Scangroup deal to dilute investors’ shares by 24.8pc
Scangroup CEO Bharat Thakrar said his stake will drop from the current 18.1 per cent. FILE
What you need to know:
The dilution is equivalent to Sh6.5 billion in market capitalisation based on Scangroup’s current trading price.
WPP is offering to raise its stake in the firm to 50.1 per cent from the current 33.6 per cent by acquiring 94 million additional shares.
The London-listed multinational plans to raise its stake through a mix of share swaps and a Sh1.8 billion cash injection into Scangroup in a move that will reduce shareholders’ stake.
Scangroup shareholders face a 24.8 per cent dilution as the principal owner WPP moves to take a majority control in the marketing services firm, analysts say.
The dilution is equivalent to Sh6.5 billion in market capitalisation based on Scangroup’s current trading price, with WPP offering to raise its stake in the firm to 50.1 per cent from the current 33.6 per cent by acquiring 94 million additional shares.
The London-listed multinational plans to raise its stake through a mix of share swaps and a Sh1.8 billion cash injection into Scangroup in a move that will reduce shareholders’ stake.
However, investors are expected to benefit from the cash injection and company’s increased earnings since it will take full control of nine subsidiaries previously co-owned by WPP as part of the deal.
This means that going forward, minority investors in the company will rely more on potentially bigger dividend payouts and capital gains than their stake to grow earnings from the Nairobi Securities Exchange-listed firm.
Scangroup’s CEO Bharat Thakrar and the creative director Andrew White are among the investors whose ownership will be affected in the transaction. Others include Koome Mwambia—a former CEO of Scangroup’s subsidiary Ogilvy East Africa— who retains a minority stake.
Mr Bharat, who signed an agreement with WPP to stay on as CEO and director, told Business Daily that his stake will drop from the current 18.1 per cent but declined to give the exact figure.
“Other shareholders will be diluted by 24.8 per cent in the proposed acquisition by WPP,” said Eric Musau, an analyst at Standard Investment Bank.
“They also stand to benefit from a bigger Scangroup from the consolidation of the subsidiaries and the new cash from WPP,” he said.
The subsidiaries that will be brought under Scangroup’s full control include O&M Africa B.V., Ogilvy Africa, Ogilvy Kenya, and Hill & Knowlton East Africa where the firm currently holds stakes of between 50 and 51 per cent stake.
O&M Africa BV is seen as one of the most important subsidiaries since it holds shares in eight agencies spread across the continent, including Ocean Ogilvy Gabon and Ogilvy Zimbabwe.
A bigger Scangroup will offer comfort to the founding investors who have faced multiple dilutions in the past to accommodate WPP’s increased investment in the company.
The stake of Mr Bharat, for instance, dropped to 28.5 per cent when Scangroup went public in 2006 and further declined to 20.6 per cent in 2008 when the firm issued new shares equivalent to 27.5 per cent stake to accommodate WPP’s Sh1.3 billion investment.
Mr Bharat has benefited from Scangroup’s growth, with his stake currently worth Sh3.6 billion and making him one of the wealthiest individual investors at the NSE.
Investors have already warmed up to the impending majority acquisition by WPP, with the company’s stock gaining nine per cent since the announcement of the deal last week to trade at Sh70.
The acquisition is seen as WPP’s move to take full control of Scangroup’s strategic direction as it pursues an aggressive expansion plan in Africa amid increased competition in the global communications market.
