Nigeria Content Online

Since the
announcement of the proposal to delist the Nigerian Bottling Company
(NBC) from the daily official listing from the Nigerian Stock Exchange,
a consensus amongst investors, is that the move is in bad faith and ill
timed.

One of the key
questions is why does the board think this is a good idea? Nobody has
given any good reason that warranted the decision. Let me state
clearly; this is not illegal, our laws provide for it, but there is
also a requirement that regulators must approve such moves to make sure
that minority investors are fairly treated. The fairness of the timing
of this proposed delisting is initial grounds to question this
transaction. Everyone knows that in a recession when the stock market
is down, most stock prices are adversely affected even when there is no
fundamental issue with the particular stock. NBC is in this category, a
good stock with the right fundamentals affected by the current
environment of low prices occasioned by low economic activities.

Many in investors
see the move, as profit motivated resulting from the need to take
advantage of the current low prices which puts the minority investors
at a disadvantage. The majority investors already have controlling
interest; they already have 66.4 per cent, why do they want 100 per
cent control? And what other benefit are they going to get other than
to make and keep all the profits.

It is also bad
timing because of the position of NBC as one of the top 10 quoted and
listed companies on the Nigerian Stock Exchange. Why after over 30
years of being listed on the Exchange does the company suddenly want to
be delisted at a point the market is in crisis? What message is NBC
sending to other listed companies? What about the Nigerian investing
public? Is the message demonstrating confidence? If they have a
complaint that needs to be addressed, this is not the way to do it.
Further, the speculation that they may be aggrieved by the recent turn
down of their request to be exempted from the quarterly requirement to
put out earnings forecast, as now required of all quoted companies, is
not tenable. This is a requirement that even its parent company is
complying with in other jurisdictions wherever they are listed, to
expect different treatment here in Nigeria is taking us for granted.

Stock valuation

There is also the
issue of the valuation for the stock and the proposal to buy out the
minority investors at N43 per share. The so called premium based on the
current market price should be ignored. Value investors know that the
stock market is not a place for corporate value discovery, but a place
to bet on corporate prospects. N43 offered to investors to buy them out
is a ridiculous price, given the fact that NBC is actually one of the
few stocks that has generated sufficient momentum this year to inspire
an upward trend for its price in the new year. NBC on its own has some
of the best features as a stock that investors look for. It is what can
be described as a consumer monopoly; unique brand that sells anywhere
it is marketed and all year round. This is the reason why investors
stood by it a few years ago, even when it was badly run, they were
content with the consistency and predictability of its earnings. That
is why any valuation that uses the present market price is not a good
starting point.

The current market
price is not reflective of the value of the stock. This has been proven
by the current run up on the stock price even after the announcement
had been made. We should either look to the earnings stream to predict
the future price, or the book value of its assets after a proper
revaluation of all its fixed and intangible assets, which must include
the brand value of its present name Nigerian Bottling Company. If they
don’t agree that there is any value in the name, I will urge the
Corporate Affairs Commission (CAC) to insist that once they do the
divestment, since they are no longer a Nigerian public company, they
should drop the Nigeria in its name, for whatever name they so chose.

We at Partnership
Investment Plc and most analysts have talked to put the price of the
stock well above the N43 offer. A great majority of the analysts think
investors should get more for their stock if they sell at all. They put
the value at anywhere between N67, an earnings basis valuation and also
closer to its peak price during the last bull market, or around N105
using its book value before revaluation.

Meanwhile,
regulators should carefully examine their application whenever they
make one and ensure that no insider dealings have taken place, prior to
making the decision public. NBC board must also know that by making
this low tender offer, they have also put themselves in play and should
watch their back.

Mr Ogiemwonyi is the MD/CEO Partnership Investment Company Plc, Ikoyi, Lagos