Emerging details of the ownership and control structure of an indigenous oil and gas company, Lekoil Nigeria Limited, has cast doubt on the viability of a takeover attempt of the firm by South African mining company, Metallon Corporation Limited.
In late November, Metallon in a letter to Lekoil indicated its desire to replace Lekoil’s Chairman (who has been in the saddle for little over two months) as well as introduce three non-executive directors to the Board of the company, a move which Lekoil’s Board interpreted as an attempted takeover through the backdoor.
“It is good to differentiate between Lekoil Cayman which is the listed entity and Lekoil Nigeria Limited,” Lekan Akinyanmi, CEO of Lekoil said in an interview in Lagos over the weekend.
“Metallon has 15.10percent equity in the listed entity which is Lekoil Cayman. Lekoil Cayman in turn has 40percent equity in LEKOIL Nigeria Limited. Interestingly, all our assets sit in LEKOIL Nigeria Limited. In the Cayman angle, Metallon has 60percent of Lekoil, but from the Nigerian angle Metallon has about 6percent of LEKOIL Nigeria Limited,” Mr. Akinyanmi said in the interview.
In a message to the shareholders preceding the interview, the Lekoil’s Board noted that “Your Board believes that the requisitioned resolutions are no more than an ill-disguised attempt by Metallon to gain control of your Company. The Board does not believe Metallon to be fit to be in control of your Company – you must conduct your own due diligence on Metallon and its track record, and decide for yourself.”
Primarily vested in the mining and infrastructure development business, Metallon has operated mainly in Zimbabwe and South Africa without any known record of history or expertise in the oil and gas business.
The company also has a long list of legal battles with the governments of Zimbabwe and the United Kingdom and has been accused by labour unions of owing salaries and benefits to hundreds of workers. Metallon is literally insolvent! So curiously where did Metallon get the money to buy 15percent of Lekoil shares on the London Stock Exchange?
Metallon is proposing the ascent of Michael Onochie Ajukwu, Thomas Donald Richardson and George Maxwell to ascend Lekoil’s Board. Mr. Ajukwu is also on the Board of another South African company MTN sparking concerns of the rise of South African control of companies in the Nigerian economy. While Mr. Richardson, the current Metallon CEO, was formerly the chief financial officer of Nostrum Oil and Gas Plc under whose watch Nostrum lost 98percent of its share price.
“When the company started, we realized that we would require a lot of capital, but at the same time we wanted to maintain our indigenous status so we came up with a structure that ensured that Nigerians, employees and the Directors held 60percent of Lekoil Nigeria. But at the same time we gave 90percent of the economic interest to Lekoil Cayman while 10percent of economic interest was to reside with Nigerian holders,” Mr. Akinyanmi said.
“In the shareholder agreements that governs Lekoil Nigeria, there are some clear and specific terms about how the board should be composed. The Chairman should be chosen by Nigerian shareholders, there should be eight board members of which five are to be chosen by Nigerian shareholders, while three are chosen by Cayman shareholders. The threshold for any shareholder reserve matter is 75percent and for board reserve matter it is 70percent. Therefore, both parties need to cooperate to make things work.
“Because there was a risk that if the interest of Lekoil Nigeria and Lekoil Cayman are not aligned there could be a deadlock, we had an agreement that we have the same board on Lekoil Nigeria and Lekoil Cayman. In other words, at the time we started, Lekoil Cayman had agreed implicitly that they would follow the structure of the Board and structure put up in Nigeria, because the assets are actually in Nigeria but now, what Metallon is trying to do is to disregard that structure.
Industry analysts are of the opinion that placing national assets that are currently under the control of Lekoil Nigeria Limited in the hands of a rather unstable and insolvent foreign entity like Metallon could jeopardise the future of such assets and likely invoke the ire of industry regulators. Over the years, Lekoil has gone the extra mile to get funding for assets within its control.
Metallon as an organisation is shackled with a huge debt and loss profile, which could jeopardize Lekoil’s ability to get funding from partners who could be weary of the company as they get to know it is being controlled by a Metallon inspired management.
“We are hopeful of an amicable solution to the issues that are at stake, we have world class assets which are extra ordinary. It is taking a lot of work to get to where we want to be but we are making progress,” Mr. Akinyanmi said.