Analysts rate AshakaCem shares neutral ahead of ‘Mandatory Tender Offer’

Analysts Monday said they would expect a ‘broadly neutral reaction’ from the stock market, given the absence of a premium on the Mandatory Tender Offer (MTO) transaction by Lafarge Africa plc to minority shareholders of Ashaka Cement.

In equity market, any stock not assigned as a Buy or a Sell on an investment list is deemed Neutral. A premium would occur in this situation if the buyout offer is greater than the current market value.

The management of Lafarge Africa plc recently notified the Nigerian Stock Exchange (NSE) of its intention to conduct a Mandatory Tender Offer to minority shareholders of AshakaCem for 927 million shares as approved by the board, representing 41.39 percent of the company equity stake.

“Given the absence of a premium on this transaction, we would expect a broadly neutral reaction from the market. We rate AshakaCem shares Neutral,” said analysts at Lagos-based investment house, FBN Capital Limited. They also noted that MTO implies 261.581 million of Lafarge Africa shares.

“Based on Lafarge Africa’s last closing price of around N78 per share, the MTO values each Ashaka share at around N24 per share (cash consideration of N2 inclusive). This is around -2 percent below Ashaka’s last trading price of N24.6,” the analysts said.

The offer notification which is currently at the NSE shows it opens Wednesday December 10, 2014 and closes Friday January 16, 2015. Date December 5, 2014 and addressed to Oscar Onyema, chief executive officer, NSE, the letter to this effect shows that qualifying shareholders who accept the offer will receive 57 ordinary shares in Lafarge Africa for every 202 ordinary shares in Ashaka Cement so tendered.

The analysts also noted, “Our inclusion of the cash consideration assumes that N2 will be paid for each AshakaCem shares exchanged. The N24 per share value is also around -36 percent below the implied price of N37.48 that Lafarge paid for AshakaCem shares when it consolidated its Nigerian and South African businesses. At the time, the N37.48 price per share implied a premium of around 29 percent over the N28.95 price that the shares were trading on as at June 05.”

The MTO transaction resulted after Lafarge Africa plc notified the Nigerian Stock Exchange of the completion of block trade in respect of the 58.61 percent shareholding in AshakaCem plc, held by Lafarge Nigeria (UK) Limited to Lafarge Africa plc.

The block trade triggered an Mandatory Tender Offer in accordance with Section 131 of the Investments & Securities Act (No 29 of 2007) and Rule 445 of the Securities & Exchange Commission (SEC) rules and regulations, which requires that a MTO be made to all other shareholders of a public company by any party that acquires 30 percent or more of the shares in that company.

Ashaka Cement is one of the businesses involved in the Lafarge Africa merger –the consolidation of Lafarge’s Nigerian and South African business entities.
Further taking a look at this Mandatory Tender Offer, analysts at FBN Capital further noted it implies an exchange ratio of about 1:3.54. Ashaka shareholders will also receive an additional N2 per share as part of the deal.

Lafarge had on July 9, 2014 received shareholders’ approval to consolidate its cement businesses in Nigeria and combine these with South African operations to create a leading sub-Saharan building materials giant to be known as Lafarge Africa Plc. The consolidation was done by transferring Lafarge’s assets in South Africa and Nigeria to Lafarge Cement Wapco Nigeria Plc.

Under that transaction, Lafarge Group transferred its direct and indirect shareholdings in Lafarge South Africa Holding Limited of 72.4 per cent and its equity stakes in three other cement companies in Nigeria-United Cement Company of Nigeria Limited, 35 percent, Ashaka Cement plc, 58.61 percent and Atlas Cement Company Limited, 100 percent to Lafarge Wapco for a cash consideration of $200 million and the issuance of some 1.4 billion Lafarge Africa shares to the Lafarge Group.

Source : BusinessDay

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