Ahead of the Court Ordered Meeting slated for Thursday, January 11, 2018 to approve the proposal that would ultimately transform 7-Up Bottling Company Plc into a private company, its directors at the weekend urged minority shareholders to support the scheme of arrangement, which it assured, is in their best interest.
In a letter to the shareholders, the company’s chairman, Faysal El-Khalil, said the board’s recommendation is based on “the current and future financial prospects, which threaten its survival as a going concern, as well as the ability to raise capital and its future value.
Under the scheme, Affelka is offering minority shareholders N112.70 per unit of 7-Up Bottling Company shares, considered a fair and reasonable price by Chapel Hill Denham and the board and representing a 15% premium to its last traded share price on August 9, 2017, being the last business day prior to the date the proposal was received from Affelka.
The price, which amounts to N19.332bn, also represents a 23% premium on the three-month weighted average share price of the company as at August 9, 2017, and a 45% premium on the price recommended in the independent valuation report; even as “the proposed scheme will ensure the sustainability of SBC as a going concern to the benefit of all stakeholders including employees, federal and state governments, creditors, consumers, customers, distributors, transporters, other suppliers, etc.”
The transaction, he noted, has already received the “No Objection/Approval-in-Principle” of the Securities & Exchange Commission (SEC), just as he enjoined the shareholders to give their nod to ensure their continued protection by “adopting a process that will facilitate the prompt settlement of the Scheme Consideration; following the decision of the Court-Ordered Meeting.”
It is important shareholders vote for the scheme, El-Khalil noted, at a time they have already been impacted negatively by the drop in their equity valued, announcing that the directors would vote in favour of the scheme.
He explained that the scheme was predicated on the poor financial standing of the company over the last couple of years, following “the myriad of challenges imposed by the unfavourable macro-economic environment; such as, sharp currency devaluation resulting in a massive escalation in the cost of raw materials, distribution, and other operating costs including overheads, high debt servicing costs due to increases in interest rates and borrowing expenses.
“This is further exacerbated by the extremely competitive environment from existing and new privately-owned entrants, flooding the market with cheaper products which makes SBC unable to pass on the increased costs to the end consumer,” all of which dynamics, it added, are unlikely to improve in the foreseeable future.
The chairman expressed fear that unless there is “a comprehensive corporate and financial restructuring (as being proposed by Affelka), the Company’s shareholder book value of equity, which lost 47% year-on-year in FY-17, will be further eroded by the continued losses.
The scheme, the directors further believe, should create considerable benefits and opportunities for employees and other stakeholders of the Company, such as offering protection for minority shareholders who have already suffered 47% value erosion in book value in one year from complete erosion of value.
“Based on current trend, the Company will have negative equity value in the near term,” the company added, noted that the deal would enable Affelka provide necessary support for 7-Up to shore up its “balance sheet and capital required for maintaining and expanding the business.”
The is also expected to enhance product portfolio, such that it would enable the company better compete with both existing and new entrants, positioning better to address the changing needs of consumers.
While urging shareholders to vote in support, just like all members of the board, of the scheme, at the proposed at the Court-Ordered Meeting, he said Affelka, its nominee, associate, related party, or other party acting in concert, will abstain from the exercise in accordance with the Rulebook of The NSE (2015).”
The scheme will result in the transfer of 171,542,574 ordinary shares of 50 Kobo each of SBC, with a nominal value of N85.771m, comprising of the Company’s issued and paid-up share capital representing the minority shares to Sparkplexi Limited, a subsidiary of Affelka S.A, the majority shareholder.
This will leave Affelka and Sparkplexi as the remaining shareholders of SBC, with Affelka owning 73.22% and Sparkplexi, 26.78%, after which the Company will be re-registered as a private limited liability company pursuant to the relevant provisions of the Companies & Allied Matters Act (CAMA).
Through the offer, the investment advisers believe shareholders will benefit, since they have an “opportunity to monetize their investment at a premium in an otherwise illiquid stock.
“Should (a minimum three-quarter o the shareholders present and voting) not approve the Scheme, they will be at a disadvantage given the probability of a further erosion in the value of the company’s stock, which will negatively impact their investments in SBC.”
The company reported a net revenue of N108.277bn for the full year ended March 31, 2017, but with cost of goods sold gulping N95.35bn; selling and distribution expenses rising to N13.911bn; while general administration cost remaining flat at N6.651bn, bringing total expenses to N20.562bn, after tax loss was left at N10.77bn.
