This week was a sad reminder of how dysfunctional government can look when the rule of law is ignored on the altar of mischief. It is also a lesson for corporate executives who fail to tread carefully where politics, greed, and vested interest collide.
Seplat hastily issued a press release on Wednesday announcing to the world that it had received a letter from the Honourable Minister of State for Petroleum Resources notifying it that President Muhammadu Buhari has “graciously approved” that Ministerial Consent is granted for the cash acquisition of the entire share capital of Mobil Producing Nigeria Unlimited (MPNU). The press release was issued shortly after a tweet from the official handle of the President.
Not quite long after, the industry regulator, NUPRC represented by its Chief Executive, Gbenga Komolafe was on air to clarify that the approval hitherto granted was incorrect citing provisions of the Petroleum Industry Act, effectively torpedoing an already controversial transaction. Media reports followed Komolafe’s report alleging financial impropriety between parties to the deal and government officials. Again, Seplat had to issue another press release denying all allegations.
The controversy that is the acquisition of Mobil’s upstream asset in Nigeria started in February 2022 when Seplat announced it has secured a landmark deal with Mobil for the acquisition. Soon after, the NUPRC revealed it was not going to approve the transaction as MPNU failed to follow the procedure for assignments laid down in the Guidelines by not providing the requisite notices to the Commission at all relevant stages of the transaction.
Subsequently, in July, the NNPC secured a temporary injunction from an Abuja Federal High Court Judge barring Exxon Mobil from completing any divestment in a unit that ultimately operates 4 licenses in Nigeria. In between all these controversies, Seplat has been embroiled in a bitter tit-for-tat with its founder and erstwhile MD/CEO Austin Avuru.
Shareholders must be worried about everything that is going on and wondering what this could mean for the share price of the company. Regulators in Nigeria and the UK, where Seplat is also listed, will be closely monitoring the situation as it unfolds. All these controversies do not augur well for Seplat.
The company needs to look forward to a future unmarred by controversies even if it means ditching this deal. It is a bitter pill to chew especially when it has every right to fight for an asset that it struck a deal to acquire from the seller. A wise dictate might just be to lose the battle and win the war.
The financial cost of the deal is also an often overlooked concern. The $1.2 billion price tag for the acquisition is at least $500 million more than Seplat’s current market valuation and its net assets. It will have to leverage up massively to pay for this deal.
Seplat’s latest results are impressive and suggest the company is in very good hands. Second quarter revenue and pre-tax profits of N118.4 billion and N52. Billion respectively are its best ever quarter. Shareholders are also very happy when they look at the performance of Seplat in their portfolio. The share price is up 88% in the last year and is trading at its highest price level since it was listed.
While acquiring Mobil upstream assets will probably boost future earnings, the risk is that it could get out of this transaction so badly bruised the benefits of the transaction will not be cured. Seplat needs to focus on the future, one without controversies.
