PZ Cussons Nigeria PLC recently announced the offer made by its majority shareholder, PZ Cussons (Holdings) Limited (referred to as the “Core Shareholder”), to acquire all shares owned by other stakeholders of PZCN (referred to as the “Minority Shareholders”) and subsequently delist from the Nigerian Stock Exchange, has continued to generate attention within the financial sphere.
The conversation around PZ Cussons share, buyback, and delisting revolves around three key things.
They are;
- The depletion of the shareholders’ funds due to a significant loss and foreign exchange challenges,
- Response to the ongoing challenges faced by the company in securing foreign currencies to meet its trade obligations and settle outstanding debts.
- Considerable deterioration in the company’s net asset position
According to the PZCN Board, the offer is a response to the ongoing challenges faced by the company in securing foreign currencies to meet its trade obligations and settle outstanding debts.
Additionally, the Board highlights the considerable deterioration in the company’s net asset position, as elucidated in the Abridged Unaudited Report for Quarter 1 ended on 31 August 2023, published on 3 November 2023 as another reason for the decision.
The pivotal moment in PZ Cussons’ recent financial history was marked by a post-tax loss of about N24 billion in Q1 2024. This staggering loss was primarily attributed to a foreign exchange loss of about N27 billion.
Before the Q1 2024 setback, PZ Cussons maintained a more conservative debt structure. The debt-to-equity ratio stood at a moderate 50% as of the end of the 2023 financial year, reflecting a balanced mix of debt and equity financing.
However, the subsequent increase in the debt-to-equity ratio to 439% and the debt-to-asset ratio to 23% in Q1 2024 are indicative of the profound impact of the foreign exchange loss and elevated debt on the company’s capital structure.
The company’s decision to acquire minority shares at an increased offer price and subsequently delist from the exchange raises intriguing questions. Is this a desperate move prompted solely by the foreign exchange challenges faced by the company, or is it a strategic play in capital structure management?
While the foreign exchange woes are undeniable and might have contributed to the decision to acquire minority shares, it may also be seen as a calculated effort to regain control over the company’s ownership structure. This move could offer a lifeline to shore up the eroded net asset position, currently standing at N9.724 billion after an 80% reduction.
With a negative retained earnings position of -N565.265 million, the acquisition of minority shares may be viewed as a strategic step to consolidate ownership and strengthen the company’s financial standing.
The decision to delist from the Nigerian Stock Exchange further adds a layer of complexity. Delisting can be perceived as a means to operate with more flexibility, away from the scrutiny of public markets, and allow the company to implement strategic changes without immediate market repercussions.
However, it’s crucial to acknowledge the potential impact on minority shareholders. The increased offer price to ₦23 per share, endorsed by the Board in consideration of the company’s challenges in obtaining foreign currencies and a deteriorated net asset position, raises questions about the fairness of the deal for minority shareholders.
In navigating these challenges, PZ Cussons could have explored alternative strategies. A rights issue, for instance, might have been a more transparent way to raise capital, albeit with potential dilution. This could have allowed the company to address its financial challenges while maintaining a balance between debt and equity
As the company proceeds with its acquisition and delisting plans, stakeholders, including minority shareholders, will keenly observe the outcomes.
Transparent communication from the management regarding the rationale behind these decisions and their anticipated impact will be essential in maintaining trust.
AS PZ Cussons grapples with the aftermath of a substantial foreign exchange loss and charts a course toward financial recovery, whether the company’s moves are driven primarily by FX challenges or represent a strategic maneuver in capital structure management remains a question that only time and unfolding events will answer.
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