The Philip Ndegwa family has intensified the reorganisation of its multi-billion shilling business empire with the sale of struggling assets and the bringing on board of deep-pocketed partners to expand segments with high growth potential.
The Ndegwas, one of the richest families in Kenya, have proposed or completed five disposals and mergers in the past four years — the latest being the planned merger of NIC Group #ticker:NIC with Commercial Bank of Africa (CBA).
The Ndegwa family has a controlling stake in NIC Group while CBA is majority-owned by the family of the founding president Jomo Kenyatta. It has not been clear where the Ndegwas are investing proceeds of the transactions.
Besides profit-taking, the deals are being seen as helping to simplify the business empire, which has scores of companies in diverse sectors of the economy, including manufacturing, services and real estate.
The reorganisation started in early 2015 when the family sold its agriculture and hospitality equipment company G-North & Son Limited to businessman Paul Ndung’u for an undisclosed sum.
Later that year, the Ndegwas sold ICEA Building in central Nairobi to Jomo Kenyatta University of Agriculture and Technology for Sh1.8 billion, leading to its renaming as JKUAT Towers.
THORN IN THE FLESH
This particular transaction has been a thorn in the flesh for the Ndegwas after the university defaulted on payment of valued added tax (VAT), leaving a debt that has grown to Sh411.4 million and exposing the two parties to legal action.
“The plaintiff (ICEA Lion Life Assurance Company) is aggrieved that the university has failed to pay the VAT and the same continues to attract penalties and interest,” the insurance firm said in a suit it has filed against JKUAT.
The sale agreement for the transaction says that the university had undertaken to pay VAT, stamp duty and registration fees upon transfer of the property.
The university later sought a waiver of VAT but nothing came of it, prompting the insurance firm to file the lawsuit seeking payment of the outstanding amounts (VAT of Sh296 million and penalties of Sh115.4 million) for onward remittance to the Kenya Revenue Authority (KRA).
The sale of the ICEA Building was followed by the disposal of Ennsvalley Bakery to Unga Group — a company in which the Ndegwas have a controlling 50.93 per cent stake. The transaction was done in two tranches between 2016 and 2017 for a total of Sh535 million.
The bakery business suffered soon after the purchase, forcing Unga to write off Sh151 million or 28.2 per cent of the amount it had invested in the acquisition.
Earlier this year, the Ndegwas backed Delaware-based conglomerate Seaboard Corporation’s bid to buy out Unga’s #ticker:UNGA minority shareholders and delist the miller from the Nairobi Securities Exchange (NSE).
The plan, however, flopped after it was opposed by a significant group of small shareholders.
Had it succeeded, Unga would have been left in the hands of the Ndegwas and Seaboard.
It later emerged that the parties had plans to bring on board other strategic investors once the company went private.
A replay of the Unga strategy is also evident in the recent announcement of a planned merger of NIC Group with CBA that could end in the unified bank being delisted from the Nairobi bourse.
The Ndegwas, alongside minority investors in Unga and NIC, have suffered from share price erosion in the two companies relative to their value by earnings and assets.
Besides eliminating volatility of a company’s value in public markets, going private has the additional benefit of less scrutiny, disclosures and reporting requirements.
CBA and NIC said the merger, which will create the third-largest lender in Kenya with assets of Sh444.3 billion, will boost their ability to grow in the local and regional market.
Ahead of the proposed tie-up with CBA, the Ndegwas had moved to involve more family members in the running of NIC. Ms Wakini Ndegwa joined the bank as a non-executive director earlier this year.
NIC chairman James Ndegwa and his brother Andrew Ndegwa each have 42 million shares in the bank currently valued at about Sh1.1 billion apiece, according to the firm’s disclosures.