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The last I heard: A look at deal communications in Nigeria

In my first article for Street Talking, the Friday column I write in NEXT, I examine the apathetic attitudes of public companies in Nigeria to informing the investment community about the value of transactions. Historically, companies on the Nigerian Stock Exchange have performed dismally, perhaps, even irresponsibly, in communicating the merits of transactions to shareholders. However, recent events lead one to believe that the days of impunity may be drawing to a close.

Recently, Kraft Foods, the US quick serve meals giant, announced its intention to seek a merger with Cadbury, the confectionery leader.

While the announcement had the standard disclaimers that there was no guarantee that the deal would be concluded and stated the conditions that had to be met for the transaction to move ahead, it provided a compelling case why transaction had unquestionable merit in both financial and strategic assessment. On the same day, the company had documents with supporting figures from potential savings, synergies and earnings up on its site.

In addition, there was a downloadable video interview with Irene Rosenfeld, CEO of Kraft, on the stakeholder benefits of the deal and why this was an opportune moment to carry out the combination.

This contrasts sharply with the prevalent Mergers and Acquisitions communications practices among Nigerian companies. Indeed, one may ask if what exists may be properly described as a practice. It is notable for its inexistence.

Some M&A announcements

Four months after an announcement that First Bank and Ecobank Transnational were actively exploring a merger, little has been heard from either company. A search on both companies’ sites yielded no fruit. Shocking as the lack of information was, it seems to be the norm among public companies in Nigeria.

Last year, African Petroleum, the petroleum marketing company, announced plans to merge with Zenon, the privately held energy trading company owned by its chairman and CEO, Femi Otedola. In January, AP announced at a hearing held at the House of Representatives that the merger had been called off. The company had never deemed it fit to make a statement to the press or put up a notice on its website. In fact, beyond references to creating a combined company with annual revenues of N500 billion, hardly any other convincing rationale was made for the deal, that is, if we are willing to admit an arithmetic summation of the annual revenues of the two firms as value creation.

These raise a number of questions. Why are Nigeria companies so poor at communicating the intent of deals?

Why don’t Nigerian shareholders hold management to account on the merit of deals after they are announced? If a deal is completed, how can its success or subsequent failure to deliver on expectations be measured when no yardstick for its measurement was given ab initio? If shareholders are not carried along in the execution of the deal, in whose interest are these deals made? Do the deals have strategic and financial merit in the first place?

Disclosure as a norm

The current mood of soul searching among investors will not be limited to how corporate issuers manage balance sheet risks. It will extend to how public companies treat their shareholders as owners of the business who have a right to expect information on issues affecting the company, and boards which have a duty to report it. Disclosure is not a favour. It’s a must.

A shareholder suit against the Central Bank, its governor, Lamido Sanusi, Apostle Hayford Alile, the chairman, Cecilia Ibru, the former CEO and John Aboh, the new CEO, brought by Stephen Isibor and six others, all shareholders of the bank, for ‘actions detrimental to the interests of shareholders’ marks a departure from the past when shareholders were passive to transactions that affected their ownership stakes in companies. For whatever it is, the N420 billion Central Bank capital injections were transactions that will have significant consequences for the legacy shareholders of the affected banks.

The days of board impunity and license to conceive, enter and exit transactions without presenting a clear case on the benefits to shareholders may be drawing to a close in Nigeria. It’s about time too. Too much value has been allowed to drain away by poorly thought out, hasty marriages. Each time, management and board members have moved on whereas shareholders have been stuck with the bill, often washing the dishes to pay their way out. Enough is enough.

The original article can be read here on the NEXT site.

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