Why American firm is angling for a piece of Unga Group pie

Maize farmers demonstrate outside Unga Limited Eldoret depot to protest over exploitative supply prices by millers. The miller has reduced the amount of purchasing 90Kg bag of maize from Sh 2800 to Sh 2150 on 24/08/204. [Photo/ Peter Ochieng].
Regional miller Unga Group, which had been posting profits since 2007, reaching a peak of Sh621.7 million in 2015 shocked the market last year with a profit warning, followed by a full-year loss of Sh32.3 million.

The flour milling company’s  share price on the Nairobi Securities Exchange (NSE) was then trading in the region of Sh30.50.

It also manufacturers human nutrition products and animal feeds.

Then on February 8, a US firm Seaboard Corporation, announced an offer to acquire a shareholding in Unga Group at Sh40 per share.

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Within the sixth trading session after the offer, Unga Group’s share price rose to a high of Sh39, as investors showed increased interest.

On that day, 22,300 shares worth Sh870,000 were traded at between Sh38 and Sh41.25

So high was the interest that the Nairobi bourse at one point had to put a trading halt on Unga shares.

By Friday last week, the share had remained bold, rising to a high of Sh42.25, being above the offer price by the Delaware State-based conglomerate. 

Unga group is set to remain in the limelight in the coming weeks as the US firm prepares for the transaction subject to regulatory approval.

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With interest in more than 15 countries on the continent and its 2016 books showing that it booked net sales of Sh153 billion ($1.5 billion) from operations in Africa, Seaboard could use the deal to better its fortunes.

“According to the offeror’s statement, Seaboard intends to acquire and retain all the shares and to continue carrying on the business of Unga,” reads the statement signed by the Company Secretary Winnie Jumba.

The two firms - Unga and Seaboard - have enjoyed a cordial business marriage for close to 18 years.

In 2000, Unga entered into a strategic investment partnership with Seaboard Corporation to form Unga Holdings Ltd in which Unga Group Ltd owns 65 per cent and Seaboard Corporation 35 per cent.

Unga Holdings Ltd has three operating subsidiaries: Unga Ltd, Unga Farm Care (EA) and Ennsvalley Bakery Ltd.

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However, the group has benefited heavily from the strategic partnership from Seaboard.

The Philip Ndegwa family, which has 50.93 per cent stake in the miller through its investment vehicle Victus Ltd has already given Seaboard blessings to acquire additional 46.1 per cent stake in Unga.

This will make Ndegwa’s family and Seaboard the only shareholders. Seaboard owns a 2.92 per cent stake in Unga and 35 per cent equity in the NSE-listed firm’s operating units.

In addition, company filings show that the American conglomerate is a key supplier to the miller. The US firm is not new to the Kenyan business and sees prospects going forward.

According to the 2016 financial report by Unga Group, the group relied on Seaboard Overseas Ltd for the supply of raw materials worth Sh4.1 billion - being an increase from previous year’s Sh3.2 billion.

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In addition, Seaboard Overseas Management Company received Sh63.2 million from Unga for management services.

This means the group is well equipped to run the business. Even when Unga needed to purchase equipment and spares for the business, it turned to Seaboard Overseas Group forking out Sh441.2 million.

At the same time, the company received Sh23.2 million as interest for trade financing Unga, pointing to strong financial muscles.

All these, summing up to Sh4.6 billion to Seaboard from Unga for the purchase of goods and service points to the high influence of Seaboard over the activities of Unga.

This, even as Seaboard Corporation subsidiaries pocketed Sh764 million from related party transactions.

In fact, at the close of the 2016 financial year, Unga was owing Seaboard Sh852 million. The firm has also tasted what it feels like doing business with the Kenyan Government.

It was among the firms that got an opportunity to supply maize as the country ran short of the popular commodity due to drought.

However, despite this advantageous position, should it seal the transaction, the dissenting voice of minority shareholders and the rise of the share price beyond their offer price may elicit debate. Seaboard intends to propose that the shares of Unga be de-listed from the NSE once it gets the additional stake.

“Unga’s shareholders who do not wish to accept the takeover offer and whose shares are not acquired in the circumstances provided in section 210 of the Companies Act (Cap 486) will, in such an event, remain minority shareholders in an unlisted company, thereby limiting the liquidity in the trading of their shares,” Seaboard says.

Shareholders may raise questions about if indeed at Sh40, the valuation had a premium. Since February 6, when the share was at Sh28.50, it has been on an upward trend to a high of Sh42.25.

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