Does Olam’s acquisition of Dangote Flour mean more M&As?


Big-ticket deals have taken place in recent times in the manufacturing sector.

On November 1, Olam International Ltd. completed the acquisition of Dangote Flour Mills for N120 billion. In April 2019, the Singaporean company submitted an offer to acquire 100 percent equity of Dangote Flour. Under the arrangement, Olam would acquire all the outstanding and issued shares of Dangote Flour through a Scheme of Arrangement.

Dangote Flour Mills said in a regulatory filing that the takeover had become effective due to communication of the court’s decision to CAC. It further said  that the conclusion of the acquisition meant that the shares of Dangote Flour Mills would be delisted from the Nigerian Stock Exchange (NSE).

Flour Mills of Nigeria (FMN) has remained the market leader over the years with a 32 percent share, with Olam squaring 24 percent, and Dangote Flour having 19 percent  share.  Charghoury Group (11 percent) and Honeywell (10 percent) come fourth and fifth in market ranking  while others share the rest four percent, according to a 2016 research report by KPMG on Nigeria’s flour milling industry.

But a potential 43 percent ( 24+19) market share by capacity is possible with the deal between Olam and Dangote.

“I think it is a business strategy by Dangote,” Muda Yusuf, director-general of Lagos Chamber of Commerce and Industry (LCCI), had told BusinessDay in a telephone interview, during the announcement of the deal in April.

“I suspect Dangote wants to concentrate on areas of competitive strength and consolidate there. They would have done their numbers and found the decision right,” Yusuf had said.

In early 2016, Olam acquired BUA Group’s flour in a deal worth $275million. Earlier in 2010, Olam had acquired Crown Flour Mills (CFM) in Nigeria and consequently expanded its capacity and set up milling operations in Ghana, Senegal and Cameroon. Dangote’s current market capitalisation is N59 billion.

The acquisition shows that though the economic fundamentals may be trending negative, firms still bet on Nigeria.

“I foresee more M&As,”said Ike Ibeabuchi, CEO of MD Services Limited, which specialises in the manufacture of chemicals and provision of specialised services to firms.

“It is about cost-benefit analysis. In an economy like ours, M&As are ideal for survival and economies of scale,” he further said.

The Coca-Cola Company recently announced completion of its acquisition of Chi Limited in Nigeria. Coca-Cola first announced a minority investment in Chi three years ago and, as planned, acquired full ownership of the company last week.

Chi is an innovative, fast-growing leader in the beverage categories, including juices, value-added dairy and iced tea. The company, founded in Lagos, Nigeria, in 1980, produces juice under the Chivita brand and value- added dairy under the Hollandia brand, among many other products. Coca-Cola acquired a 40 percent stake in Chi in 2016 from Tropical General Investments Group, the holding company for Chi Ltd. Juices and value-added dairy categories rank among the fastest-growing beverage segments in Nigeria and Africa.

This acquisition signals Coca-Cola’s optimism about Africa’s consumer opportunity and a commitment to its long-term investment and growth plan on the continent, where it has been present for more than 90 years, Coca-Cola said.

“Coca-Cola is continuing to evolve as a total beverage company, and Chi’s diverse range of beverages perfectly complements our existing portfolio, enabling us to accelerate expansion into new categories and grow our business in Africa,” said Peter Njonjo, president of the West Africa business unit of Coca-Cola. “We will support the Chi management team in building on the company’s remarkable heritage and achievements, while using the scale of the Coca-Cola system to replicate their success in more markets across Africa.”

Data from Global Transactions Forecast report released by Baker McKenzie and Oxford Economics, a global law firm, said that M&A deals in 2017 amounted to $469.8 million in Nigeria and rose by 475 percent to $2.7 billion in 2018.

The report said that going forward, M&As would be on a continuous rise, especially as companies scrambled for larger market share as well as larger resources. It further said that this would increase M&A deals to $5.2 billion in 2019, adding that increasing allocation to technology-driven transformation was the key to future growth.

Firms are struggling to stay afloat due to recurring challenges inherent in the business environment. However, start-ups in the tech space have found ways to proffer solutions to these challenges through innovation and M&As.

In 2014, Wakanow, a Nigerian travel agency, acquired, an online bus ticketing startup, for $2.5 million. In 2015, One Africa Media (OAM)  Group, acquired, a recruiting portal.

In 2018. Zinox Technologies acquired Konga, and Konga, in turn, merged with another ecommerce platform Yudala, which is affiliated with Zinox.

Nigeria ranks 116 with 48.3 points on the Global Competitiveness Report and 131st on the World Bank’s 2020 Doing Business Index. Although this is an upward movement by 15 places from its previous position of 146, the country is yet to surmount basic challenges such as multiple taxation, infrastructural hiccups and power cuts.

The manufacturing sector is the biggest hit.

A report by the World Bank themed ‘Trouble in the Making?: The Future of Manufacturing-Led Development’ said that changing technologies and shifting globalisation patterns were destined to reshape manufacturing-led development strategies.


Gbemi Faminu