Oba Otudeko's Hostile Takeover: Understanding Problems Facing FBN Holdings

Oba Otudeko’s Hostile Takeover: Understanding Problems Facing FBN Holdings

6 mins read

What began as a blessing in disguise for FBN Holdings’ shareholders and the company might end up becoming a nightmare that would cost stakeholders billions of naira, Prime Business Africa has learnt.

In the first week of July, when reports began to circulate that a deep-pocket investor was buying a large volume of FBN Holdings’ shares, the value of the equity rose by 21.5 per cent within five days, building on the 63.1 per cent bullish run recorded in the first half (H1) of 2023. 

Amid the report, which disclosed that Barbican Capital Limited, owned by Oba Otudeko, is the investor mopping up shares, FBN Holdings’ share hit a peak of N22.30 kobo. 

It was the highest level in the last 10 years, as the momentum was on its way to pushing FBN Holdings into the trillionaire club in the stock market, after its market capitalisation rose from N658.67 billion on Monday, July 3, to N800.46 billion on July 10.

However, this feat was short-lived, as reports began to emanate from FBN Holdings that the board and the majority shareholders they represent are moving against Otudeko, finding ways to fight off his hostile takeover and ensure he exits the company. 

Ripple effect of rift among largest and majority shareholders 

Prime Business Africa learnt that the dispute could impact FBN Holdings’ operations, considering Otudeko’s presence would trigger a change in the board, and shares of investors could also be at the receiving end as well. 

Also, concerns have been raised that the rift might not harm FBN Holdings alone, but also impact the mood of the Nigerian stock market, especially foreign investors. 

“The ongoing dispute between Oba Otudeko and FBN Holdings raises concerns about how the bank is governed. It’s still too early to fully understand the impact this will have on the Nigerian banking sector and the overall economy. 

“However, it could harm Nigeria’s reputation as an attractive destination for foreign investors, as they might see it as a sign of instability in the financial sector,” Senior Investment Research Analyst, Charles Abuede said. 

Note that FBN Holdings had contributed significantly to the growth of the stock market in recent weeks, as it became an investable asset for many investors, but since the dispute began to tank FBN Holdings’ share, down by 29.14 per cent between Monday’s closing price of N22.3 kobo and Friday’s N15.8 kobo, the stock market is also down by 4.44 per cent, with the All-Share Index shedding 2,920.35 basis points between Wednesday and Thursday. 

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Since the share of FBN Holdings began to decline, shareholders have lost N233.31 billion, while the market valuation of the company has slumped to N567.14 billion, indicating the momentum is lost and shareholders are carting away profit as they can’t bet on the future of the firm, due to the uncertainty of the outcome of the in-fighting among shareholders. 

This seem like history repeating itself when Otudeko was the largest shareholder between 2013 and 2015, a period that saw shareholders lose 61.06 per cent of their investment, representing N405.97 billion loss. 

After his exit in 2021, shareholders were able to recoup some of the losses, as the value of their investment rose by 154.5 per cent between the period of his exit to 3 July 2023. 

Impact of feud on FBN Holdings’ operations 

Otudeko’s 13.3 per cent controlling stake in FBN Holdings gives him significant influence on key business decisions and more voting power than other shareholders. 

His emergence as the largest shareholder could lead to the ouster of some board members who were appointed to replace Otudeko and the board he led between 2013 to 2021. 

One of the key directors at FBN Holdings, the present Managing Director and Chief Executive Officer of the banking subsidiary, First Bank, Sola Adeduntan, was fired by the Otudeko-led board in 2021, a decision (amongst others) that provoked the Central Bank of Nigeria (CBN) to sack the investor and his board members.

With his return, some board directors would need to vacate their position for Otudeko or his representatives, thus prompting a revolt against him. 

Explaining the impact of the rift, Abuede said: “From an operational standpoint, FBN Holdings, as a banking institution, is likely to experience minimal disruption. 

“The primary area of concern lies within the board itself, where a power struggle may ensue between the bank, its board members, and Otudeko. 

“In response, other majority shareholders, led by influential figures like Odukale, may unite to marginalize Otudeko and consolidate their shares under someone like Otedola. This could potentially involve a forceful buyout of Otudeko’s shares, reshaping the bank’s ownership structure and governance dynamics.”

Why the fear of having Otudeko back?

As earlier stated, Otudeko’s 13.3 per cent stake gives him controlling influence, the same authority he held during his period as FBN Holdings chairman.

At the time, the CBN accused shareholders in the Otudeko-led board of using their controlling influence to obtain loans and failing to comply with the terms of restructuring their credit facilities.

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CBN said this attitude contributed to the poor financial state of First Bank, leading to the CBN helping to stabilise Nigeria’s oldest bank.

During the announcement of Otudeko’s sack in April 2021, the CBN said: “The insiders who took loans in the bank, with controlling influence on the board of directors, failed to adhere to the terms for the restructuring of their credit facilities which contributed to the poor financial state of the bank.

“The CBN’s recent target examination as at December 31, 2020, revealed that insider loans were materially non-compliant with restructuring terms (e.g. non perfection of lien on shares/collateral arrangements) for over 3 years despite several regulatory reminders.

“The bank has not also divested its non-permissible holdings in non-financial entities in line with regulatory directives.”

While Otudeko was removed, other majority shareholders; Hassan Odukale and Femi Otedola, amongst others remained, providing representatives on the new board, which replaced the Otudeko-led board.

Ecobank’s role in nightmare of FBN Holdings’ shareholders 

Surprisingly, FBN Holdings’ market rival, is also trying to pull the strings of the former, and its action has had a significant impact on the share movement of FBN Holdings. 

Ecobank contributed to FBN Holdings’ investor apathy after its letter to the latter, demanding the rejection of Otudeko’s share acquisition was made public during the weekend and on Monday, the confidence of the capital market towards FBN Holdings depreciated. 

Ecobank said approving Otudeko’s share acquisition would be viewed as FBN Holdings aiding Otudeko in diverting funds meant for the settlement of his alleged N13.5 billion debt, which the investor has denied owing.

Abuede said the position of the court could have a significant impact on the outcome of the feud between Otudeko and other majority shareholders of FBN Holdings. 

“The ongoing lawsuit between FBN Holdings, Ecobank, and Otudeko paints a likely significant uncertainty into the capital market. However, the direction of the law court will be the key determinant of potential outcomes,” he noted. 

While the lawsuit might give the majority shareholders a reason to turn down the acquisition of Otudeko, it could also lead to more selloffs as witnessed in the stock market in the last four days. 

“However, one plausible scenario is that the lawsuit could trigger a sell-off of FBN Holdings shares, as investors grow wary of the bank’s potential exposure to Otudeko’s debt. 

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“This, in turn, would have a negative impact on the capital market by reducing liquidity and increasing volatility for the short-mid term pending when strategic actions are taken by the company or regulators on the matter,” the investment analyst said. 

Result of Otudeko or Otedola regaining control of FBN Holdings 

The outcome of the feud between the largest and majority shareholders could swing different ways, having a positive or negative impact on FBN Holdings and the financial market in Nigeria. 

Prime Business Africa learnt that “suppose Otudeko manages to regain control of First Bank despite the claims by Ecobank. In that case, it might encourage other shareholders in Nigerian banks to try and take control of their own banks. This could lead to a wave of consolidation in the Nigerian banking industry” Abuede envisages. 

However, should Otudeko lose the fight to Otedola and other majority shareholders, it could also benefit FBN Holdings, “Another possibility is that FBN Holdings may reject Otudeko’s share acquisition in a bid to safeguard the bank’s reputation, enhance the future value of its shares in the equities market, maintain positive ratings from international agencies, and uphold a robust corporate governance framework. 

“Consequently, Femi Otedola could emerge as the largest single majority shareholder in the bank. If this scenario materializes, the face-off may ultimately favor FBN Holdings.” the Investment analyst stated. 

Meanwhile, Abuede maintained that: “The ultimate outcome of the lawsuit, as well as the reactions of other investors, will be crucial in determining the future direction of the bank’s board.”

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