The Competition Authority of Kenya (CAK) has approved the acquisition of Cemtech Company by Simba Cement Company, paving the way for a merger between the two.
The acquisition will further expand the empire of construction giant Devki Group whose chairman and founder Narendra Raval was last week appointed chancellor of Egerton University.
“The proposed transaction involves the acquisition of 100 per cent of the business and assets of Cemtech by Simba Cement,” said the CAK yesterday in a statement.
“The proposed transaction, therefore, qualified as a merger within the meaning of Section 2 and 41 of the Competition Act No 12 of 2010.”
Simba Cement is involved in the production of clinker and distribution of cement as well as construction materials such as precast concrete paving blocks and ready-to-mix concrete.
The company trades under the name National Cement Company, an independent entity under the Devki Group of Companies that specialises in the manufacture of steel and holds a significant chunk of the construction market across the region. Cemtech, on the other hand, owns limestone and clay deposits as well as mining licences in West Pokot County.
This gives National Cement a steady pipeline of the raw materials used in cement production. The acquisition comes at a time when the local cement industry is struggling with dwindling sales amid a slowdown in the real estate sector and partial freeze on giant infrastructure projects.
Data from the Kenya National Bureau of Statistics (KNBS) indicates that cement production decreased from 6.7 million tonnes in 2016 to 6.2 million tonnes in 2017, with consumption declining from 6.3 million tonnes in 2016 to 5.8 million tonnes in 2017.
According to KNBS, consumption of cement plunged to a four-year low, with developers absorbing 5.4 million tonnes of the input - the lowest since 2014 when 5.1 million tonnes of the commodity were consumed.
This comes at a time when analysts have projected a price correction in the housing sector after an extended period of aggressive building led to an oversupply of both residential and commercial units.
A report by real estate firm Knight Frank said the oversupply was particularly pronounced in the high-end housing residential market, which has put pressure on prices and rents.
The merger is expected to boost the operations of National Cement that currently holds a paltry eight per cent of the market behind leader Bamburi Cement (33%), Mombasa Cement (16%), East African Portland Cement Company (15%) and Savannah Cement (15%).
In 2015, Nigerian business magnate Aliko Dangote approached Mr Raval with a proposal to acquire part of the Devki empire as a means of accessing the East African market, an offer the latter turned down.
“The authority is of the view that the merged entity is unlikely to raise negative competition concerns,” said CAK of the impending merger.
The merger is also expected to provide a much-needed lifeline to Cemtech which has been dormant for a decade, with shareholders keen on a strategic partner to finance construction of a cement plant.
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