Kenya’s largest milk processor Brookside Dairies has opened talks for the purchase of a majority stake in Buzeki Milk Company — the maker of Molo milk.
People familiar with the deal said Brookside, which has a market share of 38 per cent, is seeking to buy a 60 per cent stake in Buzeki, the Molo-based firm that is ranked fifth in the market with a four per cent marketshare.
The Buzeki management confirmed that it intends to sell a majority stake but insisted that the search for partners is not restricted to Brookside.
Kiprotich Bundotich, the Buzeki managing director, said the decision to sell part of the company was driven by the need to take on board a strategic partner that will enable the milk processor to expand its operations across the Great Lakes region.
“We are in talks with Brookside to sell them some shares as we aim to strengthen our business,” said Mr Bundotich.
Buzeki has established operations in five major Kenyan towns where its products are competing favourably. The company handles 250,000 litres of milk per day. Last year, the firm reported a turnover of Sh2 billion and is estimated to have Sh3 billion worth of brand equity.
Buzeki produces Molo fresh milk, yoghurt and chocolate milk. It established an ultra heat treatment (UHT) milk plant in Molo last year.
Brookside Dairies declined to comment on this story.
If successful, the deal will make Buzeki the fourth company into which Brookside has bought a stake in the past seven years. Brookside, whose chairman is President Uhuru Kenyatta’s younger brother Muhoho, began the acquisition spree with the purchase of Ilara Milk Company then followed it up with Spin Knit, the makers of Tuzo milk, and Naivasha-based Delamere Dairies.
Though Brookside’s acquisitions are widely seen as good for consolidation of the highly fragmented milk market, some dairy industry players are opposed to it on grounds that it is creating a monopoly in the market that may hurt fair competition in the long term.
“Brookside has absorbed Ilara, Tuzo and Delamare and any additional acquisitions could only tighten its grip on the market and drive it towards monopolistic tendencies,” said Peter Lelei, the vice-chairman of Kenya Dairy Producers Association.
Mr Lelei argued that Brookside’s acquisition of a majority stake in Buzeki would comfortably leave it with a market share of more than 40 per cent, adding muscle to its market power.
Mr Lelei said that the presence of many players in the market encourages competition that leaves dairy farmers as the ultimate winners in the event of a war price.
Kipkorir Menjo, a director of the Kenya Farmers Association, asked the Buzeki management to give farmers a chance to buy the stake that is up for sale instead of putting it in the hands of a single player.
“We are in talks with governors of the five milk-producing counties in Rift Valley on the possibility of giving farmers a portion of the Buzeki shares that are up for sale,” said Mr Menjo, who insisted that the merger between Buzeki and Brookside would create unhealthy competition leaving dairy farmers as the main losers.
Concentration of the milk market in the hands of one player is seen as detrimental to the farmers’ interests — especially in the pricing of milk at the farm-gate.
Buzeki’s revelation ends speculation that the Molo-based milk processor had opened talks with government-owned New Kenya Cooperative Creameries (New KCC) on a possible sale.
Mr Bundotich said the decision to sell a majority stake had nothing to do with the company’s performance but was informed by a long-held ambition of extending its footprint across the national borders.
“We are working profitably and we are competing well with our rivals, disposal of some shares is only aimed at adding synergy to our operations,” he said. Buzeki has operations in Juba, South Sudan and plans to establish outlets in Bujumbura, Burundi and Kigali, Rwanda.
Locally, Buzeki has recently expanded its catchment area to Kiambu and Nairobi and plans to establish a nuclear milk zone in key regions to double its production in the next three years, Mr Bundotich said.
The new development comes at a time when consumers are paying high retail milk prices that have been attributed to an acute supply shortage.
A 500ml packet of milk is currently retailing at Sh45 in most supermarkets up from Sh40 early in the year. The trend is expected to continue into late October, according to industry observers.
“There is usually a drop in output during the months of July and August because cold weather affects the cows,” said Daniel Langat, managing director of New KCC.