Investment in stocks as another stream of income, is an age long trajectory, that designing small and institutional investors in equities, have keyed into, to diversify their investment portfolios as well as create the needed fund for further investment quest.
This same motive to seek for alternative platform, in deepening capital base necessitated small investors in the domestic economy to invest in the shares of 11 Plc ( former Mobil oil Plc), listed on the Nigerian Stock Exchange (NSE). But it appears the investment decision is beginning to be a source of concern.
In 2017 NIPCO bought over the 60% stake of Exxon Mobil in Mobil at a price of NGN 417.12 in a deal worth NGN 90bn executed at the floor of the Nigerian Stock Exchange after the requisite approvals were obtained from both the Securities and Exchange Commission (SEC) and The Nigerian Stock Exchange (NSE). This transaction triggered a mandatory tender offer (MTO) based on Rule 445 of the rules of the SEC, which was designed to protect minority investors in situations like this by giving them the opportunity to also exit by selling at a fair price whenever there is a takeover of a listed company. However only a paltry sum of about 3.23% of additional shares were bought from all minority investors, leaving them to drown with a new Pharaoh who did not know Joseph. The name of the firm was subsequently changed to 11 Plc.
Having waited for three years post this transaction, buying up the shares from the open market and consolidating its holdings to about 80% stake over three years, which had empowered it to successfully have its way with Special Resolutions at EGMs/AGMs, the firm in March 2020 announced its plans to delist from the market and buy out the shares of dissenting shareholders at terms it could easily influence. No price was stated at this point.
In its explanatory note to shareholders issued on 9th of February 2021 via the Nigerian Stock Exchange as regards its proposed delisting of a total of 360,595,262 ordinary shares of 11 Plc, the company stated that the interest of dissenting shareholders shall be bought by the Company for a consideration of N213.90 per ordinary share, being the highest price at which 11 Plc shares have traded, six (6) months preceding the notice of the AGM at which the resolution to delist was deliberated, as provided by the rules of the Nigerian Stock Exchange. The objective of such delisting according to them was to enable the Company to explore strategic opportunities, alliances, and collaborations that can bolster earnings and/or provide synergized benefits with little or no regulatory requirement. The company stated that following the conclusion of the delisting process, 11 Plc will become an Unlisted Public Liability Company. It also stated that shareholders who disapprove of the delisting can indicate their dissent through the registrar for appropriate consideration.
At the date of announcement, the oil company was trading an N228 per share 6% above its delisting mark price which is the first time a company has shown interest in delisting by forcing minorities to sell to them at a discount to the market price. In preparation for this announcement of a ridiculous delisting price, the financial adviser to 11plc, crossed the shares from a price of NGN 249.5 to NGN 228 just 10 days to the announcement to make it look like they are proposing a 6% discount to the market price as against a 15%. The stock is fairly illiquid and thus the price hardly changes in most trading sections.
The key issues are as follows;
…Does this act by 11 Plc not represent a deliberate attempt to circumvent to SEC rule 445 and the provisions of CAMA that all shareholders must be treated equally?
…How can the shares of a majority shareholder be valued at NGN 417.13 per share while the value of minority shares is valued at NGN 213.9, just 3 years thereafter, even when the company’s net asset per share has increased by over NGN 50 over the three years, and the fair value determined by the same financial adviser-Cordros Securities Limited?
…Does this act of 11Plc not constitute a deliberate attempt to destroy value for minority investors?
…Can the EGM to delist be said to be valid where the price at which minorities are to be bought was not disclosed?
…Can we say that the minorities of 11Plc has been treated fairly subsequent to the takeover of Mobil by Nipco?
…Should such a ridiculous transaction succeed, would it not have set a bad precedent for other listed firms to follow?
It is interesting to mention that 11 Plc is one of the most profitable companies listed on the floor of the Exchange. It has over the last five years recorded the second highest earnings per share in the market, with over NGN 25 per share recorded over the past four years; the first being Nestle. The obvious motivation to delist for 11 Plc is the need to escape regulation, financial reporting and accountability to the public, especially with the likely consequence of the Finance Act, 2020 on treatment of unclaimed dividends.
The majority shareholder of 11 Plc is NIPCO- a majority owned Indian Company with a few Nigerians on the board to give it an indigenous coloration. The minorities here are thousands of Nigerian retail investors, the pension funds of millions of Nigerians, and a couple of off-shore institutional investors.
This is a case with strong interest from the investing public, as investors look forward to the regulators for justice, equity and fair play. Minority Rights must be protected.