Tiger Brands has not been put off buying businesses of scale and its rest-of-Africa strategy has been unaffected by its bad experience in Nigeria, CEO Peter Matlare, says.
Tiger’s acquisition of Dangote Flour Mills (DFM) in Nigeria two years ago for a “full price” has proved a major drag on the group’s earnings, with impairments and losses from Nigeria featuring prominently in Tiger’s results since.
Of its initial R1.5 billion investment for a majority stake in DFM, which was made to build scale in the country and serve as a platform for other opportunities, Tiger has had to write off the entire R849 million premium paid for the business as well as a further R105 million against the value of DFM’s assets.
It has mothballed two of its five flour mills and is operating at just 40 percent production capacity in flour. Tiger has also closed a noodles factory in Nigeria.
Matlare says the experience “has heightened our desire to make sure we don’t drop catches. DFM matters big time in our lives: reputationally it’s important for us, strategically it’s very important.
“Some of the lessons we must carry over to any other deal, whether in SA, Nigeria, Kenya, Ethiopia, Ghana, Cameroon — any deal that we do, if we’ve not taken certain lessons from DFM then we’ve done our shareholders a disservice.”
On future deals, Matlare says Tiger will send larger management teams, earlier on, to its new business. It will also “take the keys” of its takeover targets from day one in order to establish certainty — something it had not done in the DFM deal due to the terms of the agreement.
But, he says, while the company has a number of lessons to draw from the misadventure, it has not been scared off doing other major deals across Africa, saying “we continue to look for deals, we’ve got a strong balance sheet.”
Phil Roux, a former Tiger executive who is now CEO of competitor Pioneer Foods, says his company will only look for small deals as it gradually builds its Africa business — a more conservative approach than Tiger’s.
Matlare concedes that Tiger got it wrong when it came to assessing the competition in Nigeria as well as the country’s “commercial architecture” — or ways of doing business.
In an effort to cut costs from a bloated business, “we took out 1,200 heads within six months of being there — those may just have been some lower level people, but we could also have lost some trading intellectual property in there.
Source : BusinessDay