In the late 1990s, a former Head of State, probably woke up from the wrong side of his bed and decided to purchase above five percent stake in a quoted oil company on The Nigerian Stock Exchange (now NGX). The then Management demanded for disclosure of identity of the proposed buyer in line with The Exchange’s Rules. The buyer of such volume of shares must be disclosed to ascertain whether he is technically and financially fit and proper. This as an investor -protection obligation. It is also to ensure that such transaction is not a hostile takeover of the company through surreptitious means. But arrogance of power beclouded the Head of State and he refused to disclose his identity. The Exchange boldly turned down the transaction.
In a deft move, the embattled Head of State, set up the Odife Presidential Panel of Capital Market Reform, headed by late Chief Denis Odife. The primary agenda of the Panel was to incorporate the Abuja Stock Exchange obviously to stifle The Nigerian Stock Exchange through unfair competition. Unfortunately, Abuja Stock Exchange came like a stillbirth as it was incorporated in 2000 and went live in 2001, when stock exchanges were merging globally because of the development in information technology. The Exchange’s Management tried to educate the Federal Government that multiple exchanges have become archaic but all our pleas turned to deaf ears. After several failed attempts to fully commence operation, the Abuja Stock Exchange metamorphosed into Abuja Commodities Exchange.
The Exchange is still drifting like a rudderless boat till date. The last we heard of it was when Godwin Emefiele of the Central Bank of Nigeria announced the Federal Government’s plan to sink N50 billion tax payers money as lifeline into the Exchange which has always contended with leadership problem. The proposed capital injection is at variance with the calls from many quarters that the Federal Government should invest such a huge amount on infrastructure like the central clearing house that will benefit all the private-sector promoted commodities exchange such as Lagos Commodities and Futures Exchange (LCFE) and AFEX Commodities Exchange among others.
The battle for controlling shares in a company is a double- edged sword: it can increase the fortunes of shareholders by way of capital appreciation or decrease it by share price depreciation
There is a need for the market regulators to beam their searchlights on the behind-the-Scene hostile takeovers of quoted companies in Nigeria. In 2021, the famous business mogul, Femi Otedola, hit the headlines for acquiring 7.57 percent stake in FBN Holdings PLC., Nigeria’s oldest bank. Otedola has earlier made piecemeal acquisition up to 5.07 per cent and finally topped it with another 2.5 per cent to hit 7.57 per cent to emerge single largest shareholder. Otedola’s huge acquisition, a combination of direct purchase and use of nominees, pitched him against the Company’s incumbent Chairman, Hassan Odukale, who argued that his own stake was 5.36 per cent in the Bank. But through the intervention of NGX on the components of shareholding in the bank, it became clear that Odukale’s interest was 4.31 per cent.
The Bank reported 40 percent slump in its after-tax profit for nine months amidst the controversy. Ironically, its share price appreciated by 1.75 percent following huge transactions on the stocks, apparently by the two key shareholders who were jostling for majority shareholder. The Bank’s Audited Account for 2021 revealed that Otedola is the single largest individual shareholder and this doused the boardroom tension between him and Odukale. But in June 2022, Otedola dumped about 844 million shares of First Bank, worth N9.2 billion and the Company’s share price nosedived by 13.4 percent to a six-month low to close at N10.15 on June 10. This is the absolute power of a high net-worth shareholder to influence share price movement at the detriment or benefit of other shareholders, depending on the price swing.
In April 2023, Otedola again literally rattled the Nigerian Exchange Limited (NGX), when the billionaire snapped up 6.3 percent shares of Transnational Corporation of Nigeria (Transcorp) in separate deals and emerged the single individual largest shareholder in the conglomerate. Miffed by the implication of this huge acquisition, Transcorp’s Chairman and renowned global entrepreneur, Tony Elemelu, threw his investment hat in the ring and shored up his stake from 2.07 percent to a whopping 25.9 percent to retain his position as the single largest individual shareholder in the Company. This confers more than a fourth of the corporation’s voting right on him. However, on April 28, Otedola sold his newly acquired 6.3 percent holding to Elumelu in a dramatic way, believed to be gentleman’s agreement.
But in an interview published by some traditional and online newspapers, Otedola cited his controversial investment relationship with Elumelu since 2005, and traced it to 2012, lamenting his ordeal. He justified the rationale behind his decision to sell off Transcorp shares 15 days after the purchase thus saying: As a businessman, I believe in healthy competition and market dynamics. Two captains cannot man a ship, and I respect the majority shareholder’s decision to buy me out. This is the nature of the game.”
He explained that his original plan was to buy Transcorp for N250 billion. Market watchers believe that Elumelu shall tell his own side of the stories one day. As a fallout of the boardroom power play, the Transcorp’s share price which had earlier gained a record 173 per cent from the start of the year, fell by 9.9 per cent.
There is no doubt that the battle for controlling shares in a company is a double- edged sword: it can increase the fortunes of shareholders by way of capital appreciation or decrease it by share price depreciation, depending on the investment decision of the corporate raider at any given point. Otedola and Elumelu are on the pantheon of black knights in the Nigerian financial markets. They cannot be ignored but have to be managed by moral suasion or standard rules that make hostile takeover less profitable. In the case of Transcorp, they deploy what is called greenmailing technique, whereby a greenmailer buys a substantial block of a company’s shares and threatens a takeover. Elumelu’s repurchase of Otedola’s shares in Transcorp is one way to tackle a hostile takeover. But Elumelu himself has by this strategy taken over Transcorp.
On April 16, 2009, The Exchange sanctioned a prominent stockbroker and Managing Director of Nova Finance and Securities, Eugene Anenih of blessed memory for allegedly purchasing the shares of African Petroleum (AP), for Alhaji Aliko Dangote through “manipulative and deceptive” devices of cross-trading. By this transaction, AP lost 80 per cent of its share value between February 11 and March 24, 2009. Although Anenih was sanctioned by the capital market regulators, Alhaji Dangote was cleared when Anenih maintained that he did not receive instructions from the billionaire. The ultimate losers were the innocent shareholders.
Takeover bids can be friendly, reverse, backflips or hostile. Corporate Finance is replete with many strategies deployed by corporate raiders for hostile takeover. For instance, they can grab a company’s controlling shares by means of tender offer, pre-emptive offer, proxy fight, front-end loaded offer and reverse merger. However, there are defence mechanisms that a company can use to fight corporate raiders, such as management buyouts, poison pills, leveraged recapitalization, shark repellent, employees ownership plans and involvement of Gray Knight which is a direct opposite of Black Knights.
The shockwave that surrounded the transaction between Otedola and Elumelu on Trasncorp’s shares has prompted some market watchers to accuse the Securities and Exchange Commission (SEC) and the Nigerian Exchange Limited of regulatory laxity with dire consequences on investor protection. But this accusation lacks merit. The Commission has no direct role to play in such a secondary market transaction while NGX has always enforced its Rule 17.13 “Prohibition of Market Manipulation and illegal Market Dealing”. The rules among others require the disclosure of identity of any investor that intends to buy shares worth five per cent and above in a quoted company. But what happens when a smart raider indulges in purchase of shares below five per cent to beat disclosure rule and eventually acquires controlling shares behind the scene.
This has brought into fore, the need for the regulators to be on top of the game of investor protection. The NGX Rule 17. 3 is fast becoming trite. It must be reviewed as a matter of urgency to save the Self-Regulatory Organisation (SRO) from further reputational damage. In more advanced markets, heavy capital gain tax is slammed on a corporate raider to make such an acquisition less profitable. This may be replicated by NGX. In this age of rapid technological innovation, NGX must invest heavily in human capital and equipment to be ahead of smart investors and other players in the market.
Some so-called promoters of companies in Nigeria are replica of the disgraced and recently convicted 39-year old founder of a tech company, Theranos, Elizabeth Holmes, who fraudulently raked $452 million from innocent investors in the United States through her blood-testing company which never commenced operation. Many investors in Nigeria had lost huge amount of money in the primary market due to the failure of the promoters to deploy the money for the set objectives. As part of its rebranding, SEC has to put its house in order by reviewing all such outstanding sleazy offers and bring the promoters to book. This is the minimum the Commission can do to restore investor confidence in the market. Innocent shareholders deserve adequate regulatory protection from those who indulge in hostile takeover by subtle means.