Earlier this week we received this email from a “usually reliable source” who is close to Tiger Brands. Its content is self explanatory, claiming that Tiger Brands’ R1,5bn Nigerian investment is turning sour – and that the South African FMCG business is set to repeat Telkom’s disastrous Multilinks misadventure. While the company’s response suggests our correspondent has gotten a few allegations very wrong, his warning that Dangote Flour Mills is hemorrhaging is on the money. In the group’s 2013 annual report Tiger CEO Peter Matlare described the DFM acquisition as “an important milestone…..that should deliver solid growth in future. In the short term the integration of the business has been challenging. As with other acquisitions made on the continent, we expect it to take two to three years to fully align the DFM operations to Tiger Brands’ standards.” Matlare says he will engage us on the issue after the company’s closed period ends on March 31. In the meantime, however, Tiger’s Corporate Affairs department has offered its counter to the allegations. Here is the original email and the official response from the company. – AH
Dear Alec,
As you know, Tiger Brands Limited invested in Dangote in Nigeria. This investment did not follow the normal Tiger Brands due diligence process. The Group FD, Funke Ighodaro and the CEO, Peter Matlare decided to by-pass Tiger’s traditional process when acquiring the business. As a result, this investment has become a nightmare for Tiger Brands.
Peter Matlare and Funke Ighodaro have been understating the losses and expectations for Dangote. As you know, Tiger Brands reported heavy losses in this business in its latest results, however, since then, the losses have deepened to R 1 billion. This business is currently run by a team that does not have the appropriate knowledge to turn it around. It is expected that this business will run out of cash in the next few months and Tiger Brands will have to fund the rights issue as Dangote and the local shareholders are not prepared to put in additional money. The business is riddled with theft and mismanagement.
You may enjoy writing about this ahead of the market as it will be affecting Tiger Brands’ results heavily. This could end up like Telkom…
And here is the response from Alex Mathole, the company’s Group Executive of Corporate Affairs:
Tiger Brands acquired a 63.4% stake in Dangote Flour Mills (DFM) in October 2012 as part of the Africa expansion strategy which was approved by the Tiger Brands board. The acquisition was preceded by a robust due diligence process conducted with the support of external experts and reported on to the Board.
The allegations that Group CEO – Peter Matlare and Group FD – Funke Ighodaro decided to bypass Tiger Brands traditional process when acquiring a business, are totally incorrect. It is incomprehensible to suggest that Tiger Brands would make a R1, 5 billion investment without having the support of the board or having been through its rigorous governance processes.
It has been our publicly stated view from the time we acquired DFM that it would take 2-3 years to fix, grow and optimise the business. Since DFM is listed on the Nigeria Stock Exchange, the results are reported and released quarterly making them publicly available. DFM also has its own board which has governance oversight on activities of the business.The DFM board will be meeting next week and the results for the period ending 31 December 2013 are likely to be released in the week following the meeting.
In the trading update tabled at the annual general meeting of Tiger Brands shareholders that was held today we have indicated that we continued to experience operating losses at DFM in the first quarter primarily as a result of on-going top-line pressures. The impact of significant price discounting in the market continues to place pressure on margins and the turnaround in the performance of DFM over the medium term remains a key objective.
We will continue to ensure that we have a top team in this operation with the necessary support to address the complex issues in this market.
