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Hostile Takeovers At Kenya’s NSE Loom With New Forced Buyout Rules

GBR Team 31/10/2019

Only 50 per cent of shareholding approval will be needed to force a buyout of the remaining shareholder’s stakes in listed companies in Kenya, new company regulations show.

Kenya Airways, Unga Ltd and Express Kenya could be among the beneficiaries of the revised Companies Act buyout rules which have diluted minority rights and allow compulsory annexation of their shares by bidders who build up to 50 per cent shareholding and voting rights in their companies.

In a move likely to trigger a raft of acquisitions, hostile takeovers and de-listing of some public companies, the Statute Law Amendment Bill 2019 has amended sections of the Companies Act 2015 to dilute minorities rights forcing them to accept to be bought out by approval of just 50 per cent of shareholders.

“The lower threshold allows any bidder to force out any non-assenting shareholders easily if 50 per cent of the shares to which the offer relates accept the offer,” Bowmans Kenya, a Law firm says in a report.

“There are few, if any, jurisdictions globally with such a low threshold for compulsory acquisition.”

In July 2018, US-based Seaboard Corporation failed in its bid to delist Kenya’s largest grain miller Unga Group after some minority shareholders held out. This is despite getting the backing of the Ndegwa-family owned Victus Group which held 50.93 per cent of the company.

With the listed firm’s share trading at Sh29.50, the bidders offered Sh40 per share, a 35 per cent premium. Shareholders insisted on the independent financial advisers’ valuation of Sh67.19 a share, or a 67 per cent markup from the bid offer.

With the new regulations, Seaboard and Victus will be able to compel the offer and take the company private.

Businessman Hector Diniz also failed in his quest to buy out other shareholders in listed shipping and logistics company Express Kenya, last year.

His bid at Sh5.50 fell short of the Sh16.15 valuation and shareholders of the 38.36 per cent that he did not already control stymied his bid. He has since upped his stake to just over 70 per cent with the conversion of debts owed by Express Kenya to his companies to equity at Sh6.50 per share.

He will now be able to force assent on the minority shareholders.

Law firms see potential for legal hurdles ahead as the new measures are implemented.

MMC Africa Law in a client note says minority shareholders may challenge the stripping of their rights.

“The effect of the amendment is yet to be seen,” MMC writes. “but there is bound to be resistance by shareholders seeking to retain their investments in listed companies.”

Bowmans anticipates legal challenges to the new rules ahead does not rule out even legal danger to any acquisitions made under the new regulations.

“We anticipate challenges to the legitimacy of this amendment and, potentially, in respect of any take-over effected in the future that takes advantage of the lower thresholds,” Bowmans writes in a client note.

For Kenya Airways, already recommended for nationalization by Kenya’s parliamentarians, the new regulations offer yet another way to exit the NSE by forcing the buyout of smaller shareholders and leaving a consortium of banks and the Government of Kenya to run the touted Pride of Africa.

Currently, the government controls a 48.9 percent stake, a ground of lending banks 38 per cent, Dutch carrier KLM 7.8 percent, and minority shareholders, three percent.