South Africa’s Tiger Brands has acquired Kenyan flour miller and bakery for Sh2.1 billion, five years after buying a majority stake in Haco from billionaire Chris Kirubi.
The Johannesburg Stock Exchange-listed firm has disclosed in its latest annual report that it has reached an agreement for the complete buyout of Rafiki Mills and Magic Oven Bakeries.
This will give it a presence in the local flour milling and bread baking business, which will diversify its earnings away from Haco Tiger Brands which produces stationery, home and personal care products.
The deal underlines the growing interest of South African firms like retailer Massmart to seek a presence in Kenya as a launchpad to the fast-growing East African market via acquisition of majority stakes.
“The group has concluded an agreement … to acquire the entire share capital in flour and a bakery business based in Kenya (Rafiki Mills and Magic Oven) for a total purchase consideration of $25 million,” Tiger Brands said in a statement.
“This acquisition gives us access to important growth categories in which we have been successful in South Africa.”
The transactions are expected to close in the next few weeks following approvals from regulators such as the Competition Authority.
For Tiger Brands, the acquisition of Rafiki is part of its plans to gain a larger market share of Africa’s food business including flour milling, beverages, and snacks.
The multinational last year acquired a 63.35 per cent stake in Nigeria-based Dangote Flour Mills (DFM) from Africa’s richest man Aliko Dangote. DFM is a flour miller and makes pasta and noodles.
“Whilst South Africa remains the bedrock upon which the group is built, the international operations provide us with exponential growth opportunities,” Tiger Brands said.
Little is known about Magic Oven and Kenya Bureau of Standards lists it as a dealer of cakes and buns.
Rafiki, which deals in wheat and maize flour from its Nairobi plant, is listed by the Kenya Revenue Authority (KRA) as Kenya’s fourth largest miller behind Mombasa Millers, Pembe Millers and Premier Group on income tax.
It is ranked ahead of Nairobi bourse listed Unga Group —which generated a profit of Sh508 million in the year ended June 2013. This means that Rafiki is generating in excess of Unga profit and taxman ranks it as the 27th largest taxpayer in Kenya.
The acquisition of Rafiki by the deep-pocketed Tiger Brands is set to increase competition in the local cereal and flour milling business where leading firms are engaged in vicious market share wars.
Tiger Brands sales stood at Sh218 billion in the year to September, which is 75 per cent bigger than the Sh124 billion that Safaricom — Kenya’s most profitable firm — returned last year.
The deal comes as Unga Group reviews operations as it seeks a buyer for its stake in a paper packaging firm and prime land as the miller looks for new deals in the food processing business.
The miller will sell part or the entire 51 per cent stake in the packaging firm Bullpak Limited.
It is set to buy a Nairobi-based baker, Ennsvaley Bakery, to give it a presence in the finished cereal goods market which it exited more than 15 years back with the sale of Elliots Bakeries.
This will put it in a head to head battle with Tiger Brands, which is eyeing a similar business model.
Tiger Brands says the bread bakery and flour milling business will be run separately from its regional subsidiaries Haco Tiger Brands and East African Tiger Brands Industries.
Haco Tiger Brands was born after the South African firm bought a 51 per cent stake in the then Haco Industries (K) Ltd from Mr Kirubi in 2008.
Haco deals in BIC brand of pens, personal and household care products such as Ace, Jeyes, Miadi, Motions, TCB, Bloo, and SoSoft.
The deals underline the renewed interest in Kenya by South African multinationals seeking to gain from increased economic growth in the East African market.
Some of the South African firms that have expanded into the local market include telco MTN and retailer Woolworths.
Others seeking a presence in Kenya include retailers Edgars, Foschini, and Massmart—which is in talks to buy a majority stake in Naivas Supermarket.