Tolaram acquires Guinness Nigeria for US$69m

Tolaram is about to acquire one of Europe’s best known stout beer brand in Nigeria. In a move that is widely seen as yet another retreat of a Western multinational from the most populous country in Africa the London-based Diageo has sold its entire 58.02% stake in its subsidiary Guiness Nigeria to the Singapore headquartered Tolaram Group for NGN103bn (US$69m).

Under the new long-term licence and royalty agreement, Tolaram-controlled Guinness Nigeria will continue to have the right to manufacture and distribute Guinness stout as well as other Diageo brands such as Orijin spirit and Captain Morgan Gold Rum. 

The transaction, which is still subject to regulatory approval, will see Guinness Nigeria remain listed on the local bourse. Tolaram plans to launch a mandatory takeover offer in compliance with local law requirements.

Although Diageo did not specify a reason for selling its stake in Guinness Nigeria, analysts have blamed the deteriorating state of the economy for the decision. Inflation has surged well over 30% and the local currency Naira is down 56% against the dollar and that has made it difficult for firms selling imported goods or goods manufactured locally but reliant on foreign inputs. Discretionary consumer spending has all but collapsed. Several other international companies have also cut back their exposure to Nigeria. In April, the Nigerian unit of the Dutch beer-brand Heineken announced the temporary suspension of two of its nine breweries. Last year, American consumer goods giant Procter & Gamble (P&G) announced it would close its manufacturing operations in Nigeria, shifting its focus to imports. In August, British pharmaceutical giant GlaxoSmithKline (GSK) announced its exit, citing economic challenges and a foreign currency crisis adversely affecting its operations. And earlier in 2023, Unilever withdrew its OMO, Sunlight, and Lux home and skin care brands from the market. Exodus of Western firms from Nigeria includes Kimberley-Clark; Bayer AG; Microsoft; Shell; Exxon Mobil and Eni.

In contrast, Tolaram’s acquisition of Guiness shows the resilience of Asian firms in Nigeria. It started as an importer of consumer goods and, in the 1990s, invested in Nigeria’s first instant noodles manufacturing facility. Over the years, Tolaram has formed joint ventures with several multinationals in Nigeria, including Kellogg’s, Danish dairy company Arla Foods, and Colgate-Palmolive. It has also recently entered the infrastructure sector through the establishment of the Lagos Free Zone and the Lekki Deep Sea Port. Unlike Western multinationals Tolaram has tried to localise of the entire chain of production and distribution, wherever possible. It has also relied on procuring input materials domestically. This strategy has buffered it against currency volatility and to an extent inflation.

Firms such as Tolaram appear to demonstrate that Asian firms perhaps understand the African consumer market better than their Western counterparts and exhibit a greater willingness to take risks.

 

References

‘Procter & Gamble halts manufacturing in Nigeria amid economic headwinds’, NTU-SBF Centre for African Studies, 27 December 2023

‘Lagos Free Zone emerges as an economic lifeline for Nigeria’, NTU-SBF Centre for African Studies, 27 March 2024

‘Nigerian Breweries indicates plans for company-wide reorganisation as part of strategic recovery plan’, Nigerian Breweries, 13 April 2024

‘Heineken shuts two plants in Nigeria as forex costs bite’, News24, 17 April 2024

‘Guinness Nigeria PLC: Revenue surges 28% amidst economic challenges, demonstrating resilience and growth’, Guinness Nigeria, 25 April 2024

‘Diageo sells Nigerian stakes joining multinationals exiting’, Bloomberg News, 11 June 2024

‘Diageo transforms business model in Nigeria’, Diageo, 11 June 2024

‘Diageo sells majority stake in Guinness Nigeria to Singapore’s Tolaram’, Financial Times, 12 June 2024

‘Nigeria's annual inflation rate hits 28-year high: 33.95%’, Voice of America, 15 June 2024

‘Diageo‑Tolaram deal: How naira devaluation hurt Guinness Nigeria’, The Africa Report, 17 June 2024

‘Asian firms step up as multinationals sour on Nigeria’, Bloomberg, 18 June 2024