Story highlights
- Champion Breweries Plc announced on June 19, 2024, that EnjoyCorp has acquired a majority stake in the company.
- It stated that, with the acquisition, Champion Breweries Plc will be integrated as a cornerstone subsidiary within EnjoyCorp’s expanding portfolio of food, beverage, and hospitality brands.
- However, given the company’s non-compliant free float of 3.58%, will it face delisting? What is in for the minority shareholders?
Champion Breweries Plc, a player in the Nigerian brewing industry, has recently entered a new phase with EnjoyCorp Limited’s acquisition of an 86.5% stake.
This, according to the company, was achieved through EnjoyCorp’s complete acquisition of The Raysun Nigeria Limited, which holds the majority stake in Champion Breweries, listed on the Nigerian Exchange Group (NGX).
With regulatory approvals in place, EnjoyCorp has taken full control, marking a pivotal moment for the company.
Champion Breweries expressed excitement about entering a new chapter of growth and value creation for all its stakeholders, fueled by EnjoyCorp’s vision and resources.
The company is confident that this partnership will unlock new opportunities and elevate its brand to greater heights.
This move aligns with the current industry trend. Last week, Guinness Nigeria Plc announced that family-owned Tolaram would acquire Diageo’s 58.02% shareholding in Guinness Nigeria for about N103 billion ($70 million).
This acquisition could reduce the need for Guinness Nigeria to seek fresh capital from the market, estimated at N75.121 billion, which would have returned the company to its Q1 2023 position.
Positive Prospects for Financial Performance
EnjoyCorp’s acquisition is expected to bring in fresh capital into Champion Breweries.
This infusion is crucial as it would increase the company’s net assets, which declined by 7.4% to N10.371 billion as of Q1 2024.
With EnjoyCorp’s additional resources and expertise, and expected improved cost optimization strategies, Champion Breweries could potentially enhance profitability and margins.
The company’s profitability and margins have been shrinking, with a pre-tax profit decline of 80% year-over-year in 2023 and a pre-tax loss of N798 million in Q1 2024, although this loss is the smallest among other brewers.
Also, the acquisition could boost investor confidence in Champion Breweries’ prospects. Investors may view the acquisition as a sign of potential growth and stability, leading to increased demand for the company’s shares.
Since the acquisition announcement on June 19, 2024, the share price has recorded a 9.9% gain over its previous closing price moderating the YtD loss to 14.2%. In 2023, the share price recorded a 24.55% loss.
Although the company is currently unprofitable, investors have continued to show optimism, as reflected in its price-to-book ratio and price-to-sales ratio.
At a trailing twelve-month price-to-sales ratio of 2.3x, investors are valuing the company at 2.3 times its annual revenue and are willing to pay 3.51 times the book value of its net assets.
This optimism is a good sign for shareholders, suggesting confidence in the company’s future growth and potential profitability.
The post-acquisition benefits, especially for minority shareholders, may hinge on how EnjoyCorp aligns its decisions with regulatory requirements regarding free float.
However, its free float position may affect its continued listing. As of March 2024, Champion Breweries has a free float percentage of 3.58% (280,132,739 units) and a value of N1,162,550,867, which is not compliant with the Exchange’s free float requirements for listed companies on the main board.
According to NGX Rule 17.22:
- If the free float falls below the minimum listing standard, the Issuer must announce this fact to The Exchange as soon as practicable.
- The Exchange may allow the Issuer one year, or a longer period as agreed, to retain its listing and rectify the deficiency. If the Issuer fails to restore the required percentage of securities in public hands within the allowed period, it may be delisted.
Considering Champion Breweries’ non-compliance with the Nigerian Exchange Group’s (NGX) free float requirement, there is indeed a risk that EnjoyCorp, as the majority shareholder, may consider delisting the company if it proves challenging to rectify the free float deficiency within the allowed time frame.
Despite Champion Breweries Plc affirming its intention to maintain its listing on the NGX.
While EnjoyCorp’s acquisition may bring opportunities for Champion Breweries’ growth and value creation, the regulatory non-compliance on free float presents a critical challenge.
Minority shareholders should monitor developments closely, as EnjoyCorp weighs the benefits of compliance against potential strategic decisions regarding the company’s listing status on NGX.
