Analysts have rated the Mandatory Tender Offer (MTO) by Lafarge Africa plc to minority shareholders of Ashaka Cement plc as positive for shareholder value and returns.
Following the acquisition of 58.61 percent equity interest in Ashaka Cement Plc by Lafarge Cement Wapco Nigeria Plc (now Lafarge Africa Plc) in September 2014, Lafarge Africa made a mandatory tender offer (MTO) for minority interest in line with the provisions of section 131 (1) (a) of the ISA.
Based on the MTO details, Lafarge Africa is to exchange 57 of its shares for 202 units of Ashaka – implying an exchange ratio of 0.28.
In addition, a further consideration of N2 per share, ex tax, would be paid to shareholders that accept the MTO on or before the stated closing date of January 16, 2015.
“Evaluating from a market standpoint, on applying Lafarge Africa’s last market close value of N80 to the terms of the MTO, we arrive at an implied price of N22.57 for Ashaka. In order words, given the terms of the transaction and Wapco’s current market price, the deal values a share of Ashaka at N22.57. This new implied price is ~10 percent higher than Ashaka’s last closing price, indicating that the tender offer gives the investor more for an Ashaka share compared to market,” said ARM research analyst Philip Anegbe, in a January 15 note.
Anegbe notes that Lafarge Africa clearly boasts a higher upside of 58 percent relative to its last market price. Furthermore, on a relative valuation basis, Lafarge Africa, with PE of 7.77, is cheaper than Ashaka with related PE of 8.09.
“Thus, it makes more sense to substitute units of Ashaka for Lafarge
Africa, given the latter’s relatively higher upside, and on this basis the tender offer looks attractive,” Anegbe said.
Research analysts at GTI Capital note that Ashaka Cement will be delisted from The Exchange sometime in the future after this tender offer.
GTI Capital analysts also say that on the question of whether to accept the offer or not, existing shareholders have two main options: either to sell at market price on The Exchange or accept the Tender Offer.
“If a shareholder decides to sell his units of 202 at a market price of N20.45 (as at Jan. 14), he will realize N4, 130.90 excluding transaction cost. On second scenario, if he accepts the Tender Offer at the proposed exchange rate units of 57 (Lafarge Africa), when he sells all at market price of N80 (as at Jan. 14), he will realize N4,674.00 after adding cash incentive of N114.00,” said GTI Capital in a January 16 note.
“Based on the above scenarios, we are of the opinion that accepting the Tender Offer will give Shareholders a better advantage,” GTI Capital said.
Ashaka Cement is one of the businesses involved in the Lafarge Africa merger –the consolidation of Lafarge’s Nigerian and South African business entities.
The business had combined revenue of $1.25 billion in 2013.
Lafarge’s Nigeria – listed shares traded flat at N76 per share on Friday valuing the company at N334.7 billion ($1.82 billion).
Lafarge’s cement capacity at its plants in Nigeria and South Africa will rise above 20 million metric tons by 2020 from about 12 million tons currently, country Chief Financial Officer, Anders Kristiansson said in a December 2014 interview.