The move by UK-based GlaxoSmithKilne (GSK Plc) to buy out the remaining shareholders in its Nigerian subsidiary at below the current market price has led retail investors at the Nigerian Stock Exchange (NSE) to book profit on the shares of GlaxoSmithKline Nigeria Plc now.
The current market price of GSK Nigeria Plc is N67, but its UK-based parent is offering N48.
Investors are keen to avoid what happened with Nigerian Bottling Company (NBC) in its buy-out by Coca-Cola Hellenic Bottling Company, as the offer of GSK UK Plc seems to be almost approved by regulators.
This could partly be as a result of the time lag between the announcement and the execution of the deal. In November, when the deal was announced, the GSK stock was at N39.38, reflecting a 22 percent upside to the offer price. This led to a buying spree and the stock eventually became overbought.
There are indications however, that the Securities and Exchange Commission (SEC), the apex capital market regulator, may eventually seek an arbitrage role between the parties involved, a development which could see the parent (GSK Plc) upping its offer price to reflect current market realities.
Despite that, the real losers if this deal goes through, will be those who have purchased at the N60 – N67 levels. The share price of GlaxoSmithKline Nigeria plc closed flat at N67 after trading yesterday on the Nigerian bourse.
At a current price of N67 which reflects a downside to investors, of about 28 percent from the N48 that the parent is offering, market watchers observe that the parent would have shored up its shares to the 75 percent holding, at a discount to current market valuation.
“Going forward, we need clear cut rules that govern situations like these. This same scenario played out with the Nigerian Bottling Company deal. An announcement leading to a rally in the prices and then the stock becomes overbought,” Jimi Ogbobine, market analyst at Consolidated Discount Limited (CDL) told Business Day.
“The GSK deal raises some of the same questions that were raised during the Nigerian Bottling Company delisting in 2010/2011. Unfortunately, these questions have not been answered ever since. If we need to achieve the NSE’s $1trillion market cap target for 2016, the Nigerian market must adopt global best practices. Mergers and acquisitions (M&As) in Nigeria, must be guided by a strong regulatory framework which must converge with the global rule books. This will also help sustain the interest of foreign portfolio investors in the Nigerian market,” Ogbobine added.
According to the analyst, “Overall investor sentiments on the GSK deal seems to betray other underlying frustrations in the Nigerian market. The Nigerian equity market simply lacks depth. Outside the banking stocks, there are just a few other choice names. The bulk of these names are foreign multinationals. The Dangote and UAC subsidiaries are still the biggest non-banking names within the NSE.”
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