Capital Markets

Kirubi’s Centum ups the stakes in Rea Vipingo takeover bid


The Rea Vipingo sisal estate in Kilifi County. Intense competition for Vipingo appears to hinged on the speculative value of the company’s vast land at the coast. FILE

The high-stakes bidding war for the takeover of agricultural firm Rea Vipingo intensified Wednesday after one of the protagonists replied to the competitors’ higher pricing of the company on Monday with an even better price.

Billionaire businessman Chris Kirubi-led Centum Investments followed Monday’s announcement by two British brothers that they would acquire Rea Vipingo at Sh70 a share with an offer of Sh75 a share, intensifying the rivalry that began late last year.

Mr Kirubi is the single largest shareholder at Centum and the company’s chairman.

At a price of Sh75 a share, Centum has valued Vipingo at Sh4.5 billion, slightly above the London-based brothers, Richard and Jeremy Robinow’s Sh4.2 billion.

The Robinows, through their company Rea Trading (REAT), proposed to pay shareholders Sh70 per share and top it up with additional payment of up to Sh15 per share in the event that the company’s 10,000 acres of land at the coast is sold before 2018.

READ: Rea Vipingo owners sweeten offer

The two offers means investors must consider whether they should take REAT’s lower bid of Sh70 and hang on to the promise of earning additional Sh15 in the future or run with the Kirubi-backed Sh75-a-share deal.

Vipingo shareholders must therefore decide whether or not there is a high probability of the land being sold at all to realise the Sh15 premium by 2018 as the REAT brothers announced.

“Certainly there might be an attraction to take the hard cash offer of Sh75 a share right away, but some investors will definitely consider that if the land is sold within the stated period it could yield much more to justify taking Sh70 a share for now,” said Eric Musau, a senior research analyst at Standard Investment Bank (SIB).

Centum Investments said it had access to more than Sh5.8 billion, consisting of cash equivalents of Sh5 billion and undrawn credit facility of Sh800 million to finance the deal. The firm also has room for more debt.

To signal that they have the cash to complete the deal, the Robinow brothers said they had increased their cash deposits to $6.2 million (Sh533 million) from $4 million (Sh344 million) and that Commercial Bank of Africa (CBA) had offered to lend them $15 million (Sh1.3 billion), up from $8 million (Sh688).

“The CBA facility has been increased to $15 million. The REAT cash contribution has been increased to some $6.2 million,” said Richard Robinow, the chairman of REAT in an e-mail response to queries by the Business Daily.

READ: CBA to fund British kin’s Rea Vipingo buyout

Mr Robinow said REAT would take all acceptances of its offer but would not necessarily be seeking to delist the company from the Nairobi Securities Exchange (NSE).

A delisting would force the company to convince holders of 90 per cent Vipingo shares to sell, leaving REAT to compulsorily take over the firm.

“We have said that we would not seek a delisting if on completion of our offer there remains a sufficient publicly held shareholding in terms of number of holders and aggregate shares held to justify continuance of the listing,” said Mr Robinow.

Mr Kirubi declined to comment on the matter, insisting that any issues relating to the transaction would have to come from the regulator, the Capital Markets Authority (CMA).

As of January Mr Kirubi held 24.99 per cent of Centum shares worth more than Sh6 billion. The billionaire, who owns a vast amount of assets stretching from agriculture to insurance and real estate sectors, announced last September that he intended to increase his stake at Centum to 29.9 per cent by buying additional 32.65 million shares at the NSE.

The UK brothers already own 57 per cent of Rea Vipingo.

Intense competition for Vipingo appears to hinged on the speculative value of the company’s vast land, especially the 10,000 acres at the Kenyan coast.

Rea Vipingo only disclosed that land under leasehold as at September 2013 was valued at Sh208.03 million but did not announce the value of land under freehold.

Analysts have generally valued the company’s land at more than its market capitalisation, which stood at Sh1.7 billion at the time it was suspended from trading on the NSE pending the takeover transaction.

Standard Investment Bank (SIB) estimated that the vast estate could be valued at over Sh10 billion. Afrika Investment Bank (AIB) valued the company’s land at between Sh6.07 billion and Sh10.12 billion.

Both valuations were higher than the Sh4.5 billion Centum has offered and the Sh4.2 billion bid by REAT.

According to the SIB and AIB valuations, Vipingo’s real value stands between Sh101.21 and Sh168.72 a share.

The value of the transaction could, however, be discounted to the present value because valuations take into account the future earnings.

Analysts and market players such as Rich Management’s Aly-Khan Satchu have termed the valuation of agricultural firms on the NSE as “egregious” since they do not reflect the fundamentals, including production and the land they own.

But Mr Robinow said the seasonal nature of agriculture means that they cannot be valued on the same level as other firms.

That distinction is clear at the NSE where agriculture firms have a price-to-earnings ratio of just over six while the main market has a P/E of 17.

At Sh70 a share, the Vipingo P/E stands at about 10 while at Sh75 it stands at just above 10.

“Because international prices of most agricultural commodities tend to be cyclical, we would not expect agricultural companies to be valued on the same PE as the market average,” said Mr Robinow in the e-mailed message.

The REAT chairman, however, added that the pricing of such firms can be elevated by the underlying value of the land, showing the reason that the London-based majority owner of Rea Vipingo is ready to offer a premium on the initial price of Sh40.

“The value of agricultural companies may be increased by underlying land value which we think is best looked at as an addition to the basic value of a company’s agricultural business,” said Mr Robinow.

Centum Investments initially offered Sh50 for Vipingo while the third bidder, Vania Investment Pool Limited, majority-owned by insurance businessman Dilesh Bid, offered Sh55, valuing the company at Sh3.3 billion.