Coca-Cola has avoided a fine of up to Sh10 million or cancellation of its Sh10.7 billion acquisition of stakes in three soda bottling firms from Centum Investment for flouting one of the regulatory conditions linked to the approval of the deal.
The Competition Authority of Kenya (CAK) revealed that Coca-Cola Sabco East Africa, which is indirectly owned 66.5 percent by the US soda giant, had stopped retailers from stocking drinks from rival firms in its branded fridges.
Coca-Cola had breached an agreement attached to the approval of the Sh10.7 billion deal in 2019 that it would allow rival firms to use its coolers ahead of September 2021.
This triggered a warning from the CAK that Coca-Cola Sabco East Africa complies with agreements by September last year or risk punishment.
“The authority directed CCBA to amend the cooler agreements and provide evidence of the execution by distributors,” says CAK in its latest annual report for the year to June last year.
On Tuesday, the CAK informed the Business Daily that Coca-Cola complied with the order after the June reporting period, saving the firm from regulatory action.
Section 26 of the Competition Act 2016 allows the CAK to revoke an approved acquisition or fine firms or individuals for breach of conditions attached to the approval of a transaction.
“Any person who, being a party to a merger -- fails to comply with any condition attached to the approval for the merger -- commits an offence and shall be liable on conviction to a fine not exceeding Sh10 million or to imprisonment for a term not exceeding five years, or to both,” says the Act.
The CAK had in 2019 allowed Coca-Cola Sabco East Africa to acquire a 53.95 percent stake in Almasi Beverages from Centum in a deal that came with six conditions.
These included a requirement that Coca-Cola reserve the lower deck or not less than 20 percent of storage space of its cooling refrigerators for small and medium-sized enterprises (SMEs) to stock brands from rival firms.
Almasi Beverages owned three bottling firms -- Mount Kenya Bottlers, Kisii Bottlers and Rift Valley Bottlers -- that served parts of Central Kenya, Nyanza and Rift Valley with Coca-Cola soda brands.
The CAK reckoned that small retailers had space limitations and lacked the financial power to acquire coolers from Coca-Cola’s competitors and therefore needed protection.
Small retailers are defined as shops that buy less than 10 crates of soda per week and they accounted for 69 percent of traders with Coca-Cola-branded coolers.
Other conditions attached to the deal were that Coca-Cola retains 1,739 of the 1,760 permanent employees under Almasi and continue operation of the plants in Nyeri, Eldoret, Nairobi, Molo and Kisumu for at least three years after the conclusion of the deal.
Centum’s sale of a 53.9 percent stake in Almasi was concluded alongside two other deals as the firm sought to raise money for settling a dollar-denominated bank loan of Sh7.5 billion.
The deals included the sale of 27.6 percent shareholding in Nairobi Bottlers Limited to Coca-Cola Sabco at Sh8.8 billion.
Centum also raised Sh100 million from the sale of a 100 percent stake in King Beverage Limited.
The three deals saw Centum receive Sh19.4 billion compared to the historical total cost of Sh3.6 billion. Prior to sealing the deals, Centum valued investments in Almasi and Nairobi Bottlers at Sh16.8 billion.
Centum also said it planned to invest between Sh10 billion and Sh15 billion of the cash over five years, mainly in sectors with high returns.
The eight sectors that Centum has been keen on are financial services, consumer, agriculture, education, healthcare, IT, power and automotive sector.
The CAK says Coca-Cola’s case was among the 17 mergers and acquisitions subject to checks to ensure they complied with conditions attached to the transactions.
