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Regulator says EABL, Diageo Sh22.7b shares deal was clean

Capital Markets Authority Chief Executive Officer Wycliffe Shamiah. [File, Standard]

The Capital Markets Authority (CMA) says a transaction between shareholders of the East Africa Breweries Ltd (EABL) and Diageo Kenya was above board.

CMA Chief Executive Officer Wycliffe Shamiah yesterday said the value of the transaction was Sh22.7 billion, and that the authority has not received complaint from an EABL shareholder or any other party.

Shamiah, who appeared before the Senate Trade and Tourism Committee, said Diageo Kenya initiated the tender offer through the Nairobi Securities Exchange, which is a public invitation to shareholders to sell shares at specified price within a specific time.

Shareholders not willing to accept the offer and the terms are not obligated to take any action.

"The transaction was reviewed and evaluated by the Authority with engagements held with the representatives of Diageo Kenya to understand the rationale for the transaction and strategic intent of Diageo Kenya PLC in the operations of EABL," said Shamiah.

Diageo acquired 118,394,897 additional ordinary shares and also sought and was granted an exemption from making a mandatory takeover of EABL pursuant to Regulation 4 of the Capital Markets (Takeovers and Mergers) Regulations, 2002.

He said the increased shareholding by Diageo signifies its commitment and confidence in the growth potential of EABL and the East African market, and may lead to enhanced collaboration leveraging Diageo global expertise and resources to drive innovation, market expansion and job creation in Kenya.

Shamiah said that the tender offer price was set at Sh192 per share, which was a premium.

CMA was summoned following a petition on May 30 expressing concerns on the deal.

Nicholas Rono from Bomet claimed the acquisition of majority shares at the EABL by Guinness PLC in 2000 was strongly resisted by the people of the Republic of Kenya through Parliament.

"Despite knowing the dealings, the Capital Markets Authority, Kenya Revenue Authority, the National Treasury and East African Breweries Ltd have not acted to correct or stop the fraudulent activities of shareholding and the illegal acquisitions," said Rono.

The petitioner argued that the recent acquisition of the extra 15 per cent in EABL is a fraud upon the people of Kenya as the shares were being acquired for an onward transfer to a new buyer at a much higher value for the benefit of the shareholders and to the detriment of Kenyan shareholders who will be denied the benefit of the higher price.

Rono said when it was locally owned, EABL possessed massive real estate that comprised staff houses, staff complexes, warehouses, factories and other assets, and had employed over 6,000 Kenyans.

He claimed the brewer has corruptly disposed of most properties and repatriated the sale proceeds, and is now but a mere shell of itself, employing a paltry 600 employees.

"The overall impact of this continued, contrived corporate action is a serious betrayal of the interest of the people of Kenya and a parliamentary hearing is urgently required to interrogate these events and to secure the public interest of Kenya and its people," said Rono.

But CMA told the Senate committee that in addition to its listing on the stock market in Kenya, EABL is cross-listed on the Dar es Salaam Securities Exchange stock market, Tanzania, and the Uganda Securities Exchange.

"In evaluating the recent transaction between the shareholders of EABL and Diageo Kenya through a tender offer, it is the conclusion of the Authority that the transaction was conducted in compliance with Capital Markets Act, Public Offers Regulations as well as takeovers regulations," said Shamiah.

He said that notifications of the tender offer were made to the relevant authorities in Uganda, being the Capital Markets Authority in Uganda and the Ugandan Securities Exchange and in Tanzania being the Capital Markets & Securities Authority in Tanzania, the Dar es Salaam Stock Exchange) and owing to EABL's majority shareholding in Serengeti Breweries Limited an application was made to the Fair Competition Commission in Tanzania.

He said CMA is not drawn into making an assessment of the merits and demerits of takeover offers as this is a matter for individual shareholders, adding that the agency only ensures that any takeover bid of a listed company strictly meets the requirement as stipulated in the Capital Markets Regulations, 2002.

"The Authority is currently in the process of overhauling the current Capital Markets (Takeovers and Mergers) Regulations to provide for such matters as independent valuations and to take into consideration the best practices relating to such transactions. The Authority placed the draft regulations on exposure between 16th August and 4th October 2022 and has been engaging stakeholders in face-to-face deliberations up to 31st May 2023," said Shamiah.

The CEO said considering the Government's policy of attracting foreign investments, the Authority is keen to ensure a balance between taking care of national interests and encouragement of foreign investments.

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