Recently, Nigerian billionaire investor Femi Otedola acquired 5% of a conglomerate belonging to his brother and friend Tony Eluemelu, which was an intriguing corporate drama that shocked and rocked Nigeria’s capital markets. The drama also got the attention of the two business tycoons’ mutual friends, who intervened before a compromise was reached. One of the terms of the compromise was Otedola exiting Transcorp and selling his shares back to his brother Tony at a premium, x6 of the market price.
From the saga, here are some lessons to unpack:
Greenmail is a real threat in finance. It is the practice of buying enough shares in a company listed on the floors of a stock exchange to threaten a takeover, forcing the owners to buy them back at a higher price in order to retain control. Successful entrepreneurs are shy about listing their company on the floor of the Nigerian exchange due to this fear. Listing a successful business is one way to preserve wealth and create generational prosperity and wealth.
The drama brought to the fore that Transcorp is not efficiently run and is not delivering value to its shareholders. The company owns three power plants at Ughelli and two at Afam, which contributes 40% of the 5,000 megawatts of electricity that Nigeria generates daily. However, the value of Transcorp shares at the stock exchange has been stagnant at less than 1 naira for a long time and does not represent the value that Transcorp is offering to Nigeria’s power sector. The company has been paying a 1-naira per share dividend year in and year out since it became profitable under Tony, which is insufficient. In contrast, Femi Otedola’s company, Geregu, generates the same amount of electricity, but it is worth 800 billion naira at the stock exchange, and it paid 20 naira for one share when listed last year, indicating efficient management.
Business owners need to be aware of the possibility of a hostile takeover, which is why they should work towards maintaining control over their businesses. However, when listing a successful business, one way to avoid losing control is to ensure that a majority stake is not put up for sale, and an agreement is made with investors regarding future share purchases to maintain control.
In conclusion, from the Otedola vs. Elumelu saga, it is clear that greenmail is a real threat in finance, and business owners need to be aware of its possibility. Also, efficient management of companies is crucial to deliver value to shareholders and avoid being taken over by hostile investors.