Flour Mills and Honeywell owe CBN, FBNH, Bondholders combined N220 billion

Flour Mills of Nigeria (FMN) Plc and Honeywell Flour Mills Plc, two of Nigeria’s largest flour mills, announced an acquisition deal that will
see the former purchase over 71.6% of the shares of Honeywell.

Honeywell shares are already up 9% during intraday trading ahead of the actual share price for the transaction being determined. Honeywell share price is up 183% YTD coming into this transaction while Flour Mills share price is up 13% YTD.

While the companies are yet to reveal the actual purchasing price for the transaction, we ponder on how the transaction will be paid for. Currently, both companies owe about N220 billion in external loans per their 2021 half-year results.

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Read: How Honeywell intends to paydown its First Bank loans

Debts owed by FMN Plc and Honeywell

Honeywell currently has a debt balance of N78.5 billion and a cash balance of N27.3 billion according to its most recent results. This was the breakdown of its creditors per its 2021 audited accounts for the period ending March 2021.

• Included in Honeywell loans is a N10.4 billion loan from First Bank, N2.3 billion from Bank of Industry, N6.2 billion from Fidelity Bank, and N3.5 billion from Polaris Bank.
• The Fidelity Bank and Polaris bank loans are also CBN related facilities.
• It did not state who is the lender for the balance N37.9 billion in loans.
• This is based on its last audited accounts for the period ended March 2021.
• In a nutshell, the loans mostly belong to the Central Bank.
• It is interesting to note that Honeywell recently announced a launch of a commercial paper to restructure its debt profile.

Flour Mills is also debt-laden with about N142.8 billion in debt and N52.6 billion in cash. This was the breakdown of its creditors per its 2021 audited accounts for the period ending March 2021.

• Flour Mills owes about N50 billion in several intervention loans from the Bank of Industry and the CBN.
• The company also has another N68.6 billion in commercial papers and bonds.

Read: DEAL: Honeywell initiates Commercial Paper to restructure debt profile

Bottomline

Whilst this transaction is highly welcome, we can see the handwriting of the CBN in all of this. How the transaction will be funded will provide better details in assessing the pros and cons of the transaction.

Honeywell currently has a market value of N29.5 billion and Flour Mills N119 billion as of this morning. At N80 billion enterprise value, the company has factored in its existing debt which we already mentioned was N78.5 billion as of September 2021.

Read: First Bank’s Board of Directors crisis – Why elephants don’t do breakdance

Nairametrics envisages this transaction will cost Flour Mills between N45 and N50 billion if our estimates are in line. For example, Honeywell has net assets of N58.2 billion which includes fixed assets revaluation reserves of N32 billion. A 1.2x price to book ratio multiple will value Honeywell at over N69 billion of which 71% gives us N49 billion.

We have however seen transactions like this close with a higher price to book multiple. Honeywell currently has a price to book multiple of 0.47x.