CAP, Portland merger faces positive cost, revenue synergy implications, say analysts

Charles Abuede

Research analysts at FBN Quest Capital Research have said that the proposed merger between UAC of Nigeria (UACN) subsidiaries, Chemical and Allied Products (CAP) and Portland Paints and Products (Portland) is a pointer to the cost and revenue synergies for the firms.

They stated in their review that the proposed union aligns with UACN’s ongoing restructuring exercise which was put in motion following the appointment of Folasope Aiyesimoju as CEO in April this year, and following the signed binding agreement in August 2020 by UACN to sell 51 per cent equity interest in its real estate subsidiary UPDC to Custodian Investment.

In a reaction note to Business A.M. on the issue, they said a possible merger between Animal Feeds subsidiaries Grand Cereal and Livestock Feeds over the foreseeable future cannot be ruled out.

“We expect an efficiency gain from this to contribute meaningfully to UACN’s bottom-line considering that its paints business (which solely comprises CAP and Portland) is the most profitable within the group. Given

that this is subject to regulatory and minority shareholder approvals, we have not yet modelled the merger into our forecasts. That said, our current estimates for 2020E imply a 42 per cent contribution to UACN’s overall profit before tax (PBT) by the paints business,” the analysts asserted.

UACN’s paint subsidiaries, CAP and Portland, had on Monday announced that their boards of directors have agreed on a merger of their respective businesses. The group also revealed that the decision for the proposed merger is to drive growth and expansion within the Nigerian and African markets.

According to the publication filed to the Nigerian Stock Exchange, CAP, the larger subsidiary, is offering Portland shareholders a choice to either receive a cash payment of N2.90 per share for every Portland shares or 1 new ordinary share of CAP for every eight Portland shares held. The proposed payment represents a 41 per cent premium to Portland’s current share price.

David Wright, managing director of CAP, while commenting on the proposed merger, said: “The decision to pursue the proposed merger is driven by the board’s strategic plan to aggressively grow within the Nigerian and African markets. We believe that the proposed merger presents a unique opportunity that will benefit all stakeholders, from shareholders to customers as well as

the broader economy. I am excited by the prospect of an enlarged company with a broader decorative paint portfolio covering the premium, mid-market and affordable segments and the inclusion of marine and protective coatings, all of which will benefit our customers and shareholders.”

Also, Bolarin Okunowo, the managing director of Portland Paints said: “In recent months, the board and management of Portland Paints have evaluated various strategic options with a view to positioning our company to capture emerging growth opportunities. CAP’s business is complementary to ours, and both companies will be better able to serve our respective customers by coming together. I believe the combination of Portland Paints and CAP will yield significant benefits for all of our stakeholders.”

Meanwhile, on a Year-to-date (YTD), UACN shares have shed -17 per cent, and is underperforming in the broad market index by -24 per cent.