Blackwells Capital LLC (together with its affiliates, “Blackwells”), a long-term shareholder of IHS Holding Limited (NYSE: IHS) (“IHS Towers” or the “Company”), today announced that it has sent a follow-up letter to the Company’s Board of Directors (the “Board”).
The full text of the letter follows:
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June 28, 2023
Via E-Mail and Federal Express
The Members of the Board of Directors
IHS Holding Limited
1 Cathedral Piazza
123 Victoria Street
London SW1E 5BP
United Kingdom
Attn: Mustafa Tharoo
Executive Vice President and General Counsel
IHS Towers
152 West 57th Street
New York NY, 10019
Attn: Colby Synesael
Executive Vice President of Communications
To the Members of the Board of Directors:
Blackwells Capital LLC (“Blackwells”) is a significant, long-term shareholder of IHS Holding Limited (“IHS” or the “Company”). As you are aware from prior discussions, we have expertise in the telecommunications industry and related infrastructure, as well as a demonstrated track record of helping companies to enact value-enhancing change. Unfortunately, we have suffered a substantial diminution in the value of our investment as IHS shares have fallen by a staggering 60% since the Company’s initial public offering (“IPO”) in October 2021.
In this letter, we detail numerous disclosure issues, governance failings and strategic lapses that have contributed to value destruction at IHS. We believe, that among other actions, the IHS Board of Directors (the “Board”) needs to be reconstituted as a precursor to necessary changes at the Company. Blackwells will take all necessary steps to overhaul the current Board in the event the status quo persists.
After relying on unaudited quarterly financial statements for the second quarter of 2021—financial statements that suggested a clear up-and-to-the-right trajectory as the Company was going public—the Company thereafter retreated from substantial reported profits to staggering, and increasing, losses. In August 2022, the Company released its appalling Second Quarter 2022 (“Q2 2022”) earnings report, which sent the IHS stock price down by more than 14% in the two trading days following the release. At that time, we wrote a letter to the Board expressing concerns about significant operational, management, and general governance issues that appeared to be plaguing the Company, and offered assistance with trying to remedy some of those issues. I spoke with Mr. Darwish following that letter. Ultimately, however, neither the Board nor management formally responded to us. More importantly, neither the Board nor management substantively addressed any of Blackwells’ concerns or apparently considered seriously any of Blackwells’ suggestions for improvement.
It is apparent from the Company’s earnings releases since Blackwells’ August 2022 letter that management has no serious focus on enhancing value for the Company’s shareholders. Although revenue increased overall in 2022, the Company’s reported loss for the year increased 18-fold, from $26.1 million in 2021 to $470.4 million in 2022—a $1.39 loss per share for shareholders for 2022. And while the Company at one level appears to be generating positive cash flow from operations, the news is far from positive; the Company continues to be so highly capital-intensive that it required hundreds of millions of dollars last year alone to finance new investments. The Company used more than $1.5 billion in cash last year for investing activities, but the line items on the Company’s published Statement of Cash Flows for such investing activities are not explained in any meaningful way to permit shareholders to understand these cash uses. Moreover, the capital needs are being met almost exclusively through new borrowings—borrowings that are, in the current environment, a tremendous overhang. This is in part because the Company’s stock price renders meaningful, non-dilutive capital infusion through the sale of new equity essentially impossible. As Blackwells previously identified in its August 2022 letter, the Company’s aggregate debt level continues to grow—and has now increased to nearly $3.5 billion, more than 60% or $1.3 billion greater than total debt at the time of the IPO—despite repeated Company assertions in its public filings that it had sufficient liquidity for future periods.
The Company uses a non-standard metric, what it terms Recurring Levered Free Cash Flow (“RLFCF”), “to measure the free cash flows [it] has generated from operations, after accounting for the cash cost of funding and recurring capital expenditure required to generate those cash flows.” The Company calls RLFCF “useful to investors because it is also used by [Company] management for measuring [its] operating performance, profitability and allocating resources.” But under even this bizarre measure, RLFCF has decreased by more than 10%, from $406.2 million in 2021 to $363.3 million in 2022, despite a substantial increase in the business as measured by revenue and a reported increase in cash generated from operations. No rational manager or corporate director can view this as positive – it is the veritable antithesis of economy of scale. Not surprisingly, as interest rates have rapidly escalated in the past year, the Company attributes the decrease in RLFCF in part to an increase in “net interest paid” (along with increased income taxes and maintenance capital expenditures). But the increase in interest rates, particularly when coupled with another half-billion dollar increase last year in the principal balance of outstanding debt, promises to serve as an anchor tethered to the back of the ship for some time to come, absent serious corrective action. And while the Company’s supposed primary plan for increasing shareholder value is (and has been) for it to increase the colocation rates on the towers it already owns, because it can be achieved at “a relatively low capital expense” (and, by extension, debt), the Company’s execution of this strategy leaves much to be desired. The colocation rate of the Company’s tower portfolio has declined each fiscal year from 2020 to 2022. And even when accounting for tower acquisitions from other mobile operators that typically have a low colocation rate (such that the Company’s overall colocation rate might be expected to decline somewhat), the colocation rate has barely changed in the reporting periods since the Company’s latest acquisition of MTN’s South Africa towers in Q2 2022.
These are among the metrics that Blackwells can actually see or infer from the Company’s public filings. By themselves, they are a source of great concern about the focus and capability of the Company’s management team and Board. But Blackwells is seriously concerned that there is a good deal more bad news; as conveyed in its August 2022 letter, the Company’s disclosure record reflects a serious lack of transparency. One need look no further than the way the Company has performed since its IPO. The Company’s performance since its IPO does not remotely approach the implied financial performance from the Company’s IPO Prospectus. But more generally, many of the Company’s disclosures are opaque and simply fall short of what shareholders expect as good corporate governance.
Indeed, despite Mr. Darwish’s assertions accompanying the quarterly earnings releases that Company performance has been strong and that he was “pleased with how [IHS] performed in 2022 and the direction [the] business is heading,” the stock price remains unacceptably low. The market either does not believe, or cannot understand, the basis for Mr. Darwish’s bullish pronouncements. After the disastrous Q2 2022 earnings release, the stock price continued to fall until hitting a low closing price of $5.09 in October 2022—an astonishing 75% loss in value from the stock’s IPO opening price of $21. It thus appears that management and the Board either do not care, or have just refused to consider meaningful changes that could restore some of the shareholder value that has been eroded.
Blackwells suggests that the stock price remains low in substantial part because the Company refuses to embrace transparency with investors and corporate governance standards that more align with the norms of companies listed for trading on U.S. securities markets. We infer that Blackwells is not alone. Through recent press reports, Blackwells has learned that two of the Company’s largest shareholders, MTN Group Ltd. (“MTN”) and Wendel SE (“Wendel”), have put forward proposals that would enable shareholders with at least a 10% stake in the Company to seek Board representation. The proposals suggest that even some of the Company’s most substantial shareholders are concerned that the Company does not adhere to basic corporate governance norms. And that suggestion is confirmed by the astonishing fact that, according to press reports, the Board dismissed the MTN and Wendel demands to put their proposals to a vote at its recent annual meeting.
It speaks volumes about where IHS and its Board stand on corporate governance and basic shareholder rights that shareholders with this large ownership interest are rebuffed in a manner even more dismissive than the brush-off Blackwells received last year. Given the ownership position of MTN and Wendel, Blackwells infers that these shareholders did not raise their proposal concerning Board representation for the first time at the annual meeting. It strains credulity to suggest that the proposals (and no doubt other matters that these significant owners raised with management) were not fully vetted before the annual meeting; yet the Board refused to put the proposals to a vote. Indeed, it appears that IHS management failed to give notice of these shareholders’ proposed resolutions, despite provisions in the IHS Shareholders Agreement that seem to require the Company to notify all shareholders of additional agenda items subject to shareholder vote within five days of receiving notice of the agenda items from two or more of the shareholders subject to the Agreement—shareholders parties to the Agreement that include MTN and Wendel. And the predictable result: MTN has announced that it is “evaluating its options” with the intention of fully enforcing its rights under the Shareholders Agreement and the Company’s Articles of Association. Yet rather than engage with MTN, the Company is now reportedly preparing to defend against a hostile takeover—an effort that promises only to divert management and the Board further from responding to the Company’s apparent financial and operational problems.
It is clear that the Board and management rejected the MTN and Wendel proposals consistent with its approach, in place since at least the IPO, that meaningful engagement with and transparency to shareholders somehow constitutes an evil that the Company must combat. It seems that the Board and management are determined to ignore the will of an increasingly large segment of the IHS shareholder population, and to avoid the responsibility and accountability that attend the common governance principles with which investors in U.S.-listed companies are familiar. What management and the Board are missing, in addition to their exclusion of the very possibility that an idea from outside the C-suite might actually have merit, is that the overhang of the Board and management’s approach, enabled by maintaining IHS as a Cayman Islands company that extends few if any rights to non-insider shareholders, is seriously depressing the Company’s enterprise value. It is time that this stop. The Company would obviously benefit from greater alignment of Company operations with shareholder interests and from increased transparency.
The mere fact that a company is incorporated in the Cayman Islands does not mean that the Company should adopt as its own the minimalist approach to governance what Cayman law permits, particularly where the Company has elected to have its securities listed on a U.S. securities market. It is imperative that the Company implement a policy of meaningful and transparent disclosure to and engagement with shareholders, among other reasons to help recover value for its shareholders. A truly independent and transparent Board should be asking serious questions about why the Company’s market value has eroded, and eroded so quickly, and how the Company’s course can be corrected—and after asking those questions, should have the courage and integrity to implement the needed corrective actions.
Blackwells demands that the Company and the Board take the following immediate actions:
- Reconstitute the Board with genuinely independent directors, with deep experience in the industry, and who have the clarity of insight to hold management and themselves accountable for their performance;
- Recommend, and put to a shareholder vote, that the Company stop hiding behind Cayman law to take advantage of the opacity and legal immunities that it permits, and (a) either eschew the default provisions of Cayman law in favor of governance rules that afford shareholders the basic rights they routinely enjoy and which are in line with shareholder rights of other issuers listed on a U.S. securities market, or (b) reincorporate the Company in Delaware or Maryland, consistent with appropriate tax and other considerations;
- Call and convene a special shareholders’ meeting to consider the enhanced governance matters or reincorporation contemplated by No. 2, as well as any and all shareholder proposals put forward by MTN and Wendel. (As a significant shareholder in its own right, Blackwells is quite interested in knowing what those proposals are—and in having the opportunity to vote on them); and
- Disclose to all shareholders without any further delay the proposals submitted by MTN, Wendel and any other parties in connection with the Company’s 2023 Annual meeting.
The Company’s reincorporation under U.S. law (or the implementation in any case of governance standards that align more fully with the interests of IHS’s owners) and the other governance demands above, must be followed—proper governance at IHS is no longer a ‘nice to have’, but rather a ‘must have’. The Company’s embrace of proper governance and transparency will result in a rapid and sustained, positive impact on the Company’s stock price, to the benefit of all shareholders.
As was the case last August, Blackwells stands ready to assist the Company. However, should the Board continue to follow its traditions, we are prepared to take whatever actions are necessary to reconstitute the Board ourselves to ensure that our demands are promptly met.
In the meantime, we reserve all rights.
Very truly yours,
Jason Aintabi
Chief Investment Officer
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About Blackwells Capital
Blackwells Capital was founded in 2016 by Jason Aintabi, its Chief Investment Officer. Since that time, it has made investments in public securities, engaging with management and boards, both publicly and privately, to help unlock value for stakeholders, including shareholders, employees and communities. Throughout their careers, Blackwells’ principals have invested globally on behalf of leading public and private equity firms and have held operating roles and served on the boards of media, energy, technology, insurance and real estate enterprises. For more information, please visit www.blackwellscap.com.
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