JOHANNESBURG, Nov 16 (Reuters) – Tiger Brands has cut off funding to its Nigerian unit as the South African consumer goods maker launched a review of its investment in the loss-making pasta and flour maker, it said on Monday.
Tiger Brands has struggled to make a profit at Dangote Flour Mills (DFM) since paying nearly $200 million for a 65 percent stake in the firm three years ago as part of broader plan to expand elsewhere in Africa to offset slow growth at home.
But DFM is battling tough competition and weakening naira currency, forcing Tiger Brands to twice write down the value of the business by a total of 954 million rand ($66.31 million).
“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.
Shares in the Johannesburg-based company climbed 4 percent to 323.21 rand by 0942 GMT, outpacing a slightly higher JSE Top-40 index.
One analyst said the move would enhance Tiger Brands’ earnings.
“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,” said Avior Capital Markets’ analyst Jiten Bechoo in Cape Town.
Tiger Brands’ other businesses in Nigeria, Deli Foods and UAC Foods, will not be affected by the review. Tiger Brands competes with Nestle Nigeria in Africa’s biggest economy. ($1 = 14.3860 rand)
Tiger Brands Rises as Food Company Ends Support for Nigeria Unit
By Andre Janse van Vuuren
(Bloomberg) — Tiger Brands Ltd. rose the most in more than a month after South Africa’s largest food producer said it will not provide further financial support for its struggling Nigeria unit.
Tiger Brands warned investors in May it may need to raise finance for Dangote Flour Mills through a sale of shares after writing down 954 million rand ($66 million). The food producer bought Lagos-based Dangote Flour Mills for about $150 million in 2012.
“Tiger Brands is currently exploring various alternatives with respect to its shareholding,” the company said in a statement Monday.
Tiger Brands, the manufacturer of Jungle Oats and Black Cat peanut butter, rose as much as 5.2 percent, the most since Sept. 25, trading 3.8 percent higher at 322.76 rand per share at 11:10 a.m. in Johannesburg.
“The business has been losing a lot of money; there’s a lot of debt in Dangote Flour,” Anthony Geard, an analyst at Investec Ltd. in Cape Town, said by phone. “If Tiger walks away from it they’re walking away from a big liability and ongoing losses.”
The company’s Chief Executive Officer Peter Matlare said in September he will step down at the end of the year.
