Africa’s richest man and President, Dangote Group of Companies, Aliko Dangote and three other directors resigned from the board of Dangote Flour Mills on Monday as majority owner Tiger Brands cut funding support to its struggling Nigerian division.
South Africa’s Tiger Brands said it was “currently exploring various alternatives with regard to its investment in Dangote Flour Mills, which also announced a change of name to Tiger Branded Consumer Goods Plc.
Aliko Dangote holds 10 percent of the company’s equity through Dangote Industries. The other directors who resigned are Olakunle Alake, Asue Ighodalo and Arnold Ekpe.
Tiger Brands has not made money from Dangote Flour Mills since paying nearly $200 million for a 65 percent stake in the firm three years ago as part of broader strategy to expand in sub-Saharan Africa.
“Tiger Brands has decided not to provide further financial support with respect to its investment in Tiger Branded Consumer Goods plc of Nigeria,” the company said in a statement.
Tiger Brands also said it was reviewing its investment in the business. One industry source said its options were limited because “buyers aren’t exactly lining up” to take its stake.
Tiger Brands wrote down the value of DFM twice last year for a total 954 million rand ($66.3 million) as the business suffered from tough competition and a weakening naira currency.
“Without Tiger Brands injecting money, it is the end of the line for DFM,” said Investec Securities’ analyst Anthony Geard.
Shares in DFM fell 4.7 percent to 2.41 naira by 1311 GMT, giving it a market capitalisation of 12.64 billion naira ($63.5 million), or less than half its net debt of about 30 billion naira.
Shares in Tiger Brands, however, climbed 7.7 percent to 335.00 rand by 1313 GMT, putting them on course for their biggest daily percentage gain seven years and outpacing a slightly higher JSE Top-40 index.
Tiger Brands, which makes bread, breakfast cereals and energy drinks, bought the business as part of a plan to expand elsewhere in Africa to offset slow growth at home.
In a bid to turn DFM around, Tiger Brands mothballed some of its mills and introduced new, higher margin products. Those efforts were dealt a blow late last year when Nigeria devalued the naira, resulting in higher input costs that could not be fully recovered in a competitive market.
For Tiger Brands, the move to cut financing would free up cash and enhance earnings in the short term. But it could also set it back in building a business in Africa’s most populous country and biggest economy.
“In the longer term, Nigeria will probably be a good place to be if you have scale but Tiger Brands would probably have to refinance Dangote and probably take it a step forward by, for example, going into baking,” Avior Capital Markets’ analyst Jiten Bechoo said.
Tiger Brands’ other businesses in Nigeria, Deli Foods and UAC Foods, will not be affected by the review. Tiger Brands competes with Nestle Nigeria.
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