On July 31, 2023, following deliberations by their respective boards, Dangote Sugar Refinery Plc (DANGSUGAR), NASCON Allied Industries Plc (NASCON) and Dangote Rice Limited (DRL) announced the proposed merger of the entities to form one enlarged company, with DANGSUGAR becoming the surviving entity. Whilst the merger is still subject to requisite approvals, in a disclosure released last week, DANGSUGAR outlined the scheme consideration for shareholders of NASCON and DRL. In this report, we analyse the merger and outline our thoughts on the possible outcome of the move for the company and shareholders.
The Scheme of Arrangement
According to the released document, each shareholder of NASCON will receive eleven (11) fully paid-up shares of NGN0.50 each in DANGSUGAR for every twelve (12) NASCON shares of the same value, totalling 2,428,651,847 new ordinary shares of DANGSUGAR. Likewise, for every one (1) ordinary shares of NGN1.00 each in DRL, each shareholder of DRL will receive fourteen (14) fully paid-up shares of NGN0.50 each in DANGSUGAR, totalling 2,775,792,508 new ordinary shares of DANGSUGAR. In simpler terms, 10,000 shares of NASCON will become 9,167 shares of DANGSUGAR following the 12-for-11 conversion ratio. In the same vein, 10,000 shares of DRL become 140,000 shares of DANGSUGAR following the 14-for-1 conversion ratio. Since the announcement of the merger in July, the share prices of both DANGSUGAR (+141.4% | YTD: +375.2%) and NASCON (+117.5% | YTD: +491.1%) have accelerated quite significantly, highlighting how keen investors are on the outcome of the merger.
The Enlarged Entity Likely to be Listed at a Premium
The foregoing breeds conversations of share dilution, particularly for DANGSUGAR shareholders. Following the additional shares of 5.20 billion shares to accommodate the shareholders of NASCON and DRL, shares in the new entity will amount to 17.35 billion. Accordingly, we estimate a 30.0% potential dilution from the merger. Post-merger, Dangote Industries Limited, Stanbic IBTC Nominees Limited and other NASCON shareholders will own 55.5% (inclusive of existing shares in DANGSUGAR), 1.3% and 4.0%, respectively.
