Rea Vipingo owners to endorse sale of land to Centum

Shareholders of sisal producer, Rea Vipingo, are expected to meet today to endorse a final deal to sell huge chunks of land to Centum Investment Ltd.

While the meeting is expected to be a formality, considering that majority shareholder Rea Trading, which is owned by two brothers, Richard and Jeremy Robinow, could pass any vote alone, thanks to their 57 per cent controlling stake in the company, fundamental questions have risen about just how much the company’s assets could be worth in view of current land value.

Top of the agenda for the Friday meeting is the approval by shareholders of a boardroom deal that will in part see the British brothers sell nearly 11,000 acres of land in Kilifi to Centum, at Sh180,000 an acre.

But there are indications it will not be smooth sailing. Alois Chami, one of the most outspoken shareholders of the company told Business Beat he would not accept the deal, and would rather stay on, as he did with Unilever tea, which delisted in 2009.

“There is a provision to stay, which is a choice I have made and will stick with,” Mr Chami told Business Beat. For him, the deal is not good enough. He says he has no immediate need for cash that would warrant him to sell ‘his land’.

“I do not know quite how much I would take to surrender my shares in a company that owns such prime assets,” he adds, claiming that he still holds 1,000 shares in Unilever Tea, that at one time was trading as Brooke Bond.

In total, Centum is expected to pay Sh2.1 billion for the prime land, about one-and-half times the Sh1.65 billion Rea Vipingo was worth at the time its shares were suspended from trading at the Nairobi Securities Exchange in December 2013.

Bidding war

At that time, the shares were selling at Sh27.50 apiece. As a precursor to the deal, Centum withdrew both a suit it had filed in court relating to the company and ended the bidding war that pitted it against Rea Trading last year.

Eric Musau, a research analyst at the Standard Investment Bank, said that Centum obviously bargained a very good deal for itself, perhaps better than what other small shareholders will get. “You could say that the transaction has unlocked value for many shareholders but Centum squeezed out a super good deal,” said Mr Musau.

Musau said that minority investors’ wealth grew three-fold, which is good, but added there would be some hidden value for the initiators of the delisting.

“I do not see why the Robinows would make an offer that even they did not believe had that much more value yet to be unlocked.”

If the going rates for land were to be deduced from recently concluded transactions, buyers are paying up to Sh5 million per acre. Most of the buyers are acquiring the plots to build homes. The land could however, be costlier depending on the distance from the Kilifi-Malindi main road, and how far the piece being bought stands from the Indian Ocean beach front. The acquisition means that the British firm has relinquished its stake in the coastal land, but will retain 37,000 acres (14,837 hectares) in Kibwezi and other parcels in Tanzania.

James Mworia, the managing director of Centum said the deal was a win-win for all shareholders, especially the minorities who have now been bought out. Rea Trading and Centum might be the biggest winners after splitting the land as agreed in their deal, but it might not be as sweet for the minority shareholders. The minority shareholders, including Centum, will be compensated at Sh85 a share, including Sh15 that was until last week conditional, by Rea Trading.

For a company with 60 million issued shares, Rea Vipingo’s market value using the offer price is Sh5.1 billion. Among its key assets, according to its books, are the three sisal farms it owns both in Kenya and Tanzania.

Rapid development of the Kenyan coast that has seen the emergence of mega housing projects like Vipingo Ridge -a top-end development around an 18-hole golf estate, and Mandharini, which is just a few kilometres further north - has sparked an unprecedented surge in land prices in the area. Centum has been clear from the onset about its ambitions in various sectors, including energy and real estate development in Kenya and beyond.

Clear intentions

Its multi-billion shilling mixed use Two Rivers project along Limuru Road and another top-end development in Uganda, makes the company’s intentions clearer. It is plausible that similar plans informed the Vipingo acquisition, even though its executives have talked about prospects in the agriculture sector.

After the current crop is harvested, Centum could be free to dispose some or all of the land. Mr Musau notes that Centum is unlikely to have any immediate plans for the land considering its hands are full with dozens of capital intensive projects that are ongoing at various levels of completion, including the proposed coal plant in Lamu.

Already, Rea Trading has asked shareholders to return their acceptance forms for the Sh85-a-share payout to any branch of Commercial Bank of Africa. Those accepting the buyout offer can also drop off the forms with their brokers’. Rea Vipingo last traded in December 2013 at a closing price of Sh27.50 a share meaning shareholders are getting a much improved deal for their investment, an indication there is likely to be a massive take-up of the offer.

The offer consists of Sh70 for each share and a cash top-up of Sh15 per share, payable immediately after the closure of the offer period. The British brothers are seeking to diversify Rea Vipingo’s predominant sisal business through a capital injection of between Sh910 million and Sh1.3 billion over the next four years.