Kenyan tycoons lose bid to fix prices in BOC Carbacid buyout deal

Last week, the Capital Markets Tribunal ended a three-year legal tussle that sought to force Kenyan authorities and the courts to determine company stock prices when it threw out tycoon Ngugi Kiuna’s case blocking the sale of BOC to Carbacid.

Four years ago, Carbacid Investments the carbon dioxide business catering to producers of fizzy drinks informed regulators it wanted to take over BOC, whose main business lines are medical and industrial gases.

When BOC shareholders learned about the sale, a group of former directors mobilized and launched a constitutional petition and a capital markets tribunal appeal, to derail the sale at the offer price.

For 25 years, between 1993 and 2018, Mr Ngugi Kiuna sat at the board of BOC, and served as its chairman for the last six years. Ms Lucy Njoroge joined the BOC board in September 2014 where she served as a non-executive director until 2020, when she resigned following the termination of her second three-year tenure on the Board.

Market prices

Both cases have been thrown out for what they represented, an attempt by the Kenyan elite to use the bureaucracy to determine market prices.

A company's value is determined by a lot of things, usually a very subjective matter depending on who you are talking to. It can range from anything including its tangible and intangible asset holdings, its market capitalization, and the sentimental value attached to it by its owners.

Ultimately, the logic of the market is that it is a settlement between the willing buyer and the willing seller that sets the price.

In October 2020 before the deal was announced, BOC was trading at Kes58 at the market, meaning that its shareholders valued the entire business at Kes1.1 billion.

Carbacid price

This would form the basis of Carbacid bid when it was made. According to court papers, Carbacid said BOC’s audited accounts for December 2019 approved by the board showed the value of moveable and immovable assets stood at Sh1.4 billion.

Carbacid said it made an offer based on willing buyer willing seller and the market determined value of the company that stood at Kes58 per share at the Nairobi Securities Exchange (NSE) inclusive of a Sh4.50 dividends that adjusted to the price quoted in the takeover.

The company then shook hands with the majority owner of BOC, Askaya Investments LLP that held 65.38 percent shareholding to buy the shares at Kes65.50 per share.

This was contracted in an Irrevocable undertaking in which they committed to sell the shares to Carbacid at the set price, further undertaking that they will not sell, transfer, mortgage, charge or otherwise encumber the committed shares.

Kiuna price

This price was simply unacceptable to Mr Kiuna who knew the company from the inside out having sat at its helm for a quarter decade.

In his tribunal case he said that as at 31st December 2020, the BOC held cash and cash equivalents in the order of Kes1.180 billion, which had been ignored in the computation of the Proposed Takeover Offer price.

BOC also held 14.8 million shares in its buyer Carbacid Investments Plc, which Mr Kiuna said was valued at Kes175.2 million in 2021 which had not been factored into the offer price.

He also claimed that BOC financial statements attach a historical value of Kes46.4 million to freehold land and buildings which is incorrect and is grossly undervalued.  He went on to claim that the company he once led had falsified its financial statements with outdated, understated, and exaggerated information.

“The methodology employed in arriving at the Proposed Takeover Offer price is inconsistent and applies double standards. For instance, the price does not take into account the net asset value of the BOC, yet one of the conditions of the Offer is that there should not be a reduction in the net asset value of the 3^rd Respondent by more than fifteen percent which would in turn constitute a material adverse change,” the court papers say.

His counterpart and former board colleague Ms Njoroge also argued in court the price was not right. In her case, Ms Njoroge said in court that the Carbacid's offer to buy BOC Kenya at Sh63.5 per share undervalues the industrial and medical gases manufacturer.

She claimed that BOC should be valued at Sh3.8 billion as per the company’s books of accounts, and the company board also sent a circular to shareholders indicating the deal was undervalued.

Dyer and Blair price

She was making reference to the independent financial advice that had been offered by Dyer and Blair to the company board.

The Board had hired a financial advisor in line with market regulations which provided that an expert opinion on the price should help shareholders have better information and know how to bargain during a transaction.

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In its report, the investment firm said the offer price was not fair and reasonable as BOC had a fair value calculated at Kes91.76 which is 44.50 percent higher than the offer price of Ke63.50.

The Board prepared a Circular containing the necessary information and the Independent Adviser’s findings that the share price was low, and thus they recommended that the Shareholders should not accept the Takeover offer.

“The Assessment of the Independent Adviser is that all matters be taken into consideration, the fair value of an ordinary share of BOC is KES 91.76. This value is 44.5 percent higher than the Offer Price of KES 63.50. The conclusion of the Independent Adviser consequently is that the Offer Price of KES 63.50 is NOT fair and reasonable.”

In the end, the final decision would be made by the shareholders, the majority having their way which was in this case Askaya Investments LLP. And Askaya had already gotten into an agreement to sell its shares to Carabid at the pre-arranged price.

Court price

When the former directors erected litigation roadblocks to the deal, they reckoned that they could evoke the constitution and administrative powers to protect what they termed as minority shareholders.

Both the court and the Tribunal have now determined the willing buyers and sellers were the only ones that can set a price and the shareholders had the last say.

High Court has dismissed Ms Njoroge petition, ruling that she was trying to use a constitutional petition to resolve a commercial dispute and she had not demonstrated she was a vulnerable shareholder having served at BOC board.

“The petitioner has raised various issues that are commercial in nature and failed to define and plead with precision how her constitutional rights have been infringed,” said Judge Abigail Mshila.  “The petition is in essence a commercial dispute under the guise of a constitutional petition and as such it must fail.”

Tribunal Price

While Ms Njoroge’s case was the first to fail, Mr Kiuna’s dragged on due to lack of quorum at the tribunal. Once this was resolved, the Capital Markets came to the same conclusion.

Appearing for the Capital Markets Authority, lawyer Timothy Githendu argued that as the regulator, its role was also restricted to ensuring that companies made all material disclosures to shareholders and then they would make an informed decision.

The disclosures happened over the period of the transaction and the regulator would only release relevant information at the relevant times during the process.

CMA said Mr Kiuna further from being a vulnerable minority shareholder wanted to access material information ahead of other shareholders when he demanded the irrevocable agreement from the regulator.

“Capital Markets Authority Act and the Regulations are premised on a Disclosure Based Regime whereby the Regulators do not make decisions on behalf of the investors but rather ensure that all necessary information is made available to the investors,” the court papers read.

New battle front?

For four years, now the deal between Carbacid and BOC's main business lines of medical and industrial gases has stalled.

Carbacid Investments is however still keen on acquiring the medical and industrial gas manufacturer, and has maintained in its shareholder disclosures that it is hoping to resume the transaction once the cases are concluded.

The proposed transaction will result in the largest combined industrial gases business, bringing together Carbacid’s carbon dioxide operation and BOC’s oxygen and other gas products.

Carbacid had made a wise decision to lock in Akasya shares because over the last three years, Mr Kiuna has not only tried to stall the case in court but has also been buying stake to resist a takeover and possible delisting.

Over the last three years, Mr Kiuna has tried to raise his stake in the company from 7.6 percent to 11.2 percent in the year to March 2024, putting him above the threshold needed to block a mandatory buyout of his shares in the firm that is the subject of a takeover bid.

Incidentally, BOC had earlier tried to buy Carbacid in 2005 but the deal collapsed due to regulatory roadblocks.