Dangote: Poor half-year result ploy to buy out minority shareholders, say brokers

Investment managers say the latest poor half year (H1) result for June ending 2012 by Dangote Flour Mill Plc (DFM) may have been manipulated to cause price decline and make it less attractive to investors.

According to a broker, who requested anonymity, “the half year result just released on the floor of NSE would negatively impact on the share price which is likely to begin to fall to a stage when Tiger Brand would then make an offer to the minority shareholders to pay them off above the current price.”

The objective of this, he explained, is force price decline and makes the stock less attractive to investors, which would make them jump on the offer that Tiger Brand could make in future. “The ultimate goal is to make DFM solely-owned by South Africa Tiger Brand a Dangote Industry Limited (DIL).

According to informed sources at the NSE, if Tiger Brand eventually buys off the 26.7 percent minority shareholders stake in DFM, the ownership structure would become 90 per cent in favour of Tiger Brand against 10 per cent for DIL. This would make them automatically assume control of the management and may eventually de-list DFM from the Nigerian bourse.

Analysts believe that the only this subtle move could be blocked is for the minority shareholders to unite in one voice and reject any offers that may be made to them.

Dangote Flour Mills (DFM) Plc released its Q2 June, 2012 results. Turnover was N29.6 billion as against N34.143 billion recorded in 2011. Loss after Tax stood at N815.2 million compared with Profit after tax (PAT) of N177.6 million in the same period 2011. The last audited full year result 2011 shows performance at N68 billion turnover, with N1.1 billion PAT. Cost of sales stood at N55.6 billion which represents 81.7 percent of total income.

The company equally incurred high cost of N25.7billion cost on sales this half year as against 28.9 billion in the same period last year. These figures represent 86.8 per cent of total revenue in the half year period compared with 84.7 percent cost to income ratio in the same review period last year.

Dangote Industries Limited (DIL) had last week concluded the sale of 63.3 per cent of its stake in DFM to Tiger Brands and is now retaining only 10 per cent. The arrangement analysts say would positively impact on the profitability of DFM taking advantage of Tiger Brand’s regional market presence, cost efficiency and scale economics.

Another broker, who would rather not be named, affirmed the speculation but observed that it was in line with modern business transaction and core capitalism principles.

He said if an investor establishes a business and manages it for sometime; if he gets an offer from another company that has better competence in that business, he can sell it to the strategic investor and move on.

“The important thing for Aliko Dangote is that he has made his profit as far that transaction is concerned and that is what matters to a businessman”, he pointed out.

According to him, there is nothing wrong if eventually Tiger Brand buys up the remaining 26.7 percent shares, and decides to delist from the NSE provided it follows due process.

 

 

 

 

 

Source: Citizen