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Unilever Nigeria Plc’s sufficient cash balance that sits in the balance sheet is a recipe for a minority buyout, as Home and Personal Homecare (PHC) companies continue to operate in a challenging environment.
The company’s cash balance of N82.73 billion as at June 2023, which was higher than free float market capitalisation of N19.26 billion, indicates an opportunity to implement a share buy-back or minority buyout.
A minority buyout occurs when a controlling share- holder purchases the remaining shares of the firm from the minority shareholders.
If Unilever shareholders decide to embark on the strategic exercise, then it will be towing the path of Peer rival PZ Cussons Plc.
PZ Cussons Nigeria Plc (PZ) announced that PZ Cussons (Holdings) Limited has offered to acquire shares held by other shareholders of PZ Cussons Nigeria Plc.
Interestingly, PZ Cussons net cash balance of N96.38 billion is enough to cover the estimated buyback amount of N22.38 billion, according to a recent report by analysts at Chapel Hill Denham Limited.
It is worth noting that Unilever Nigeria is in a position to repay its short-term debt with cash or cash resources. The company has a cash ratio of 1.11 as at June 2023, according to MoneyCentral calculations.
The cash ratio is a liquidity measure that shows a company’s ability to cover its short-term obligations using only cash and cash equivalents.
A calculation greater than 1 means a company has more cash on hand than current debts, while a calculation less than 1 means a company has more short-term debt than cash.