Ndegwa family diluted in Unga’s buyout of bakery

 Unga Limited in Eldoret.  Unga Group will offer owners of a Nairobi-based bakery shares worth Sh446m. Photo/FILE
Unga Limited in Eldoret. Unga Group will offer owners of a Nairobi-based bakery shares worth Sh446m. Photo/FILE  NATION MEDIA GROUP

Unga Group will offer owners of a Nairobi-based bakery shares worth nearly half a billion shillings, making their combined stake the second largest in the milling company.

The miller will create 25 million shares and use them to acquire Ennsvaley Bakery in a share swap transaction valued at Sh446 million based on Unga’s current trading price of Sh17.85 per share.

Owners of the bakery will become the second largest shareholders in Unga behind Victus Ltd—which owns 38.5 million shares or 50.93 per cent of the miller and is associated with the family of the late Mr Philip Ndegwa, a former Central Bank governor.

The share swap will deny Victus an outright controlling stake given its holding will be diluted to 38.2 per cent of Unga’s issued shares with the investors in the bakery holding a combined ownership 24.8 per cent.

Sources familiar with deal reckon that the use of shares for the transactions was informed by Unga’s cash and expensive credit.

“The directors be and are hereby authorised to allot and issue up to 25 million ordinary shares … each credited as fully paid as consideration for the acquisition (Ennsvaley Bakery),” read part of Unga’s resolutions that were to be approved by the shareholders.

But Unga removed the buyout of Ennsvaley Bakery from the annual general meeting agenda because negotiations on the deal are yet to be concluded, especially regulatory approvals.

This means that the miller will call another shareholders’ meeting to discuss the buyout of Ennsvaley Bakery whose owners remain unknown.

Other prominent shareholders that will be diluted by the share swap deal include businessmen Mr Jeremiah Kiereini and Mr Duncan Ndegwa—both former heads of Kenya’s civil service.

Mr Kiereini’s direct stake currently stands at 1.38 per cent. The buyout will see Unga re-enter the baking business more than 15 years after the miller sold its interest in Elliots Bakeries.

Ennsvaley Bakery may earn directorships in Unga if its owners opt to keep their stake in Unga under an investment vehicle.

Presently, Unga’s board is dominated by the late Ndegwa family, led by his son Andrew Ndegwa. Other directors linked to the family include Unga’s chair Isabella Ochola-Wilson, also a board member of NIC Bank, and Mr Alan Mckittrick—the managing director of NAS Holdings.

The Ndegwas own 24.9 per cent of NIC Bank and had an in-flight catering firm NAS, in which a French multinational, Servair, acquired a 59 per cent stake in 2011.

The Nairobi-based Ennsvaley Bakery makes bread, cakes, doughnuts, cupcakes and cookies.

It will diversify Unga’s earnings from milling of maize and wheat flour products like Jogoo, Hostess and Exe Chapati as well as making animal feeds.

The deal underlines Unga’s appetite for acquisitions; reversing a string of divestiture it made from the 1990s including the sale of its edible oil unit and Elianto brand in 1998 to Bidco Oil Refineries Ltd, the Elliots deal and sale of residential properties.

The miller was then in losses—which capped with a Sh708 million loss in 1998—and was looking to raise cash as it struggled to fit in a newly liberalised market.

Unga has been buoyant since 2000 when it paid a dividend for the first time in 12 years and is souring for acquisitions.

The company last December assumed full control of Unga Millers (Uganda) after buying out a 40 per cent stake held by minority shareholders for an undisclosed amount.

In the baking business, it will face competition from firms like mini bakeries, retail chains like Tuskys and Uchumi as well as Broadways.

Unga reported 45 per cent jump in net profit to Sh508 million in the year to June, though its sales dropped marginally to Sh15.7 billion from Sh15.9 billion a year earlier.