Unmasking the figures behind sale of KenolKobil

By Kenneth Kwama

For a former powerful Cabinet minister in the old Kanu regime, who is the majority shareholder in KenolKobil, it is the time to harvest.

The former power broker will be the first Kenyan to reap in excess of Sh15 billion in a deal that will see a Swiss-based Puma energy takeover KenolKobil.

According to Kestrel Capital, driving the takeover plans are Puma Energy’s desire to build up its presence in East Africa — where it plans to capitalize on oil storage, distribution and marketing.

Cumulatively, shareholders at KenolKobil will get more than Sh25 billion in exchange for the right of ownership of the region’s biggest and most-networked oil marketer.

Total sale value from the transaction is close to the amount that has been spent so far on remaking the multi-billion Thika superhighway.

The region’s most complex road project has so far gobbled Sh27 billion, with each of the three lots of the project being over 90 per cent completed.

Puma Energy has already struck an agreement with major shareholders and was readying to make an offer to minority shareholders when a misunderstanding with the local firm’s workers temporarily halted the progress.

consistent

 “The move by a principle shareholder (assuming Puma Energy manages to buy out major shareholders) is consistent with some companies’ strategy to achieve a preferred, wholly-owned structure within some markets,” says Job Kihumba, the director at Standard Investment Bank (SIB).

Kihumba says if things went on smoothly, the next step will be the circulation of an offer document to the minority shareholders and eventual delisting, depending on the offer’s take-up rate.

If successful, the deal will be twice as big as the 2009 pioneer arrangement between two oil companies, in which Total acquired Chevron’s operations in Uganda and Kenya for $150 million (Sh12.5 billion going by current exchange rates). 

Kestrel Capital estimates that the KenolKobil-Puma energy venture could be worth more than $300 million (Sh25 billion) in absolute terms.

This means that major shareholders who have already agreed terms with Puma Energy over the company’s sale stand to make more than Sh17.5 billion.

Wells Petroleum Holdings is the single largest shareholder in KenolKobil with a 24.9 per cent stake, followed by Petrol Holdings (17.34), Highfield Ltd (12.46), Chery Holding (7.8), and Energy Resources Capital with 5.99 per cent.

The former Kanu-era Cabinet minister who owns majority stake in KenolKobil —through proxies — will make more than Sh15 billion, a record in corporate Kenya.

What he stands to reap is six times the Sh2.5 billion Finance Minister Njeru Githae allocated for recruitment of additional 3,500 police officers during the 2012/2013 financial year in this year’s budget.

The former minister’s take home will be enough to fund key items in the 2012/2013 Budget. Notably, it will be enough to fund all irrigation projects in the country (Sh8 billion) and hire an additional 10,000 teachers at a cost of Sh8 billion.

The only person who has come close to achieving similar feat is business magnate Naushad Merali.

Merali bought 60 per cent of Vivendi — the French firm with whom he co-owned Kencell — at Sh18.4 billion and sold the shares to Celtel for Sh20 billion two hours later, coming out with a cool Sh1.6 billion profit in March 2004.

similar story

The arrangement also shadows a similar story that happened in October 2000 when Merali acquired East African Cables from Delta Group Plc of UK, which wanted to exit Kenya.

Merali bought out Delta’s 75 per cent equity in the company for a reported Sh6.8 per shares — amounting to Sh104 million.

In late March 2004, Merali sold the company to local investment group, TransCentury for Sh15 per share or Sh230 million. This arbitrage opportunity netted Merali a cool profit of Sh126 million.

Similar takeovers happened in 2008 when the Capital Markets Authority approved a request by Brooke Bond to buy out minority shareholders of Unilever Tea (K) Ltd.

Brooke Bond had an 88.24 per cent stake in Unilever Tea, which had interest in vast tea estates in Rift Valley, and had sought to buy out the balance of 5.75 million shares, each valued at Sh62.

But the massive cash required by employees to conclude the deal could be a big set back for KenolKobil and its major shareholders.

As a result, the two parties may change terms of the tentative deal, which was announced a month ago, to accommodate the fresh demands.

Many analysts had considered the takeover accomplished, because all major issues appeared to have been resolved until the Industrial Court blocked the sale a fortnight ago over a dispute between KenolKobil and its employees.

Experts say that if the situation is not handled well, it might create differences that may leave the two oil dealers unable to agree terms.

“When shareholders are selling the company, there is need to inform employees of likelihood of change,” says Karugor Gatama, the chief executive of Africa Corporate Governance Advisory Ltd.

KenolKobil’s chairman of board of directors and chief executive, Jacob Segman, declined to talk about the issue, but referred Business Weekly to the company’s lawyer, Desterio Oyatsi.

 

laid-off

The employees of KenolKobil — who want their terms of employment agreed before the deal is settled —have cited a similar takeover of petroleum company, BP in Southern Africa in which the Swiss company parted with $296 million, and thereafter laid off employees massively.