Zain’s Questionable Ways

The on-going rebranding of Celtel to Zain and the controversial acquisition of a multi-million dollar five-year lease holding for the company's corporate headquarters in Lagos tear its board of directors further apart
By Edward Dibiana
Plot 1678 Olakunle Bakare close in the highbrow Victoria Island area of Lagos, is gradually but steadily becoming a ghost of itself. The diminishing activities at the building that was before now the corporate headquarters of one of the major players in Nigeria's burgeoning telecom sector, Celtel (Zain) in a way contradicts the expected beechive of activities associated with the rebranding excercise that is on-going at the GSM service provider-company.
Although the office is wearing fresh coats of paint belonging to the new brand, Zain, many key officials of the company have vacated the office as their departments have been relocated to a new location at Ikoyi, a nearby top notch business area on the Lagos Island. The new corporate head office of Zain, located at Plot 2, Zone L, Banana Island, Ikoyi, is no doubt a befitting edifice for a big organisation such as Zain. The newly constructed building has eight floors. When The Source visited the office last week, furniture and other office equipment were still being put in place, while interior decors were busy partitioning the open office spaces to meet the demand and need of the telephone company.
While many visitors to the new location may conclude that things are looking up for Zain, especially as the relocation of its corporate head office is coming simultaneously with the rebranding exercise, The Source’s findings indicate that both developments are causing major boardroom disquiet between the minority and majority investors in the company, especially as the cost and controversial manner of acquiring the new office appear to stand transparency on its head. The company spent a whopping $27 million to rent the new office for five years.
Incensed, the minority investor-board members as represented by Broad Communications Limited, promoted by Oba Otudeko, and FBC Assets Limited, which has Alex Otti as its representative are accusing the majority investor-board members of defective corporate governance, breach of directors’ fiduciary duties to the company, protecting pecuniary interest against company interest, unfair and prejudicial conduct and recklessness in the manner the company’s funds are expended.
Although there has been no-love- lost between these parties since their irresolvable differences over the hazy circumstances surrounding the acquisition of shares in former Econet Wireless and later, Vee Network by Celtel, and the appointment of its representatives to the boards of the company, the current rebranding exercise and the controversial expenditure of a whopping $27 million for a five-year rent for the new corporate head office of the company appear to have reactivated the festering differences and boardroom politics that have over the years added little or no value to the overall interest of the company or the services it provides.
The unilateral manner the sum of $27 million was approved and expended for a 5040 square-metre property – and for a five-year lease even after the board had debated the matter and set up a committee to review it, left a gash of suspicion of a possible pecuniary interest against the management of the company and a section of the board members.
The issue of renting the new property hit the boardroom on February 4, 2008, when the company’s Chief Executive Officer, Bayo Ligali, introduced the matter to other board members at a meeting held that day. As should be expected at such meetings, the huge amount proposed for the rent, $27 million, elicited a heated debate among the board members who particularly questioned the business sense in investing such a huge sum for a mere five-year rent, whereas the amount could be put to better use like constructing a befitting head office.
The chairman of the board, Gamaliel Onosode, who was nominated by Delta State and Paul Usoro, a Senior Advocate of Nigeria (SAN), who represents the interest of Akwa Ibom State, specifically kicked against the proposal. To find a middle-ground, however, Onosode set up a four-man committee headed by Otti to review the proposal. Other members of the committee included, Usoro, Ligali and Tsegar Gebreyes.
The committee’s term of reference was to “ensure that Celtel gets maximum value from the transaction; ensure that the rent payable is not only reasonable but is in line with market rate; to negotiate other fees including service charge, legal fees, agency fees etc; to get best value for the company; and to ensure that legal documentation is such that the interest of the company is protected.”
The committee which was given two weeks to report back to the board went to work immediately. One of its major discoveries was that a similar property at the same location was outrightly purchased by one of the company’s competitors for $20.8 million– which amounted to about seven million dollars less than what Celtel had proposed for the five-year rentage of the new head office.
This stunning revelation gave further fillip to the skepticism of the antagonists of the multi-million dollar extravaganza and also cast a critical slur on the business judgement and the real interest of proponents of the proposal. The committee also noted some monetary discrepancies in the proposal presented to the board. While some sections of the document quoted $1,050 per sq metre, others quated $1,175 and $1,200 respectively.
Aside that, the committee also observed that the property, an eight- floor edifice, has only one elevator with a maximum capacity of eight persons. For a potential busy office, such facility is considered inadequate to cater for the expected huge human traffic. Another issue that caught the attention of the committee is the fact that the building is disturbingly close to high tension wires. This particular observation was considered a potential security risk to the occupants of the building.
Based on these issues, the committee resolved to advice the board to discontinue with the proposed lease. But while Usoro, who acted as the secretary to the committee was putting together the report of the committee, the management, with the total support of the chairman of the Board, Onosode–who had earlier frowned at the cost and who also set up the committe– went ahead and hurriedly paid for the lease, claiming that the “Group” (the parent body of the organisation), had approved the transaction, in total disregard of the position of the board of the company.
This matter has since left the cosy ambience of the boardroom to the chambers of the Federal High Court, Lagos, where a litigation process has begun between the Otudekos, who are suing on behalf of themselves, their company (Broad Communications) and also on behalf of Celtel Nigeria Limited, and the other members of the board.
In an affidavit, one Oluwayemisi Busari, a lawyer and company secretary to Broad Communication stated that when the attention of the board chairman, Onosode, was drawn to his earlier comments of disapproval of the $27 million rent, before the committee was set up, he “pleaded ‘old age’ and ammesia as an excuse for his omission.”
Other thorny issues that have also set the minority investors and other directors of the company against one another concern the insistence of representatives of the majority investors to control every facet of the company; even membership of a sensitive committee such as the Audit are routinely voted in through a majority vote thereby denying the minority investors of the opportunity of querying how the management of the company expend the company’s funds.
The minority investors had argued that in order to achieve an acceptable level of transparency, the Audit Committee should have a majority of the representatives of the minority shareholders since the nominees of the majority investors control both the technical and administrative management of the company. They also proposed that the minutes of the Audit Committee meetings be made available to the board of the company. But because of the strength of the majority, these proposals, like many others originated from the minority directors, never saw the light of day.
At one instance, Otti reportedly argued that certain corporate decisions require a special resolution and advised that care should be taken in order not to jeopardise the collective interest of the company by mere majority vote.
Otti’s grouse and those of the other minority investors is chiefly because of the current rebranding exercise which allegedly began without due agreement and approval of the board and in disregard of the requirements, as contained in the Company and Allied Matters Act.
Beyond the issue of law is what Otudeko and his team see as a monumental waste of the company’s financies in the name of rebranding exercise which has become so frequent and disturbing to them as they believe it hurts the minority interests in the company. For instance, according to a Broad Communications Limited's letter to the chairman, Board of Directors of Celtel, dated July 7, 2008, the company claimed that Celtel spent $30 million for the 2006 re-branding exercise. The letter also stated that the sum of $28 million has been proposed for the current rebranding to Zain.
“All these costs,” according to the letter, “are being incurred by a company that has failed to declare dividend in its seven years of existence and for the sole benefit of a shareholder group that are also in control of the technical and administrative management of the company.
“We consider the insistence of the majority of the directors and the majority shareholder on proceeding with this re-branding to be unfair prejudicial conduct which has a substantial and negative effect on our minority interest. If the majority shareholder feels a strong need to have the company re-branded to communicate its majority control to the public, there is no justification for the minority being compelled to share the burden and cost of this personal desire,” the letter stated.
Otudeko and his co-travellers also demanded that the board reconsiders its decision to proceed with the re-branding exercise or in the alternative, the cost of the exercise be borne by the majority shareholder who they believe is the ultimate beneficiary of the exercise.
When the board refused to reconsider its position on the rebranding and other sundry issues raised by this minority group, they decided to seek redress at the law court. This latest move has added to the litany of litigations hanging on the neck of the GSM company both within and outside the country.
Zain Nigeria Limited (which was formerly Econet Wireless, Vodacom, V-Mobile or Celtel), is not new to controversy. In fact, since seven years of its existence in Nigeria, it has been wallowing from one controversy to the other. Its first major controversy hit the headlines with the ill-fated acquisition of Econet by Vodacom. A Vodacom official had in a press release summed up the circumstances that led to its withdrawal from the acquisition deal thus: “In today’s world, corporate governance cannot be compromised for profits. The recent events involving Vodacom in Nigeria have to do with good corporate governance and trust, and nothing more.”
This release and the subsequent withdrawal, The Source was told at that time, was a response to the controversial brokerage fee bazaar that Econet showered on agents of the three investor-states (Lagos, Detla and Akwa Ibom) 24 hours before the deal was sealed.
Before the Vodacom deal was stalled, Econet Wireless International, the parent body of EWN at an extra-ordinary board meeting of May 27, 2003, convened mainly to raise funds for the cash-strapped company, got the other members of the board to grant it the opportunity to increase its stake in EWN. But that agreement was allegedly swept under the carpet when the board decided to invite another investor to inject more funds into the company.
This singular act has remained a stormy issue for the company to resolve as the aggrieved party has instituted several law suits against the current investors for “inducing a breach of contract by the shareholders of the company.”
Some of these cases are still pending in courts in the United Kingdom, the Netherlands and also at the Lagos State High Court in Suit No LD/841/2006.
The Source was at both Zain’s old and new corporate offices to seek some clarifications concerning some of the above issues. At the Victoria Island office, the magazine discovered that but for the reception desk, every other department according to the front office personnel have relocated to the new office located on Banana Island, Ikoyi. Thus, nobody was available to speak with The Source.
Also, at the company's new office at Ikoyi, the only noticeable activity was the installation of office equipment and the partitioning of office spaces. Several calls made to the corporate affairs unit of the company did not yield any response.
For instance, The Source had wanted to find out the veracity or otherwise of the claim that the company has not declared any dividend in the past seven years; the reason behind the decision to pay $27 million for a five-year rent for an office with an open-ended service charges; the exact amount the company has spent for its four-time re-branding exercise; the reason for the usual recourse to the “Group” interest to the detriment of the interest of other investors and the Nigerian public.
However, since the magazine could not get the company to respond to these questions at press time, perhaps, the company would answer these posers at the court – in response to the suit brought against it by its minority investors.