Otedola Sends Wake-up Call to Sleepy Nigeria Boardrooms

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…with page out of Carl Icahn’s playbook

…Transcorp investors seek meeting with Board over performance

PATRICK ATUANYA

Billionaire investor Femi Otedola is shaping up to be the Carl Icahn of corporate Nigeria as he continues to take large stakes in companies that are struggling and, subsequently, turning them into cash cows that deliver value to shareholders.

In a Nigerian corporate culture where activist shareholders are non-existent, Otedola is blazing the trail and sounding a rousing wake-up call that business as usual is over for the companies he has taken significant stakes in.

Carl Icahn is an American financier and one of the richest men in the world who is the founder and controlling shareholder of Icahn Enterprises, a public company and diversified conglomerate holding company based in Sunny Isles Beach, Florida, USA.

Icahn is arguably the most famous activist investor of his time, if not all time. The billionaire investor has had his hands in a number of corporate moves over the years, with a number of notable successes.

He buys stakes in firms that he believes will appreciate via changes to corporate policy and he then pressures management to make changes that he believes will benefit shareholders.

What Are Activist Investors?

Activist investors are individuals or groups that purchase large amounts of shares in a public company in order to make a major impact on and changes to the company.

Some activist investors will also try to get a seat on the company’s board in order to achieve that goal. Typically, these investors target companies they believe to be mismanaged or ones that could be run more profitably. The goal is to fix the underlying issue to increase the company’s value and profit from the rise in its share price.

Otedola’s recent corporate interventions

Femi Otedola is a successful and astute investor and has been shaking up corporate Nigeria over a decade as he profits from takeovers and accumulation of shares to the benefit of shareholders.

Such investment strategies which often create wealth and employment are needed to bolster economic growth in a country where over 50 percent of the population of 200 million live on less than $1.98 a day.

As a leading shareholder activist, his efforts have unlocked billions of Naira of shareholder and bondholder value and have improved the competitiveness of Nigerian companies.

One of his most notable ventures was the takeover of struggling petroleum marketer, African Petroleum, (whose name was later changed to Forte Oil), from the government-owned oil company, the Nigerian National Petroleum Corporation (NNPC).

Of course, Forte Oil, whose name was changed to Ardova Plc later it sold its majority stake to Prudent Energy in 2018 is one of the largest downstream oil and gas firms in Nigeria with outlets across the country.

As at the time of sale, Ardova Plc had a market capitalisation of N22.20 billion as at April 18, 2022.

Without ingratiating magniloquence, the billionaire business is deep-witted, sagacious, and a visionary leader who understands that honesty and competence inspire trust. And that investors are allured by dividend paying stocks.

The Otedola lift

The Otedola lift occurs because Mr. Otedola is creating value for the shareholders of the companies in which he takes majority or sizable stake.

There was an upward movement in the share price of First Bank Holding Plc which Otedola bought into to become a majority stakeholder.

On October 23, 2021, the activist investor and his nominee, Calvados Global Services Limited acquired a total of 1,818, 551,625 units of shares from the Company’s issued share capital of 35,895,292791.

There has been significant improvement in the profitability and balance sheet of a lender since the last quarter of 2022.  Hitherto, it had been reeling from deteriorating asset qualities and poor earnings.

The Bank’s return on average equity (ROAE), a measure of profitability and efficiency, increased to 13.70 percent as of March 2022 from 7.20 percent as of March 2021.

It is worthy to note that the lender is efficient at utilizing its operating resources to generate income as cost to income ratio reduced to 65 percent in the period under review from 73.50 percent as of March 2021.

Enhanced balance sheet strength supported by sustained asset quality improvements means Nonperforming Loans (NPLs) improved to 4.70 percent in the third quarter of 2022 from 6.10 as at Q3 2021. Interestingly, the 4.70 percent NPLs is below the regulatory requirement of 5 percent.

It is interesting to note that Femi Otedola made a foray into the power sector, through Amperion Power Distribution Company Limited, a subsidiary of Forte Oil Plc, which acquired the Geregu power plant in 2013 and has invested $94 million in the power plant.

Last year, Geregu Power, the leading power generation company (Genco) in Nigeria, became the first Genco to be listed on the NGX Main Board, a listing segment for well-established companies with demonstrable records of accomplishments.

As part of its growth plans, Geregu Power Plc is bidding to acquire one of the National Integrated Power Plants (NIPPs) being put up for sale by the Federal Government through the Bureau of Public Enterprises (BPE).

“With the acquisition, we will run a combined cycle operation to ramp up capacity to 1,000 MW in 2 – 3 years,” Akinfemiwa, CEO, Geregu Power Plc, said.

Geregu plans to also take ownership of its feedstock (gas), so as to have a vertically integrated power production business, according to Akinfemiwa.

Otedola’s magic fingers needed to invigorate beleaguered Transcorp

Femi Otedola’s magic fingers which turns whatever he touches to gold are needed to transform beleaguered Transnational Corporation Plc, one of Nigeria’s leading conglomerates, into a market’s bellwether stock that magnifies the earnings of owners.

Since Otedola reportedly acquired 2.24 billion shares, equivalent to a 5.52% stake in Transcorp Plc with investment in hospitality, power, and oil and gas sectors, the market has been abuzz with excitement.

Over the weekend news broke that the chair of Lagos-listed Geregu Power Plc, Femi Otedola, has upped his interest in the conglomerate Transnational Corporation Plc (Transcorp) to 6.3 per cent, two separate notifications seen by MoneyCentral show.

Sources tell MoneyCentral that Otedola’s total stake in Transcorp today is over 7% and he effectively is the largest shareholder of the entity.

However, the company is underperforming as financial performance disappoints, and if something urgent is not done, deteriorating earnings risk eroding shareholders’ value or leading to depressed stock price.

Such sharp earnings decline underpins the argument that chief executive officers (CEO) are overpaid and that their salaries are not compatible with shareholders’ return.

Transcorp earnings deteriorate in Q1

For the first three months through March 2023, Transcorp’s net income fell by 63.06 percent to N1.83 billion from a profit of N5.03 billion as at March 2021; and that was the first profit drop since 2015.

The drop in profit is largely due to a N2.45 billion foreign exchange loss on financing activities or borrowing and slow growth in revenue as revenue.

For instance, revenue from energy sent out-which make up 48.94 percent of total revenue- increased by a meagre 4.37 percent to N15.97 billion as at March 2022.

Meanwhile MoneyCentral understands that a group of Transnational Corporation Plc (Transcorp) investors, over the weekend accused the company of mismanagement and is seeking a meeting with its board to discuss the performance of its President and Group Chief Executive Officer, Mrs. Owen Omogiafo.

Transorp has failed to optimize its numerous assets with Hotels planned for Lagos and Port Harcourt yet to get off the drawing board, years after they were first announced and in some cases bonds were issued to fund the hotels but construction is yet to begin 6 – 7 years later.

Transcorp valuation could hit N3 trillion with Otedola’s intervention

Transnational Corporation Plc (Transcorp) is today suffering from the classic conglomerate discount to the sum value of its parts, due to poor management of its assets, analysts tell MoneyCentral.

Transcorp which owns one of the largest power assets in Nigeria (the 972MW gas-fired Ughelli Power Plant) has a market capitalization of just N99.59 billion (as at Thursday April 20^th).

This compares with the Otedola owned Geregu Power which has a market capitalization of N807.5 billion.

Otedola bought the underperforming State owned power asset in the privatization exercise of 2013, with effective capacity of less than 100 megawatts (MW) and has ramped up its capacity to 435 MW, with 70% – 80% of power generated being fed to the grid.

Geregu Power whose shares have doubled in just 6-months recently paid out N20billion in dividends to its shareholders for Full Year 2022, a sign of the value creation being undertaken in the company as opposed to value destruction which Transorp shareholders had been suffering from before the Otedola’s intervention.

Share Prices Surge as investors know Otedola’s history of creating value

Transcorp stock which used to languish at N1 per share has recently shot up by over 100% to now trade at N2.45, with potentially much higher upside as investors are beginning to see that a much better run company could lead to optimized assets and a valuation 10 to 30 times higher than it is today (potential N1 trillion to N3 trillion valuation).

The same scenario has occurred in FBN Holdings which was trading at around N4 –N5 per share when Otedola first began taking positions in the lender.

Today FBN Holdings trades at N11.15 per with much bigger potential upside with the control of four board seats by Otedola guaranteeing that reforms will continue at what is the largest Nigerian banking group.

Forte Oil also similarly made a fortune for savvy Nigerian investors after the takeover of AP by Otedola and subsequent investments of over N200 billion in the company.

Otedola, one of Nigeria’s richest men, acquired a controlling stake in African Petroleum, a struggling petroleum marketer in 2008 and transformed it into Forte Oil.

At its peak in 2015, Forte Oil had a market capitalization of more than $1.4 billion.

Who Is Carl Icahn?

For a brief background, Carl Icahn began his career as a stockbroker in 1961 and quickly moved into taking controlling interests in certain companies.

He earned a solid activist reputation after completing a hostile takeover of TWA in the mid 1980s. Since then, he has made moves in all kinds of publicly traded companies, taking some private, and attempting to turn others around. Today, he has a net worth in excess of $18 billion, and at age 87 he is still a major force to be reckoned with on Wall Street.

Carl Icahn’s Notable Moves

According to a report by the Wall Street Journal, Icahn amassed a $250 million profit off of Twitter after billionaire Elon Musk offered to finally close his $44 billion purchase of the social media platform.

Icahn had quietly been purchasing stakes in Twitter Inc., while the stock price was falling, and managed to have a collective stake of nearly $500 million, purchasing the shares while they were in the mid-$30s.

Musk finally proposed to move forward with the deal, causing the Twitter stock to jump 22% to $52 per share.

This resulted in Icahn making an estimated profit of more than $250 million. Icahn knew that Musk would inevitably proceed with the Twitter deal, since it was unlikely that he would risk going to court, especially when the cards were stacked so heavily against him.

As of the second quarter of 2022, Icahn Capital had an incredibly diversified portfolio with significant stakes in the financial, basic materials, utilities, services, consumer goods, healthcare, and other industries.

Some of the most prominent holdings in Carl Icahn’s portfolio include Icahn Enterprises (NASDAQ:IEP), Sandridge Energy (NYSE:SD), and Newell Brands Inc. (NYSE:NWL).

Below, we outline just a few of the most iconic moves and investments that Icahn has made on Wall street:

Apple (AAPL ): Icahn’s AAPL position started with a bang on 8/13/2013 when the billionaire Tweeted the following: “We currently have a large position in Apple. We believe the company to be extremely undervalued.” That tweet alone prompted AAPL to jump nearly 5% for the trading session. Since then, Icahn has been actively (and publicly) lobbying for an increased buyback program, demanding the company return some of its large cash pile to shareholders. The company eventually raised its buyback program.

Herbalife (HLF): This position created a public feud between Icahn and fellow billionaire Bill Ackman. Icahn took a major stake in the company and also got two of his representatives on the board (and eventually three more in early 2014). Ackman, on the other hand, has been publicly denouncing the company and has a short position in the stock worth approximately $1 billion. The two have had choice words for each other over the years, but it seems like Icahn has won the battle thus far, as Ackman has failed to convince Wall Street that Herbalife is a fraud.

eBay Inc. (EBAY): Icahn began publicly shaming eBay in early 2014, calling it one of the worst-run companies he had ever seen. Holding a large position, Icahn urged the company to spin-off PayPal and also demanded two seats on the company’s board back in April of 2014. The two sides agreed to have Icahn withdraw his demands by both agreeing on adding David W. Dorman as a director. eBay ended up spinning off PayPal in August of 2014, causing its stock to pop 5%.

Hertz Global Holdings (HTZ): In late August 2014, Icahn revealed an 8.5% stake (38.8 million shares) in Hertz, believing the shares to be undervalued and noting that he may seek board representation.