Presco, who approved SIAT acquisition?

One of Nigeria’s most profitable agro-allied companies Presco Plc announced it was seeking shareholders’ approval to acquire 100% of its subsidiary, Siat Nigeria Ltd (SNL).

In 2011, SNL which was owned 100% by Siat SA (also 60% owners of Presco) acquired the assets of Risonpalm, which comprised 16,000 hectares of old palm plantations, as well as the entire social and industrial infrastructure of the industrial oil palm complex from the Rivers State Government.

This news of the “impending” deal was contained in a press release issued by the company earlier in the year. The acquisition is expected to cost Presco a staggering N23 billion in cash only, paving the way for a future consolidation with its target.

According to Presco, the acquisition will allow it to merge with SNL, which will then unlock synergies of the combined entities. Presco also claims, In the long-term business plan, “from day one” extra shareholder value is created, since the acquisition of SNL is not financed by new equity.

Read: Presco shares gain 10% as investors react to proposed acquisition of SNL

They also added that based on their projection, the benefit of acquiring SNL will lead to combined earnings per share of N25.9 by 2025 as against N18.6, assuming Presco remained standalone. Incidentally, Presco’s recent earnings per share is N18.87 as of 2022 and the company’s share price has gained 88% in the last year, taking its market cap to N125 billion. This deal is expected to boost this valuation further. This all seems like a mouthwatering proposal for shareholders to approve, only that, the deed has been done already.

Rather surprisingly, Presco’s latest 2021 full-year results reveal the company had already paid out N23 billion in cash for the acquisition of SIAT Nigeria Ltd and included it as an investment asset in its balance sheet. This suggests a request for shareholders to approve the proposal is merely a request to rubber-stamp a deed that had already been carried out. Where is corporate governance when you need one?

This revelation is quite disturbing if you look closer. SNL is (or was) owned 100% by SIAT Group, the parent company of Presco Plc (SIAT owns about 60% of Presco). By being a related party for the companies in question, SIAT is not expected to vote when the approval is tabled to shareholders, according to rules set by the NGX.

Read: Presco’s market value increases by N900 million in one day

This was further confirmed by the company in its proposal document stating as follows:

“In line with the requirements of the NGX on related party transactions, SIAT SA, the core shareholder of SNL and a significant shareholder in Presco, will not be voting on the resolutions to approve the Acquisition. To this end, the decision to proceed with the Acquisition will be made by the minority shareholders of Presco.”

It went further to seek the approval of shareholders.

“The Board of Presco having considered the terms and conditions of the Acquisition, as well as the benefit thereof, recommend that you vote in favour of the special resolutions which will be proposed at the Annual General Meeting.”

What is then the point of seeking minority shareholders’ approval for a transaction that insiders in the company have already consummated? Why was Presco so in a hurry to pay for the ownership of SIAT? We are not sure what the motive is but it could not be as important as doing what is the regulatory right thing to do.

Investment analysts who spoke to Nairametrics suggest the motive could well be the need to pay off a loan owed by Siat Nigeria Ltd which has been a major contributory factor to the losses it had been incurring. Between 2018 and 2021, the company has incurred about N8.7 billion in finance cost alone and forecast another N10.8 billion in finance cost between 2022 and 2025. By acquiring SNL, the purchase proceeds can be used to pay off its debt. Presco appears to have funded the N23 billion acquisition from a fresh debt collected in the third quarter of 20221. We understand it is already approaching bondholders to help refinance the debt.

As genuine as its intentions are, putting forward a deal that has already been consummated for shareholders to approve leaves a bad taste in the mouth of minority shareholders. Let’s hope Stanbic IBTC Pensions, which own 7% of the shares of Presco and the Nigerian Exchange Group, which regulates such transactions, will do the needful to address this anomaly.