… SEC should strip companies’ owner voting right

 …As shareholders kick

The government should also mount searchlight on the operations of GSK Nigeria to ensure that the company is not employing the same unethical practices it is being accused of in China to boost the Nigerian operations, said capital market operators. Nigerian shareholders should also consider an outright buy out of Galxosmithkline Consumer Nigeria plc to protect their interest as well as retain the image of the company as a going concern.

 The advice came on the heels of the bribery allegations leveled against the China subsidiary and initial fines paid as restitution for earlier infraction in the US as well as the bid by the parent company, GSK UK, to up its stake in GSK Nigeria to 75 percent. Various independent analysts and capital market operators, who spoke on separate occasions to Vanguard, also said the bid by GSK London to increase its holdings in the Nigeria subsidiary is a wake up call to the regulators of the Nigerian capital market to strengthen the existing rules and regulations in the market with a view to stripping promoters of companies of their voting rights.

Speaking to Vanguard in Lagos, Mr. Wale Oluwo, an economist and former Managing Director, Investment Banking Group, BGL Securities Limited, said an outright buy out would be a preferred option if the various scandals involving the offshore subsidiaries are suspected to have the capacity of posing danger to the operation of the local firm. Citing example, Oluwo said that Arthur Anderson’s transformation to Accenture after the AA scandal involving Eron’s account could be replicated in Nigeria.

He said, “Nigerian shareholders should not hesitate to take steps to protect the Nigerian subsidiary where it is apparent that the activities of offshore operations will have significant negative impact that may threaten the going concern of the entire GSK Group. That protection can be in the form of Nigerian shareholders insisting to buy out the troubled offshore shareholders and re-brand the company to eliminate the GSK name.

“While giving the offshore subsidiaries the benefit of the doubt in line with the provision of the law, I also note that GSK does not particularly have a good track record when it comes to corporate misconduct, having been made to pay fines as restitution for earlier infraction in the US.”

He, however, counseled the Nigerian stockbrokers, shareholders and other stakeholders to look into the fundamentals and corporate governance practices of GSK Nigeria before rushing into judgment on the Nigerian operations, saying, “I do not believe the Nigerian subsidiary should be punished for the activities of GSK overseas. It could not have been the global corporate policy of GSK to direct their officers to cut corners, rather it is the individuals working for GSK in the various jurisdictions that committed the crimes, possibly due to profit/bonus pressure, for which GSK is now being held vicariously liable.”

Also reacting, Mr. Johnson Chukwu, Managing Director, Cowry Assets Management Limited, stated that there might be no material impact of the offshore subsidiaries scandals on GSK Nigeria’s operations due mainly to the low level of public awareness in the country and the weakness or near absence of government structures that should supervise and ensure adherence to best corporate governance practice and ethical standards by corporate organisations operating in the country, adding “ In some other countries, GSK operations would have come under severe scrutiny to ensure that they are not using the same unethical practices alleged to have been employed by them to boost their sales in China.”

Continuing, he said, “I have not seen any evidence that Nigerian investors are reacting to the negative news emanating from China on GSK.

“Ideally, the expected reaction would have been a dumping of their shares if Nigerian investors have doubts about the integrity of the company’s operating activities or expect the government to take measures to constrain their operations in Nigeria.

“Interestingly, neither of these is the case with the perception of Nigerian investors. Rather, investors have been preoccupied with protests over GSK London’s plan to increase its stake in GSK Nigeria by buying out some Nigerian investors.”

 Hostile bid to buy out Nigerian shareholders

The operators insisted that there was need for the Securities and Exchange Commission to tighten its rules to forestall incidences of multinational companies operating in Nigeria buying out Nigerian shareholders or delisting at will.

They noted that such rules should exclude the majority shareholders from voting on issues for which they are the majority beneficiaries.

“In view of the GSK UK’s bid to increase its stake in GSK Nigeria, coupled with the case of Coca Cola and NBC, other multinationals may be tempted to do the same and that will leave us with an equity market that is predominantly made up of the Dangote Companies and the banks. The regulators should seek to amend the existing laws, rules and guidelines,” said Mr. Tola Odukoya, Vice-President, Dunn Loren Merrifield.

For, Johnson Chukwu, the Nigerian Stock Exchange and the SEC should consider updating the rules or guidelines on rights of minority shareholders such that the majority shareholders are excluded from voting on issues for which they are the sole beneficiary or which enhances their voting powers and influence in the company.

He said, “I don’t think that there is any motive to the plan by GSK London to increase its holding in GSK Nigeria, other than business consolidation and profit maximisation.

 The Nigerian business environment presents strong income potentials, which explains why the multinationals are investing more economic resources into their Nigerian subsidiaries to expand their operational base, while at the same time buying out Nigerian investors so as to appropriate most of the benefits of the expected improvement in returns.”

According to Mr. Taiwo Oderinde, National Coordinator, Proactive Shareholders of Association of Nigeria (PROSAN), “The recent international allegation against GSK UK shows they are fraudulent and an attempt to swindle unsuspected Nigerian minority Investors. This singular act will show the type of regulators we have, whether they want to protect our market or not. We don’t care if other shareholders associations support this evil proposal, my group will not support it.

 Lastly, I am using this opportunity to call on Nigerian investors to come out and vote against this evil proposal. This type of proposal can only be possible in a country like ours where everything goes.”
Although Wale Oluwo said that he does not object to GSK increasing its shareholding, he affirmed that the challenge for the Nigerian regulators should be to ensure appropriate valuation of the shares being sold so that Nigerian investors are not short-changed. Disagreeing with others though, Oluwo said, “Owners of companies must be allowed to restructure their capital as long as there is level playing field for Nigerian and foreign investors. Seeking extra-legal protection for Nigerian minority shareholders will be unfair to the foreign investors, and will offend the extant provisions of the Investment & Securities Act, the Investment Promotion Act, and the Companies & Allied Matters Act. The Nigerian Investment Promotion Act allows foreigners to own 100 percent shareholding in Nigerian companies so long as it is legally done. This scheme of GSK will be approved by the regulators, the shareholders and the court, so it is legal.”

“The majority must have their way, while the minorities have their say. All shareholders must be treated equally because the GSK shares of the local and the foreign investors are of the same class, ranking pari-passu. GSK UK, by Nigerian laws cannot be disqualified from voting their shares in the type of major capital restructuring transaction that is being contemplated by GSK Nigeria at the moment.

“The lesson for Nigerian investors is to set up and run their own companies professionally so they can call the shots. It is wishful thinking to want to call the shots in another man’s company where you are a minority. We should emulate serious businessmen like Dangote, Mike Adenuga, Fola Adeola, Jim Ovia, Oba Otedeko among others, who have demonstrated that local corporates can compete and outperform their foreign competitors by relying on local experience advantage,” he added.

“Nigerian shareholders who disagree with the GSK transaction, as proposed, should seek the intervention of the courts for redress (but they must not forget to first reject the money being offered by GSK UK, as this may create a credibility crisis for their case in court),” Oluwo enthused.

 Minority shareholders kick

Meanwhile, the Nigeria’s minority shareholders have condemned the act of forcing them to sell their shares to the foreign majority shareholders, saying it amounts to neo-colonialism and outright corruption by the foreign investors.

According to Taiwo Oderinde, “The issue of GSK forcing Nigerians to sell their shares to the foreign shareholders is an act tantamount to neo- colonialism and this can only take place in a corrupt society like ours perpetrated by the international fraudsters like GSK UK.”

In how own reaction, Chairman, Progressive Shareholders Association of Nigeria, PSAN, Mr. Boniface Okezie said, “ This act is a fraudulent practice where shareholders are coerced to sell their shares at a lower market price. I call it madness; it also shows how regulators are watching and letting everything to go. This is what Nigerian Bottling Company (NBC) did. So, the UK inclined companies are beginning to toe that line. You will recall that NBC was not doing well at a point in time and later on the company bounced back to profitability, only for them to say they want to delist from the Exchange, which they eventually did at the detriment of the Nigeria’s minority shareholders.”

Continuing, he said, “The lawyers and our operators in the market are supporting this idea because of the money they would make from the deal. It is not good for our country. Why do you have to force shareholders to sell their shares even at a lower market price than at a higher price? The intention of this GSK UK is to delist the company from the Exchange eventually. This is not good for our country because this people will make the money in our country and repatriate it to their own country. This is another act of colonialism and we are saying no to this wicked act.”