Analysis of opportunities from proposed merger between Honeywell Flour Mills & Flour Mills of Nigeria

By Yusuf Omotayo

On November 22, 2021, Honeywell Group (HGL) and Flour Mills of Nigeria (FMN) announced that they had signed an agreement for the proposed combination of FMN through its affiliates and Honeywell Flour Mills Plc, a portfolio company of Honeywell Group. HGL is expected to dispose of a 71.69 per cent stake in HFMP to FMN at a total enterprise value of NGN80 billion.

As Obafemi Otudeko, Managing Director of Honeywell Group Limited, puts it, the merger is ‘in line with the evolution of Honeywell Group and our vision of creating value that transcends generations. For over two decades, we have supported Honeywell Flour Mills to build a strong business with a production capacity of 835,000 metric tonnes of food per annum. Following the transaction, Honeywell Group will be strongly positioned to consolidate and expand its investment activities, including as a partner of choice for investors in key growth sectors.’’

At a glance, this merger offers a high level of potential growth for the Nigerian food industry. Nigeria’s food insecurity remains a serious worry and this has been exacerbated by terrorism and banditry.

The COVID-19 pandemic with its lock-downs also had an adverse effect on the Nigerian economy. This also affected the food industry, from production to processing and distribution. As a result, the most vulnerable households are badly affected by rising food prices.

According to USAID, ‘Nigeria is facing a food security crisis that is compounded by the COVID-19 global pandemic and its effects on the food value chain in the country. The pandemic has significantly disrupted already fragile value chains across the country, including people’s ability to produce, process, and distribute food. The disruption to agricultural productivity and markets has a negative knock-on impact on livelihoods, especially among the most vulnerable households.’

This HFMP-FMN merger is strategically positioned to address two critical issues related to food production in Nigeria: rising population and urban development. By joining forces, both companies will continue in their effort to boost Nigeria’s food production capacity, but at a much higher level. 

Despite having vast arable land, Nigeria’s food production capacity remains insufficient to cater to its growing population of over 200 million people. The majority of this population growth is happening in urban areas. In 2020, Nigeria’s urban population was 52 per cent. This section of the country’s population has ballooned steadily over the last 50 years from 18.2 to 52 per cent. According to the Food and Agriculture Organisation of the UN, ‘the private sector – big or small, local or global – is a key ally in the global fight against food insecurity, malnutrition and rural poverty.’

Beyond addressing food production needs, this merger, when analysed from a consumer, business, employee or customer perspective, provides an all-inclusive answer to critical national and continental questions.

With Nigeria being a signatory to the African Continental Free Trade Area (AfCFTA), this merger positions Nigeria as a powerhouse for intracontinental food processing and distribution rather than being a dumping ground. This strategic placement will also boost the country’s export potential and tilt the scale in its favour.

For stakeholders, this merger also promises long-term preservation of trust. With an over 85-year combined track record of FMN and HFMP, it presents an opportunity for those who have been a part of the journey over the years to reap more benefits with this merger.

Over the years, employees of both companies have benefitted from a working environment with a shared mandate of career development and reward. The scale of the merger provides employees of the consolidated company with more career development opportunities in a larger organisation.

The Covid-19 pandemic led to job loss in the country according to the Nigerian Bureau of Statistics. From available data, more than 20% of workers lost their jobs as a result of the pandemic. Nigeria’s unemployment rate rose to 33.3 per cent — the highest in five years and the second-highest in the world. 

This merger has the potential to create more jobs in the economy as it will have more brands and categories, and a larger and more geographically diverse footprint. Analysts speculate that 17,000 direct and indirect jobs will be created as a result. With an expected increase in food production and processing, the demand for more skilled workers in the industry will have a ripple effect on other sectors as well as on other businesses.

In his assessment of the merger, Nigerian journalist David Hundeyin speculates that the ‘combination of the two supply chains and contract growing networks under a single chain of command promises to result in probably the greatest ever economies of scale in the history of Sub-Saharan African agriculture. FMN currently operates 17 high-level food processing facilities across 12 states in Nigeria. HFMP operates 3 facilities in Lagos and Ogun, with a supply chain stretching across the entire country. FMN is a leader in logistics, distribution, packaging and port operation, while HFMP is best-in-class for quality standards and operational efficiency. Combining these two advantages under one roof has simply never been tried before, and to an extent, even I can only speculate as to how huge an impact this could have on Nigeria’s food industry.’

For investors, HFMP’s listing is expected to be retained for the foreseeable future with minority shareholders of HFMP treated fairly and in line with capital market regulation. The stability and progress offered over the years is expected to be sustained in both the short and long term.

This merger from an analytical perspective projects an all-man winner in the long run. For stakeholders, it offers the opportunity to be part of a steady growth in Nigeria, as it positions greater opportunity in the continent. For the consumer and customer, it addresses the critical issue of food insecurity and is a way to stabilise the menace of rising food costs. For businesses and investors, this merger offers a robust reward because of the combination of two powerhouses with a track record of growth and success. For employees and the labour force, this is a timely intervention for a much-needed respite at a period where job loss and unemployment has gone over the roof.