Sale of Dangote Noodles: Will History Repeat Itself ?

Nairametrics|Dangote Flour Mills on Tuesday, announced that it has exited its noodles business and has sold the assets of Dangote Noodles to Dufil Prima Foods, makers of Indomie noodles. The company said that a business portfolio review revealed that the noodle business was not strategic to its vision.

Billionaire businessman, Aliko Dangote is involved in several businesses in the country. While most of them have been successful, he has occasionally exited businesses that were not profitable or, that were non-core to his focus on consumer goods, only to make a U-turn at a later time. First was his foray into banking in the early 90s with Liberty Bank. By his own admission, that was a loss making venture which he exited. Aliko later got back into banking with Dangote Industries Limited taking up a stake in the African Development Bank and Jaiz Bank.

Alhaji Dangote in 2007 obtained a 3G telecommunications license, which he never made use of, and as a result, sold same to Etisalat Nigeria. Recently however, the Dangote group has now shown interest in buying a stake in a telecommunications firm.

Alhaji Dangote sold a 65% stake in Dangote Flour Mills to Tiger Brands of South Africa for $200 million in 2012. Three years after, in 2015, Tiger Brands sold it back to him for a dollar and guaranteed the debt they took on while running the business. As part of the buy-back, Dangote pumped the sum of N10 billion into the loss making business and has since turned it back to profitability.

Businesses in which Dangote divests from are typically those in which there is little or no moat (barrier to entry). That is, industries where the firm is unable to become the single or most dominant player. Also, there has been a tendency to shy away from businesses in which profit margins are too low. Either way, those who buy up or take over these businesses end up struggling with them, or even fail.

One thing is thus key to the sale of the Noodles business: Dangote may regain his affinity for the noodles business and may thus buy it back at a much later date.

While details of the transaction are unknown, the two year interval within which Dufil Prima retains the Dangote brand serves the purpose of giving him a window within which to buy to the business back if he changes his mind, or if the business/product is successfully turned around. The sale of the business to Dufil Prima could also be a strategy by Dangote to understudy Dufil who have taken and retained a position of dominance in the noodles market, outshining and comprehensively beating all other products in the Nigerian market. For the time being however, buying the Dangote noodles business enables Dufil to retain its dominant position, and extend its unassailable lead in the market.

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