Two weeks ago, Nigerians woke up to the news that billionaire investor Femi Otedola had acquired 5% of a conglomerate belonging to his brother and friend Tony Eluemelu.

It was an intriguing corporate drama that shocked, rocked, and rolled Nigeria’s capital markets.

Transcorp as a business initially denied it, and the reason is not far-fetched.

They did not see that chess move coming.

Even their chairman, Tony, was caught napping as he woke up to the news, just like many of us did.

The drama got the attention of the two business tycoons' mutual friends, who pleaded and intervened before a compromise was reached yesterday.

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.

It was said that Femi pocketed 32 billion naira, which will be paid installmentally from the deal.

I think it is important that we examine the drama and see if there is any lesson to unpack from it.

1) Aside from his eyes set on the three power plants owned by Transcorp, Femi’s other intention in moving for the total control of Transcorp is what is called Greemail in Finance.

What is "Greenmail"?

Greemail is the practice of buying enough shares in a company to threaten a takeover, forcing the owners to buy them back at a higher price in order to retain control.

Let me explain.

Chukwudi Iwuchukwu runs Visage Group.

A conglomerate with investment in manufacturing, real estate, power plants, and hospitality.

Visage Group is listed on the floor of the Nigerian Stock Exchange, and our shares are free float, which means that any investor can buy as many shares as he or she wants as they are not capped.

Business is good as we pay investors dividends at the end of the financial year.

Until one day, activist investor Femi Otedola remembers that we exist and then decides to come for us.

This is what he will do.

He would first start mopping up shares of Visage Group listed on the Nigerian exchange until he was able to amass a number of shares above what I own as the biggest investor and owner of the conglomerate.

Once he has achieved his goal of owning more majority shares than I do, Femi can attempt to take over my company by forcing the management to resign and appointing people loyal to him as their replacements.

In order to avoid losing Visage Group to Femi Otedola, I would then go into negotiations with him to buy the shares he mopped up, to buy them at premium price, above the market price at which he bought them.

For example, Femi bought Transcorp shares at 2 naira, but he settled at 12 naira, which is a decent profit by all standards.

With his money in the bag, Femi Otedola would leave us alone and then go to another vulnerable company.

This is what "greenmail" means, as it was alleged that it was one of the motivations that pushed Femi to go after his brother’s business, according to many observers.

2) One of the lessons brought to the fore by this drama is that Transcorp is not efficiently run and is not delivering value to its shareholders.

Transcorp owns three power plants at Ughelli, and two at Afam, with an installed capacity of 2,000 megawatts, which contributes 40% of the 5,000 megawatts that Nigeria generates daily.

However, the value of Transcorp shares at the stock exchange has been stagnant and less than 1 naira for 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.abide they became profitable under Tony.

And again, the total worth of Transcorp, which has three power plants and the Transcorp Hotel Abuja, is just 100 billion naira, with analysts pointing out that it is undervalued and not properly run, which is true.

Femi Otedola owns only one power plant, called Geregu.

It’s located in Kogi State and was listed last year.

Geregu generates 435 megawatts to 5,000 megawatts that Nigeria generates but guess what?

It is worth 800 billion naira at the stock exchange.

Since Gerugu was listed last year, it has paid dividends to shareholders only once, but it paid 20 naira for one share, while Transcorp, with three power plants and a higher installed megawattage, has been consistent in paying 1 naira per share.

The lesson is not lost on investors.

In his quiet times, I hope that Tony will pick up the lessons from the saga and then push the management of Transcorp to run the conglomerate more efficiently and to deliver value to shareholders who have been eager to see and hungry for the ROI in their investments.

3) The fear of Greenmail is why many successful entrepreneurs are shy about listing their company on the floor of Nigerian exchange.

You can lose your company to a hostile investor if you don’t have the capital to defend it and push back.

The fears are valid, but listing a successful business is one way to preserve wealth.

When I was young, I used to hear about Ugo Foams, Izuchukwu Transport, Ekene Dil Chukwu, and a host of other successful, indegenious businesses.

All those businesses are no more because the founder died, and so the business dies with it, but this could have been prevented if the founder insisted on structuring and listing the business on the flood of Nigerian stock exchanges.

"If you must sustain wealth, you need to list your company on the stock exchange."

A mentor once told Femi Otedola

But beyond this, Aliko Dangote and Abdul Samad Rabiu control 86% and 96% of their cement businesses listed at the Nigerian Stock Exchange, so their route of listing their businesses is another option gi study as you can list your business and still control it to avoid sharks taking advantage of your sweat through the back door.

It is good that the entertaining drama has come to an end.

I was entertained, and I believed you were too, with so many lessons to unpack from it.

But most importantly, I hope to see, in my lifetime, more entrepreneurs of my generation playing at the level where Tony and Femi are playing at the moment.

It is possible.

Thanks for sharing
Few lessons lernt

Dividend paid is not an evidence of the performance of an entity, except if the management is charged with improving dividend per share. A company earnings per share is a better indicator of stewardship.

The low dividend pay-out remains contextual. If earnings are great, is it retained for investment or retained for growth opportunities or the company is just not key in committing to return values to shareholders?

Elumelu strategy might have been to pursue strategies that undervalue transcorp stock in the interim, so he can buy more shares at a lower price and deter dilution. This is market manipulation and if not pursued diligently, can be detrimental to the company’s performance or reputation or even to his own stake.

About the potential for greenmail, it would have been great if you suggested in your article how implementing policies such as poison pill or having a shareholder rights plan, may prevent such hostile takeovers. Similarly, you could have mentioned how Elumelu reaction or response could encourage other hostile investors to pursue similar action as Otedola, hoping to receive similar payout.

In addition, are the existing shareholders better off in the short- term? It is an important question because if Elumelu is buying back the stock at a premium, it means in the short term at the minimum, there is an increase in stock price.

However, it is important to clarify that it is not Elumelu that is buying back the shares held by Otedola. It is Transcorp that is buying it back and paying the premium, so the cost of the greenmail is on the company and its existing shareholders, rather than only on the existing majority shareholder.

Of coz, Elumelu is in charge of such decision, and now he has used the company fund to protect his own interest. Perhaps, in the dinner, Otedola would split the gain with Elumelu, and Elumelu will be better off from the expense of other ordinary shareholders.

Of coz, Elumelu is in charge of such decision, and now he has used the company fund to protect his own interest. Perhaps, in the dinner Otedola would split the gain with Elumelu, and Elumelu will be better off from the expense of other ordinary shareholders.

I totally agree with you

Interesting read

agbaman1782:
Two weeks ago, Nigerians woke up to the news that billionaire investor Femi Otedola had acquired 5% of a conglomerate belonging to his brother and friend Tony Eluemelu.

It was an intriguing corporate drama that shocked, rocked, and rolled Nigeria’s capital markets.

Transcorp as a business initially denied it, and the reason is not far-fetched.

They did not see that chess move coming.

Even their chairman, Tony, was caught napping as he woke up to the news, just like many of us did.

The drama got the attention of the two business tycoons' mutual friends, who pleaded and intervened before a compromise was reached yesterday.

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.

It was said that Femi pocketed 32 billion naira, which will be paid installmentally from the deal.

I think it is important that we examine the drama and see if there is any lesson to unpack from it.

1) Aside from his eyes set on the three power plants owned by Transcorp, Femi’s other intention in moving for the total control of Transcorp is what is called Greemail in Finance.

What is "Greenmail"?

Greemail is the practice of buying enough shares in a company to threaten a takeover, forcing the owners to buy them back at a higher price in order to retain control.

Let me explain.

Chukwudi Iwuchukwu runs Visage Group.

A conglomerate with investment in manufacturing, real estate, power plants, and hospitality.

Visage Group is listed on the floor of the Nigerian Stock Exchange, and our shares are free float, which means that any investor can buy as many shares as he or she wants as they are not capped.

Business is good as we pay investors dividends at the end of the financial year.

Until one day, activist investor Femi Otedola remembers that we exist and then decides to come for us.

This is what he will do.

He would first start mopping up shares of Visage Group listed on the Nigerian exchange until he was able to amass a number of shares above what I own as the biggest investor and owner of the conglomerate.

Once he has achieved his goal of owning more majority shares than I do, Femi can attempt to take over my company by forcing the management to resign and appointing people loyal to him as their replacements.

In order to avoid losing Visage Group to Femi Otedola, I would then go into negotiations with him to buy the shares he mopped up, to buy them at premium price, above the market price at which he bought them.

For example, Femi bought Transcorp shares at 2 naira, but he settled at 12 naira, which is a decent profit by all standards.

With his money in the bag, Femi Otedola would leave us alone and then go to another vulnerable company.

This is what "greenmail" means, as it was alleged that it was one of the motivations that pushed Femi to go after his brother’s business, according to many observers.

2) One of the lessons brought to the fore by this drama is that Transcorp is not efficiently run and is not delivering value to its shareholders.

Transcorp owns three power plants at Ughelli, and two at Afam, with an installed capacity of 2,000 megawatts, which contributes 40% of the 5,000 megawatts that Nigeria generates daily.

However, the value of Transcorp shares at the stock exchange has been stagnant and less than 1 naira for 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.abide they became profitable under Tony.

And again, the total worth of Transcorp, which has three power plants and the Transcorp Hotel Abuja, is just 100 billion naira, with analysts pointing out that it is undervalued and not properly run, which is true.

Femi Otedola owns only one power plant, called Geregu.

It’s located in Kogi State and was listed last year.

Geregu generates 435 megawatts to 5,000 megawatts that Nigeria generates but guess what?

It is worth 800 billion naira at the stock exchange.

Since Gerugu was listed last year, it has paid dividends to shareholders only once, but it paid 20 naira for one share, while Transcorp, with three power plants and a higher installed megawattage, has been consistent in paying 1 naira per share.

The lesson is not lost on investors.

In his quiet times, I hope that Tony will pick up the lessons from the saga and then push the management of Transcorp to run the conglomerate more efficiently and to deliver value to shareholders who have been eager to see and hungry for the ROI in their investments.

3) The fear of Greenmail is why many successful entrepreneurs are shy about listing their company on the floor of Nigerian exchange.

You can lose your company to a hostile investor if you don’t have the capital to defend it and push back.

The fears are valid, but listing a successful business is one way to preserve wealth.

When I was young, I used to hear about Ugo Foams, Izuchukwu Transport, Ekene Dil Chukwu, and a host of other successful, indegenious businesses.

All those businesses are no more because the founder died, and so the business dies with it, but this could have been prevented if the founder insisted on structuring and listing the business on the flood of Nigerian stock exchanges.

"If you must sustain wealth, you need to list your company on the stock exchange."

A mentor once told Femi Otedola

But beyond this, Aliko Dangote and Abdul Samad Rabiu control 86% and 96% of their cement businesses listed at the Nigerian Stock Exchange, so their route of listing their businesses is another option gi study as you can list your business and still control it to avoid sharks taking advantage of your sweat through the back door.

It is good that the entertaining drama has come to an end.

I was entertained, and I believed you were too, with so many lessons to unpack from it.

But most importantly, I hope to see, in my lifetime, more entrepreneurs of my generation playing at the level where Tony and Femi are playing at the moment.

It is possible.

Insightful.

Transcorp has to be properly run in order to declare robust dividends for all major and minor investors.

othermen:
Dividend paid is not an evidence of the performance of an entity, except if the management is charged with improving dividend per share. A company earnings per share is a better indicator of stewardship.

The low dividend pay-out remains contextual. If earnings are great, is it retained for investment or retained for growth opportunities or the company is just not key in committing to return values to shareholders?

Elumelu strategy might have been to pursue strategies that undervalue transcorp stock in the interim, so he can buy more shares at a lower price and deter dilution. This is market manipulation and if not pursued diligently, can be detrimental to the company’s performance or reputation or even to his own stake.

About the potential for greenmail, it would have been great if you suggested in your article how implementing policies such as poison pill or having a shareholder rights plan, may prevent such hostile takeovers. Similarly, you could have mentioned how Elumelu reaction or response could encourage other hostile investors to pursue similar action as Otedola, hoping to receive similar payout.

In addition, are the existing shareholders better off in the short- term? It is an important question because if Elumelu is buying back the stock at a premium, it means in the short term at the minimum, there is an increase in stock price.

However, it is important to clarify that it is not Elumelu that is buying back the shares held by Otedola. It is Transcorp that is buying it back and paying the premium, so the cost of the greenmail is on the company and its existing shareholders, rather than only on the existing majority shareholder.

Of coz, Elumelu is in charge of such decision, and now he has used the company fund to protect his own interest. Perhaps, in the dinner, Otedola would split the gain with Elumelu, and Elumelu will be better off from the expense of other ordinary shareholders.

Nicely put.