By Chinenye Anuforo and Chinwendu Obienyi
Barely six years after the Nigerian Bottling Company (NBC) delisted from the Nigerian Stock Exchange (NSE), with Coca-Cola Hellenic (CCH) which has 66.4 per cent control, offering to buyout the minority shareholders, the board of 7Up Bottling Plc, makers of Pepsi Cola and Mirinda, among others, has also indicated its desire to buyout the minority stakeholders in Nigeria in a deal estimated at over N19.332 billion. The move is in preparation to its eventual delisting of shares from the NSE just as Coca-cola did.
In a notice to NSE entitled: “Announcement of Proposed Acquisition,” signed by Samuel Uboh of Equity Services Limited, the Company Secretary, Seven Up Bottling Company (SBC), said its board has received an offer from Affelka SA, its majority shareholder, “to acquire all the outstanding and issued shares of SBC that are not currently owned by Affelka.”
The statement added that the transaction entails Affelka offering N112.70 per unit for the 171,542,574 ordinary shares of 50 kobo each via a Scheme of Arrangement.
The offer, it continued, is pursuant to Section 539 of the Companies & Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria, 2004 and other applicable rules and regulations.
The offer will cover 26.78 per cent of the company’s issued share capital at 15 per cent premium on the last traded share price on August 9, 2017, “being the last business day prior to the date the proposal was received from Affelka and 21.8 per cent premium on the trading price as at close of trading on November 28, 2017.
While urging shareholders to exercise caution when dealing in its shares until further notice, SBC said the deal has received the nod of the Securities and Exchange Commission (SEC), subject to approval of shareholders at a court-ordered meeting and the sanction of the Federal High Court.
The development has, however, confirmed fears by capital market stakeholders that more multinational companies may follow NBC’s lead.
Recall that the GSK, a UK firm, in 2013 made almost the same move as SBC. The company made a proposal to buy additional shares from Nigerian shareholders at N48 through a scheme of arrangement. Justifying the need for the share buyout, the company said its goal was aimed at facilitating more investment in GSK Nigeria. But the terms of the agreement were faulted by the minority shareholders who complained against the offer price and that the deal could lead to eventual delisting of the company from the NSE.
Besides the alleged perceived unfairness of the acquisition bid to disenfranchise Nigerian shareholders from the commonwealth created together, several stakeholders pushed against the bid because of possible unintended consequences. Eventually, GSK suspended the move saying it needed more consultation.
With 75 per cent equity stake, GSK UK will be able to push through any major changes including mergers and acquisition, delisting, shares buy back, change of public limited liability status, new capital issues and restructuring, among others. Extant Nigerian laws require 75 per cent shareholdings to approve such major changes.
But despite the SBC explanation that the buyout was aimed at restructuring the struggling company, Nigerian shareholders, reacting to development, have called on capital market regulators to commence a forensic audit of Nigeria’s 7Up Bottling Company to unravel circumstances surrounding its planned buyout by Affelka, its parent company.
The shareholders who spoke to Daily Sun on telephone argued that they were unconvinced that the recent takeover notification of the company was not a fraudulent scheme as there was no reason to suggest the firm was doing badly in its sector.
According to Alhaji Gbadebo Olatokunbo, a shareholder activist, the 57 years old company is making good sales and profit with very good price at the NSE with the good result and return on investment in 2014. But suddenly, by the first half of 2015, something known only to its few foreign team within the company happened and the firm started reporting losses.
“The drift continued and the same powers behind the scenes are now ready to buyout local investors at their price,” Olatokunbo wondered. He asked: “Why the renewed interest of the majority shareholders in a suddenly sick company? Why are they now interested in the takeover when the company wasn’t growing? How are we sure they weren’t the brains behind the unexpected bad results?”
Olatokunbo stated: “We are of very strong view that the proposed injection of $60 million is part of our profit on investments in 7Up, which was denied us and now about to be presented as a bailout fund for a very solid 7Up Company, which we view with serious suspicion. It is a slap on our collective business senses and we hereby ask for a forensic audit of our company, 7Up, from 2014.”
The shareholder activist said, “it’s observed that companies would get quoted on NSE, make good use of its advantages to level-up to international standard with very strong holds of our market-share with their brands, which were highly supported by Nigerians and later create false alarm for some lobbyists to come forward with some questionable bailout fund for our very solid companies with the shareholders fund that were fraudulently denied those investors as the return on their investments. The truth is that other companies are waiting to see if the scheme would scale through and then take a cue from that.
Olatokunbo, therefore, called on both the Ministries of Industry and Finance to seriously look into “abuses and corruption going on within the private sector and make necessary amendment, while some of the quotation laws and rules of NSE should be seriously looked into to safeguard local investors from cowboy-business-people.”
In his own reaction, the President, Nigeria Shareholders Solidarity Association (NSSA), Timothy Adesiyan, said the news of the buyout offer was very disheartening. “We thank God for the former President, Olusegun Obasanjo, who made it possible for Nigerians to be part owners of these multinationals because it was during his tenure that a law was made, which made it possible for Nigerian shareholders to be part owners of these companies. But what is happening now is very disheartening because the gimmick is to shut out the local investors.
“SEC and NSE are not helping matters because most of the people there now don’t know what it took the former president to make Nigerians part owners of these multinationals,” he lamented.
He pointed out that while Coca-cola did it and got away with it, they are expecting that SBC will follow suit. He appealed to the Federal Government to look into the matter to stop foreigners from shortchanging local investors because they are making money here while local investors are losing out.
For his part, Boniface Okezie, National Coordinator, Progressive Shareholders Association of Nigeria (PSAN), blamed SEC and NSE. According to him, “we saw it coming. Since SEC and NSE approved the delisting of NBC, we knew that others will follow suit. What are they restructuring?,” he asked. He explained that all boils down to shortchanging local shareholders, adding that they are just after the buyout to delist from NSE and then, escape from corporate governance code because they are no longer listed.
“As a private company, the activities of the company are no longer subjected to public scrutiny. The Nigerian workers would also be worse for it in terms of the treatment they would get from the foreign dominated board of directors.”
Okezie, however, urged the capital market regulators to subject 7Up to rigorous test to confirm some of its claims and should not compromise on its regulatory role of protecting minority shareholders.
But speaking to market operators on the SBC proposal and fears of local investors, the Chief Executive Officer, Highcap Securities Limited, Mr. David Adonri, said there is free entry and free exit from the capital market by publicly quoted companies.
Adonri said if the shareholders follow appropriate procedure, SBC can settle the minority shareholders adequately and subsequently delist if it wishes. “If cheated, minority shareholders have right to seek legal redress through the court.”
However, he pointed out that delisting is not a good omen for the capital market, which is already adjudged to be shallow. But if the listed companies are no longer realising the reasons for their listing and the attendant benefits, it will be difficult to hold them back.
Adonri said the capital market community is already advocating a legislation to make incentives available to encourage listing, adding that they are also advocating legislation to compel large companies to be listed and remain listed.
“7UP is a highly regarded company in the capital market. If it delists, the impact on the market will be negative.”
For his part, Johnson Chukwu argued that 7Up has been reporting obvious losses and no longer strong in the market. “So, if there is an offer to buyout the same shareholders, for me, it makes economic sense because logically, it is better you rescue your investment than allowing it to die completely.”
On whether it is not a ploy by the company to shortchange the minority shareholders, he said there are regulators in the market, which include the NSE and SEC that are supposed to protect the minority shareholders and if there is an offer to buyout the minority shareholders and that offer is made at price, that price must have been subjected to some level of validation from the NSE and SEC.
Chukwu explained that it does not matter whether it is a foreign company or local company, the listing on the floor on the exchange should be a free market and a voluntary action. So a voluntary action will mean that if the market is beneficial, companies will list and if a market is negative or of no material benefit, companies will not want to list or they will delist.
He said the benefit of listing must outweigh the cost of listing and if this goes on, certainly companies will remain listed on the exchange. “So it is beyond whether it is a foreign or local company but any company listed and is not deriving the benefit of listing will want to delist.
I don’t think it is a gang-up by foreign companies to delist on our exchange but we need to improve on our investment climate to make it attractive for companies that are here and those that want to list.”
He, therefore, called on the National Assembly to make discriminating laws that will favour companies that are listed on the exchange so that other companies will have a compelling need to list.
“For instance, if we introduce zero withholding tax and dividend paid by listed companies, instead of the 10 per cent withholding tax we pay, which is in the income of investors and shareholders, a lot more companies will want to get listed and the listed ones will want to remain listed,” he said.