Centum signs sweetheart deal with UK duo for Vipingo land

Investment firm Centum has reached a multi-billion shilling sweetheart deal with two British brothers that will see it withdraw its hostile takeover bid for Rea Vipingo, an NSE-listed agricultural firm majority owned by the UK citizens.

The deal, which was filed on Thursday with the capital markets regulator, will see Centum acquire 10,546 acres of prime Rea Vipingo land for Sh2 billion in exchange for withdrawing its rival bid.

The settlement allows Richard and Jeremy Robinow, whose investment vehicle REA Trading already owns 57 per cent of Rea, to proceed with their offer to buy out the company at a price of up to Sh85 per share and de-list it from the stock market.

“The Authority has no objection to the sale of shares and land by the offeree as indicated in your letter, subject to Rea securing shareholder approval for the same,” said the Capital Markets Authority acting chief executive Paul Muthaura in a letter to the Rea chairman Oliver Fowler on February 23.

Centum will in turn snub the sale commitments it had received from a section of Rea’s investors last year as it fought to recruit shareholders controlling at least 25 per cent of the firm’s stock.

The investment firm had set the threshold as a condition for proceeding with the buyout.

The Rea Vipingo buyout has stalled for more than a year, with the two parties engaging in bidding wars and litigation at the High Court and the CMA tribunal.

READ: Centum ups stakes with sugarcoated bid for Rea Vipingo

Centum says the land it will acquire will continue to be used as sisal plantations by Rea for the foreseeable future, meaning that the agricultural firm will be a tenant of the investment company.

The Robinows will, as per the deal, own nearly 60,000 acres of land upon completion of their buyout since the Nairobi Securities Exchange-listed firm has a total of 69,500 acres in Kenya and Tanzania.

The Britons will need shareholders approval to ratify the deal, which Centum has committed to give making the sale as good as done.

Centum, which has a 0.49 per cent stake in Rea, has also undertaken to support the agenda items at the shareholders’ meeting slated for April 28.

The transactions are expected to unlock value for Rea’s minority investors who have endured trading suspension since November 2013.

Centum and the Robinows have agreed to work in concert to fulfil all the conditions of their agreement, including the withdrawal of cases that had been filed by the investment firm opposing Rea Trading’s bid.

The parties had engaged in a series of bidding wars since the Robinows first made a buyout offer of Sh40 per share in November, with Centum’s last offer standing at Sh75 per share.

The Britons had raised their bid to Sh70 per share and a possible top-up of Sh15 per share representing distribution of gains from sale of the company’s land holdings.

It is this promise to pay an additional Sh15 that led to the aggressive litigations by Centum which argued that the offer is uncertain and should be rejected by the markets regulator.

Besides the uncertainty of the extra cash, Centum had also argued that it is unfair for the Robinows to buy the company using proceeds from its assets which belongs to all current shareholders.

The brothers’ promise to distribute gains from disposal of Rea’s land is contingent on earning a profit from such transactions, among other conditions.

The profit in this case refers to any amount in excess of Sh175,000 per acre and net of taxes and transaction costs.

Centum says that its impending purchase of land from Rea should satisfy these thresholds and ultimately lead to the brothers paying the full Sh85 per share to the minority investors.

The investment firm will buy 9,646 acres at a price of Sh180,000 per care for a total of Sh1.74 billion. It will also acquire another 900 acres for Sh342 million. The two parcels are located in Kilifi County.

“The sale of land to Centum enables the REAT offer to become free of conditions relating to future sales of Rea land and REAT has indicated it intends to pay the full amount of the additional cash top-up of Sh15 per share,” Centum said in a statement.

The bidding wars and subsequent settlement underlines the fact that Rea’s major value lies in its land which is worth a lot more than the Sh2.4 billion at which the Robinows’ initial offer of Sh40 per share priced the company.

An independent valuer, Ryden International, advised Rea’s board that the agricultural firm has total assets worth Sh4.5 billion, matching Centum’s current offer at Sh70 per share.

The Sh4.5 billion valuation is still seen as conservative given rapid appreciation of land in the region, a view that is supported by the fact that the competitors had not ruled out another upward revision of their offers before the settlement.

For Centum, the settlement highlights the pragmatism and business savvy of its director and single largest shareholder Chris Kirubi who had earlier told the Business Daily that Centum would likely reach an out-of-court settlement with the Robinows after negotiations.

Centum’s first bid, in December 2013, was Sh50 per share. Rea’s minority shareholders have emerged as major beneficiaries of the competing bids that is set to reward them with major capital gains despite the stock’s suspension.

The agricultural company’s market capitalisation, based on the last trading price of Sh27.5, stands at Sh1.6 billion or just 31 per cent of the Sh5.1 billion valuation by the Robinows’ current offer.

The settlement also eliminates the risks previously faced by the minority investors from the competing offers.

It was feared that the Robinows could fail to pay the extra Sh15 per share while there was no guarantee that Centum would get sale commitments from shareholders owning the 25 per cent stake it needed to proceed with the acquisition.

The Robinows have also avoided a situation where they would have been stuck with Centum as a non-controlling shareholder with divergent strategies.

The billionaire investor had earlier told the Business Daily that Centum would likely reach an out-of-court settlement with the Robinows after negotiations. It remains to be seen what Centum will eventually do with the land it will acquire from Rea.