| Mergers & Acquisitions |    1830 VIEWS  |
| Mergers & Acquisitions | |
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Saturday, March 06, 2021, / 08:00 PM / By Adaeze Nwachukwu and Chioma
Echebiri, Proshare Research /Header Image Credit: EcoGraphics
CAP Plc saw
a dip in its corporate earnings in 2020 as it stumbled into the jaws of slow
economic growth and a ravaging global health pandemic. COVID-19 caused a
pull-back in construction sector spending between Q1 and Q3 2020 resulting in a
marginal rise in revenue but a pre-tax fall in profit by a quarter of the
previous year's 2019 numbers. Gross profit got snipped by 5.5% of the 2019
figure while the paint maker's cost of sales leaped by over a tenth from
N4.45bn in 2019 to N4.98bn in 2020.
Despite
these developments, CAP Plc's board decided on a brazen move to push the
business forward through an unexpected acquisition move. The company acquired
the assets and liabilities of one of its rivals, Portland Paints Plc. The move left
analysts working hard to figure out the strategic value of the acquisition.
The key
highlights of the most recent financial performance of the two companies have
been worked out in some rough form below; they show that CAP Plc modestly
improved in earnings but got hit between the eyes to lower profits as the
COVID-19 pandemic spread black paint over the efforts of the UAC Plc subsidiary
to keep its head above troubled operating waters.
Portland
paint had no less a fortune as it equally struggled to turn a profit and grow
sales. The two companies before the marriage had interesting separate
fortunes. Nevertheless, there were no prenup agreements and so CAP Plc would
have to take PPP as it is with its warts and all.
Fit
for A Marriage -A Look at the Bride (PPP) and the Groom (CAP Plc)
The Groom- CAP PLC FY2020 Unaudited Results
Key Highlights
Share Price and Volume Movement -A Dance with Uncertainty
Chemical and
Allied Products Plc's (CAP Plc's) share price movement for 2020 was notable.
The impact of COVID-19 was ominous. The company's share price slumped by -20.00% during the year with its lowest price recorded
in July. There was an uptick towards the tail end of the year, but this was well
below pre-COVID-19 numbers. Year-to-date (YTD), the paint maker's share price
has dropped -5.0% as of February 19, 2021.
Traded volume
grew by +7.91% in 2020, with April recording
the lowest traded volume at the peak of the pandemic. August 2020 saw the
highest traded stock volume closing the year with strong trading. In 2021, the traded
volume of shares tumbled by -94.29% as of 19
February 2021 (see chart 1).
Chart 1: CAP Plc Share Price
Movement and Volume Traded
Source: NSE, Proshare
Research
Profitability- A Mountain Needing A Climb
The paint
manufacturer's revenue growth has been unsteady as shown by the graph represented
below. In 2020 revenue increased marginally by +3.89%
Y-o-Y, from N8.41bn in 2019 to N8.74bn in 2020. The highest percentage growth in
the company's revenue was posted in 2018 with a growth of +233.95% Y-o-Y while 2017 saw the highest
percentage company revenue decline of -66.29%
Y-o-Y.
In US dollar
terms, revenue for the period fell by -16.31%
which was in contrast with the company's performance in local naira terms,
suggesting that the company's revenue growth masked the impact of foreign
exchange translation costs. From US$27.40m in 2019 to US$22.93m in 2020, this
was a result of the devaluation of the domestic currency during the period. The
translation of the currency was done using the CBN's official rate at the
different periods (see chart 2).
Chart 2: CAP Plc Revenue 2015 - 2020 (N'bn)
Source: CAP Plc
Financial Statement, Proshare Research
Profit
before tax (PBT) declined by -25.53% in 2020
which was the highest percentage decline recorded by the company in the last
six years. From N2.55bn in 2019 to N1.89bn in 2020. The decline in PBT for 2020
was caused majorly by a -41.09% Y-o-Y decline in
net finance income. The highest percentage CAP PBT growth of +19.07% was recorded in 2018.
In US dollar
terms, PBT fell more severely by -40.00%, from
$8.29m in 2019 to $4.98m in 2020 (see chart 3).
Chart 3: CAP Plc Profit Before
Tax 2015 - 2020 (N'bn)
Source: CAP Plc
Financial Statement, Proshare Research
Liquidity Ratio-All About the Cash
The overall
liquidity position of the company for 2020 increased to 73.58% from 65.75% in
2019. The increase in liquidity ratio was major driven by +304.96% Y-o-Y growth in prepayment, also cash and
cash equivalents grew Y-o-Y by +34.69%.
The highest
liquidity ratio of the company during the period under review was in 2020 while
2016 recorded the lowest liquidity ratio of 54.75% (see chart 4).
Total assets
grew by +27.01% Y-o-Y from N6.76bn in 2019
to N8.59bn in 2020. Converting total assets figures to US dollar terms, total
assets grew by +2.33%, from $22.03m in 2019
to $22.54m in 2020.
Chart 4: CAP Plc Liquidity Ratio
2015 - 2020
Source: CAP Plc
Financial Statement, Proshare Research
Activity Ratio- Painting True Colours
The current
ratio of CAP plc during the period under review has been steady although below
the ideal current ratio for a manufacturing company. The current ratio for 2020
was 1.68 which was higher than 1.44 in 2019. The increase in the current ratio
was pushed mainly by the +31.73% growth in
current assets which outstripped the +13.18%
growth in current liabilities.
2019
recorded the lowest current ratio of 1.44 while 2016 recorded the highest
current ratio of the company during the period under review (see chart 5).
Chart 5: CAP Plc Current Ratio
2015 - 2020
Source: CAP Plc
Financial Statement, Proshare Research
The
unaudited result of the paint manufacturer for 2020 reveals quick ratio
improved, from 1.18 in 2019 to 1.47 in 2020. A quick ratio less than 1
indicates that the company does not have enough ready assets excluding
inventories to cover current liabilities which is not the case for CAP Plc.
Inventories
for the period declined by -9.49% from N1.05bn
in 2019 to N950.46m in 2020 (see chart 6).
Chart 6: CAP Plc Quick Ratio 2015 - 2020
Source: CAP Plc
Financial Statement, Proshare Research
Working Capital-Sweating the Mullah
The growth
in working capital has not been steady over the past few years. Working capital
increased significantly by +73.71% in 2020
from N1.79bn in 2019 to N3.12. growth in working capital for the period was on
the back of +31.73% growth in current assets
(see
chart 7).
Chart 7: CAP Plc Working Capital
2015 - 2020 (N'bn)
Source: CAP Plc
Financial Statement, Proshare Research
Total equity
grew significantly in 2020, it grew by +51.12%
which is the highest percentage growth recorded during the period under review.
From N2.52bn in 2019 to N3.81bn in 2020. 2019 had the highest percentage
decline of -10.23% during the period under
review.
There was no
debt-to-equity ratio for the period as there has not been any record of debt
for the past three (3) years-both short-term and long-dated borrowings.
Translating
to US dollar terms, the growth in total equity for the period was lower than
its growth in Naira terms. Total equity grew Y-o-Y by +21.75%
from $8.22m in 2019 to $10.0m in 2020 (see chart 8).
Chart 8: CAP Plc Total Equity
2015 - 2020 (N'bn)
Source: CAP Plc
Financial Statement, Proshare Research
The FY2020
unaudited results released by the manufacturing Company reveals the impact of
the uncertainties that dominated the macroeconomic environment in 2020. The
local manufacturing sector in which the company is a player was heavily
impacted by the advent of the COVID-19 pandemic. Global and domestic supply
shortfalls, lockdowns, and restrictions that accompanied the pandemic had its
effect on the earnings especially its PBT.
However, on
the flip side, the latest results have also shown that the Company carried out
its operations without debt as there are no records of debt in the result
bringing its leverage ratio to zero.
The Bride- PPP Nigeria PLC FY2020 Unaudited Results
Key Highlights
Share Price and Volume Traded-Feeling
High
Portland Paints and Product (PPP) Nigeria Plc's share
price movement was flat for most of the trading session in 2020, some months
even recorded zero activity. The share price increased by +10.31% at the end of the year, with the price
flat for seven months, October 2020 recorded the highest share price of the
company. However, for YTD 2021, the share price has improved more, increasing
by +32.11% as of 19th February
2021.
The volume of shares traded had the same trend with
the share price movement. The volume of shares traded increased significantly
by over +5000% in 2020 with October 2020
recording the highest volume of shares traded while June 2020 had the lowest
volume. The YTD performance of the volume of shares traded increased by +348.01% as of 19 February 2021 (see chart 9).
Chart 9: PPP Plc Share Price
Movement and Volume Traded as of 19th Feb 2021
Source: NSE, Proshare
Research
Profitability-No Hope for the
Impoverished
The growth of revenue for PPP Nigeria Plc has a
downward trend, harsh macroeconomic environment in 2020 also attributed to the
decline its 2020 earnings. The 9months 2020 results show the revenue of the
Company declined significantly by -38.43% Y-o-Y,
from N1.99bn in 9months 2019 to N1.23bn in 9months 2020.
In US dollar terms, revenue declined more
significantly by -50.40% from $6.5m in 9months
2019 to $3.22m in 9months 2020, reflecting the devaluation of the Naira.
Revenue for FY2020 was forecast by Proshare's TheAnalyst,
the revenue of the paint company was expected to decline Y-o-Y by -38.43% from N2.61bn in 2019 to N1.61bn in 2020* (see chart 10).
Chart 10: PPP Plc Revenue 2016 - 2020* (N’bn)
2020*: TheAnalyst
forecast
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
PBT declined significantly in 9months 2020, from a
profit position recorded in the previous year of the same period to a loss
position. For 9months 2020, PBT declined Y-o-Y by -175.48%,
from N127.19m in 9months 2019 to a loss of N106.58m in 9months 2020.
Gross profit for the period declined by -45.43% Y-o-Y, however, the cost of sales declined
Y-o-Y by -34.59% from N1.29bn in 9months 2019 to
N843.35m in 9months 2020.
Converting to US dollar terms, PBT declined by -160.80% Y-o-Y from $460,050 in 9months 2019 to a loss
of $279,730 in 9months 2020.
PBT forecast by Proshare's TheAnalyst reveals
Profit before tax expected to decline by -175.48%
for FY2020 from N141.19m in 2019 to a loss position of N96.01m (see chart 11).
Chart 11: PPP Plc Profit Before
Tax 2016 - 2020* (N'm)
2020*: TheAnalyst
forecast
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
Liquidity Ratio-Easing the Squeeze
Portland Paint's liquidity ratio increased from 17.32%
in 9months 2019 to 22.43% for 9months 2020. This was majorly driven by a +17.63% Y-o-Y increase in liquid assets.
Total assets declined Y-o-Y -9.19%,
from N2.19bn in 9months 2019 to N1.99bn in 9months 2020 as a result of a
possible sell-off of fixed assets (see chart 12).
Chart 12: PPP Plc Liquidity Ratio
2016 - 2020
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
Activity Ratio- Dragging Debt Down
The current ratio of the company went up between 9
months 2019 and 9 months 2020. The in 9 months 2020 current ratio rose from
2.87 in 9months 2019 to 4.40 which was the highest current ratio recorded by
the company in the last six years. The rise was because of a +6.14% rise in current assets as against a -30.76% reduction in current liabilities (see chart 13).
For manufacturing companies, current ratios higher
than 2 sticks a question mark over how efficiently they use up assets and their
ability to draw supplier credit in the process of extending their receivable
days or the number of days they must pay up their supplier debts.
Chart 13: PPP Plc Current Ratio
2016 - 2020
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
The acid-test ratio (also known as the Quick ratio) of
the paint producer rose in 9months 2020 as against the 9months of 2019, showing
an improved liquidity position after adjusting for inventories. The recent
result showed that the company's quick ratio rose from 1.48 in 9months 2019 to
2.50 in 9months 2020 as inventories slid down.
The company's highest 9month quick ratio was posted in
2020 as against its lowest quick ratio which was posted in 2016 (see chart 14).
Chart 14: PPP Plc Acid-Test Ratio
2016 - 2020
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
Working Capital- A Question of Heavy
Lifting
The increase in working capital was majorly driven by
a +6.14% increase in current assets while
current liabilities fell by -30.76% Y-o-Y.
Working capital increased Y-o-Y by +25.88%,
from N1.08bn in 9months 2019 to N1.36bn in 9months 2020 (see chart 15).
Chart 15: PPP Plc Working Capital
2016 - 2020 (N'bn)
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
Total Equity-Running on A Treadmill
The 9months unaudited accounts show that total shareholders' funds dipped Y-o-Y by -7.94%, from N1.59bn in
9months 2019 to N1.47bn in 9months 2020. The decline in total equity was caused
by a -17.61% Y-o-Y drop in retained earnings.
In 2016, the company posted its highest percentage
growth in total equity of +98.94% while
9months 2020 recorded the highest percentage decline in equity.
The debt-to-equity (leverage) ratio for the first 9months
of 2020 was 7.50%, stock analysts considered this to be relatively low , while the company had no known or published
records of debt in the previous year 9 months 2019.
In US dollar terms, total equity fell by -25.84% from $5.19m in 9months 2019 to $3.85m in
9months 2020.
Proshare's TheAnalyst forecast, suggests that
the company's total equity would fall by -7.94%
for FY2020 (see chart 16).
Chart 16: PPP Plc Total Equity
2016 - 2020 (N'bn)
Source: PPP Nigeria
Plc Financial Statement, Proshare Research
The Market -CAP, PPP, and Technical
Bobbles
PPP Nigeria Plc vs NSE ASI
The Nigerian Stock Exchange All Share Index (NSE ASI)
tracks the weighted average of all companies listed on the NSE. This index most
times tracks how companies on the exchange respond to the health of the
economy.
PPP Nigeria Plc share price and the NSE ASI index showed
a similar trend in 2020, responding to the harsh macroeconomic conditions caused
by the COVID-19 pandemic. However, towards the end of 2020, there was a steady
rebound in the NSE ASI while the rebound in the share price of PPP Plc was
short-lived.
The NSE ASI closed the year 2020 positive with a YTD
performance of +50.03% while PPP Plc closed
the year negative with a YTD performance of -5.38%.
In the new year 2021 a reverse trend is shaping up,
the NSE ASI has fallen by -1.17% as of 26
February 2021 while the stock price of PPP Plc has risen by +32.11% as of 24 February 2021 (see chart 17). The trend is understandable as merger situations typically result in
acquisition candidates seeing their prices go up while the acquirer's price
falls. The logic? Well, investors tend to believe that acquirers overpay for
their targets and the targets themselves are overvalued so investors punish the
acquirer and reward the acquiree.
Chart 17: PPP Nigeria Plc Share
Price vs NSE ASI Movement
Portland Share price:
as of 24 February 2021
NSE ASI: as of 26
February 2021
Source: NSE, Proshare
Research
PPP Nigeria Plc vs NSE Industries
The NSE Industrial index tracks the
most capitalized and liquid companies in the industrial sector. Portland Paints
and Products Nigeria Plc is also included in the NSE Industrial index.
The index mirrors the NSE ASI,
reflecting the volatility that came with 2020. In 2020, the NSE Industrial
index grew sharply by +90.81% while PPP
Nigeria Plc declined by -5.38% as stated
earlier.
The year-to-date performance of the
NSE Industrial index declined by -7.51% as of 26
February 2021 while PPP Nigeria Plc increased by +32.11%
as of 24 February 2021 (see chart 18).
Chart 18: PPP Nigeria Plc Share
Price vs NSE Industries Index Movement
Portland Share price:
as of 24 February 2021
NSE ASI: as of 26
February 2021
Source: NSE, Proshare
Research
CAP Plc vs NSE ASI
In 2020, CAP Plc's share price started a decline which
was steady for most of the trading session in the year. However, towards the
end of the year, the price of the stock picked up but not to pre-COVID-19
levels. CAP Plc stock price ended the year negative, closing at -16.67%. NSE ASI started its bullish trend in July,
this was just after the lockdowns in Nigeria, and business activities started
to reopen. The bullish trend was maintained throughout the year and closed
significantly high.
For YTD performance, both the ASI and share price of
the paint manufacturer closed negative. NSE ASI closed at -1.17% as of 26 February 2021, while CAP Plc dipped by
-5.0% as of 26 February 2021 (see chart 19).
Chart 19: CAP Plc Share Price vs
NSE ASI Movement
CAP PL & ASI data
as of 26 February 2021
Source: NSE, Proshare
Research
CAP Plc vs NSE Industries
CAP Plc is also listed on the NSE Industries, its
share price movement did not reflect the trend of the NSE Industrial index. CAP
Plc closed the year 2020 negative, while NSE Industries closed significantly
higher. YTD performance both the NSE Industrial Index and CAP Plc closed
negative (see chart 20).
Chart 20: CAP Plc Share Price vs
NSE Industrial Index Movement
CAP PL & ASI data
as of 26 February 2021
Source: NSE, Proshare
Research
CAP Plc & PPP Nigeria Plc Share Price Movement
PPP Nigeria Plc and CAP Plc had different trends in
their share price movement in 2020 and YTD performance. The share price for CAP
Plc was choppier and had a bearish performance in 2020 which has continued in
2021. While for PPP Nigeria Plc, its share price movement was more stable for
most of its trading session in 2020, activity picked up for the price towards
the tail-end of 2020.
Both CAP Plc and PPP Nigeria Plc closed negative, with
CAP Plc dipping more. For YTD 2021, PPP Nigeria Plc share price has rebounded
closing at a +32.11% increase while CAP Plc
share has not gotten to pre COVID-19 levels (see chart 21).
Chart 20: CAP Plc vs PPP Nigeria
Plc Share Price Movement
Portland Share price:
as of 24 February 2021
CAP Plc: as of 26
February 2021
Source: NSE, Proshare
Research
Mergers
in Nigeria; The seasons of Corporate Marriages
Mergers have
had a somewhat rich history in Nigeria, especially in the banking sector. The
Federal Competition and Consumer Protection Act delineates the scope of mergers
for its purposes as including situations wherein: one or more undertakings
directly or indirectly acquire or establish direct or indirect control over the
whole or part of the business of another undertaking through the purchase or
lease of the shares, assets, or an interest of the other undertaking, the
amalgamation or other combination with the other combination, or establishment
of a joint venture.
The
prevalence of merger activity in the banking sector can be traced to the
Central Bank of Nigeria's (CBN's) banking reforms which saw 89 local banks merge
with one another. Some of these mergers involved the merger of Access Bank and
Intercontinental Bank in 2012, Ecobank Transnational Incorporated's acquisition
of Oceanic Bank, Stanbic and IBTC Banks' merger in 2007, and Access Bank's
merger with Diamond Bank in 2019, which led to an increase in the volume of the
bank's total assets from an estimated N4.95trn in 2018 to N7.12trn in 2019.
Other successful mergers include that of Obu Cement with the Cement Company of
Northern Nigeria (CCNN) in 2020 to form what is now BUA Cement, Chi Ltd.'s
merger with carbonated drink heavyweight Coca Cola in 2019, as well as the
merger of Ardova Plc with Forte Oil Plc to form Ardova Plc, although this led
to a decrease in the size of total assets from N61.19bn in 2018 to N47.02bn in
2019 (see illustration 1 & 2 below).
Illustration 1: Valuation of Successful Mergers of Companies Listed on the NSE
Illustration 2: Timeline of Mergers and
Acquisition in Nigeria
Legalese: A Dip into Nigeria's Merger Laws
Mergers in
Nigeria are governed by various laws which may be classified as either general or
sector specific. Meaning that while there are legislations that apply to
mergers across various sectors (such as the Investments and Securities Act
(ISA)), others apply to mergers only in a particular sector, e.g., the Bank and
other Financial Institutions Act (BOFIA) which would apply to mergers between
companies in the banking sector. As regards the merger between the Chemical and
Allied Products Plc and Portland Paints, the laws which apply are the ISA, CAMA,
Securities and Exchange Commission (SEC) Rules, and the Federal Competition and
Consumer Protection (FCCP) Act.
Eyes
on the Acts
The Investments
and Securities Act (ISA)
The Act
defines a 'merger' as 'an amalgamation of the undertakings or any part of the
undertakings or interest of two or more companies or the undertakings or part
of the undertakings of one or more companies or one or more bodies corporate' under Section 119 (1). Section 118 of the Act provides that every
merger, acquisition, and business combination shall be subject first to the
review and approval of the Securities and Exchange Commission. Mergers are
classified under Section 120 (2) as either small, intermediate, or
large. The proposed merger between Chemical and Allied Product Plc and Portland
Paints is large because its value is roughly N 20bn, a value that surpasses N
5,000,000,000, the upper threshold set by the Act. The procedure for this sort
of merger differs from the others.
Section
123 (1)
provides that a party to an intermediate or large merger is to notify the
Commission of the merger in the prescribed manner and form. The parties are
subsequently to give notice to a registered trade union or the employees or
their representatives of the employees concerned if no registered trade unions
exist. Under Section 126, the Commission shall after receiving notice of
the merger, refer the notice to the court and within 40 days after the notice
is given, forward to the Court a statement on whether or not the merger is
prohibited, approved, or approved subject to some conditions.
When the
Commission seeks to sanction a large merger, it initially determines whether it
is capable of stifling competition if implemented and if doing so will be in
the public interest. After making this initial determination, the Commission
can go on to grant approval in principle to the merger and subsequently direct
the merging parties to apply to the court for separate shareholder meetings.
The purpose of these meetings is to obtain shareholder approval for the merger.
121 (5) states that if at least three-quarter majority of the shareholders
either by themselves or via proxy assent to the merger, it will be referred
afterward to the Commission for its approval. Section 122 (6) provides that if
the SEC approves the merger, the companies which intend to merge shall then
apply to the court to sanction it after which the merger will be binding on the
parties involved.
The court may by that order or a subsequent
one instruct that the undertaking and profits or liabilities of the transferor
company be transferred to the transferee company, dissolution but not winding
up of the transferor company, a continuation of all legal proceedings in which
the transferor is involved against the transferee, allotment of any shares, and
other such incidental consequential and supplemental matters which are
necessary for the effective implementation of the merger or reconstruction.
Hence, the
procedure for a large merger approval under the ISA involves approval by the
Securities and Exchange Commission grant of an approval-in-principle,
Shareholder approval, and lastly, Approval by the court.
Companies
and Allied Matters Act (CAMA)
The
provisions relating to mergers under CAMA are not as extensive in comparison to
the other laws as it touches only on matters relating to shareholder assent.
Section
711 of the Companies and Allied Matters Act empowers the Court to order for a meeting
where either of the parties to a compromise, arrangement, or restructuring
tenders an application in summary to it for such. Section 711 (2)
provides further that the majority representing at least three-quarters of the
shareholders have to agree to the scheme and once this is reached, the Court
will sanction the Scheme. After the Court sanctions the merger scheme, it may
under Section 711 (3) order for the transfer of the assets and/or
liabilities to the transferee company, the continuation of any proceedings
against the transferor company to the transferee, dissolution without winding
up of the transferor company, among others. These provisions are closely
related to those listed under the Investments and Securities Act and the
Securities and Exchange Commission Regulations.
Federal Competition
and Consumer Protection Act
The Federal
Competition and Consumer Protection Act and the Merger Review Regulations
contain various stipulations on large mergers in Nigeria. Section 13 of the
Regulations states that application must be made to the Federal Competition and
Consumer Protection Commission ('the Commission') before a large merger may be
approved for implementation. Section 13 (2) provides that the Phase One
Review entails a party to the merger applying to the Commission and it, in
turn, determine if it is likely to substantially prevent or lessen competition.
Within five days of the receipt of the application, the Commission is bound to
publish notice of the merger.
This phase
is to be completed within sixty days for a large merger, and a small merger,
within twenty days, as stated under Section 17. Phase two involves an 'efficiency test' that entails an examination of the counterweighting effects
of the merger which may, in turn, lead to a technological inefficiency. This is
considered vis-Ã -vis the effects of substantial competition concerns and the
extent to which consumers reap the resulting benefits. At this phase, the
public interest implications of the merger are also scrutinized. After this,
the Commission may approve the merger, do the same subject to some conditions,
or completely prohibit the merger.
Securities
and Exchange Commission Rules and Regulations (SEC)
These were
made subject to the Investment and Securities Act. Under Section 425, it
is stipulated that the procedure for attaining approval for a merger entails:
Summary of The Resolution Passed
at The Shareholder Meeting of Portland Paints and Products Nigeria Plc
The meeting
was held on February 18, 2021, following an order of the Court to do so by Section
711 of the Companies and Allied Matters Act which empowers the court to
order separate meetings for the companies affected upon application of either.
According to the Order which was issued by the Federal High Court on January 7th,
2021, holders of fully paid ordinary shares of Portland Paints Plc were to
convene to consider and approve (via passing a special resolution), a merger between
the company and Chemical and Allied Products. During the meeting, it was agreed
that the Directors of the Company be authorized to consent to the modification
of the scheme which the Securities the Exchange Commission and/or the court may
deem it fit to impose.
Paragraph
2 of the Resolution
states that upon the Scheme coming into effectiveness, all shareholders may
either receive N 2.90 cash consideration for each ordinary share of N 0.50 held
in Portland Paints or be allotted 1 ordinary share of N 0.50 each in Chemical
and Allied Products (CAP) PLC for every 8 shares held in Portland Paints, which
will be credited as fully paid at the close of business on the terminal date.
However, the latter applies to scheme shareholders who receive the share consideration.
The term 'terminal date' is defined on page 25 of the Scheme of Merger as 'the
close of business on the Business Day immediately preceding the effective date;
being the date on which the registers of members of CAP and Portland Paints
will be determined for determining the shareholders eligible to receive the
Scheme consideration'.
Additional
agreements which were reached under the resolution include: that all assets
and liabilities of the company including real property, intellectual property will
be transferred to the Chemical and Allied Products Plc. All employee rights,
duties, and powers of a personal character that could either not be assigned or
performed vicariously will also be transferred to CAP without any further act
or deed. CAP will also inherit all legal proceedings to which Portland Paints
was a party, rights, and obligations under all contracts to which it also is a
party, and all monies standing to the company's credit at banks and other
debtors within and outside of Nigeria. While the share capital of Portland
Paints will also be canceled and the company dissolved, it will not be wound up.
Paragraph
4
empowers the Board of Directors of Portland Paints to give effect to the
decisions of the shareholder meeting (see illustration 3 below).
Illustration 3: Procedures for a Merger
Under the ISA
CAP Vs PPP-Till Death Do Us Part
The marriage between CAP and PPP may not add immediate
value to CAP, the early economies may not be realized till the end of 2021, but
immediate savings from the joint entity will come from a cut in the collective
wage bill, optimization of distribution outlets and warehouses and an improved
logistics economy.
Investors may gamble by going long on the bigger
company, but much will still depend on whether the matrimony would come over
early challenges of differences in character and history. However, all said the
new CAP may prove to be an investors fairy tale story if management can cope
with the pressure of the journey beyond the fanfare of the wedding.
Related News
1.
Implications of the Proposed Merger Between CAP Plc and Portland Paints
2. CAP Announces Proposed Merger with Portland
Paints and Products Nigeria Plc
3. CAP Declares N928m PAT in Q3 2020 Unaudited Results SP N18.70K ...
4. CAP Notifies of Board Meeting Date and
Commencement of Closed Period...
5. CAP Declares N607m PAT in Q2 2020 Unaudited Results SP N18.95K ...
6. CAP Announces the Resignation of Mrs. Bolarin
Okunowo As Non-Executive Director...
7. CAP Notifies of Board Meeting Date and
Commencement of Closed Period for Q2 2020...
8. CAP Notifies Resolutions Passes At Its Annual General Meeting...
9. CAP To Hold Annual General Meeting on June 19 2020 Lists Proxies...
10. CAP Plc Notifies of Board Meeting and Closed Period
11. CAP Plc Notifies Of The Company's Board Meeting And Closed Period
12. CAP Plc Appoints Miss. Ayomipo Wey As Company Secretary and Legal
Adviser
13. CAP Plc Announces Board Changes; Appoints David Wright As Managing
Director
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