Weeks ago, Nigerians woke up to the news that billionaire investor Femi Otedola had acquired 5% of a conglomerate belonging to his brother and friend Tony Eluemelu.
It was an intriguing corporate drama that shocked, rocked, and rolled Nigeria’s capital markets.
Transcorp as a business initially denied it, and the reason is not far-fetched.
They did not see that chess move coming.
Even their chairman, Tony, was caught napping as he woke up to the news, just like many of us did.
The drama got the attention of the two business tycoons’ mutual friends, who pleaded and intervened before a compromise was reached yesterday.
One of the terms of the compromise was Otedola exiting Transcorp and selling his shares back to his brother Tony at a premium, x6 of the market price.
It was said that Femi pocketed 32 billion naira, which will be paid installmentally from the deal.
I think it is important that we examine the drama and see if there is any lesson to unpack from it.
1) Aside from his eyes set on the three power plants owned by Transcorp, Femi’s other motivation in moving for the total control of Transcorp is what is called “greemail” in finance.
What is “Greenmail”?
Greemail is the practice of buying enough shares in a company listed on the floors of a stock exchange to threaten a takeover, forcing the owners to buy them back at a higher price in order to retain control.
Let me explain.
Chukwudi Iwuchukwu runs Visage Group.
a conglomerate with investments in manufacturing, real estate, power plants, and hospitality
Visage Group is listed on the floor of the Nigerian Stock Exchange, and our shares are free float, which means that any investor can buy as many shares as he or she wants as they are not capped.
Business is good as we pay shareholder dividends at the end of the financial year.
Until one day, activist investor Femi Otedola, like a shark, perceives blood, remembers that we exist, and then decides to come for us.
This is what he will do.
He would first start mopping up shares of Visage Group listed on the Nigerian exchange until he was able to amass a number of shares above what I own as the biggest investor and owner of the conglomerate.
Once he has achieved his goal of owning more majority shares than I do, Femi can attempt to take over my company by forcing the management to resign and appointing people loyal to him as their replacements.
The attempt is what is called a “hostile takeover.”
In order to avoid losing Visage Group to Femi Otedola, I would then go into negotiations with him to buy the shares he mopped up at a premium price, above the market price at which he bought them.
For example, Femi bought Transcorp shares at 2 naira, but he settled at 12 naira, x 6 of his investment, which is a decent profit by all standards.
With his money in the bag, Femi Otedola would leave us alone by selling the shares he acquired back to me and then going to another vulnerable company.
This is what “greenmail” means, as it was alleged that it was one of the motivations that pushed Femi to go after his brother’s business, according to many observers.
2) One of the lessons brought to the fore by this drama is that Transcorp is not efficiently run and is not delivering value to its shareholders.
Transcorp owns three power plants at Ughelli and two at Afam, with an installed capacity of 2,000 megawatts, which contributes 40% of the 5,000 megawatts of electricity that Nigeria generates daily.
However, the value of Transcorp shares at the stock exchange has been stagnant at less than 1 naira for a long time and does not represent the value that Transcorp is offering to Nigeria’s power sector.
To make matters worse, the company has been paying a 1-naira per share dividend year in and year out since it became profitable under Tony.
And again, the total worth of Transcorp, which has three power plants and the Transcorp Hotel Abuja, is just 100 billion naira, with analysts pointing out that it is undervalued and not properly run, which is true.
Femi Otedola owns only one power plant, called Geregu.
It’s located in Kogi State and was listed last year.
Geregu generates the 435 megawatts to 5,000 megawatts that Nigeria generates daily, but guess what?
It is worth 800 billion naira at the stock exchange.
Since Gerugu was listed last year, it has paid dividends to shareholders only once, but it paid 20 naira for one share, while Transcorp, with three power plants and a higher installed megawattage, has been consistent in paying 1 naira per share.
The lesson is not lost on investors.
In his quiet times, I hope that Tony will pick up the lessons from the saga and then push the management of Transcorp to run the conglomerate more efficiently and to deliver value to shareholders who have been eager and hungry for the ROI in their investments in Transcorp.
3) The fear of Greenmail is why many successful entrepreneurs are shy about listing their company on the floor of the Nigerian exchange.
You can lose your company to a hostile investor if you don’t have the capital to defend it and push back.
The fears are valid, but listing a successful business is one way to preserve wealth and create generational prosperity and wealth.
When I was young, I used to hear about Ugo Foams, Izuchukwu Transport, Ekene Dil Chukwu, and a host of other successful, indegenious businesses.
All those businesses are no more because the founder died, and so the business dies with it, but this could have been prevented if the founder insisted on structuring and listing the business on the flood of Nigerian stock exchanges when he was alive.
“If you must sustain wealth and create generational wealth, you need to list your company on the stock exchange.”
A mentor once told Femi Otedola
But beyond this, Aliko Dangote and Abdul Samad Rabiu of BUA Cement control 86% and 96% of their cement businesses listed at the Nigerian Stock Exchange, so their route of listing their businesses is another option to study, as you can list your business and still control it to avoid sharks taking advantage of your sweat through the back door.
It is good that the entertaining drama between two brothers and close friends has come to an end.
I was entertained, and I believed you were too, with so many lessons to unpack from it.
But most importantly, I hope to see, in my lifetime, more entrepreneurs of my generation playing boardroom politics at the level where Tony and Femi are playing at the moment.
It is possible.
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