the Purchase Price, Tiger Brands will pay Dangote, if
applicable, the positive difference between:
i. the amount equal to the adjusted audited profit after tax
attributable to shareholders of DFM for the financial year ending
31 December 2012, prepared in accordance with Nigerian Generally
Accepted Accounting Principles (“Nigerian GAAP”), multiplied by an
agreed price-to-earnings ratio of 14 times and then multiplied by
63.35%, being Tiger Brands’ interest in DFM immediately after
implementation of the Transaction (“Adjusted Price”); and
ii. the Purchase Price,
(“Purchase Price Adjustment”).
Tiger Brands shareholders are advised that, excluding the once-off
abnormal charge referred to above, the audited profit after tax
attributable to shareholders of DFM for the financial year ended 31
December 2011, prepared in accordance with Nigerian GAAP, was
approximately NGN1,960 million. Based on the agreed formula, the
adjusted audited profit after tax attributable to shareholders of DFM
for the financial year ending 31 December 2012, would need to exceed
NGN3,393 million, an implied increase of 73%, in order for there to be a
Purchase Price Adjustment. Furthermore, the Parties have agreed that the
total consideration payable by Tiger Brands, being the aggregate of the
Purchase Price and the Purchase Price Adjustment, shall not exceed an
agreed and authorised cap of NGN82,361 million (equivalent to
approximately ZAR4.1 billion, or NGN26 per DFM Share) (“Purchase Price
Cap”). In order to reach the Purchase Price Cap, the adjusted audited
profit after tax attributable to shareholders of DFM for the financial
year ending 31 December 2012, would need to equal NGN9,286 million, an
implied year-on-year increase of 374%.
For the three months ended 31 March 2012, DFM reported (in compliance
with IFRS) an attributable loss of NGN105 million, compared to an
attributable profit of NGN336 million for the same period last year.
The Purchase Price Adjustment, if payable by Tiger Brands, will be
payable within 30 days of receipt and approval by the board of directors
of DFM (“DFM Board”) of the consolidated audited financial statements of
DFM for the year ending 31 December 2012.
The Purchase Price and the Purchase Price Adjustment, if payable, will
be settled by Tiger Brands, in cash, from South Africa.
5. CONTINUED ROLE OF DANGOTE IN DFM
Dangote will retain a strategic interest of 10% of the total issued
ordinary share capital of DFM (“Strategic Shareholding”) for a minimum
period of five years after implementation of the Transaction.
Furthermore, whilst Dangote retains its Strategic Shareholding, it will
continue to have the right to appoint two directors to the DFM Board,
with Aliko Dangote continuing as Chairman of DFM.
6. CATEGORISATION OF THE TRANSACTION
Based on the maximum potential amount payable by Tiger Brands of
NGN117,000 million (equivalent to approximately ZAR6.2 billion at the
NGN:ZAR exchange rate of 18.92:1 as at close of business on 19 September
2012) in terms of the Transaction, being the aggregate of the Purchase
Price, the maximum potential Purchase Price Adjustment and the maximum
potential consideration payable in respect of the Minority Offer
(defined in paragraph 8 below), the Transaction is deemed to be a
category 2 transaction in terms of the Listings Requirements of the JSE
Limited (“JSE”).
7. EFFECTIVE DATE
Provided that there is no material adverse change as defined in the
SSPA, it is expected that the effective date of the Transaction will
occur as soon as practical after 1 October 2012. The approvals of the
SEC, NSE and the South African Reserve Bank have been obtained.
8. OFFER TO THE MINORITY SHAREHOLDERS OF DFM
Shareholders are advised that after the implementation of the
Transaction, Tiger Brands is required in terms of the statutory
requirements under Nigerian law to make a mandatory offer to the
minority shareholders of DFM (“DFM Minorities”) to acquire, on the same
terms as the Transaction, the ordinary shares in DFM that the Company
does not already own (excluding Dangote’s Strategic Shareholding)
(“Minority Offer”).
The Minority Offer, when made by Tiger Brands, will be structured as a
tender offer. Notwithstanding the requirement to make a mandatory offer,
acceptance by Tiger Brands of any ordinary shares in DFM tendered
pursuant to the Minority Offer, can be made subject to a maximum level
of acceptance. A further announcement will be made in due course.
9. UNAUDITED PRO FORMA FINANCIAL EFFECTS FOR THE SIX MONTHS ENDED 31 MARCH
2012
The table below sets out the unaudited pro forma financial effects of
the Transaction on Tiger Brands’ earnings per share (“EPS”), headline
earnings per share (“HEPS”), diluted earnings per share (“Diluted EPS”),
diluted headline earnings per share (“Diluted HEPS”), net asset value
(“NAV”) and tangible net asset value (“TNAV”) per share and have been
prepared to assist Tiger Brands shareholders in assessing the impact of
the Transaction on Tiger Brands’ consolidated historical financial
information. The material assumptions used in the preparation of these
pro forma financial effects are set out in the notes following the
table.
These pro forma financial effects have been prepared for illustrative
purposes only and, because of their nature, may not fairly present the
actual financial effects on Tiger Brands. The pro forma financial
effects are the responsibility of the directors of Tiger Brands.
Before the After the Percentage
Transaction Transaction change (%)
EPS (cents) 805 774 (3.85)
HEPS (cents) 787 755 (4.07)
Diluted EPS (cents) 784 754 (3.83)
Diluted HEPS (cents) 766 736 (3.92)
NAV per share (cents) 6,401 6,401 -
TNAV per share (cents) 3,992 3,582 (10.27)
Notes:
i. The pro forma financial effects are based on the published unaudited
results for Tiger Brands for the 6 month period ended 31 March 2012
and DFM’s unaudited pro forma results for the 6 month period ended 31
December 2011 (“DFM’s pro forma results”). DFM’s pro forma results
have been determined on the basis of deducting DFM’s unpublished
unaudited results for the 6 month period ended 30 June 2011 from
DFM’s published unaudited results for the year ended 31 December 2011
(including the once-off abnormal charge referred to in paragraph 4
above), both of which results (previously published in accordance
with Nigerian GAAP) have been revised and prepared in compliance with
IFRS by DFM management. Based on the information provided to Tiger
Brands by DFM, the directors of Tiger Brands are satisfied with the
quality of DFM’s pro forma results.
ii. The pro forma financial effects are based on the Purchase Price of
R1,513 million. DFM’s earnings attributable to DFM shareholders for
the relevant period of NGN854 million have been converted into ZAR at
a NGN:ZAR average exchange rate for the 6 months to 31 December 2011
of 20.72:1. DFM’s NAV attributable to DFM shareholders as at 31
December 2011 of NGN26,717 million has been converted into ZAR at the
prevailing NGN:ZAR exchange rate as at 31 December 2011 of 20.08:1.
iii. The pro forma financial effects on the NAV and TNAV per Tiger Brands
ordinary share, respectively, have been based on the assumption that
the Transaction was implemented on 31 March 2012. The pro forma
financial effects on Tiger Brands’ EPS, HEPS, Diluted EPS and Diluted
HEPS, respectively, have been based on the assumption that the
Transaction was implemented on 1 October 2011.
iv. Included in the above:
- The effect of once-off transaction costs of R36.5 million;
- The excess of the Purchase Price over the carrying value of the
underlying assets has been allocated to identifiable intangible
assets (trademarks) in the amount of ZAR132 million and goodwill
in the amount of ZAR596 million, based on a preliminary purchase
price allocation. In terms of IFRS 3: Business Combinations, a
detailed purchase price allocation exercise will need to be
performed within a period of 12 months from the effective date of
the Transaction;
- The identifiable intangible assets are amortised over 5 years;
- Interest on the Purchase Price is assumed at an average rate of
6.16% per annum;
- The calculations of EPS and HEPS for the 6 month period ended 31
March 2012 have been based on the weighted average number of
ordinary shares of 159,126,178 (which excludes the 10,326,758
treasury shares and the 21,371,686 empowerment shares held by
various empowerment entities which are consolidated by Tiger
Brands for accounting purposes);
- The calculations of Diluted EPS and Diluted HEPS for the 6 month
period ended 31 March 2012 have been based on the diluted
weighted number of shares of 163,321,894 (which excludes the
treasury and empowerment shares referred to above);
- The calculations of NAV per share and TNAV per share as at 31
March 2012 have been based on 159,386,794 ordinary shares in
issue (which excludes the treasury and empowerment shares
referred to above); and
- The pro forma financial information has been prepared using the
same accounting policies as those applied in the most recently
published financial statements of Tiger Brands.
v. Excluding the once-off transaction costs referred to in note iv
above, the pro forma calculations of EPS and HEPS for the 6 month
period shown in the table above reflect a dilution of 0.99% and 1.14%
respectively in respect of EPS and HEPS.
10. FINALISATION AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
A further announcement will be released on the Securities Exchange
News Service of the JSE upon implementation of the Transaction.
Shareholders are accordingly advised that they are no longer required
to exercise caution when dealing in the Company’s securities.
Bryanston
25 September 2012
Lead financial adviser and transaction sponsor to Tiger Brands
Standard Bank
Joint Nigerian financial adviser to Tiger Brands
ACL Capital Partners Ltd
Nigerian stock broker to Tiger Brands
Vetiva Securities Limited
Nigerian legal adviser to Tiger Brands
Udo Udoma & Belo-Osagie
South African legal adviser to Tiger Brands
Edward Nathan Sonnenbergs Inc.
Sponsor to Tiger Brands
J.P. Morgan Equities
Date: 25/09/2012 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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