Why Former BOC Kenya Chairman Has Moved To Block Carbacid Takover Of BOC

Billionaire businessman Ngugi Kiuna is seeking the termination of the Carbacid Investments’ buyout of BOC Kenya after filing an objection to the deal at the Capital Markets Tribunal citing undervaluation.

Mr Kiuna, a former BOC Kenya chairman, said the Capital Markets Authority (CMA) erred in approving the takeover by ignoring the undervaluation of BOC besides disregarding the protection of interests of minority shareholders.

The tycoon, who holds 1.4 million BOC shares equivalent to a 7.6 percent stake, filed the appeal on March 1, 2021.

The legal action means that the buyout process, which was scheduled to close on April 6, 2021 will be put on hold until the issue is determined.

Carbacid and Aksaya Investments LLP, a firm controlled by its major shareholder Baloobhai Patel, have teamed up to offer BOC investors a buyout price of Sh63.5 per share or an aggregate of Sh1.2 billion.

“That the approval granted by the first respondent in respect of the proposed takeover offer by Carbacid Investments Plc and Aksaya Investments LLP to acquire up to 100 percent of the issued ordinary shares of BOC Kenya Plc be set aside in its totality for being invalid, null and void ab initio,” Mr Kiuna said.

The businessman laid out the grounds for his contention that Carbacid’s offer is inadequate. He said that as of December 31, 2020, BOC had Sh1.1 billion in cash and cash equivalents alone.

The company holds 14.8 million shares in Carbacid currently worth about Sh180 million. Mr Kiuna said that BOC has not revalued its freehold land and buildings at market rate, adding that they are grossly undervalued at the stated historical value of Sh46.4 million.

“The information presented in the [BOC] financial statements is incorrect, not up to date and misleading, with some entries having been exaggerated and others understated,” he said.

Dyer and Blair Investment Bank, the independent financial advisor hired by BOC to review Carbacid’s offer, said that the bid undervalued the company by 30.8 percent.

Dyer and Blair stated that BOC share was worth Sh91.76 a piece, valuing the firm at Sh1.7 billion. This is Sh552 million more than Carbacid’s total bid price of Sh1.2 billion.

The board of BOC agreed with the investment bank’s assessment and told shareholders to make up their own mind with regard to the merits of Carbacid’s offer.

This came after BOC’s majority shareholder, BOC Holdings, had already committed to sell its 65.38 percent stake to Carbacid at the Sh63.5 per share offer price.

Mr Kiuna filed documents which he said demonstrate that the CMA went out of its way to accommodate Carbacid’s takeover bid, including by relaxing the buyout conditions and aiding information blockage.

“The proposed takeover offer is not conditional as to acceptances and therefore its success is guaranteed and the level of acceptances by the minority shareholders in [BOC] is inconsequential,” Mr Kiuna said.

The CMA on its part has insisted that all the relevant disclosures to BOC shareholders have been made and it is upon them to make their own individual decisions.

“The Authority has also noted the contents of the final independent financial advisor circular and is satisfied that the circular contains material information … that the shareholders of BOC Kenya and their independent professional advisors would reasonably require or expect to be informed about in relation to the offer,” the CMA wrote to BOC’s board on February 15 this year.

This was the same stance taken by the regulator in 2018 when it refused to wade into allegations that US conglomerate Seaboard Corporation was undervaluing Unga Group in its bid of Sh40 per share.

The regulator, however, appeared to take a tougher stance in earlier buyout deals, including scuttling BOC’s previous bid to acquire Carbacid.

BOC announced its intention to buy Carbacid in December 2005. Shareholders of both companies were happy to conclude the transaction but the CMA was not satisfied with the manner in which BOC waived its minimum threshold for acceptances, freezing the deal until October 2009 when it was called off.

Mr Ngugi becomes the second high-net-worth Kenyan to protest a buyout of a Nairobi Securities Exchange-listed firm on the basis of undervaluation, among other grievances.

Centum Investment Company, controlled by billionaire investor Chris Kirubi, in 2014 filed cases at the High Court and the CMA tribunal to challenge the buyout of agricultural firm Rea Vipingo by British brothers Richard and Jeremy Robinow.

The brothers had initially offered to buy out the company’s minority shareholders at Sh40 per share but were later forced to more than double it to Sh85 per share as part of a settlement with Centum.

The investment firm had sued the CMA for approving the duo’s revised bid of Sh85 per share despite the fact that it was contingent upon the sale of part of Rea Vipingo’s land on unspecified date and price.

This is the latest business dispute involving Mr Kiuna, who has launched legal battles to defend his rights in various companies including Old Mutual Life Assurance Company (OMLAC) and liquor distributor Maxam Limited.

He filed a suit arguing that OMLAC’s shares were undervalued in the company’s merger with UAP Holdings. He also sued Dutch brewer Heineken International for ending the exclusive local distributorship of his company Maxam by appointing other sellers.

He was awarded Sh1.8 billion, which the multinational disputed in an appeal. Mr Kiuna’s business interests include stakes in Maiden Lane Investments Limited, Proctor & Allan (EA) Limited and land holdings in Tatu City.

(BD).