EDITORIAL: Activist investors are playing a crucial role

Throughout the world, stock markets primarily exist to facilitate price discovery and that includes during mergers and takeovers.

At the Nairobi Securities Exchange (NSE), declared takeovers have indeed been few and far between. What has been more popular are private equity deals, and even on the debt market, commercial papers and bank borrowings.

That does not mean deals have completely been absent. In 2005, sisal processor Rea Vipingo majority shareholders, the UK brothers Richard and Jeremy Robinow, took over shares of the minorities after an exciting battle with well-heeled local investors.

List of rival investors included the Bid family and Centum Investment, another public listed company. In a rare occurrence, the initial offer shot to Sh85 a share from Sh40 despite the regulator Capital Markets Authority (CMA) having suspended the stock from trading.

The competition clearly allowed a level playing field where the small shareholders were winners. But as recent attempted takeovers show, that appears to have been the exception rather than the rule. Lately, influential shareholders have offered small owners what can easily be termed as raw deals.

However, an emerging saving grace appears to be activist investors, who have bravely fought and scuttled attempts by the big boys to take over target companies on the cheap.

READ: How activist investors blocked Unga’s buyout

In all the deals we are talking about here, the underlying value of the firms, mostly including land, was brushed over in the valuation in favour of the buyer.

The first one was Express Kenya where independent valuation showed the share was valued at up to Sh16.15 per against the Sh5.5 that Hector Diniz was offering.

The logistics firm owns prime land in Nairobi’s industrial area. Investors rejected the offer.

In the second case where Delaware US-based firm Seaboard was seeking to buy out other investors, independent financial advisors said Unga shares were worth Sh67.19 each or Sh27 more than the Sh40 it was offering.

Given that CMA has not been very helpful to minority shareholders during buyout situations—in some instances they have suspended trading instead of allowing price discovery—it is only good that we appreciate and encourage activist investors. They have set a precedent in the West and now they are doing so here. This is the way to go.