French oil firm Total Outre Mer has struck a multi-billion shilling deal to buy Kenya’s largest petroleum importer, Gulf Africa Corporation, marking the exit of Indian tycoon Mukesh Ambani from the local fuel market.
Gulf Africa Petroleum Corporation, which trades as Gapco, has operations in Kenya, Uganda and Tanzania and is 76 per cent owned by Mr Ambani’s Reliance Industries.
The transaction is estimated to be worth $400 million (Sh40 billion), but people familiar with the deal said the final figure will depend on petroleum stocks held by Gapco at the time of conclusion.
Details of the multi-billion shilling transaction have been disclosed in court filings by Gapco employees, who are seeking to stop the transaction till they are offered an acceptable exit package.
The employees accuse Gapco Kenya and its parent, Reliance, of surreptitiously concluding the transaction to transfer control of the company to Total Outre Mer SA to their disadvantage.
Peter Kajwang, an employee of Gapco, is leading the court battle and has in his filings attached staff memos from the management, confirming the intended sale that does not, however, identify Total as the buyers.
Gapco did not confirm or deny the alleged transfer of the company to new owners, but confirmed that the oil marketer was looking for a strategic partner to help grow the business.
“With regard to finding a strategic investor who can add further value to our business, we continue to be in discussions with potential interested parties. Nothing has been finalised yet,” the company’s executive director, Macharia Irungu, said in a memo.
Total Outre Mer, which owns 92.2 per cent of Total Kenya, declined to comment on the matter.
The Business Daily, however, confirmed that Total has been conducting due diligence on Gapco with the intention of concluding the deal by mid next month.
In 2014, Gapco returned a net profit of Sh639 million from Sh184 billion worth of sales. The company’s sales in the same year exceeded those of Total Kenya, which stood at Sh170 billion, but the French firm used its large presence in the retail market to post higher profit of Sh1.4 billion.
Gapco controls 2.7 per cent of petroleum sales in Kenya through 10 fuel stations. The company has 38 employees.
If successful, the acquisition will solidify Total’s pole position in the market where it currently controls 18.5 per cent of petroleum sales.
Competitors have, however, been chipping at Total’s market share, which has shrunk from 21.7 per cent at the beginning of 2015.
The acquisition of the Gapco will particularly boost Total’s storage capacity to 177 million litres from the current 52 million, leaving it at 100 million litres more than second ranked Vivo Kenya.
Gapco has the largest private-owned storage capacity in Kenya of 125 million litres.
The deal is also expected to open up competition for the open tender system (OTS) – the monthly import licence auction through which Kenya buys most of its petroleum and which Gapco has dominated because of its association with Mr Ambani’s Indian oil dealers.
Gapco has been Kenya’s largest oil importer for the past three years, having won 41 per cent of the open tenders floated by the Ministry of Energy in 2015.
Under OTS one marketer buys oil consignment in bulk to supply the rest of the industry. The importer is also allowed to keep five per cent of the size of cargo for itself, over and above its share based on the market footprint.
If agreed, Total’s buyout of Gapco will have to be approved by the Competition Authority of Kenya (CAK), which said it was yet to receive any such application.
“The application is not on our desk but we have received a letter from the lawyers of those seeking to stop it,” said CAK director-general Francis Wang’ombe.
Gapco enjoys seven per cent market share in Tanzania where it operates 69 retail stations and three per cent in Uganda where it has 32 outlets.
Employees of the company are seeking a bonus of Sh800 million to be shared amongst them based on a formula they have settled on.
The amount is pegged on claims that local employees have historically been paid lower bonuses than expatriates working with the company.
The employees also argue that the majority of them, 32 of 38, are on two-year contracts that are not guaranteed to be renewed once they are transferred to the new employer.
Gapco is yet to file a response to the employees’ claim at the Employment and Labour Relations Court.
Gulf Africa Petroleum Corporation, which is the subject of acquisition and holding company for operations in Kenya, Uganda, Tanzania and Rwanda recorded a net profit of Sh1 billion in 2014.
Billionaire Ambani, who was last year ranked as the 36th richest man in the world, has a big presence in Kenya through his company Delta Corporation East Africa.
The firm, which is 58 per cent owned by Reliance Industries, has recently developed the Iconic Delta Corner twin towers in Westlands and another tower in Upper Hill, Nairobi which it sold to the World Bank.
The World Bank purchased Delta Centre from Mr Ambani to host its regional headquarters at a cost of $22.8 million (Sh2.3 billion).
The 21-storey twin-tower Delta Corner in Westlands was sold to consultancy firm PwC and the University of Nairobi’s Staff Pension Scheme for Sh4 billion.
This will be the second acquisition in eight years by Total in Kenya, having bought Chevron, trading as Caltex, in 2008.
Kenya’s oil sector has experienced several corporate actions towards consolidation, including Shell Kenya’s acquisition of British Petroleum (BP) and Shell’s purchase of Vitol.