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Tiger Brands terminates Kenya deals
Tiger Brands has abandoned its acquisitions of Kenyan flour milling and bread baking businesses‚ which would have added impetus to its African growth plans.
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The group announced last month that it was acquiring 100% stakes in Kenyan firms Rafiki Millers and Magic Oven Bakeries‚ which have combined annual turnovers of R350m.
However‚ Tiger Brands said on Tuesday, 25 March 2014, that by mutual agreement among the parties‚ the transactions had not been implemented and the agreements had been terminated.
No further information about reasons for the decision‚ and costs‚ was provided at the time of going to press.
While Tiger Brands has rapidly expanded its presence in the rest of Africa‚ it has met difficulties along the way - the most notable being a substantial drag on group earnings by its underperforming Nigerian subsidiary‚ Dangote Flour Mills.
About a quarter of Tiger Brands' turnover comes from outside South Africa via exports and through Cameroon‚ Ethiopia‚ Kenya‚ Nigeria and Zimbabwe investments.
The group's existing Kenyan subsidiary operates in the home and personal care‚ and stationery and food markets‚ and acts as a regional hub for exports to other East African markets.
The planned acquisitions were not expected to have a material effect on group earnings in the short term. Based on Tiger Brands' 2013 results‚ the businesses would have added about 1.3% to group turnover.
Kagiso Asset Management investment analyst Aslam Dalvi said Tiger Brands' strategy to expand in Africa through acquisitions was "credible" and had allowed the company to quickly increase its African exposure.
Tiger Brands was building a platform for future growth and diversifying its business.
But while the medium-to long -term growth outlook in Africa was attractive‚ Dalvi said "the company has some near-term challenges around recent acquisitions which it will need to address in order to capitalise on these opportunities".
Michael Wood‚ director of fast-moving consumer goods consultancy Aperio‚ said strong interest by multinationals in expanding into Africa meant there was a tendency by many target companies to "overvalue their business".
Many target companies had become "too demanding in terms of price"‚ which could be one reason why Tiger Brands had abandoned the deals‚ he said.
This‚ together with the often weak value of brands in Africa due to commoditisation of products‚ was often a reason for firms walking away from potential deals.
Evaluations of businesses needed to be based on the potential to leverage off existing brands and their routes to market.
Tiger Brands closed 1.69% up at R279.65 on Tuesday‚ outperforming the JSE's top 40 index‚ which was up 1.17%.
Source: I-Net Bridge
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