Femi Otedola is a maverick, a mercurial Nigerian business character in the fashion of Elon Musk. His business decisions, like Musk’s, at times, appear random, but they never really are. They are usually the products of cold-blooded calculations that makes little impressions on outsiders until the consequences of the moves manifest in either greater influence over prime corporate assets (FBNH) or lead to stronger consolidation of industry dividends or investor returns (Transcorp).
Out of the blocs in Q2 2023, Otedola was at it again. By the second week of April, the energy maven had reportedly acquired a 5.52% equity interest in Transcorp Nigeria Plc, a conglomerate with revenues coming mainly from hospitality and energy businesses. The move was less an attempt at muscling in on Transcorp’s agriculture, hospitality (23% of revenue), or Oil & Gas businesses as it was a strong play at easing into the crown jewel of Transcorp’s operations, its energy sector operations (77% of revenue). Transcorp is the parent of two large power companies, Ughelli and Afam Power Companies. The Ughelli plant is over twice the size of Otedola’s Geregu Power Company and produces stronger cash flows and earnings.
Otedola’s early 2023 purchase of Transcorp’s equity from what appears to be a handsome free float of over 60% of the company’s official equity available for open market purchase on the local equity exchange, the NGX, opens a grand play for influence and power between Transcorp’s Chairman, Tony Elumelu, with a ‘reported’ 1.04% of the company’s shares and Otedola that has newly acquired roughly five times that equity interest in the group. However, given that UBA Nominees has just under 10% equity in Transcorp Plc and that Elumelu is the Chairman of the UBA Group, which is parent to the Nominees company, Elumelu would, perhaps in theory, exercise more influence over Transcorp Plc.
The Battle of the Billionaires
Will Otedola’s Transcorp equity purchase topple the energy company’s business applecart in 2023? Not likely. According to a Proshare analyst, ‘The Otedola Transcorp purchase is not neutral, but it is equally not toxic, at least for now. From the outside, it appears that Otedola is taking a strategic position to protect his influence in the domestic energy market and ensure that he has ears at the board table of a potentially strong market competitor. In war gaming, Otedola’s move was a masterstroke.’
He further noted that ‘It has been rumoured that Elumelu has been thinking about consolidating the two Transcorp energy companies into a single separate entity. The new company would have been significantly larger than Geregu and would have given Geregu a blinding speed chase for its energy bucks. Consolidating Afam and Ughelli could create the economies of scale and scope that would create a single energy behemoth, that could influence energy pricing, and market shares. If this happens, Otedola would be in on the action, and if it does not happen, he will still have impressive streams of dividend incomes pinging his bank account.’
Nevertheless, Elumelu is not likely to pin his hopes on a gentlemanly foray into Transcorp Plc by Otedola. The banker did not get to where he is now by being naïve or complacent, the skilful wheeler-dealer can be expected to take countervailing actions to protect his influence over Transcorp and ensure that the group’s energy business remains firmly protected from the designs of a clever competitor. According to one analyst, ‘Elumelu is as tough as nails despite his smooth as silk exterior’.
The billionaire battles at Transcorp Plc will provide several subplots and grist for the rumour mills that will influence equity prices, thereby stirring regulatory nightmares and boardroom scuffles as two alpha males go at it. The consequences are uncertain, but the corporate drama may be worth its weight in gold. Transcorp’s stock price has taken a steady knock until recently, and with Otedola setting a little stakeholder fire under the boardroom table, the conglomerate may see improved earnings, dividends, and capital appreciation, or what would amount to a capital appreciation boon for minority shareholders.
However, the vuvuzela media moves by Transcorp’s new significant shareholder, as was the case with his significant share acquisition in the financial conglomerate, FBNH, created a thick puff of smoke with little fire.
This case was, however, different. While observers sighed about the loud media ruckus that preceded the formal communication to the stock market by either the Securities and Exchange Commission (SEC) or the self-regulatory organisation, the NGX; both entities seem flustered by Otedola’s 5.52% Transcorp Plc share purchase.
Indeed, market intelligence suggests that the securities company behind the acquisition (APT) had sent a letter to the Registrars of Transcorp Plc indicating the purchase of the shares by Otedola (see illustration 1 below)
The New Face of Corporate Control
The APT Securities and Funds Limited (representing Otedola) letter addressed to the Africa Prudential Registrars, detailed the acquisition, noting that the billionaire had acquired a substantial unit of two billion two hundred and forty-five million, six hundred and thirty-nine thousand, two hundred and fifty-one (2,245,639,251) of the issued shares of Transnational Corporation (Transcorp) Plc. This figure represents 5.52% of the issued and fully paid-up share capital of Transcorp which currently stands at 40,647,990,293.
Before the acquisition, the company’s result as of December 2022 showed that only UBA nominees held over 5% of the company’s issued shares capital, holding 9.26%. According to the results, Elumelu, the conglomerate’s chairman, held 273,104,041 direct shares and 293,983,193 indirect shares, totaling 567,087,234 units, and representing 1.04% of the issued share capital, while all other directors have interests in the company of less than 1%. This implies that the highest controlling interest in the company is currently held by its billionaire chairman and investor, Tony Elumelu since taking over control in 2012. Unverified information suggests that Elumelu’s total direct and indirect influential interest in the Transcorp Group could be as high as between 15 and 20%, even as publicly available information shows an interest of little over 1%.
The acquisition of 5.52% of Transcorp’s outstanding equity suggests that Otedola may have become the largest single shareholder of the corporation, ahead of Elumelu (see chart 1 below).
However, analysts remain doubtful of who holds the largest equity stakes in the company. The shares acquired by Otedola are shares surrendered to AMCON and offered for sale in Q4 2022, with a closing date of April 2023. But analysts have expressed ambivalent opinions.
On the one hand, observers have argued that the move by the energy czar was likely to set the stage for a war for control of one of Nigeria’s largest indigenous conglomerates. Corporate watchers say the market has responded positively to the news but any further large-sized transactions in the conglomerate’s shares may represent a response from Elumelu and reflect the start of an energy sector equity acquisition war.
On the other hand, analysts believe that Otedola is a smart investor looking to position himself for Nigeria’s growing power market (noting his close to 90% stake in Geregu Plc) and take advantage of the growth prospects of Transcorp’s power sector competitiveness.
Media Disclosures
With a deep sense of Déjà vu, investment analysts recall the media frenzy that preceded Otedola’s acquisition of significant equity interest in FBNH, the parent company of First Bank of Nigeria Limited (FBN). Upon disclosing the acquisition of FBNH shares by Otedola through the mass media, Proshare analysts had said in an October 25, 2021 analyst commentary on ‘dodgy information management in the market’, viz:
“It must be noted here that the very use of the media to announce the significant investment is condemnable, and a blatant disregard for the rules, process, and procedure for how the market functions. This recourse to the use of leaked information should not be encouraged as it has the potential of distorting facts and ‘influencing’ market reaction by investors and other stakeholders of the institution involved; none the least the stock exchange (who has a responsibility to guard the credibility of the market it runs). There are a lot of lessons to be learned by all.”
This Transcorp transaction and the media orchestration seem different, however, taking on board lessons learned. The letter notifying the Africa Prudential Registrars of Otedola’s share was copied to the NGX, responsibly ensuring that the Exchange was informed about the acquisition.
In the ‘Day After’ corporate disclosure dated April 13, 2023, Transcorp noted that it was yet to receive formal notification of any external interest in its shares, without accepting or denying the transaction. This could merely highlight a gap in the market information management sequencing around the process by the various parties to such acquisition, of which analysts expect to see more controlled and disciplined communication in future transaction processes (see illustration 2 below).
The regulatory requirement in reporting a significant equity purchase of a listed company according to NGX Rule 17.13(a) provides that “Every Issuer shall notify The Exchange immediately on any transaction that brings the beneficial ownership in the company’s shares to five percent (5%) or more not later than ten (10) business days after such transaction.”
The proper market process would have required that the Broker/buyer notify the Exchange/Registrar of the over 5% share acquisition, the registrar would inform the company who would in turn equally confirm the share acquisition to the Exchange. The Exchange would notify the market and the SEC. Meanwhile, three days into media announcements of the share acquisition, the Exchange is yet to formally respond to the purchase in the interest of market clarity and the protection of minority investors’ interests.
Otedola’s Energy Gambit
The recent move by the Chairman of Geregu Power Plc to acquire a 5.52% stake in Transcorp, makes him nominally the single largest individual shareholder in the conglomerate and plugs into what analysts see as his attempt at consolidating his energy industry influence (see illustration 3 below)
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Industry observers speculate that the Geregu Power Plc boss is angling for a stronger presence in Nigeria’s power generation sector through a strategic investment in Transcorp, which owns two companies in the power sector – Transcorp Power Ltd (which fully owns the Ughelli power plant) and Trans-Afam Power Ltd (a US$300 million acquisition from the Federal Government), both with a combined installed daily generation capacity of 2000MW.
As the Bureau of Public Enterprises (BPE) is expected to shortly issue a discharge certificate in the Trans-Afam Plant, business analysts believe that Transcorp is on the verge of emerging as a dominant player in the energy sector with immense influence. Otedola’s recent acquisition of Transcorp shares gives him a seat at the board table of Geregu’s most significant rival.
In addition to the anticipation of increased capacity after the privatization of the ailing Ttransmission link and the prospects offered by the new Electricity Act, critical power sector reviewers suggest that Otedola’s interest in the electricity business may also be influenced by opportunities that may be offered by the possibilities to run a few independent power projects that may include those of Dangote and other entrepreneurs that have power needs/plants.
A Tale of Transcorp’s Share Price: A YTD Bounce of 36.3%
Transcorp Plc’s year-to-date (YTD) share price movement has been volatile tilting towards a bullish rise. The company’s share price skipped from N1.13k on January 03, 2023, and rose erratically to N1.37k on April 06, 2023. Historically, the conglomerate has paid relatively low dividends between N0.02k and N0.05k, which might have fazed income-seeking investors. However, the hospitality and power giant recently recorded high traded values of N1.55bn on April 11, 2023, which was eventually associated with a high net-worth shareholder (Otedola) who acquired total shares worth N2.245bn. The group’s share price has since appreciated, rising to N1.54k on April 13, 2023, a 36.28% bounce. (see chart 2 below).
In the last ten years, the group’s share price has trended downwards, tumbling steadily from N6.43k in September 2014 to N0.98k in May 2017. Towards the end of 2017, the stock began a recovery, gradually rising above N2 but later restoring its bearishness from 2019 to 2021 to an average price of N0.95. The price fluctuation continued in 2022 but bullishly to close at N1.13k as of December 31st, 2022 (see chart 3 below).
Transcorp’s Decade-Long Profit Seesaw
Transcorp’s profit before tax (PBT) has been a wild seesaw over the last decade. The COVID-19 pandemic was the shimmering nail in its earnings coffin as PBT took a blunt hit and stood at N1.6bn in FY 2020. By 2021, the company recovered by posting profit growth of N28bn largely due to its investment in Trans Afam Power Limited. Post-pandemic, PBT shot up to N27.998bn (see chart 4 below).
End Note
Otedola’s Transcorp gambit appears shrewd, even if brazen. The acquisition gives him the needed trajectory to build a wider influence in Nigeria’s energy market and protects him and Geregu Power from any surprises from a bigger competitor. Nevertheless, how well the maverick does with his Transcorp investment will depend on how he manages his relationship with Elumelu and other Transcorp board members, going in hot and hungry could rub Transcorp’s old guard the wrong way and lead to a fast and furious race to the bottom as boardroom in-fighting hurts everyone’s interests. However, if the equity purchase is a collaborative convergence of mutual benefit, then two feisty billionaires could have a sip of Chardonnay as they raise their feet in wait for the power sector’s strengthening mullah.
The only other matter arising from this must be the governance oversight from sector and market regulators, and indeed Proshare, around competition practices. In the main, the market welcomes this development, a credit to Transcorp’s ability to create value, and the opportunities it foreshadows for investors. ADAPTED FROM THE PROSHARE
