Mobil Oil Nigeria Plc announced yesterday that the purchase consideration for its planned 60% divestment of its parent company to NIPCO Plc is valued at about $301 million. This values the company at nearly $516 million or N159.9 billion assuming an exchange rate of N310/$1.
This valuation as expected is impacting positively on the share price of the company pricing it about N444 per share. Mobil’s share price at the time the deal was announced was N190 and closed at N324 per share on Friday, December 2, 2016. It has now increased by over 70% in less than two weeks.
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The chart above indicates the share price rally began late last week after being flat at about N190 for over a moth since the announcement was made. We believe this rally is likely due to two main reasons.
Purchase Consideration – The purchase consideration of $301 million, values Mobil at about N444 per share. At N195, this provided an upside of about 127% triggering a rally that has so far gained over 70% in less than two weeks. It is also important to add that Mobil’s third quarter earnings showed pre-tax profits rose 62% year on year. Current share price based on last year’s results suggest a price earnings of 16x meaning there is still an upside for a further share price increase. Nevertheless, the company’s share price did not move much following the impressive results. The market needed something else.
MTO – There is also rumours of a Mandatory Takeover bid that could be launched by NIPCO following the acquisition of a block 60% equity in Mobil Oil Plc. In accordance with Section 131 of the ISA Act (No 29 of 2007), SEC Rules and Regulations requires a Mandatory Takeover bid be made to all shareholders of a public company by any party that acquires 30% or more shares of the company. This will likely be triggered immediately after the share sale agreement is consummated and purchase consideration paid. Analysts estimate this could cost NIPCO another N64 billion assuming a share price of N444.
I believe this is probably the reason why we are seeing this massive rally that is yet to hit its ceiling.
Another thing of note is how much information asymmetry currently exist in the stock market today. I believe strongly that some traders may have gotten wind of Mobil’s latest announcement last week and launched a mop of the shares. This probably explains why the share price rally started around November 25th, just a week before they announced the purchase consideration.
Without an announcement of a purchase consideration it was difficult for the market to value Mobil’s price thus the flat share price growth between the period of announcement and the day the rally begun.
Insider trading is a big issue in the stock market and is seen as one of the reasons why the Nigeria Stock Market remains maligned among Nigerians. Despite record low price earning ratios, Nigeria still shy away from the stock market and prefer to invest their money in ponzi schemes that reward better despite the apparent risk.