Flour Mills of Nigeria Plc has received an approval in principle from the nation’s chief capital market regulatory body, the Securities and Exchange Commission, to buy Nigerian Bag Manufacturing Company Plc.

The company, in a notice to the Nigerian Stock Exchange on Tuesday, said it would recommend to its shareholders an offer of 24 BAGCO shares in exchange for one share of Flour Mills.

The statement explained that, alternatively, it would propose a cash consideration of N2.75 for each BAGCO share, a 39 per cent premium to Bagco’s closing share price on November 16, 2012.

At the close of trading activities on Tuesday, the shares of Flour Mills rose by 4.7 per cent to N66.25, taking its 2012 all-year increase to 1.2 per cent. Bagco gained seven per cent to close at N2.26, thus taking its gain this year to 33 per cent.

The statement noted that the proposals were, however, subject to approval by regulatory authorities as well as the shareholders of both companies.

Analysts from Meristem Nigeria Limited noted that the appreciation in the prices of both shares could be as a result of the approval, adding that the positive movement in the prices boosted the major market indicators on Tuesday.

“SEC gave approval in principle for the merger between BAGCO and Flour Mills. The board agreed to an exchange of 24 shares of BAGCO for a share of Flour Mills or an option of N2.75 per share of BAGCO,” the analysts said.

Head of Research at Vetiva Capital Management Limited, Pabina Yinkere, said, “This will ease management decisions with regards to the operations of Bagco.”

Bagco supplies bags used by Flour Mills for its products, which include cement and flour. From next month, sugar would be included when it starts production at its 750,000-metric-tonne sugar refinery in Lagos.

In its first quarter results ended June 30, 2012, Flour Mills of Nigeria reported improved activities as its turnover grew by 10 per cent to N70.7bn, up from N64.2bn recorded in the corresponding period of 2011.

Profit before tax rose from N3.9bn to N5.1bn in 2012, while profit after tax increased from N2.7bn to N3.9bn.

Analysts at FBN Capital Limited commended the improved profitability, noting that operating expenses of the company rose by 19.6 per cent to N5.3bn.

They said, “Although we do not yet have management’s comments as to the key drivers behind the growth in operating expenses, we note that some other consumer companies have also recorded sizable operating expenses growth figures.”

Source: Punch (written by Udeme Ekwere)