Sunday, 3rd December 2023

Hostile takeover raises corporate governance, stock liquidity concerns

By Helen Oji
10 July 2023   |   3:10 am
In 2009, the former managing director of the defunct Intercontinental Bank, Erastus Akingbola, petitioned the Federal Government alleging a forceful takeover of the bank. In the same period, Access Bank was in a move to acquire controlling shares of Union Bank by mopping up its shares through proxies to gain enough footholds to make a…

Femi Otedola

In 2009, the former managing director of the defunct Intercontinental Bank, Erastus Akingbola, petitioned the Federal Government alleging a forceful takeover of the bank.

In the same period, Access Bank was in a move to acquire controlling shares of Union Bank by mopping up its shares through proxies to gain enough footholds to make a takeover bid.

While Access Bank did not succeed in taking over Union Bank at that time, it succeeded with the acquisition of the defunct Intercontinental Bank in a deal considered by many as fraudulent.

The Directors and shareholders of Intercontinental Bank are still in court challenging the propriety of the deal.

A hostile takeover occurs when an acquiring company attempts to take over a target company against the wishes of the target company’s management
Indeed, the unfolding series of power tussles and fight to control ownership of major blue chips on the Nigerian Exchange Limited (NGX) is an indication that the corporate war has staged a comeback in the Nigerian capital market and is currently raging amongst captains of industries.

This is because the huge transactions are undertaken by heavy-weight high networth shareholders in the Nigerian financial market that have the absolute power to influence share price movement to the detriment or benefit of other shareholders.
Recently, TransNational Corporation shares soared within a week ,as news of Femi Otedola’s acquisition campaign broke. The share later dipped when the Chairman of the company, Tony Elumelu, bought back the stocks at a premium. Retail investors who bought into the company on Otedola’s interest were left in limbo.

Oduteko, Otedola, Odukale renew old corporate war
In the news again is the fight for the control of the country’s premier and leading financial institution, FBN Holdings Plc, with three of Nigeria’s top investors – Hassan Odukale, Oba Otudeko and Femi Otedola – locked in the war and throwing in all their strength.

From the way huge volumes of several stocks are now traded, stock market investors believe it is not unlikely that predators are marauding all over the market to edge out current majority shareholders.

Since the beginning of the year, the equities market has witnessed an unprecedented rally, a development that has pushed the key performance indices up and led to the rating of the stock market as the best-performing in Africa and third in the world.

Specifically, the NGX’s all-share index (ASI), an indicator used to measure the performance of listed firms on NGX, has hit a 16-year high for the first time since 2008, to close at 60, 108.86 on Tuesday. It opened the year at 51,251.06 on January 3, implying an increase of 8,857.8 points or 15 per cent.

Similarly, the market capitalisation of listed equities, which opened the year at N27,915 trillion, closed on Tuesday, June 27 at N32,729 trillion representing N5 trillion or 15 per cent appreciation.

The rule, “Prohibition of Market Manipulation and Illegal Market Dealing”, among others, require the disclosure of the identity of any investor that intends to buy shares worth five per cent and above in a quoted company.

While the Securities and Exchange Commission (SEC) has no direct role to play in such a secondary market transaction, the exchange’s requirement mandates the acquirer to publicly disclose the acquisition of shares above five per cent of the outstanding shares of the company and notify the regulators.

But the investors argued that the promoters of this act have devised a means of smartly purchasing these shares below five per cent to beat the disclosure rule and eventually acquire controlling shares afterward.

Therefore, they urged the regulators to, as a matter of urgency, review their rules on secondary transactions and acquisitions and ensure that they wield the big stick on the defaulters of these rules to protect shareholders from those who indulge in a hostile takeover by subtle means and avert future loss of investment these transactions could cause investors.

President of NewDimension Shareholders Association, Patrick Ajudua, bemoaned huge losses investors may incur in the event of a forceful takeover of companies, urging regulators to sanction defaulters of acquisition rules and strengthen the investors’ protection apparatus to avoid further loss of investment in the capital market.

According to him, such a huge acquisition or hostile takeover may result in the controlling shareholders using their position to force minority shareholders out of the company.


‘Don’t disrupt FirstBank’s growth trajectory’
Citing the latest acquisition involving Oba Otudeko purchase of 13.3 per cent of its 35,895,292,791 outstanding shares of FBN Holdings through Barbican Capital Limited, an affiliate of Honeywell Group Limited, Ajudua queried the moral right of the decision, having been removed from the board over corporate governance lapses.

He pointed out that the bank has regained its glory and confidence with the proper cleaning of the loan book, stating that shareholders will not welcome any act capable of returning the bank to a loss position.

“These are clear evidence of failure of non-compliance with disclosures. You recall that Elumelu came out with a statement failing to accord recognition to such a transaction until confirmation came from a beneficiary.

“The exchange via NGX Regco must stress the need for full disclosure of such volume of shares, its beneficiary and implications on the company’s share capital and percentage holdings.”

An independent investor, Amaechi Egbo, blamed regulators’ poor handling of infractions and enforcement of discipline among stakeholders for the serial acquisitions and planned takeover brewing in the capital market.

He categorically stated that the Securities and Exchange Commission’s (SEC’s) inability to upgrade its operational guidelines through the use of modern Information Technology (IT) facilities to monitor day-to-day market operations, especially the trading platform; will continue to undermine efforts to restore confidence in the market.

According to Egbo, the NGX, in efforts to increase market confidence, had spent a lot of energy building the foundation of the market in terms of transparency, orderliness, fairness, disclosure, and more importantly, enforcing rules and regulations, and strengthening intermediaries.

He urged the SEC to deploy IT infrastructure that would enable it to detect infractions and other fraudulent activities perpetrated by stakeholders at the time of the action to avert loss of investment in the market.

Vice President of Highcap Securities Limited, David Adonri also believed that these serial acquisitions may be aimed at taking over those companies.
He pointed out that the corporate takeover war is currently raging amongst captains of industry, noting that in a situation where the majority shareholder is unable to ward off a hostile takeover then, ownership changes would eventually happen.

“A takeover in any form, whether hostile or friendly, can drive up prices and elicit investor’s interest in the security concerned. So far, portfolio investors are enjoying the game and smiling at their banks,” he said.

Head Equity, Planet Capital, Paul Uzum said: “What is referred to as power tussle is Otedola doing ‘greenmail’ on some listed companies. None has worked. Transcorp and FNNH have shown that a hostile takeover of a listed firm in Nigeria is almost impossible. Controlling shareholders usually disclose their investments for strategic reasons.

“Greenmail or green mailing is the action of purchasing enough shares in a firm to challenge a firm’s leadership with the threat of a hostile takeover to force the target company to buy the purchased shares back at a premium.”

Rising interest in blue-chips
Last week, news broke that the Chairman of Honeywell Group, Oba Otudeko, had consolidated his shareholding in FBN Holdings Plc with an acquisition of 4,770,269,843 units through Barbican Capital Limited, an affiliate of Honeywell Group Limited.

With the transactions which represent 13.3 per cent of the company’s issued capital of 35,895,292,79, Otudeko has emerged as the largest shareholder of the first-generation bank.In the week, investors increased stakes in blue chips as the market recorded a turnover of 9.8 billion shares worth N145.4 billion in 54,478 deals at the Nigerian Exchange Limited (NGX).

This volume of shares traded was however higher than a total of 3.4 billion units, valued at N41.9 billion that was exchanged in 39,764 deals on June 30, 2023.

A breakdown of activities last week indicated that the financial services industry (measured by volume) led the activity chart with 8.3 billion shares valued at N127.9 billion traded in 27,291 deals; thus contributing 84.9 to the total equity turnover volume.

The conglomerates’ industry followed with 420.7 million shares worth N1.7 billion in 2,840 deals. The third place was the ICT industry, with a turnover of 220.1 million shares worth N2.2 billion in 3,237 deals.

Trading in the top three equities namely FBNH Holding Plc, FCMB Group Plc and United Bank for Africa (measured by volume) accounted for 6.07 billion shares worth N102.5 billion in 7,505 deals, contributing 61.75 per cent to the total equity turnover.

On the price movement chart, the equities market consolidated its gaining streak last week, following bargain hunting in Dangote cement (+5.3 per cent), Stanbic (+17.9 per cent), and FBNH (+19.1 per cent) stocks.

Consequently, the NGX All-share index and market capitalisation appreciated by 3.4 per cent to close the week at 63,040.41 and N34.326 trillion, pushing the YTD return to +23 per cent.

Similarly, all other indices finished higher except NGX Consumer Goods Index which depreciated by 0.2 per cent while the NGX ASeM and NGX Sovereign Bond Indices closed flat.

Reacting to market performance last week, analysts at Vetiva Dealings and Brokerage said: “We have started seeing investors look to other sectors like the agro-allied, with the likes of PRESCO trading on full bid today. “Meanwhile, this week’s bullish close was largely on the back of demand in the banking and oil & gas sectors. We anticipate a cautious trading session next week.”

Codros Capital said: “With the half-year earnings season on the horizon, we believe investors will look for clues on the sustainability of the decent corporate earnings released for Q1, 2023.

“However, we expect mixed market performance in the week ahead as bargain hunting in dividend-paying stocks will be matched by intermittent profit-taking activities.

“Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”

Chief Research Officer of Investdata Consulting Limited, Ambrose Omordion, said: “We expect the positive sentiments to continue on bargain hunting and profit-taking, as players reshuffle their portfolio amidst supportive reforms of the government.

“This is just as more policy pronouncements and appointments would offer investment direction. Also, Q2 earnings reporting season draws closer to confirming the real state of the company’s performance and attracting more liquidity into the market.

“We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. As such, investors should take advantage of the price rally to take a profit. Also looking at the trends and events in the domestic market and across the globe.”

Last week, a total of 6.592 million units of Exchange Traded Products (ETP) valued at N49.7 million were traded in 119 deals compared with a total of 10.8 million units valued at N105.9 million transacted in 182 deals during the preceding week.

Also, a total of 45,738 units of bond, valued at N46.1million were traded in 30 deals compared with a total of 106,871 units valued at N106.5 million that were transacted in 26 deals.

78 equities appreciated during the week higher than 77 equities in the previous week. 25 equities depreciated lower than 59 in the previous week, while 53 equities remained unchanged, 20 recorded in the previous week.