This story delves into the world of corporate mind games, maneuvers and one of the deftest company takeovers ever seen in Nigeria
It all began in 1977, when 3 young Nigerian Doctors, who just returned from overseas decided to come together to setup a hospital. One of them practiced Medicine, the other was a surgeon and the third was a gynecologist. They converted an apartment owned by one of them, which was located in Alhaji Danmole Street, Surulere, Lagos into their specialist hospital and shared the rent equally. They named the hospital Mercy Specialist Hospital, and began operations in 1977. They quickly gained popularity among lower and middle-class Nigerians and attracted many patients due to their versatility
Interestingly, the 3 doctors worked at the teaching hospital in Lagos but managed their own hospital part time. A model still being used today by many medical practitioners. But as with anything in Nigeria, their luck would soon run out as the then Military Ruler General Obasanjo promulgated a decree. The decree said as a medical doctor you were not allowed to work in a teaching hospital and have a private practice at the same time. And so, the trio had a huge decision to make on whether to face the rough seas of the corporate world or remain employees of the government. After some advice and soul searching, they decide to take their fate in their hands, took a bank loan and went full time. And so, in 1982, Alexander Eneli, Sunday Kuku, and Augustine Obiora came together to cofound a hospital named EKO Hospital Ltd.
The hospital name was coined from the first letter of their surnames.
The hospital opened its first branch in Ikeja on Mobolaji Bank Anthony way and opened another branch in Surulere some years after. With time, the hospital became one of the most popular hospitals in Nigeria and quickly became famous for treating the upper middle class and rich Nigerians.
By 1991 the hospital became a PLC and would change its name to Eko Corp Plc by 1994, when it listed on the Nigerian Stock Exchange.
Things went well for the hospital for over 2 decades until after the millennium when it started experiencing cash flow challenges. Despite the marginal growth in revenues, Eko Corp still faced cash flow problems and it was owed hundreds of millions of Naira.
Things got so bad, that they started owing salaries and could not pay their founding directors their emoluments and benefits in a timely manner.
At some point between 2004 and 2012 it owed the Joint Chief Medical Directors (JCMDs) about N107 million.
A breakdown of the amount showed the company owed Eneli N27 million, Kuku N43 million and Obiora N42 million; respectively.
Tragedy however struck in December 2005, when one of its cofounders Dr Eneli, died at the hospital after a brief illness.
Following his death, the company decided to raise funds which will be used to repay the JCMDs as well as provide working capital.
They also got the JCMDs to agree to convert about 75% of what is being owed into equity, while they source for cash to pay the balance.
Around that time the company had reported that it owed the JCMDs and one of its directors (F.G.A Cole) about N118 million
The company then decided it was time to go and source equity investment from an investor looking to own part of what was at the time one of Nigeria’s most popular hospital.
Sometime in 2007 Eko Corp approached a Dr Geoffrey Ohen of Geoff Ohen Ltd to invest in Eko Corp Plc. Dr. Ohen was already a shareholder in the hospital and an oil and gas magnate. The original source of his wealth is unknown.
Dr. Ohen or his company was said to own just 63 million shares in Eko Corp at the time while the doctors owned about 56 million each. Jointly, they still had majority shares and as partners and “brothers” would always make decisions in their collective best interest
And so, they offered Geoff Ohen Ltd 110 million units at N4 a share, hoping to raise at least N440 million in cold cash. The deal as allegedly agreed by the parties will have Eko Corp pay the JCMDs 25% of the outstanding in cash and convert the balance to equity.
The board of directors quickly approved the deal and cash was paid to the JCMDs while they fixed a date for an AGM to ratify the deal and get shareholders to approve an increase in share capital to accommodate the new shares that will be issued for the 75% debt equity swap.
The AGM date was fixed for some time in October of 2007 to give everyone time to revel in what was at the time a win-win for all.
Unbeknownst to the JCMDs, Dr. Geoff Ohen had a different approach to winning. After all, what was a victory without losers?
Geoff Ohen Ltd had all through the time “surreptitiously” acquired shares in Eko Corp, previously owned by GTB and Secure Swaps Ltd.
Interestingly, the GTB and Secure Swaps’ shares were under litigation but good old Dr. Geoff had convinced the Eko Corp directors to drop the suit in the spirit of good sportsmanship. After all, he had just dropped a whopping N440m, so surely it was in everyone’s best interest.
The move to acquire the shares suddenly took Geoff Ohen’s ownership in Eko Corp to 53%, usurping the founding directors combined majority.
And as you would expect in moves likes these. The Barbarians will be waiting at the gate. And so, they moved with the next move.
Now that he owned 53%, Dr. Geoff Ohen quickly blocked the debt equity swap conversion they had all earlier agreed upon.
And as these things always happen, SEC came from nowhere insisting that any such deal will require a special AGM and not the general one. Dr. Ohen had all the aces in his hands and waited for the good old founders to make their next move.
The founders, Kuku and Obiora obviously livid at being outwitted by Dr. Ohen, accused him of going against a board resolution where it was agreed that they swap 75% of the debt to equity, a move that Dr. Ohen himself benefited from when he bought 110m units.
Dr. Ohen, was unfazed and claimed that Ekocorp Plc was not indebted to its founding directors, as the debt was not disclosed in the prospectus that he based his investment decision on. It didn’t end there.
He also claimed that he was not bothered by the 75% debt equity swap as he knew they will still need an AGM to ratify the board decision and so his plan all along was to play the fool and patiently acquire majority shares before the AGM date, which he successfully did.
Dr. Ohen also blamed Dr. Kuku and Dr. Obiora for mismanaging the hospital which resulted in the so-called indebtedness. As such they could not be seen to benefit from that misfortune. He didn’t stop there again.
He further accused them of a concocted strategy to further drain the company financially “under the guise of an alleged debt-equity swap”.
When confronted about the fact that he betrayed his fellow directors, he said that he was “under no obligation to disclose his acquisitions. Such information was already in the possession of the Registrar and company secretary whose duty it was to report to the Board of Directors”.
With his new status as the majority shareholder, he also claimed to be privy to new information that he did not have, including a letter addressed to the Securities and Exchange Commission, SEC, seeking permission for their proposed debt-equity swap, which of course the SEC rejected. He then claimed that there was never any “lawful debt” owed by Eko Corp to the founding directors.
The JCMDs accused him of blocking the AGM as that would have paved the way for them to get back their company.
Dr. Ohen retorted that they had not held an AGM because the founders feared that if they did, they might be ousted as directors, so they basically stalled it.
This battle has gone on for years now, resulting in the inability of the company to release its annual report or hold AGMs. With their annual reports, one can see clearly who owns what and when.
However, on Friday 11 August, the company finally published its 2014 and 2015 annual reports to avoid the threat of being de-listed from the NSE.
Surprisingly and despite all the squabbles, Eko Corp still reported revenues of N1.3 billion in 2015 and was still profitable. In fact, it has reported a revenue of about N1 billion since 2012 and have been profitable since 2011. The challenge, however, was its cash flows. The company bled so much cash because most of the revenues was on paper, with no cash to back it up.
And as for who own the company today. Here is how it was disclosed in its annual reports:
Firstly, on the debt, the company discloses it still owes the directors N776 million in emoluments and retirement expenses.
The company also disclosed the 75% debt for equity swap as “deposit for shares” and awaiting SEC approval.
The report also disclosed that Dr. Geoff Ohen’s 110 million units was under litigation even though it was captured in full and not as “deposit for shares”.
Shareholdings as at 2015 was as follows:
Geoff Ohen Ltd – 53%.
Founders each have 11.3%.
The rest belongs to the public.
The morale of this story is clear for everyone to see. Three young men, braved all odds to setup a truly Nigerian Company from a simple startup all the way, till date, the only listed hospital on the Nigerian Stock Exchange.
Nevertheless, the murky world of corporate takeovers and restructuring can be ruthless if you don’t guard your keep.
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