Principles on trial for Unilever Tea buyer
Unilever Tea Kenya Ltd, which delisted from the Nairobi Securities Exchange in 2009 after its main shareholder, Brooke Bond, bought out minority shareholders, says the new buyers are not keen on delisting Limuru Tea.
Last week’s appointment of Nathalie Roos as chief executive officer of Ekettera Tea after divestiture from Unilever Tea marked the start of an interesting journey for American Fund, CVC Capital Partners that bought the world’s largest tea business from the British multinational.
Ekaterra is the world’s leading global tea business with annual revenues of approximately €2 billion (Sh240.6 billion) and a portfolio of more than 30 brands, including Lipton which is sold in more than 100 countries as well as PG tips in the UK and TAZO in the US.
“Tea holds an extraordinary role in societies around the world, steeped in tradition, culture, and community spirit. It also has an incredible power to evolve and always be relevant to the times,” Ms Roos said in her first press statement.
“Ekaterra’s future will embody these elements too, alongside ambitious plans to become a leader in sustainable tea production, in farming and distribution methods, and also as a supporter of the communities in which we operate,” she added.
Ms Roos’ new role will however test CVC Capital Partners’ conscience in Kenya as it takes up Unilever Tea’s business including a planned controversial buyout of minority shareholders in Limuru Tea and concerns over workers’ rights in plantations previously owned by the multi-national in the Kericho area.
Of key interest is how Ekaterra will treat small shareholders after the Capital Markets Authority (CMA) forced the fund to make a takeover offer to minority owners of Limuru Tea.
There have also been concerns about how private equity groups approach workers’ pay, conditions, and safety in a climate where investors are scrutinising their ethics. This has been linked to a trend in which some firms opted to delist from the public markets once they are taken up by private players.
Unilever Tea Kenya Ltd, which delisted from the Nairobi Securities Exchange in 2009 after its main shareholder, Brooke Bond, bought out minority shareholders, says the new buyers are not keen on delisting Limuru Tea.
The company however said that if CVC Capital acquires a 75 percent stake then it will take steps to delist the company in the future as it will no longer meet the required threshold to remain listed.
The firm said if they buy up 90 percent they will apply to compulsory acquire the remaining shareholders.
The buyout offer has also been made amid a bid by minority shareholders to derail the transfer of the Unilever stake to CVC Capital which formed a special purpose vehicle registered in the Netherlands, Puccini Bidco B.V, to take up the 52 percent stake in Limuru Tea--an affiliate of Unilever Tea Kenya Limited.
Two minority owners who together control 30 percent of the company are asking to be allowed to place a counter offer against the private equity fund which is buying the British multinational stake in Limuru Tea.
Mr Wanjui who owns 25.48 of the company together with another minority investor -- Wainaina Kenyanjui who owns 4.6 percent through Africa Reit have gone to court and the capital markets regulator to stop the sale of Unilever’s majority stake to Puccini.
CVC Capital, however, seems to have crossed this challenge and as it moves to acquire the rest of the 48 percent stake, it is expected to disclose the price for which it intends to buy out small shareholders this week.
Limuru tea which is currently trading at Sh320 a piece is valued at Sh760 million which means the minority stake targeted by Unilever is worth Sh364.8 million.
But such transactions happen at a premium to the trading price.
Ideally, the price would be based on the company's performance, its net asset value, and a premium on top.
Limuru Tea Company has been in the red over the past two years, booking a net loss of Sh9.5 million in 2021, worse than the Sh3.6 million registered in 2020.
However, Limuru Tea’s financials are disputed in court by minority shareholders who have accused Unilever of cooking books as the multinational prepares to exit the company.
The minority shareholders led by tycoon Joe Wanjui and Wainaina Kenyanjui also petitioned the Capital Markets Authority (CMA) to investigate listed Limuru Tea for undervaluing its 696.8-acre plantation which they believe could lift the company's net asset value.
The company's annual report shows the company buildings and freehold land is being held at a carrying amount of Sh1.4 million as at December 2021.
The minority shareholders asked CMA to probe Limuru Tea accusing the firm of valuing its land holding at Sh1 million against an estimated value of Sh23 million per acre or Sh16.2 billion.
This means with Sh760 million one can buy the entire stake of Limuru Tea and get land worth Sh16.2 billion grossly undervaluing the company.
During the buyout bidding won by CVC Capital, two of the three final bidders for the tea business, buyout groups Advent International and Carlyle, pulled out, at least partly, over concerns surrounding the plantations.
An Egyptian brokerage firm, EFG Hermes which covers companies with huge tracts of land on their books says it is difficult to know whether the land will form part of the offer price.
EFG Hermes Director and Head of Equities Kenya, Muathi Kilonzo said the difference between Limuru Tea and East African Portland which carries over 6,000 acres of a land bank as an investment property –is the use of the land.
Portland land holdings are used to earn rental or capital appreciation or both and more importantly, are not used in the production or supply of goods and services, and as such classified land is revalued annually.
“Limuru Tea uses its land for the ordinary course of its business, that’s why we don’t see fair value of the land but rather for the crop (biological assets). As a result, I wouldn’t expect the land bank revaluations to be included in the price computation but rather the biological assets, but I could be wrong,” Mr Kilonzo said.
Valuation of buyout offers has been central to the successes of such bids and what minority owners see as undervaluation has recently derailed similar attempts by majority owners to buy out smaller shareholders.
Minority owners stopped US firm Seaboard from a buyout of Unga Group even though the offer was supported by majority owners Victus limited owned by the Ndegwa family.
The US firm Seaboard made a futile attempt to buy 46.15 percent of Unga group and was frustrated by minority shareholders who felt the Sh40 per share offer was an undervaluation.
Minority shareholders refused to sell their stake in Express Kenya to the CEO and majority shareholder Hector Diniz when he sought to buy out 38.3 percent ordinary shares that were not held by his affiliated companies but ended up only getting 9.78 percent approved.
Former BOC Kenya chairman Ngugi Kiuna also bought more shares in the company after opposing its buyout by Carbacid Investments, taking his ownership closer to the 10 percent threshold that allows one to veto a resolution to delist a publicly traded firm.
BOC’s share price has risen to trade at Sh75, significantly above the joint buyout offer of Carbacid and investment firm Aksaya of Sh63.5 per share or a total of Sh1.2 billion.
CVC Capital also faces a huge obstacle in that the listed tea grower’s shares hardly trade with only 9,700 shares- or 0.4 percent of the 2.4 million issued shares traded in the exchange in the period between January to June this year meaning its shareholders are not eager to sell their stakes.
But unlike these firms who had set sights on delisting, Limuru tea however says it has not set out any minimum threshold for the buyout and does not have any immediate plans to delist the tea grower.
“By making this offer, Ekaterra Tea Kenya plc is simply fulfilling its regulatory obligations under Kenyan law, rather than seeking to increase its stake in Limuru,” the firm said in an email.
“ekaterra Kenya will buy any shares that other minority shareholders who choose to sell their shares to ekaterra Kenya under the terms of the Offer but are not looking to reach any specific percentage stake,” the firm said.
