The proposal by the majority core investor in Ardova to buy out other shareholders is causing ripples among minority shareholders. In this analysis, Deputy Group Business Editor, Taofik Salako, examines the underlying issues of discontent and shareholders’ agitation for a regulatory review.
The majority core investor in Ardova, Ignite Investments & Commodities Limited, has launched a proposal to buyout other shareholders of the company at an offer price of N17.38 per share. It plans to subsequently delist the company from the Nigerian Exchange (NGX), after the buyout.
The buyout and delisting proposal is coming barely four years after the new core investor bought into the company. Incorporated in December 1964 as British Petroleum (BP), the company became African Petroleum (AP) under the nationalisation policy of the Federal Government in 1979. The then AP was listed on the Exchange in 1978. The government’s majority stake in AP was sold to Lagos businessman, Mr. Femi Otedola, during the Obasanjo privatisation programme. The then Vice President, Alhaji Atiku Abubakar was chairman of National Council on Privatisation (NCP). Otedola subsequently changed the company’s name to Forte Oil.
With an extensive network of some 700 retail outlets in Nigeria and significant storage facilities in Apapa, Lagos and Onne, Rivers State, the indigenous energy group procures and distributes petrol (PMS), diesel (AGO), Jet fuel (ATK) and liquefied petroleum gas (LPG). It also manufactures and distributes a wide range of lubricants from its oil blending plant in Apapa, Lagos.
These lubricants include Super V, Visco 2000 and Diesel Motor Oil. It is also the sole authorised distributor of Shell branded automotive and industrial lubricants and greases. As one of Nigeria’s leading suppliers of aviation fuel for local and international airlines, the company provides aircraft refueling services through its aviation joint user hydrants in Ikeja, Lagos and joint aviation depots in Abuja, Port Harcourt and Kano.
In December 2018, Otedola suddenly announced that he planned to sell his 75 per cent majority equity stake in Forte Oil to Prudent Energy, which will be investing through Ignite Investments and Commodities Limited. The December 2018 announcement came after shareholders had in May 2018 approved a restructuring plan pushed by Otedola-led board of directors aimed at restructuring the group’s operations by divesting from its upstream services and power generating businesses and the sale of its downstream business in Ghana.
Ignite Investments and Commodities Limited led by Prudent Energy Services Limited had in June 2019 completed the acquisition of 74.02 per cent majority equity stake in Forte Oil from the company’s erstwhile chairman, Otedola. The transaction was valued at about N64 billion.
Ignite confirmed that it acquired 74.02 per cent equity stake in Forte Oil, which translated to about 964.097 million ordinary shares of 50 kobo each. Forte Oil had total issued share capital and outstanding shares of 1.302 billion ordinary shares of 50 kobo each. Minority shareholders thus held 338.38 million ordinary shares of 50 kobo each. Regulatory filing at the NGX indicated that the transaction price for the Ignite-Otedola transaction was N66.01 per share. However, the shares were transferred through cross deals at the negotiated window of the NGX at N66.25 per share.
From AP to Forte
The divestment was, however, a major u-turn for Otedola who had earlier in May 2018 secured shareholders’ approval to divest the group’s upstream services and power generating businesses as well as its downstream business in Ghana in a restructuring aimed at streamlining Forte Oil’s operations to focus on its downstream marketing business.
Forte Oil Group, then, included the downstream parent company, Forte Oil Plc, and three subsidiaries -Forte Upstream Services Limited, AP Oil and Gas Ghana Limited, two wholly owned subsidiaries; and Amperion Power Distribution Company Limited, where Forte Oil held 57 per cent majority equity stake. Amperion Power Distribution Company Limited then held the majority equity stake in Geregu Power Plc.
Forte Oil subsequently entered into share sale and purchase agreements to sell its power and upstream businesses. It entered into a share sale and purchase agreement with Calvados Global Services Limited for the sale of its power distribution company, Amperion Power Distribution Company Limited.
Forte Oil also entered into share sale and purchase agreement with Gbonka Oil and Gas Limited for the divestment and sale of its shares in Forte Upstream Services Limited. Forte Oil was, however, silent on the relationship between the bidding companies and Otedola.
Global search then for identities of Calvados Global Services Limited and Gbonka Oil and Gas Limited did not provide any links to the companies. A market source had said the two companies might be newly incorporated firms or special purpose vehicles formed for the purpose of the acquisitions. These came as Forte Oil confirmed conclusion of divestment of its shares in AP Oil and Gas Ghana Limited to Cobalt International Services (Ghana) Limited.
With Otedola firmly in control of nearly three-quarters of the shareholdings, the shareholders of the company in February 2019, approved major resolutions authorising the sale of the company’s subsidiaries to Otedola, with shareholders’ expectation that the proposed restructuring would lead to stable growth and recovery of investment value. At the extra ordinary general meeting (EGM) in Lagos, shareholders approved a resolution authorising the company to enter into discussions with Otedola or any company representing him in connection with assets to be divested.
In the explanatory statement on the Forte Oil-Otedola divestment deal, the company had indicated that the highly lucrative Geregu Power Plc was the immediate focus of Otedola’s acquisition, although the resolutions at the EGM broadly covered all assets under divestment.
In the explanatory statement, the company explained that Otedola showed interest in acquiring the Geregu Power Plc after a public tender sale organised by the board failed to produce acceptable offer.
According to the statement, upon review of the tender sale process, the management of the company saw unexpectedly low interest in the bidding process while the offers were below expectation and the bidders unable to demonstrate adequate financing capability and capacity.
The statement assured that the sale process to Otedola, who abstained from voting at the EGM, would be subjected to rigourous scrutiny by management and independent financial adviser to ensure that the terms are based on normal commercial terms and not prejudicial to the interests of the company and its shareholders.
The company stated that the divestment would provide adequate funding for additional investment in its downstream business.
“The proceeds of this restructuring exercise will enable your company to compete more favourably and achieve its planned expansion objectives within the downstream subsector. This will also reduce our finance cost significantly and increase distributable earnings for the benefit of our shareholders,” the company had assured minority shareholders. Otedola in late 2022 listed Geregu Power on the NGX with a market valuation of N250 billion. The Fund for Export Development in Africa (FEDA), a development impact investment platform of African Export-Import Bank (Afreximbank), is in talks with Geregu Power to acquire equity stake in the Nigerian company. Geregu Power now generates about 10 per cent of Nigeria’s electricity supply.
Ardova, the return of AP
With Otedola’s divestment, Ignite Investments and Commodities Limited took over the management of the company. The new core investor changed the board of the company to reflect the new ownership structure. Mr Abdulwasiu Sowami, chairman of Ignite, replaced Otedola as the chairman while Mr Olumide Adeosun replaced Mr Akin Akinfemiwa as the chief executive officer.
Sowami had said the acquisition was a strategic investment in his company’s quest continuously to add value to the Nigerian oil and gas industry.
He said Forte Oil’s next phase of growth would focus on increasing volumes, diversifying business operations, widening distribution networks and extracting potential synergies with partners.
“We look forward to working as part of the Forte Oil family to achieve this growth,” Sowami had said.
To complete the corporate change process, shareholders of the company, led by the new core investor, at their EGM on December 17, 2019 approved a new corporate name, Ardova (AP) Plc, which brought back the historic AP sobriquet. This was subsequently registered with the Corporate Affairs Commission (CAC). On February 24, 2020, the new name, Ardova, was formally subscribed as the listing and trading name for the petroleum-marketing company.
Window for minority shareholders
Extant capital market rules provide for a window of expression and opportunity for minority shareholders through the institution of a mandatory tender offer (MTO). Section 131 of the Investment and Securities Act (ISA) and Rule 445 of Securities and Exchange Commission (SEC) make it mandatory for any institution or person that acquires at least 30 per cent of a company to make an MTO to other minority shareholders. The MTO is to be made at the transaction price for the acquisition.
The letter and intent of the provisions of the ISA, experts agreed, were aimed at protecting minority investors from arbitrary transactions by core investors. But many core investors have been exploiting the nature of the wordings to vary the size of MTO, thus limiting the extent of opportunity to minority shareholders, even if they seek to pick up MTO.
In the case of Ardova, Ignite Investments indicated MTO of up to 500,000 ordinary shares of 50 kobo each at N66.25 per share. The MTO size represents 0.04 per cent equity stake in Ardova. Minority shareholders then held some 338.38 million ordinary shares of 50 kobo each in Ardova.
But then, the new core investor moved quickly to consolidate its other businesses with the larger, publicly quoted company. At the post-acquisition annual general meeting, the board sought and received shareholders’ approvals on resolutions that enabled the company’s new core investor to consolidate its downstream assets through acquisition and transferred of existing downstream assets by the new core investor to Ardova.
Shareholders approved resolutions that allowed Prudent Energy Services to sell its downstream assets to Ardova while empowering the Sowami-led board to take all necessary steps to actualise asset purchase and transfer transaction.
In aggressive pursuit of additional scale, Ardova also completed full acquisition of Enyo Retail & Supply Limited (Enyo). The acquisition scaled up Ardova as Nigeria’s largest indigenous publicly listed downstream company, as it added Enyo’s 95 retail stations to its existing 450 stations, growing the group’s portfolio to 545 stations nationwide. With the completion of the deal, Enyo also joined Axles and Cartage Limited as part of Ardova’s group of companies.
Ardova also struck a new deal with Shell as the main distributor of Shell lubricants products for the automotive and industrial sectors in Nigeria. Shell has a leading presence in Nigeria’s upstream sector with oil and gas exploration, production and distribution network in the southern parts of the country and deep offshore.
Rising losses
Interim report and accounts of Ardova for the year ended December 31, 2022 showed continuing growth in sales, but ballooning administrative and distribution costs continued to erode the bottom-line. Group turnover rose from N201.44 billion in 2021 to N240.8 billion in 2022. Gross profit grew from N9.85 billion in 2022. The group, however, recorded loss before tax of N7.14 billion in 2022 as against N2.94 billion in 2021. After taxes, net loss rose from N3.85 billion in 2021 to N7.61 billion in 2022.
The negative bottom-line was primarily driven by the jump in administrative and distribution expenses. Administrative expenses rose from N8.03 billion in 2021 to N12.18 billion in 2022. Distribution expenses also spiraled from N1.90 billion in 2021 to N6.39 billion in 2022. Also, net finance costs increased from N3.58 billion to N5.05 billion. Meanwhile, the group’s total assets increased from N126.88 billion to N134.42 billion.
Going private
Following regulatory filings, several analysts with knowledge of the technicalities and intrigues around buyout said Ardova’s minority buyout proposal was on course.
Analysts at Afrinvest Securities at the weekend said they expected the transaction “to be fully ratified in the coming weeks”, although the proposed transaction is still subject to approvals by SEC and shareholders. Afrinvest Securities placed a ‘hold’ on the stock, advising investors to remain neutral as the expected total returns are not expected to exceed 10.0 per cent based on the prevailing market price as at the report date.
According to Afrinvest, potential investors should trade cautiously considering transaction related cost which could erode any potential gains given the minute markup on the takeover price relative to market price.
“Ardova’s share price of N16.90 represents a 9.4 per cent outrun to our 12-months target price (TP) of N15.45. Nonetheless, the proposed takeover price of N17.38 per share represents a premium of 2.8 per cent and 12.4 per cent respectively to the market price and our TP,” Afrinvest Securities stated.
But shareholders and several analysts were quick to point at Ardova’s acquisition and MTO’s prices and the historical valuations, alleging that the current price was part of attempt to undermine the company’s value.
Chariman, Ibadan Zone Shareholders Association (IBZA), Mr. Eric Akinduro, said the planned delisting was not in the best interest of shareholders.
He noted that the delisting and the proposed buyout price are detrimental to the interest of minority shareholders, most of who bought the shares at around N250 and N230 during public and rights issue.
“The same stock was bought at more than N66 when Otedola sold his shares. Not only that, tell me what is our crime to lose our investment at this critical period and at such a very ridiculous price? Nigerian shareholders are suffering because the regulators are not working to protect investors. I will call on the regulators to review the offer price in favour of shareholders. There is nothing one can do when a company proposes to delist as this is a business decision, but it must be done with fairness and good price for both parties,” Akinduro said. IBZA is one of the zonal shareholders’ groups promoted by the Federal Government as a voice for minority participation and recognition in government’s privatisation programmes.
National Coordinator, Independent Shareholders Association of Nigeria (ISAN), Mr. Moses Igbrude said the proposed buyout and delisting were disincentives to minority shareholders.
“Any time a company delists from the Exchange, most shareholders are always at disadvantage or at a loss. It is unfortunate where the board and management of companies are taken over by a core investor, mismanaged and ran aground the entity with the intention to buy out the minority shareholders cheaply. This is unacceptable and should not be allowed or encouraged by SEC or government.”
“AP, now Ardova, is a national asset sold to Nigerians then by the Federal Government. A company that the price was above N250 some time ago is now being priced at N17, they want to buy minority shareholders at a token. Is that a good proposal? So, what happened to those who bought at that high price? We are calling on the government to protect us,” Igbrude said.
Shareholders’ activist and founding member, Nigeria Shareholders Solidarity Association (NSSA), Alhaji Gbadebo Olatokunbo, said while the rules allow delisting, regulators must ensure that such rules are not abused.
He decried what he described as level of abuses at the capital market, noting that the absence of physical meetings due to COVID-19 in recent period, aided many unethical behavours.
According to him, companies are being structured in ways that shareholders couldn’t really invoke their rights on the happenings in their companies.
“I think it’s time to seriously look into the issue of free entry-free exit policy in the capital market because it is wrong for a company to use the resources of the investors to stabilise and then check out when it is big. This is very discouraging to investors and something must be done to discourage the abuses, like the current proposal on Ardoval. The capital market shouldn’t be allowed to play like a casino,” Olatokunbo said.
National Coordinator, Pragmatic Shareholders Association, Mrs Bisi Bakare, said shareholders were not happy about the planned buyout and delisting.
She, however, said a buyout was better than losing everything such as the case of companies that were liquidated or taken over by the industry regulators.
She said the inclement operating environment in the oil and gas sector might have contributed to the performance and decision of the core investor to buy out minority shareholders in Ardova.
She added that capital market authorities should also take a second look at the market architecture to see why companies are delisting and ways to encourage them to stay public, and discourage delisting.
With growing agitations by shareholders, sources at the NGX and SEC said regulators remain committed to protecting investors in the capital market. But both regulators and the board and management of Ardova will need to do more to convince shareholders of their good intention.
