Dubai’s Al Futtaim extends offer period for CMC takeover

A Dubai-based firm seeking to buy CMC has indefinitely extended the period that the auto dealer’s shareholders can accept its offer for fear of an undersubscription.

Al Futtaim on Tuesday extended the offer period beyond the closing date of January 24 as it emerged that top CMC owners face a Sh300 million penalty for breach of a takeover pact agreed with the Dubai firm.

It did not offer fresh dates for the closure of the offer, prompting the postponement of an extraordinary general meeting that was set for tomorrow to approve the takeover deal.

“Al Futtaim has extended the offer period to avoid the risk of below—target commitments by the initial closure of January 24,” said a person with knowledge of the deal.

He added that the offer was initially set to open in October, but was delayed to December on late regulatory approvals and issuance of the formal bid document to CMC’s 14,743 shareholders.

The December holidays further cut business days during which sale commitments could be received and processed. The buyout offer opened on December 6 and Al Futtaim needs support of shareholders controlling at least 75 per of CMC for the deal to go through.

Shareholders controlling 50.6 per cent or 295 million CMC shares have agreed to support the takeover and to pay Dubai’s Al Futtaim Sh1 per share if they breach buyout conditions.

This means that the Dubai firm needs to secure a 24.4 per cent stake from retail investors to top up the 50.6 per cent already pledged by the major owners.

Break fee

The CMC top owners include Peter Muthoka with a 24.7 per cent stake, Jeremiah Kiereini (12.5 per cent) and former Attorney-General, Charles Njonjo (1.32 per cent).

Others are the dealer’s chairman, Joel Kibe and Paul Ndung’u who directly own a 4.05 per cent stake and 7.4 per cent respectively.

The penalty is contained in a takeover offer document offered to CMC shareholders by Al Futtaim Group which is seeking to buy entire stocks of CMC for Sh7.5 billion or a share at Sh13.

The fine is seen as a hedge against wild factors such as a rival buyout bid that could lure CMC’s major and retail investors with a higher price.

READ: Dubai Al-Futtaim Group bids Sh7.5bn for CMC Holdings

The major investors have undertaken to support Al Futtaim’s acquisition bid, failure to which they have agreed to pay a “break fee” of Sh1 per share to Al Futtaim.

This means that Mr Muthoka would part with Sh144 million, Mr Kiereini (Sh72.8 million), Mr Ndung’u (Sh43.2 million), Mr Kibe (Sh23.5 million) and Mr Njonjo (Sh7.7 million) if they breach agreements inked with the Dubai firm ahead of closure of the deal.

They have committed not to withdraw their acceptance of the offer and not to deal in their CMC shares including selling or transferring the stock to any party other than Al Futtaim.

The have also agreed to protect CMC’s value and to vote in favour of the auto dealer’s delisting from the Nairobi bourse.

The Sh1 per share penalty represents 7.6 per cent of the buyout price of Sh13 per share and is seen as a way to fend off a rival takeover bid.

Shareholders of agricultural firm Rea Vipingo, for instance, have received three competing acquisition bids of Sh40, Sh50, and Sh55 per share from Rea Trading, Centum, and WWW.Bid Investment Company.

Al Futtaim has, however, not faced competition in its bid to acquire CMC.

Analysts reckon that the bulk CMC shareholders would be keen to sell for fear of share price erosion at the Nairobi bourse when the stock is suspended.

Compulsory acquisition

A vicious board room that gripped the firm in 2011 and 2012 partly led to the loss of the JLR franchise which involved the exclusive sale of cars like Land Rover Defender, Jaguar and Range Rover brands.

These brands accounted for  23 per cent of the dealer’s sales of Sh11.7 million in the year to September 2012.

The Dubai firm said it will implement a compulsory acquisition of dissenting CMC owners if it secures acceptances amounting to 90 per cent of the auto dealer’s shares.

“The take-over process which is ongoing has taken a bit longer than we had anticipated considering the complex nature of the transaction,” said Mary Ngige, the CMC managing director in a statement.