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Shareholders brace up for Nigerian Breweries, Consolidated Breweries merger

By on November 24, 2014

For shareholders of Nigerian Breweries Plc and those of Consolidated Breweries Limited, time to take a leap forward is here. This is because shareholders of the two beer manufacturing companies will on December 4, converge on two different locations in Lagos for the court ordered meeting where issues related to the proposed business combinations between two institutions will be thrashed out.

While the court-ordered meeting for shareholders of Consolidated Breweries Plc will hold at the Lagoon Restaurant on Ozumba Mbadiwe Street, Victoria Island, Lagos, that of shareholders of Nigerian Breweries Plc will be held at Zinnia Hall, Eko Hotel, Adetokunbo Ademola Street, Victoria Island, Lagos.

If the deal succeeds, analysts said the decision of Consolidated Brewries (CB) Plc to merge with the Nigerian Breweries (NB) Plc will teach a good lesson on strategic approach to value creation and sustainability. This is because in recent years, CB has made a number of acquisitions including that of Maltex. Now the firm itself is being acquired by a bigger brother, Nigerian Breweries.

THISDAY gathered that the proposal to be placed before the shareholders is to combine the operations of Consolidated Breweries and Nigerian Breweries into a single legal entity effected through a Scheme of Merger. The surviving entity of the merger will be named “Nigerian Breweries Plc.”

Parties close to the deal said Nigerian Breweries Plc and Consolidated Breweries Plc have been advised by separate independent financial advisers in determining their fair values and the financial details for the expected combination of the two businesses.  For instance,  an independent fairness opinion was obtained by Consolidated Breweries Plc from Ernst & Young in deciding to proceed with the transaction.

In line with the Companies & Allied Matters Act, the Scheme of Merger document will be presented to shareholders at separate Court Ordered Meetings. At the meeting, every attending shareholder or his proxy will be entitled to vote at the meetings. For the proposed merger to be approved, 75 percent of those shareholders present and voting at the court-ordered meeting will need to vote in its favour.

Areas of Competence
While NB exerts dominance in the mainstream and premium beer market with its flagship product Star and others such as Heineken and Gulder, Consolidated Breweries is a strong player in the value segment of the market with products like Turbo King and 33 Export Lager Beer.

Therefore, the new combined entity will have a wider product portfolio covering all the major beer segments and will give NB more exposure to the value segment. In terms of market share, we estimate NB’s market share at around 63 percent of the market and around 6 percent to 7 percent for Consolidated.

As such, the combined entity should have a commanding market share of almost 70 percent of the Nigerian beer market.
It was gathered that a decision to merge was taken by the boards of both companies, in the best interest of each business, its brands and its people. Heineken is represented on both boards, but does not make these decisions on its own. Ultimately, the proposal to merge will be approved by 75 percent of the shareholders of the two companies present and voting in separate Court Ordered Meetings. While Heineken as shareholder of these two companies has the right to vote and is in favour of the merger, Heineken, it was gathered, has decided not to vote, avoiding any possible doubts on Heineken’s integrity/conflicts of interest in this deal. Analysts are of the opinion that Heineken’s decision will give the minority shareholders of both companies sole discretion as to whether to approve the proposed merger or not.

Details of the Proposed Merger
According to the arrangement in place, the shareholders of Consolidated Breweries Plc will receive four ordinary shares in Nigerian Breweries Plc for every five  ordinary shares held in Consolidated Breweries as at the terminal date or a cash consideration of N120 per share of Consolidated Breweries held.

Reasons for the Merger
It was gathered that the directors of Nigerian Breweries and Consolidated Breweries have decided to align their long-term strategic interests with a view to enhancing the operational efficiencies of both companies thereby maximising value for all shareholders. This combination will ultimately reduce overheads and enhance shareholder value through the exploitation of various operational synergies. This will result in improved revenues, cost savings and operational efficiencies in the enlarged Nigerian Breweries.
The proposed merger will also enable the surviving entity, Nigerian Breweries, efficiently manufacture products of both entities through the combined operational capacity of both companies. Products will also be sold and distributed across the combined sales and distribution network of the two companies.

Capital market operators close to the deal said if the shareholders approve the merger, the process is expected to be completed in January 2015. However, until all the statutory processes are completed, both companies will continue to operate separately.
Benefits to Shareholders

Investment analysts said there are five broad areas of benefits from the merger: operational efficiencies, access to capital, liquidity for shareholders, shareholder value creation and increased market capitalisation.

The breakdown of these five broad areas showed the benefits to include economies of scale, resulting from a combination of the operations of both companies as well as synergies arising therefrom; cost savings from increased efficiency in procurement, supply chain management and support functions. This will lead to an increase in the value to shareholders.

It is believed that the enlarged company will have easier access to debt and equity capital at favourable terms. This will ensure the company has adequate capital to fund all investments required to operate competitively. The business combination also promises to provide liquidity for shareholders. Analysts explained that while Nigerian Breweries is a listed company with its shares traded on The Nigerian Stock Exchange, Consolidated Breweries is not.

It therefore means that shareholders of Consolidated Breweries will enjoy the benefit of holding shares in one of the most liquid shares listed on The NSE.

They explained that apart from value creation, CB shareholders will now become shareholders of a larger and highly profitable entity. Synergies created as a result of the merger will create additional value for shareholders. Shareholders unwilling to be part of the enlarged company will have the option to receive cash for their shares and invest as they deem fit.

Increased market capitalisation
The new Nigerian Breweries shares arising from the proposed merger will increase the market capitalisation of Nigerian Breweries’ and that of the NSE.

Consolidated Breweries was said to have proactively sought merger partners prior to now and no offers have been received from other parties.
The CB Board was approached by the NB board. With Heineken being the majority shareholder in both companies, NB is the most logical partner.

The merger discussion was initiated by the board of directors of NB in recognition of the potential gains to stakeholders of both institutions. After considering the implications of a merger, CB and NB are equally and independently convinced that there is merit in consummating a merger. Heineken is supportive of the merger

On what Heineken stands to gain from the merger, parties to the deal said Heineken does not stand to gain at the expense of other shareholders., saying Heineken is a shareholder of both NB and CB, with similar shareholding in both companies, and will be presented with the same terms and conditions as the other minority shareholders.
Heineken holds a 54.10 percent stake in NB and a 53.80percent  in CB.

Fair valuation?
A statement at the weekend said, the board of directors of CB is highly committed to ensuring that shareholders receive a fair price. To demonstrate this commitment and to ensure fair valuation, the board of directors engaged the services of renowned advisers to guide its decision making process on the price. Accordingly, SPA Ajibade was appointed as Solicitors, Deloitte was appointed as tax and financial advisers to conduct due diligence on NB and EY was appointed to give a fairness opinion on the valuation consideration.

Nigerian Breweries appointed a team of professional advisers for the purpose of conducting due diligence on CB. Further to the conclusion of the due diligence exercise, the Financial Advisers of both companies, applied internationally acceptable standards in valuing both companies and recommended a price to the respective Boards of Directors.

After the merger, the scheme will become effective if it is approved by at least 75percent of the shareholders of both companies present and voting at the COMs, approved by the SEC and sanctioned by the Court.

The implications are that the assets, liabilities and undertakings, including real and intellectual property rights of CB will be transferred to NB. In addition entire share capital of CB will be cancelled and the Company will be dissolved without being wound up and shareholders will be compensated with either shares or cash.

Finally, experts said in return, shareholders are to enjoy the benefits of having a stake in one of the most capitalised companies on the Nigerian Stock Exchange, moving from over the counter dealings (OTC) to the main market platform where they will enjoy improved liquidity and enhanced trading opportunities.

They may also benefit from the qualitative and pragmatic management that saw the shares of NB recover from the deep of N27 per share in 2005 (from about N80 a few months earlier) to the current quotation of N162.5 today (16/5/14).

With growing emphasis on non-alcoholic drinks and the niche of CB in the value chain of malt-based non-alcoholic, improved marketing and investors’ perception may, among other factors, lead to improved performance to outperform the forecast post-merger price of N130 for the deal by FBN Capital.

 

[ThisDay]