How activist investors blocked Unga’s buyout

Posted on July, 24, 2018 at 09:09 am


Activist investors at the Nairobi Securities Exchange (NSE)

have stalled the planned takeovers of Kenya’s largest grain miller Unga Group and real estate firm Express Kenya, casting a spotlight on their emerging role in the raging fight against perceived abuse of corporate power.

Delaware-based Seaboard Corporation became the latest victim of the vocal investors after it failed to win the required shareholder vote to buy out Unga Group.

Express Kenya chief executive Hector Diniz also met a similar fate in his attempt to buy the company and take it private.

Both attempts were victims of a group of significant shareholders, who refused to sell their shares, arguing that the buyout offers undervalued the target companies by large margins.

Independent financial advisors said Unga shares are, for instance, worth Sh67.19 each or Sh27 more than the Sh40 a share that Seaboard offered.

Express Kenya had independent valuation of up to Sh16.15 per share against the Sh5.5 that Mr Diniz offered.

The Business Daily has learnt that the activist investors, including city lawyer Andrew Musangi, Kunal Bid, Rakesh Gadani and Karim Jetha, also wrote protest letters to the boards of the companies and in some cases bought more shares in the open market to boost their ability to block the takeovers.

The investors took matters into their own hands after the Capital Markets Authority (CMA) declined to intervene in the transactions, arguing that its role is limited to ensuring the takeovers were compliant with all the necessary disclosure rules.

The valuation of Express Kenya was, for instance, seen to be unfair to the small shareholders because it did not include the company’s 15.7 acres of prime land in Nairobi’s Industrial Area worth Sh1.2 billion.

Despite protests from small investors, Seaboard and Mr Diniz pushed through the takeover bids in the hope that they would garner enough support to take the companies private.

Collapse of the two buyout bids marks a rare victory for minority investors, who have had to go along with decisions of controlling shareholders, even in critical issues such as the sale of businesses they co-own.

Mr Gadani has 3.5 million shares equivalent to a 4.64 per cent stake in Unga, Mr Bid has 2.3 million shares (3.1 per cent) in the miller through his investment vehicle BID Portfolio Management while Mr Jetha has 1.1 million shares held through his firm Sayani Investments.

Mr Musangi has 153,100 shares equivalent to a 0.43 per cent stake in Express Kenya.

Mr Diniz, who made a bid for the 38.36 per cent stake in Express Kenya that he did not own, partly blamed small investors, who bought more shares on the NSE during the offer period, for the collapse of his bid. Some 1.6 million shares equivalent to a 4.59 per cent stake were traded over the offer period, a significant amount given the fact that Mr Diniz failed to hit the minimum threshold of 75 per cent by just 3.58 percentage points.

Similar transactions took place at the Unga counter where some 4.9 million shares amounting to 6.4 per cent equity were traded over the offer period -- a significant volume since Seaboard failed to hit the minimum 75 per cent target by 5.1 percentage points.

The conglomerate said it will make further announcements regarding the failed buyout in the near future, signalling its intention to proceed with the purchase of shares from investors, who accepted its offer.

In a circular to shareholders, Seaboard said the takeover conditions could be waived, allowing it to buy the tendered shares.

Seaboard’s discount offer to Unga’s minority investors is in sharp contrast to more generous acquisitions it has completed in other markets in recent months.

The multinational in January bought out shareholders of Monaco-based flour miller Groupe Mimran for $375 million (Sh37.7 billion) and agreed to pay them an additional amount of up to $48 million (Sh4.8 billion) if the business meets certain performance targets in the future.

“The potential additional payment per the earn-out is based on performance of the business, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) as a metric, for the first five years after closing of the transaction,” Seaboard said in a statement


Source: Business Daily