CMA blocks purchase of Unilever shares in tea company

Capital markets

CMA blocks purchase of Unilever shares in tea company

Wyckliffe Shamiah, CEO of the Capital Markets Authority (CMA), April 29, 2021. PHOTO | LUCY WANJIRU | NMG

The Capital Markets Authority (CMA) has frozen the transfer of Unilever’s majority stake in Limuru Tea and prevented a US-based private equity firm from buying minority investors in the listed company, disrupting thus the 596.7 billion shillings ($5.1 billion) global deal.

The regulator has refused to approve a bid by private equity firm CVC Capital Partners to fully buy out minority owners of Limuru Tea, including tycoon Joe Wanjui, following wrangling among the company’s shareholders.

The CMA believes the High Court has stopped the transfer of Unilever’s 52% stake in Limuru Tea to CVC Capital Partners, adding that it is premature and an offense for the private equity firm to seek the remaining 48% .

The blockade is a victory for Mr Wanjui along with another minority investor – Wainaina Kenyanjui – who asked the court to freeze the Unilever deal, accusing the British multinational of rejecting their offer to buy the 52% stake.

The regulator said it would accept the deal after concluding investigations into Unilever’s dealings with the Nairobi Stock Exchange-listed company amid accusations that the 696.8-acre plantation was undervalued and Limuru Tea cookbooks.

The court battle looks set to offer a glimpse into the closely guarded secrets of Limuru Tea’s boardroom and Mr Wanjui’s property, which for decades remained hidden under a Standard Chartered candidate account.

The suit will also see the tycoon go up against his former employer, having joined East African Industries (EAI) – now known as Unilever East Africa – as technical director in 1968 and rising through the ranks to become managing director and eventually Executive Chairman before retiring in April 1996.

“The position of the authority is that the status quo should be maintained, pending the decision of the cited court case and the conclusion of the ongoing investigations. Accordingly, approval of the Offeror Statement has been suspended,” Wycliffe Shamiah, Managing Director of CMA, told Ekaterra Kenya (Unilever Tea) in a letter seen by the business daily.

“Investigations into various matters regarding the majority shareholder of Limuru Tea, which may impact Limuru Tea and its directors,” the July 15 letter said.

The investigation follows a petition from a minority shareholder of Limuru Tea, accusing the company of valuing its landholding at 1 million shillings against an estimated value of 23 million shillings per acre or 16.2 billion shillings .

The CMA is also investigating its underreporting of revenue and delays in collecting tea sales from Unilever, which is accused of overcharging Kenyan tea companies for services.

Minority owners say Unilever sells inputs such as fertilizer and labor to Limuru Tea at extortionate prices and is the sole buyer of the company’s tea leaves at often lower prices than offered. Mombasa auction.

According to Mr. Wanjui and Mr. Kenyanjui, this has contributed to lowering the company’s sales and profits as well as tax payments, in an investigation that will attract the attention of the Kenya Revenue Authority (KRA).

Unilever said in November it had agreed to sell its global tea business to CVC Capital Partners for 596.7 billion shillings ($5.1 billion), concluding a review and divisional spin-off process that has lasted more than two years.

This included the 52% stake which will see a Dutch-registered special purpose vehicle, Puccini Bidco BV, owned by CVC Capital, take the shares of Limuru Tea, a contractor or subsidiary of Unilever Tea Kenya Limited.

Unilever’s global business sold, called Ekaterra, hosts a portfolio of 34 tea brands including Lipton, PG Tips, Pukka Herbs and TAZO and generated revenues of 2 billion euros (250 billion shillings) in 2020 .

Unilever will not wait any longer to transfer the Kenyan part of the deal as minority shareholders led by Mr Wanjui fight to frustrate the deal.

On July 5, CVC Capital announced its intention to acquire all minority shareholders of Limuru Tea after the CMA refused to exempt the company from making a mandatory bid to investors controlling the 48% stake.

The PE fund offering was expected to trigger competing bids, before the CMA blocked it on July 15, and provide an exit route for shareholders holding the remaining stake.

The refusal to offer the exemption is a rare case in mergers and acquisitions in Kenya, but is not uncommon in Western capital markets.

The law requires investors who directly or indirectly buy more than 25% of a company to make a public tender offer to the rest of the shareholders.

But they can apply for an exemption from the CMA on the grounds that the acquired business is in financial difficulty, the stake purchased served as collateral for a bank loan, or there is a need to retain a domestic stake for strategic reasons.

Limuru Tea, which is currently trading at 420 shillings per piece, is valued at 1 billion shillings, meaning that the minority stake targeted by Unilever is worth 480 million shillings. But such trades occur at a premium to the trading price.

“For the avoidance of doubt, the authority had declined to exempt Puccini from the requirement to make a tender offer in respect of its proposed indirect acquisition of effective control of Limuru Tea,” Mr Shamiah said.

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