WPP is now the majority shareholder of Scangroup with a 50.1 per cent stake. FILE
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The media services company defies expectation of drop in price after listing of additional shares to accommodate acquisition of a further stake by WPP.
The deal resulted in the creation of nearly 100 million shares which saw Scangroup’s listed shares increase to 378.87 million.
The media services company has defied expectations of a dilution in price that normally comes after listing of additional stock, with the counter surging to Sh57.50 compared with the drop to Sh46 immediately following the listing of the new shares.
The deal resulted in the creation of nearly 100 million shares which saw Scangroup’s listed shares increase to 378.87 million.
“Normally such a deal come with some dilution in value of the share. However, Scangroup is now seen by investors as having a strategic partner to take the company to a new level of growth. The company’s fundamentals in the longer term look good, despite of the problems we saw last year with the Nigerian unit,” said Kestrel Capital market analyst Kuria Kamau.
WPP is now the majority shareholder of Scangroup with a 50.1 per cent stake.
The company was trading at Sh50 at the close of last session before listing of the new shares on December 19, giving it a valuation of Sh14 billion.
Upon the listing of the extra shares on December 20, the share lost eight per cent to close the session at Sh46.25 as it adjusted for the new stock.
In the subsequent three weeks, however, the share has gained 24 per cent to Sh57, valuing the company at Sh22 billion. The stock has gained 15 per cent since the first day of trading this year.
The WPP deal was financed through a cash and share deal valued at Sh8.21 billion in August 2013.
The London Stock Exchange-listed firm offered cash for 21.3 million shares at Sh85.85 each, amounting to Sh1.8 billion, and also ceded ownership in nine subsidiaries to Scangroup.
The number of shares held by other shareholders remained the same since the acquisition involved creation of new shares. They, however, saw the percentage of their holding in the firm reduce as a result.
Standard Investment Bank said it believes the benefits of the deal will likely come later in 2014, given that the deal was accretive, hence expected to increase the earnings per share.
Investors are also expected to benefit from the cash injection and company’s increased earnings after taking full control of the nine subsidiaries previously co-owned by WPP as part of the deal.
Analysts now see the stock as benefiting from positive investor sentiment as WPP’s changes in the top tier of management start taking effect.
“News of change at the helm of the media magnate’s finance division through the replacement of Mr Manish Shah by Mr Jonathan Edgar, who transitions from WPP, has stoked investors’ stock picking activities in recent days,” said Genghis Capital research in its weekly market analysis released Monday. Mr Edgar’s appointment took effect on January 1, 2014.
Details of the buyout deal published in a shareholders’ circular showed Scangroup founder Bharat Thakrar’s stake in the firm diminishing to 13.2 per cent, compared to the 50.1 stake held by WPP.
As chief executive of Scangroup, Mr Thakrar still retains executive powers over implementation of the company’s strategic direction, but WPP effectively calls the shots in terms of voting power and boardroom resolutions.
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