.Seek fair exit price valuation
Minority shareholders in Nigeria have raised fresh concerns over the increasing trend of being short-changed in delisting processes on the Nigerian Exchange (NGX).
This comes amid reports that Lafarge Africa Plc (WAPCO) is considering an exit. Flour Mills of Nigeria Plc recently delisted, while the exit of MRS Oil Nigeria Plc, Wapic Insurance Plc, and International Energy Insurance Plc is pending.
Despite existing regulations meant to protect smaller investors, many minority shareholders argued that they are often forced out without fair compensation amid poor transparency.
The delisting process, though sometimes necessary for companies seeking to restructure, reduce regulatory burden or explore private ownership, often puts minority shareholders at a disadvantage.
In many cases, the majority shareholders push for delisting at valuations that do not fully reflect the true worth of the company, leaving smaller investors with few options and, in some cases, with significant financial losses.
For these minority investors, the financial impact goes beyond immediate losses, as many have invested with the expectation of long-term value appreciation, only to find themselves pushed out when firms opt for private ownership or restructuring.
This has created growing dissatisfaction, as minority investors believe they should be fairly compensated for their stakes, considering the risks they took in supporting these businesses over the years.
While the Securities and Exchange Commission (SEC) has issued guidelines to protect minority shareholders, many investors argue that enforcement remains weak, allowing majority stakeholders to structure delisting in ways that prioritise their interests over those of smaller investors.
This perceived imbalance in power has sparked calls for stricter regulations to ensure greater transparency and fairness in delisting.
Moreover, the impact of the delisting extends beyond individual investors. It can undermine market confidence, potentially discouraging retail and institutional investors from participating in the stock market, which could ultimately limit capital formation and economic growth.
Shareholders warn that if this trend continues unchecked, it could erode trust in Nigeria’s capital markets, making it harder for companies to raise funds through public offerings in the future.
President of the New Dimension Shareholders Association of Nigeria, Patric Ajudua, pointed out a critical flaw in the current process for determining exit prices during delistings, arguing that it is often a disadvantage to minority shareholders.
He noted that the current rule bases the exit price on the 60-day average trading price before the submission of the delisting application. Given the lengthy regulatory approval process, this approach can result in a significant mismatch between the proposed exit price and the actual market value of the stock.
Citing the recent case of Coronation Insurance, Ajudua explained that the company submitted its delisting application when the share price was around 50 kobo, offering minority shareholders an exit price of 65 kobo, a 15 kobo premium. However, by the time the delisting meeting was finally held nearly a year later, the share price had risen above 85 kobo, reflecting improved market conditions and investor sentiment.
This lag in pricing mechanisms, he argued, effectively shortchanges minority shareholders by failing to account for current market values, inflationary pressures, and the true loss of investment value.
He called on regulators to adopt a more dynamic approach to exit price determination, one that better reflects prevailing market conditions at the time of delisting.
President of the Independent Shareholders Association of Nigeria, Moses Igbrude, also emphasized that the Companies and Allied Matters Act (CAMA) was designed to protect minority shareholders who lack control over company management.
However, he noted that in many cases, the majority shareholders, who are responsible for day-to-day operations, have been allowed to run businesses into financial distress over several years, only to later buy them out at significantly reduced prices.
He further noted that this strategy often involves majority owners gradually accumulating additional shares while the business struggles, allowing them to achieve their target percentage and price point before launching a takeover bid.
According to him, what is particularly concerning is that the delisting process is largely controlled by the majority shareholders themselves, while minority shareholders are often only formally involved at the final stage, the court-ordered meeting to approve the delisting.
By this stage, he argued, the majority shareholders have often already secured the necessary approvals, leaving minority investors with little influence over the final terms.
Igbrude also highlighted the troubling pattern of companies that supposedly struggled financially before delisting, like NBC and Seven-Up, returning to profitable operations soon after becoming private again, raising questions about the true financial state presented to minority shareholders during the buyout.
He added that a significant portion of the buyout funds often remains unclaimed, managed by interested parties with little transparency, further complicated by the government’s establishment of the Unclaimed Dividends Trust Fund.
To address these concerns, he suggested that the delisting process should be handled by independent parties appointed jointly by minority and majority shareholders, under the strict supervision of regulators.
This, he argued, would provide a more transparent and fair process, restoring confidence in the capital market and ensuring that all shareholders receive fair value for their investments.
Recall that both Coronation Insurance Plc and PZ Cussons Nigeria Plc have faced significant disputes with minority shareholders over proposed delisting and restructuring plans.
Coronation Insurance initially offered to buy out minority shareholders at 65 kobo per share, but this was met with resistance, as many argued that the price significantly undervalued the company, failing to account for its current market performance and inflationary pressures.
PZ Cussons Nigeria Plc, a subsidiary of the UK-based PZ Cussons Holdings, also faced backlash over its delisting plans. The company proposed to acquire the remaining 26.73% stake held by minority shareholders at an initial offer of N21 per share, later revised to N23.60.
However, this too faced strong opposition, as shareholders argued that the offer significantly undervalued the company, particularly given its ongoing financial challenges.
These cases highlight the critical need for more robust oversight and clearer guidelines to ensure that minority shareholders are treated fairly in corporate restructurings, delistings, and buyouts, as well as the importance of transparent corporate governance in maintaining investor confidence.
