Ghana: The Biggest Corporate Fraud, as Guinness Ghana Ltd takes over Ghana Breweries Ltd
What passed quietly in corporate circles as a merger between Guinness Ghana Limited (GGL) and Ghana Breweries Limited (GBL) with the blessing of the Ghana Stock Exchange (GSE) and the Securities Exchange Commission (SEC) is unfolding as a phony deal, Ghanaweb.com and Publicagenda commented on March 7.
The headlines of the ‘merger’ were as captivating, as they were misleading. Information made available to Public Agenda by a group called ThinkGhana, points to the fact that the deal is the biggest acquisition in Ghana’s corporate history, which has left many unanswered questions.
The takeover involves the biggest brewery in (GGL) Ghana acquiring the second largest brewery (GBL) resulting in a virtual monopoly in the brewery industry in Ghana. Guinness Ghana Brewery Ltd. now controls 70 percent of the market, while Accra Brewery Ltd is struggling to control the remaining 30 percent against the might of Guinness Ghana.
“It should bother the regulator when a multinational which has become a virtual monopoly on the market begins to behave in such a manner on the market”, says ThinkGhana.
ThinkGhana accuses both the GSE and SEC of falsely presenting the deal between Guinness Ghana Ltd. and Ghana Breweries Ltd as a merger based on what it calls “a calculated and deliberate campaign of misinformation to the unsuspecting Ghanaian public.”
In its view, the deliberate misinformation created could only be unraveled if the SEC distinguishes between Guinness Ghana Breweries Group (GGBG), Guinness Ghana Breweries Limited, (GGBL), Guinness Ghana Breweries (GGB), and Ghana Breweries Limited (GBL).
ThinkGhana argues that GGBL acquired shares in GBL but has not merged with GBL, since the so-called merger is at variance with corporate communication from GGBL itself, which has oscillated between the fact of non-merger and the basic untruth of merger, a fact which it says can be proved in their press releases through the GSE.
More specifically, ThinkGhana argues that before the ‘merger’ was announced no valuation report underpinning the takeover was submitted to shareholders or the GSE in fulfillment of the exchange’s own Listing Regulations.
It points out that though the GSE’s own Listing Regulations compelled it to request a copy of the Valuation Report, the GSE broke its own regulations and did not request for the valuation report from GGBL.
“Instructively, the Offer Circular, (copies of which are necessarily with the SEC) did not also disclose that the SEC or the GSE had granted GGBL an exemption, even though, there would have been no legal basis to exempt such a fundamental document from disclosure.”
It wonders whether full disclosures were made to GBL shareholders in view of the information contained in the notice for GBL’s Extraordinary Shareholders Meeting (EGM) on April 2003 and the circular underpinning GBL’s Capital Restructuring Programme undertaken in June 2003.
On the issue of the price and value of the shares ThinkGhana argues that the position of the SEC that the price was determined by the High Court is unfortunate. “We wish to state that the offer price was not determined by the High Court. The offer price was determined by the offeror, GGBL. The matter brought before the Court by a shareholder of GBL was whether the valuation report had to be disclosed in order to determine the fairness or otherwise of the offer price.”
ThinkGhana explains that as soon as the High Court made a ruling that the valuation report should be made available to it in order for it to determine whether the value should be disclosed or not.
Besides, it wonders whether the shareholders of Guinness were made fully aware that the acquisition was to be financed by a bank loan to be undertaken by Guinness itself and not Diageo Plc?
“Did the shareholders of GGBL approve a deal to be financed by a local bank loan taken by GGBL itself? That essentially meant that in law, all investors in GGBL, including Diageo, would ultimately bear the cost of the acquisition. Why then would Diageo alone be allowed to acquire shares at a discount?”
The acquisition of GBL was triggered by an agreement between Heineken International BV and Diageo Plc for the sale of Heineken’s stake in GBL to Diageo, with GGBL and Diageo as the main actors in the process with Heineken. The deal was done offshore.
Available records indicate that when the original offer was made to the GBL Board, GGBL was in breach of its disclosure requirements on the GSE. The provisions in Part VII of the GSE’s Listing Regulations bind GGBL as a listed company.
Under the old GSE reporting regime, listed companies were obliged to disclose half-year results not later than 3 months after the end of the relevant period. Preliminary financial results were to be published not later than 3 months after the end of the relevant financial year. A fully audited annual report was expected to be published not later than 6 months. Under LI 1728, an annual report was to be published not later than 3 months from the end of the relevant financial year (regulation 54 of LI 1728).
Regulation 55 introduced a new quarterly reporting regime such that quarterly financial statements in defined form were to be filed with the regulators and published not later than one month from the end of the relevant quarter.
GGBL’s financial year ends on June 30. Thus ordinarily, its first quarter results during the relevant period should have been published latest by October 1, 2003. since LI 1728 clearly states that after a month’s grace period has expired, a company would be in default and is liable to pay ¢2million for each day the default continues.ThinkGhana says after the transaction had been announced, GGBL’s first quarter results were never disclosed, yet the regulators approved a major transaction involving a corporate entity that breached the disclosure rules on the market.
During the anoouncement of the deal GBL (offeree’s) share price remained practically frozen, while the offeror’s (GGL’s) price rose consistently in the full glare of the regulators.
For example, between January 1, 2004 and March 31, 2004, GGBL share prices increased by approximately 65% (that is within three months of the announcement of its merger with GBL) whilst GBL increased within the same period by approximately 19%. GBL’s share price on the date of the announcement of the deal (December 17, 2003) was ¢1425 and rose to ¢1700 by March 31, 2004. GGBL was trading at ¢5400 on the date of the announcement. By March 31, 2004, it was priced at ¢9360. “On any other market, the regulator would have investigated to assure itself that all was well. Respectfully, no regulator would even wait to receive a formal complaint when it notices a rapid rise in the share price of Guinness between December 17, 2003 and the closure of the deal.”
Given the following discrepancies, ThinkGhana argues that GGBG is an illegal entity and does not exist since it has not bothered to register as an entity, a clear breach of the Registration of Business Names Act, 1962 (Act 151).
It says its own checks at the Registrar-General’s Dept. showed that GGBG did not exist. In its view the records show that both GBL and GGBL remain distinct corporate entities even after the ‘merger’.
This is strengthened by the fact that about 900 Ghanaians are still holding the shares of GBL, whose interests have been abandoned. “The very simple question is that if there has been a merger, how come GBL still has shareholders?”
“We ask again, is Guinness above the law? It should be noted that there are clearly defined penalties under the law. Both the SEC and the GSE have been aware of these breaches and yet have done nothing. We wonder whether if Sam Woode Ltd or Camelot Ghana Ltd. had breached the law, they would still be enjoying the virtual immunity that the SEC is offering by its continuing inaction.”
“It is unfortunate that an entity tasked with a duty to investigate even rumours would refuse to contemplate investigating such a matter that has serious implications for the sustained growth of the securities industry in Ghana”, says ThinkGhana.
It argues strongly that elsewhere in the world, the hammer would have fallen on Heineken and Diageo. When a similar deal took place in the late 80s in the UK, the Department of Trade and Industry the home country of the parent company of GGBL, had an opportunity to request “documentary evidence” in when reports of possible wrongdoing in the takeover of distillers Plc by Guinness Plc initially surfaced. After investigations were made, the then Chairman of Guinness Plc, Ernest Saunders, was tried, convicted and jailed with three other directors.
Further, events on the Tokyo Stock Exchange last week should be an eye opener to the SEC and GSE. Livedoor, an internet brokerage firm, is being investigated based on allegations of fraud. The firm has been placed on the Stockwatch List, a step prior to delisting.
“The SEC’s continuing refusal to investigate the acquisition in order to determine whether lapses occurred with a view to preventing them in the future is not sustainable on the facts and on the law. The notion that in Ghana, only small companies can fall foul of the law and that big players are untouchable is a perception that should not be allowed in the industry.”
Înapoi
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