The Capital Markets Authority (CMA) has frozen the transfer of Unilever’s majority stake in Limuru Tea and blocked a US-based private equity firm from buying minority investors in the listed company, disrupting the Sh596.7 billion ($5.1 billion) global deal.
The regulator has declined to approve an offer from private equity firm CVC Capital Partners seeking full buyout of Limuru Tea minority owners, including tycoon Joe Wanjui, in the wake of shareholder fights at the firm.
The CMA reckons that the High Court had stopped the transfer of Unilever’s 52 percent stake in Limuru Tea to CVC Capital Partners, adding that it is premature and a breach for the PE firm to seek the remaining 48 percent stake.
The blockade is a victory to Mr Wanjui together with another minority investor — Wainaina Kenyanjui — who petitioned the court to freeze the Unilever transaction, accusing the British multinational of rejecting their offer to buy the 52 percent stake.
The regulator says it will okay the deal after concluding investigations of Unilever dealings at the Nairobi bourse listed firm amid accusations of undervaluing Limuru Tea’s 696.8-acre plantation and cooking books.
The court fight looks set to offer a peep into Limuru Tea’s jealously guarded boardroom secrets and Mr Wanjui’s ownership, which for decades has remained masked under a Standard Chartered nominee account.
The suit will also see the tycoon take on his former employer, having joined East African Industries (EAI) — now known as Unilever East Africa — as technical director in1968 and rose through the ranks to become the managing director and eventually executive chairman before retiring in April 1996.
“The authority’s position is that the status quo ought to be maintained, pending determination of the cited court case and conclusion of the ongoing investigations. Therefore, the approval of the offeror’s statement has been put in abeyance,” Wycliffe Shamiah, the chief executive officer of CMA, told Ekaterra Kenya (Unilever Tea) in a letter seen by the Business Daily.
“The investigations on various matters in relation to majority shareholder of Limuru Tea, which may have an impact on the Limuru Tea and its directors,” said the July 15 letter.
The probe follows a petition from a minority shareholder in 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.
The CMA is also probing the firm for understating its revenues and delays in the collection of tea sales from Unilever, which is accused of overcharging the Kenyan tea firms for services.
The minority owners claim Unilever sells inputs like fertiliser and labour to Limuru Tea at exorbitant prices and is the only buyer of the company’s tea leaves at a price that is often lower than those offered at the Mombasa auction.
This, Mr Wanjui and Mr Kenyanjui say, has helped to depress the company’s sales and profits as well tax payments, in a probe that will trigger the attention of the Kenya Revenue Authority (KRA).
Unilever said in November it had agreed to sell its global tea business to CVC Capital Partners for Sh596.7 billion ($5.1 billion), concluding a process of reviewing and spinning off the division that took more than two years.
This included the 52 percent stake that will see a special purpose vehicle registered in the Netherlands, Puccini Bidco B.V, owned by CVC Capital, take up the shares in Limuru Tea, an outgrower or affiliate of Unilever Tea Kenya Limited.
The Unilever global business being sold, called Ekaterra, hosts a portfolio of 34 tea brands, including Lipton, PG Tips, Pukka Herbs and TAZO and generated revenues of 2 billion euros (Sh250 billion) in 2020.
Unilever will no wait longer to transfer the Kenyan bit of the deal as minority shareholders led by Mr Wanjui fight to scuttle the deal.
On July 5, CVC Capital announced its intention to acquire all minority shareholders of Limuru Tea after the CMA declined to exempt the firm from making a mandatory offer to investors controlling the 48 percent stake.
The PE fund offer was expected to trigger rival bids, before the CMA blocked it on July 15, and provide an exit route for shareholders owning the remaining stake.
The refusal to offer the exemption is a rare case in Kenya’s mergers and acquisitions but is not uncommon in the Western capital markets.
The law compels investors who directly or indirectly buy more than 25 percent of a company to make a takeover offer to the rest of the shareholders.
But they can seek an exemption from the CMA on grounds that the acquired firm is in financial distress, the stake bought had been used as security for a bank loan or there is a need to keep domestic shareholding for strategic reasons.
Limuru Tea, which is now trading at Sh420 per piece, is valued at Sh1 billion, which means the minority stake targeted by Unilever is worth Sh480 million. But such transactions happen at a premium to the trading price.
“For avoidance of doubt, the authority had declined to exempt Puccini from the requirement to make a takeover offer in relation to its proposed indirect acquisition of effective control of Limuru Tea,” Mr Shamiah said.