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Why the Market Should Worry about NBC Plc’s Delisting from the NSE – 151210

Why the Market Should Worry about NBC Plc’s Delisting from the NSE
December 15, 2010, 0914

When Proshare published the breaking news story at 3.25pm yesterday “NBC Plc to Delist,
Sends Notice to NSE”, (http://www.proshareng.com/news/12773) it elicited a sense of concern
and worry about an emerging trend and its implications. Surprisingly, the shares were not
placed on technical suspension.

These are early days but the market should be worried, seriously. This move would
naturally translate into a reduction of market capitalization, but the more important one is
the reduction of the diversity in listed securities, which would impact adversely on liquidity.

However, the immediate effect is the blow on the image of The Nigerian Stock Exchange
(NSE) as an avenue for raising capital and trading in the securities of listed companies.

Obviously, if the owners of NBC Plc believed in the former they would not contemplate
delisting; same with the latter. The NSE and SEC should be worried that our market is
perceived as having failed in both important criteria of successful markets.

Of course, it could be argued that the nature of the business of Nigerian Bottling Company
Plc is such that they may not be too dependent on the public capital market for their
funding. But the company also enjoyed public relations capital as a listed entity, which
should justify its remaining on the bourse when capital raising opportunity is not a major
attraction.

We should also worry for other reasons.

NBC Plc is just one the companies in the AG Leventis Group with presence on The Nigerian
Stock Exchange (NSE). Are the other companies also programmed for delisting?

How about the history of the listing of NBC Plc on “The Exchange”?

NBC Plc and the rest of the companies in the AG Leventis Group came to “The Exchange” on
the back of the Indigenisation Programme (12th November, 1973), which raises the
question of the sensitivity of NBC Plc to the sensibilities of the Nigerian public.

Owners of the AG Leventis Group are simply telling Nigerians that they are no longer
obliged to partner with them in their business, just as the owners of Cappa & D'Alberto have
done, shouting "to hell with Indigenisation".

We should be worried about the timing of the proposed transaction and the associated
valuation.

Are Nigerians getting fair exit value?

Who is looking out for Nigerians? NSE or SEC? Certainly, neither of the two institutions! The
NSE was reported as simply saying that a company was free to list or delist.

It can't be that simple. There is something called an "Exit Price", which should be
scrutinized by both the NSE and SEC, if they know their duties to Nigerians.

The proposed structure by NBC Plc according to the statement released “envisages a cash
consideration to be paid as compensation to shareholders for the cancellation of the shares

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Why the Market Should Worry about NBC Plc’s Delisting from the NSE – 151210

of the Company which Hellenic (through its subsidiaries) does not already own. The terms
and conditions thereof will be incorporated in a Scheme document to be circulated within
the stipulated statutory period to all the Company’s shareholders for their consideration”.

“The proposed Scheme includes a cash payment of N43 per NBC share as
consideration to the minority shareholders. The proposed price would provide all
minority shareholders with a premium of 37.4% to the 30-day average closing price and
43.2% to the closing price of NBC shares on the NSE on December 13 2010 which was
N30.03 per NBC share”.

Market insiders know that it is because Cappa & D'Alberto Plc has not been forthcoming
on this issue (justification of its proposed Exit Price) that it has remained on the Daily
Official List of The Exchange.

Also, the fact that NBC came to “The Exchange” under the Indigenisation Programme should
warrant an engagement with the owners in such a manner that this announcement ought
not to have been made in the first instance.

Even though the Indigenisation Programme has since been scrapped, there is no denying
the fact that there is still a need for foreign companies operating in Nigeria to partner with
Nigerians by listing on “The Exchange”.

From a market policy perspective, what would be our reason for asking MTN, Etisalat, Shell,
Elf, etc to list on The Nigerian Stock Exchange (NSE) when companies like NBC Plc are
delisting? NBC is one of the major companies of The NSE and its proposed action impacts on
the thinking of those foreign companies the market is desirous to attract for listing on “The
Exchange”.

Is it possible that NBC Plc is delisting because it finds the demands of listing on The Nigerian
Stock Exchange too onerous?

Market insiders know that NBC Plc was one of the companies that made a representation to
“The Exchange” seeking an exemption from the reporting of their financial forecasts
to the market as required under the ISA (2007).

Market insiders know that the previous management of “The Exchange” brought this to the
attention of SEC, which like most civil service structure, simply opined that it was the law,
instead of being an advocate for the market. NBC Plc, it is believed, felt strongly about this
issue and its impact on its business, given the uncertain Nigerian business landscape and
the legal implications of such announcements.

Observable Deductions
From the NBC Plc price trend below, it is evident that the stock has not fully recovered since
the NSE downtrend. Also, although the NSE has been implementing strategies to turn the
market around, it appears that none of the strategies have helped to restore market and
investors confidence. This might have been a big frustration for the management of NBC
Plc, though it may also have it own motives, considerations and future expectations.

They probably believe that the market has undervalued their stock; therefore, instead of
seating back and watching the market cannibalize their stock, they made a decision they
believed is in the best interest of the company & their majority shareholders - pay a
premium to current minority shareholders and delist.

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Why the Market Should Worry about NBC Plc’s Delisting from the NSE – 151210

In the absence of a proper calculation of the true and fair value of the company, based on
data available, management appears to have been very generous to minority shareholders
compared to what AMCON offered to the bailed out banks for their shares.

Companies do delist all the time, the world over – especially when they believe
their stock is being marginalized by the market. As long as the company pays what is
perceived as fair value. I believe NBC Plc have the right to leave the NSE.

From a technical analysis perspective, a look at the price and volume for the last 90 days
(see below), shows that NBC Plc has been on a curious downtrend until the announcement
yesterday - The stock might have attracted investors who are looking to cash in on the
premium that the company is offering.

Further, a review of its impact on the market appears to be minimal (until we start to factor
the possible action(s) of other members of the AG Leventis Group).

From the analysis below, NBC Plc has 1.3 billion units of shares in issue with a market
capitalisation of N41.26 billion. This placed the company in the sixth position within the
Food and Beverages sub-sector of the NSE (a sector rated in the 3rd position in the
market in terms of market value - 11.28%; after the Banking and Building Materials
sectors with 35% and 30% stake in the entire Nigerian Capital market capitalization
respectively).

NBC Plc’s delisting therefore will take out 4.71% and 0.53% contribution to the Food and
Beverages sector and total market capitalization respectively.

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Why the Market Should Worry about NBC Plc’s Delisting from the NSE – 151210

X-Ray of the Food & Beverages Sector: Nigerian Bottling Company Plc
Stock CAP vs Stock CAP vs
Company Shares in Issue Stock Capitalisation
Sector CAP Mkt CAP
Units N
NESTLE 660,546,875 244,508,033,669.00 27.91% 3.15%
DANGSUGAR 12,000,000,000 190,200,004,577.64 21.71% 2.45%
FLOURMILL 1,879,210,666 125,531,278,223.70 14.33% 1.62%
CADBURY 3,129,188,160 82,923,486,240.00 9.47% 1.07%
DANGFLOUR 5,000,000,000 81,499,996,185.30 9.30% 1.05%
NBC Plc 1,308,733,859 41,264,379,472.91 4.71% 0.53%
HONYFLOUR 7,930,197,658 40,444,007,299.52 4.62% 0.52%
7UP 640,590,362 24,983,024,118.00 2.85% 0.32%
NASCON 2,649,438,378 14,995,820,815.21 1.71% 0.19%
MULTITREX 3,722,493,620 10,609,106,462.00 1.21% 0.14%
NNFM 178,200,000 7,479,054,217.53 0.85% 0.10%
WAMCO 499,884,000 5,848,642,704.65 0.67% 0.08%
UNIONDICON 360,000,000 1,519,199,924.47 0.17% 0.02%
TANTALIZER 2,950,000,000 1,475,000,000.00 0.17% 0.02%
BIGTREAT 2,000,000,000 1,000,000,000.00 0.11% 0.01%
UTC 1,233,375,004 949,698,729.56 0.11% 0.01%
NTC 400,000,000 471,999,979.02 0.05% 0.01%
MANDRID 40,000,000 226,399,993.90 0.03% 0.00%
TATE 66,561,071 13,977,824.47 0.00% 0.00%
FOREMOST 4,438,750 2,263,762.46 0.00% 0.00%

Sector CAP as at 14 Dec 2010 875,945,374,199.34


Total Market CAP as at 14 Dec 2010 7,765,469,287,449.23
Sector CAP vs Market CAP 11.28%
Source: Proshare Research Group

Conclusion
Whereas the impact on the market, as is, will not cause a serious dent on the Market Cap;
the market should still be worried because if the concerns over onerous listing requirements
are the reason for the proposed delisting of NBC Plc, then more companies within the AG
Leventis Group will be in line for delisting.

Is it possible that the owners of NBC Plc are unhappy that their company could not get a
waiver on the Listing Requirements - waiver that had been liberally dispensed in certain
questionable circumstances by SEC/NSE that do not compare with theirs in terms of clarity?

Contributions by the Proshare Research Group, Dr. Chukwumah Biosah, Olufemi Awoyemi and the Analyst-at-Large, Viewpoint Inc,
Market Development Consultants to the Proshare Research Service. All opinions on this page/site constitute our best estimate
judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the
factors to consider in making their investment decision. Proshare Limited, its employees and analysts accept no liability for any loss
arising from the use of this information. All enquiries should be directed info@proshareng.com

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