Customs Street Advisors

This week in Alrroya, the United Arab Emirates (UAE) business and financial daily, I champion the beneficial role that media interviews can play in raising the profile of companies among the investment community and addressing malignant information asymmetry.

Most public company executives regard media interviews as a distraction. In their view, they would rather be running their companies. As far as they are concerned, there is a dichotomy between minding the store and talking about the store. Read More…

This week in Street Talking on NEXT, I discuss the critical role company websites can play  in closing the mispricing gap between stock prices and the underlying value of companies on the Nigerian Stock Exchange.

I am appalled at the failure of most companies on the Nigerian Stock Exchange (NSE) to utilize the web for investor engagement. In fact, about half of the companies on the NSE do not have any web presence at all. Among those that do, only a small number leverage the channel for investor communications despite the fact that a growing number of investors make decisions to buy, hold or sell stocks based on information they find on the Internet. If it is axiomatic that information is the lifeblood of markets, then company websites ought to be the most credible and authoritative sources for relevant, reliable and timely information. Read More…

Five years is more than enough time for companies to answer the ‘to be or not to be’ question on the attractiveness of a strategic proposition and then conclude it. Five years after merger talks began between First Bank of Nigeria and Ecobank, both banks are yet to bring the deal to a cloture. This week on NEXT, I point out that the main obstacle to progress may lie in a fundamental disagreement on strategy for a future resulting entity.

Mergers and acquisitions (M&A) are not trivial events. Synergy evaluation, regulatory hurdles, valuation disputes, internal and external claimsholders’ buy-in, advisory fees, integration factors, cultural issues, competitor objections, unsolicited offers and ego management are just some of the mid-air sharp knives that task the juggling skills of those driving a transaction. Little wonder that veteran investment bankers love to decorate their offices with commemorative Lucite tombstones (‘deal toys’) of consummated deals as testimonies of battlefield scars. Nurturing a deal from the first date until the dotted lines are signed demands superior matchmaking skills. Read More…

The past year has not been kind to investors on the Nigerian Stock Exchange. From the euphoria of 2007, the market has plumbed previously unimaginable lows. Typical of such U-turns of fate, everyone has denied responsibility for the roles they played in the descent to hell. For companies and investors, claiming to the victim numbs the pain. This week in NEXT, I use the extreme metaphor of the drug addict to show how investors allowed themselves to be seduced by the market highs and why companies, who arranged these fixes, encouraged the habit.

If the three Rs, namely reading, writing and ‘rithmetic are the foundation of basic learning in elementary school, for investors on the Nigerian Stock Exchange (NSE), the apposite Rs would be rancor, recrimination and regret. For them, intemperate, even if misconstrued, statements by the Central Bank governor, whatever the genuine intent, have only rubbed insult to injury. Today, blame and bitterness are their trademark sentiments. This is a tragic tale of an acid trip gone awry. Read More…

At the best of times, most companies on the Nigerian Stock Exchange  put up a dismal performance at communicating with the investment community. The reverse in economic fortunes has exponentially amplified those failures. This week in Street Talking on NEXT I make a few recommendations for issuers on what they need to be telling investors at this time.

Bruce Wasserstein, the late chairman of Lazard, the storied investment bank and dealmaker extraordinaire, used to say that it was the lot of the corporate advisors to offer a lot of advice to companies for free, which can be a thankless task. The double facts that the counsel was valuable and free did not mean that the companies would take it. Companies are hard-wired to discount pro bono recommendations. Bearing the odds in mind, here are some suggestions to companies on the Nigerian Stock Exchange on keeping investors engaged through the recession. Actually, investors might also find them useful in judging companies. Read More…

In my first article for Street Talking, the Friday column I write in NEXT,  I examine the apathetic attitudes of  public companies in Nigeria to informing the investment community about the value of transactions.  Historically, companies on the Nigerian Stock Exchange have performed dismally, perhaps, even irresponsibly, in communicating the merits of transactions to shareholders. However, recent events lead one to believe that the days of impunity may be drawing to a close.

Recently, Kraft Foods, the US quick serve meals giant, announced its intention to seek a merger with Cadbury, the confectionery leader. Read More…

As the Nigerian stock market convulsed in the past year analysts  have come to be regarded as shamans with the powers to conjure or calm the animal spirits at will. One day reassuring investors that the patient is making a full recovery and the next minute pouring the oil for Extreme Unction. Under circumstances of fear and loathing that have characterized investor sentiment over severe losses suffered, the pronouncements and prescriptions of analysts can and do have  significant effects on the share price of companies. In some cases, the very sustainability of the firm has been called into question. With this kind of power one only wonders how soon it will be before abuses start to appear. As history teaches with countless examples, power corrupts and absolute power corrupts even the best of men absolutely. Those responsible for good order in the market need not wait till then. In this post we discuss the vital role that analysts play in the market and why such influence as they have so clearly enjoyed in recent times is critical to their investment filtering function as well as the efficiency of markets. Next we discuss with a number of marquee  examples, cases where such powers have been applied to perverted ends. Recent allegations of purported analyst research used as a cover to de-market sector competitors accentuates the relevance of the subject.  Finally, we examine ways to ensure that such power is not misused for ends contrary to those for which they were originally intended.

Speaking in an November 2007 interview with the Times of London just a few days after downgrading Citigroup from Strongly Perform (SP) to Strongly Underperform (SU), Meredith Whitney, former executive director of equity research at CIBC World Markets, stated without mincing words: ‘People are scared to be negative, especially when a company has such a wide holding. Clients are not pleased with my call and I have had several death threats. But it was the most straightforward call I’ve made in my career and I am surprised my peer analysts have been resistant. It’s so straightforward, it’s indisputable.’ Read More…

The recommendations of the Dotun Suleiman Committee for the Review of Capital Market Structures and Processes have received a lot of attention in the press. As a result of public concerns over certain perceived abuses and improprieties on the Nigerian Stock Exchange, those  recommendations which  touch on the oversight functions of the Securities and Exchange Commission (SEC) over the exchange have been in the spotlight. However, one recommendation, so far adopted, that has received far less attention, is the introduction of book-building method in securities sales transactions. Known as Rule 78(c) it will have significant long-term impact on the Nigerian capital market through its potential to fundamentally change the content of public offering communications, structure of ownership of companies, surveillance of corporate governance, review of corporate performance and the quality of issuer-investor relations. In this post, we examine the trends that have led to the rise of institutional investors in Nigeria and why issuers may actually prefer them at first countenance. Then we discuss the likely implications of their established dominance on share registers and its implications for  companies planning to raise capital.

In a recent critical essay on the dereliction of duty by US money managers in the supervision of public companies  whose securities they buy and hold on behalf of private citizens, John Bogle, founder of the Vanguard Group, the giant fund manager, underlines the risks to the financial system as markets have gradually but surely transformed from owner-governed to agent-dominated systems. However, beyond his criticism of the ineluctable trend to greater ownership of corporations by fiduciaries, Bogle identifies their central role in contemporary capital markets, not simply as conduits of capital, but as watchmen of corporate governance and performance. Read More…

Research note prepared by Renaissance Capital on Intercontinental Bank Plc’s liquidity position titled ‘The Proof is in the Pudding’.

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The publication of alleged evidence on the manipulation of African Petroleum’s share price against Alhaji Aliko Dangote by the board of the petroleum marketing company has brought two burning issues to the fore. First, the inability of the stock exchange to identify the actions; second, the basis for the valuation and high multiples of AP’s shares. Since the AP board’s release of Alhaji Dangote’s clearing house transaction details to support its claims, several news articles have been written, while regulators have launched investigations into the matter. The case which is shaping to be a protracted one, already has some commentators declaring African Petroleum, and specifically, Femi Otedola, its chairman, as the victor of the first round. The Securities and Exchange Commission has placed a one year suspension on Nova Finance and Securities, stock brokers to Alhaji Dangote, while Eugene Anenih, its CEO, has been banned from working in the securities industry for five years. Further, a number of shareholder associations and individual investors have condemned Alhaji Dangote in strong terms, including calling for his removal as the first vice-president of the Exchange. In the heat of the debate, particularly on such a sensitive issue, a number of opportunities are being missed by African Petroleum. If winning public opinion is the single goal of AP, that much, so far, seems a secured objective. However, by its failure to follow up with an intensive investor relations program, African Petroleum may be allowing whatever victory it has won in the court of public opinion to slip out of its hands. In this post, we argue that for companies like AP whose share prices are under assault, but whose management is convinced that the sustained and widening gap between the economic value of the firm and the market price of its shares are driven by ‘ex-analytical’ factors, it is their duty to proactively communicate the performance results and cash-generating potential of the firm. In fact, we hypothesize that failure to do so allows room for ‘bystander’ investors, not initially involved in the sell-off, to join the bandwagon, taking the silence of the firm as a signal that the current downward trending market price is the true reflection of the state of the business. We then go on to list a number of areas that AP needs to elaborate on in its investor communications. We conclude by  arguing that for well run companies with solid prospects, distortions in market valuation are self-correcting, but that this process can be made quicker with a responsive, credible and robust investor relations program.

It is arguable that the decision of the board of African Petroleum to publish the trading records of Alhaji Aliko Dangote in the March 23 edition of ThisDay newspaper as supporting evidence in its claims that he was behind the aggressive crossing of its shares, without a beneficial change in ownership, over an eight week period, marks the entry into unfamiliar territory by the board of a Nigerian issuer which believes that its share price has been manipulated. According to the company, the pseudo-transactions created an appearance of active trading in its shares, when in reality there was none. Less than two weeks later, Day Spring Law Office, filed a petition on behalf of Femi Otedola, the CEO and chairman of African Petroleum, Zenon Petroleum Oil & Gas Limited and Luzon Oil & Gas Limited, seeking damages of N117,188,517,953 being the cumulative losses suffered by the petitioners for the drop in its share price from N293 on August 21, 2008 to what the petition describes as ‘a miserable N66.50 on March 26, 2008.’

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