The move by Affelka S.A to acquire all outstanding and issued shares of Seven Up Bottling Company (SBC) plc highlights the unequal relationship between majority owners and minority shareholders in Nigeria.
Privately-held Affelka, an investment firm of the Lebanese El-Khalil family currently owns 73.2 per cent or 469,047,789 ordinary shares of the Company and is offering N112.70 per share for the 171,542,574 ordinary shares of 50 kobo each representing 26.78 percent of the company’s issued share capital it doesn’t currently own.
In a letter to shareholders of SBC in the scheme of arrangement for the proposed restructuring, Chairman of the board of Seven Up Faysal El-Khalil said: “The Board believes that the Scheme should create considerable benefits and opportunities for employees and other stakeholders of the Company, including protection of minority shareholders, who experienced a 47% erosion in shareholder book value of equity in the last financial year, from complete erosion of value.”
El-Khalil continued: “The Board, having received and considered the valuation report from Deloitte and as advised by Chapel Hill, considers the terms of the Scheme to be fair and are recommending the Scheme.”
A closer look however shows that Faysal El-Khalil is the son of the founder of Seven Up Nigeria, Mohammed El-khalil who owns the investment vehicle Affleka which wants to acquire SBC, showing some conflict of interest.
Furthermore two other members of the El-Khalil family currently sit on the board of SBC that recommended the transaction proceed, including Farid El‐Khalil and Ziad A. El‐Khalil, according to data from the Full year 2017 audited financials of SBC.
This throws up a number of questions including whether managers are acting as faithful agents of investors’ long-term interest.
Faysal El-Khalil chairman of the board of SBC notes in his letter that “the financial performance of the Company over the last couple of years has been predominantly negative…the Board believes that the operating dynamics of the Company are unlikely to improve in the foreseeable future.”
Indeed SBC has seen profits slump in the past two years.
Seven Up recorded a loss of N6.25 billion in the half year period to September 2017, even as sales jumped 13.5 percent to N53.2 billion.
However sources tell BusinessDay that Affleka being the controlling shareholders could have initiated a shake up in the management of SBC anytime it wanted for the poor performance.
Sources also say the stated intention of Affelka to initiate a corporate and financial restructuring of SBC, following the Scheme by providing capital to support SBC in shoring up its balance sheet and maintaining and expanding the business; could be done without taking the company private or owning 100 percent of outstanding shares.
Some examples they provided include the recent Guinness Nigeria Plc N39.7 billion share sale to existing shareholders. Diageo Plc, the majority core investor in Guinness Nigeria Plc, was expected to have injected N21 billion in Guinness Nigeria by subscribing for its rights.
Lafarge Africa Plc is also currently in the market for Rights Issue of N131.7billion, where LafargeHolcim, the company’s largest shareholder will subscribe to its rights by converting the existing debt of about N92.96billion into equity.
LafargeHolcim Group owns 73percent of the issued shares while 27percent of the company’s shares are in the hands of minority shareholders.
Seven Up bottling company had a market capitalisation of N65.32 billion at the end of stock market trading in Lagos on Friday.
Controlling shareholders’ attempts to reward themselves or their kin is one of the main concerns for minority shareholders in Nigeria.
The head of the Independent Shareholders Association of Nigeria (ISAN), Sunny Nwosu, said: “I don’t think it is an appropriate thing to do, we have contributed all these years to build this company and now they want to take us out, from sharing in the wealth we created. It is a very serious issue.”
PATRICK ATUANYA
