NYSE-listed food manufacturer Kellogg has entered into a long-term partnership with food company Tolaram Africa, agreeing to pay about $450-million for a 50% stake in Multi Pro and the option to purchase a stake in Tolaram Africa Foods. 

Kellogg advised in a statement on Tuesday that the partnership was expected to significantly increase its presence in the growing African market and advance its breakfast, snacks and emerging market strategies to drive future growth.  

"As a region that is experiencing explosive growth, with a population of almost one-billion people and an economy that is expected to more than double over the next ten years, sub-Saharan Africa provides tremendous opportunity for our company," said Kellogg CEO and chairperson John Bryant.

He noted that Tolaram Africa had built a highly successful consumer products business and was currently one of the largest food companies in Nigeria.

"Tolaram has a great record of building beloved consumer brands and fuelling their growth.  This partnership is an excellent strategic fit for Kellogg," Bryant added.

Lagos-headquartered Tolaram member company Multi Pro, established in 1997, had strong sales and distribution infrastructure in Nigeria. The company, whose core business was the selling and distribution of Indomie noodles, provided access to about 1 000 exclusive distributors, 2 600 employees and 19 warehouses, across six locations. 

It was also establishing similar networks in other key African countries, including the Democratic Republic of Congo, Côte d'Ivoire, Cameroon and Ethiopia.

"Kellogg's well-known and iconic brands and our research and development expertise, combined with Tolaram's strong local sales, marketing, supply chain and distribution capabilities, position us to become a breakfast and snacks leader in a thriving market," said Kellogg Asia Pacific president Amit Banati.

Tolaram CEO Sajen Aswani noted that the company and Kellogg shared similar values and an aligned vision for Africa, a continent Tolaram had been operating in for over 35 years. “This is another significant step towards providing affordable and wholesome nutrition for our expanding consumer base," he commented.

FINANCIAL DETAILS
The estimated purchase price represents a multiple of the average 2014 actual and 2015 expected total earnings before interest, taxes, depreciation and amortisation (Ebitda) of about 15 times; it represents a multiple of about 13 times 2015's expected Ebitda.  The final purchase price is dependent on actual results for Ebitda in 2015.

Total sales are expected to be approximately $750-million in 2015.

Kellogg would fund the acquisition using international cash and an increase in commercial paper of $350-million.

The company expected reported earnings a share, excluding transaction and integration costs, to not be affected by the transaction in 2015 or 2016; the company expects slight earnings accretion in 2017. These figures include the impact of the amortisation of certain intangibles and anticipated brand-building investment in the newly formed joint venture.

Kellogg predicted that costs associated with the transaction would lower reported earnings in the third quarter of 2015 by approximately $0.01 a share. This impact would be excluded from results for comparable earnings a share.