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Regulator on the spot over freeze on Unga Group shares

CMA chief executive Paul Muthaura. FILE PHOTO | NMG
CMA chief executive Paul Muthaura. FILE PHOTO | NMG 

The Capital Markets Authority (CMA) has come under intense criticism for allowing last week’s suspension of Unga Group #ticker:UNGA shares from trading at the Nairobi Securities Exchange (NSE) #ticker:NSE.

Thursday’s freeze in trading of Unga shares came following an announcement that US firm Seaboard Corporation had made a Sh3 billion offer to buy out small shareholders.

Seaboard made public its offer of Sh40 a share and plans to take Unga private in a notice published in the daily newspapers.

The offer is equivalent to an 18.8 per cent discount on the Unga’s book value of Sh3.7 billion or Sh49.2 per share.

The shares resumed trading yesterday, touching a record high of Sh60, signalling that the market expects Seaboard to top up its offer or that a higher rival bid could materialise.

The Nairobi Securities Exchange (NSE) did not formally announce the suspension and resumption of trading in Unga’s shares as is normal practice, raising questions over the CMA’s actions that have always favoured acquirers at the expense of minority shareholders.

The CMA yesterday described the two-day freeze in the trading of Unga’s shares as a “trading halt” enforced by the NSE, which sought unspecified information from the miller.

Ordinarily, a trading halt rarely lasts beyond a few hours and is done in anticipation of a material announcement or to correct an order imbalance, among other temporary issues.

Board's request

The regulator revealed that suspension of trading in shares of companies that are targets of acquisition is not automatic but is usually done at the behest of the board of directors of the target company.

“It is not mandatory that a suspension should occur in every takeover transaction. Suspension is usually requested for by the target company, which must give a justification for the same,” the CMA said without explaining what is considered justifiable.

The policy has been used by major shareholders in the past to freeze share prices at specific points in time as they work to take companies private using a price they have set themselves.

It has taken rival bids to tilt the scales in favour of minority shareholders as was the case at Rea Vipingo where the offer to non-controlling interests was more than doubled to Sh2.2 billion.

The Business Daily confirmed that Unga’s board, which was notified of Seaboard’s takeover bid on Wednesday at 6.59 pm, has not requested for the stock’s suspension.

The miller published a notice at the weekend, informing investors to trade with caution in light of Seaboard’s offer.

Confusion

The notice, which came two days after Unga’s shares had been frozen, only added to the confusion among investors.

Allowing Unga to trade again offers shareholders an array of options they have lacked in previous and pending takeovers, including those of Rea Vipingo and Express Kenya.

Unga investors can now sell their shares at the same price Seaboard is offering or higher, and receive money now rather than wait for completion of the multinational’s takeover, which could take months to complete.

Those buying are also betting on the fact that they will profit in the end from a higher price or that a rival bidder will emerge in a dynamic market-driven process that is different from CMA’s hand-holding.

During yesterday’s trading session, for instance, some Unga shares changed hands at Sh30 in what will give the buyer a profit of 33 per cent based on Seaboard’s standing offer of Sh40 per share.

Trading in the shares also allows investors opposed to Seaboard’s offer to build a large stake which they can use to scuttle the conglomerate’s takeover bid.

Bid Investment and Sayani Investments, which own 1.1 million and 800,000 shares of Unga respectively, are among institutional investors that have opposed Seaboard’s low offer.

Unga’s shares yesterday gained 28.2 per cent to Sh37.5, pulling down the premium on Seaboard’s offer to a margin of 6.6 per cent. Seaboard has valued the 46.1 per cent stake it is targeting at Sh1.4 billion, denying the minority shareholders an extra Sh321.4 million they would get if they sold their shares at the full price of Sh1.7 billion.

Unga’s minority investors have argued that besides the discount to book value, Seaboard’s offer is inadequate since no benefit, including dividends will accrue to them in the miller’s current financial year ending June.

CMA says the company’s shareholders will decide on their own whether to accept or reject Seaboard’s offer after relying on the firm’s disclosures and the findings of an independent adviser.

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