The Capital Markets Authority (CMA) has forced a US-based private equity to make a takeover offer to minority owners of Limuru Tea, including tycoon Joe Wanjui, in the wake of shareholder fights at the firm.
The regulator declined to exempt private equity firm CVC Capital Partners from making a takeover offer to minority shareholders after the US fund bought a 52 per cent stake in Limuru Tea from Unilever.
This has forced the PE fund to make an offer that is expected to trigger rival bids and provide an exit route for shareholders owning the remaining stake.
The refusal to offer the exemption is a rare case in Kenya’s mergers and acquisitions but is not uncommon in the western capital markets.
The CMA’s decision was partly triggered by complaints from a section of Limuru Tea minority shareholders led by Mr Wanjui who protested the Unilever sale of the 52 percent stake.
The deal will see the special purpose vehicle registered in the Netherlands, Puccini Bidco B.V, take up the 52 percent stake in Limuru Tea, an outgrower or affiliate of Unilever Tea Kenya Limited.
“Although it is indicated that granting the exemption would serve the interest of shareholders, the authority has received complaints from some shareholders opposed to the current structure of the transaction,” Wycliffe Shamiah, the chief executive officer at the CMA, told Puccini in a letter seen by the Business Daily.
“In view of the foregoing, the authority is not in a position to grant the exemption sought.”
The business being sold, called Ekaterra, hosts a portfolio of 34 tea brands, including Lipton, PG Tips, Pukka Herbs and TAZO and generated revenues of 2 billion euros (Sh250 billion) in 2020.
“However, following engagement with the CMA, Ekaterra Kenya (Unilever Tea) is meeting a regulatory obligation under the takeover regulation on behalf of its parent company Puccini, to make a mandatory offer for all the voting shares not currently legally or beneficially owned by Ekaterra Kenya,” Unilever said.
The law compels investors who directly or indirectly buy more than 25 percent of a company to make a takeover offer to the rest of the shareholders.
But they can seek an exemption from the CMA on grounds that the acquired firm is in financial distress, the stake bought had been used as security for a bank loan or there is need to keep domestic shareholding for strategic reasons.
Unilever Tea Kenya has not disclosed the offer price at which it intends to buy out the minority shareholders.
Limuru Tea, which is currently trading at Sh320 a piece, is valued at Sh760 million, which means the minority stake targeted by Unilever is worth Sh364.8 million.
But such transactions happen at a premium to the trading price.
The offer, which follows the refusal to grant an exemption, is also geared at inviting rival bids.
“The structure of the transaction does not afford other persons who may be interested in acquisition of shares of the listed company an opportunity to make competing offers,” said Mr Shamiah.
Mr Wanjui has filed a lawsuit seeking to block British multinational Unilever from selling its 52 percent stake in Limuru Tea to the private equity fund as part of a Sh596.7 billion ($5.1 billion) global deal.
The tycoon, who owns a 25.48 percent stake in the Nairobi bourse-listed firm, wants the CMA to block the Kenyan element of the global deal, arguing that minority shareholders were not offered a chance to participate.
In a complaint filed at the High Court, Mr Wanjui, 85, together with another minority investor -- Wainaina Kenyanjui — accused Unilever of rejecting their offer to buy the 52 percent stake and instead sold the shares to CVC Capital Partners.
They reckon the interests of CVC Capital Partners are not aligned with those of Limuru Tea and accuse Unilever of making partial disclosures to the CMA in the phased restructuring of the multinational’s tea business, which culminated in the sale.
Unilever said in November it had agreed to sell its global tea business to CVC Capital Partners for Sh596.7 billion ($5.1 billion), concluding a process of reviewing and spinning off the division that took more than two years.
In the two years, Unilever transferred its 52 percent stake in Limuru Tea to an affiliate within the multinational in a global plan for a dedicated tea business and prepared plans to list the unit separately on a stock exchange or outright sale.
The Kenyan shareholders say the structuring of the deal denied them an opportunity to make a counter offer for the 52 percent stake valued at Sh443 million on the Nairobi Securities Exchange (NSE).
Unilever Tea, acting for Puccini, says it has not set out any minimum threshold for the offer to Limuru Tea minority shareholders and has no plans to delist the firm.
The firm, however, says it will apply to compulsorily acquire the remaining shareholders if 90 percent of Limuru Tea owners accept its offer.
“Ekaterra Kenya intends to offer cash consideration for each offer share, the particulars for which will be set out in detail in the offer statement,” Unilever said in a notice.
“Shareholders of Limuru Tea are not obliged to respond to the offer should they wish to remain investors. Because Ekaterra Kenya already holds a controlling interest in Limuru Tea and has no current plans to delist the company from the NSE, Ekaterra Kenya has not set any minimum threshold for acceptances.”
The tea company has been in the red over the past two years, booking a net loss of Sh9.5 million in 2021, worse than the Sh3.6 million registered in 2020.
Unilever will, however, retain its India and Indonesia tea operations as well as its bottled tea joint venture with PepsiCo.
The sale relieves Unilever of a business that has been a drag on earnings for several years as demand for black tea waned and consumer tastes changed.