Kirubi receives Sh348m extra in BIC buyout deal

Businessman Chris Kirubi. FILE PHOTO | NMG 

By VICTOR JUMA
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Summary

• Mr Kirubi, through his manufacturing unit Haco Industries Kenya Limited, was paid an initial Sh703 million in the deal which was completed on December 31, 2018.
• Société BIC later announced that Haco was entitled to an additional deferred payment amounting to €9.9 million (Sh1.2 billion) over three years, raising the total compensation to nearly Sh2 billion.
• The conglomerate paid Haco €2.4 million (Sh309 million) last year and another €2.7 million (Sh348 million) in the half year ended June, according to a trading update.

Businessman Chris Kirubi has received an additional Sh348 million as part of his staggered payment following the sale of his BIC stationery, lighters and shavers franchise to French multinational Société BIC, which owns the brand.

Mr Kirubi, through his manufacturing unit Haco Industries Kenya Limited, was paid an initial Sh703 million in the deal which was completed on December 31, 2018.

Société BIC later announced that Haco was entitled to an additional deferred payment amounting to €9.9 million (Sh1.2 billion) over three years, raising the total compensation to nearly Sh2 billion.

The conglomerate paid Haco €2.4 million (Sh309 million) last year and another €2.7 million (Sh348 million) in the half year ended June, according to a trading update.

“An additional amount of 2.7 million euros related to the acquisition of Haco Industries Kenya has been disbursed in the first half 2020,” BIC said in the disclosure.

The delayed payments have seen Mr Kirubi benefit from the weakening of the Kenyan shilling, resulting in receipt of larger amounts as measured in the local currency.

The shilling has depreciated about 10 percent to trade at 128 units against the euro since the start of 2019.

Cumulative payouts to Mr Kirubi now stand at Sh1.3 billion, with the remaining balance of Sh610 million expected by the end of next year.

Once all the payments are in, Mr Kirubi’s profit in the deal will stand at more than Sh600 million, representing the premium on the value of assets transferred to the French multinational.

The businessman earlier told the Business Daily that the deferred payment was due to the capital commitments Haco had already made in the BIC business by the time the transaction was completed on December 31, 2018.

Société BIC took over manufacturing facilities in Kenya and distribution of stationery, lighters, and shavers in East Africa, with Haco retaining ownership of the properties which it has leased to the French firm.

The multinational launched the facility, which serves as its office and production hub for East Africa, on March 11, 2019. BIC says the move to take over its franchise from Haco led to strong sales growth last year.

“In the Middle-East and Africa region, the performance was driven by a successful change in route-to-market in East Africa, thanks to the transfer of Haco Industries’ manufacturing and distribution activities, which led to a double-digit increase in net sales in the region,” the company said without giving figures.

BIC has taken loans of €2.77 million (Sh355 million) from local banks to fund the Kenyan subsidiary’s working capital. The multinational says the Kenyan unit employs more than 200 people.

The sale of the BIC division left Haco to trade in the home care and hair care line of businesses whose brands include Sosoft fabric softener and Miadi shampoo.

The multinational acquired Haco’s semi-automated production plant located in Kasarani, Nairobi as part of the transaction which the Kenyan firm said would give it an opportunity to diversify and grow in the regional markets.

The deal brought to an end 40 years of Haco’s BIC franchise that saw it manufacture and sell branded stationery, lighters and shavers.

The transaction adds to the emerging trend in the retail and fast-moving consumer goods sector where multinationals squeeze out local franchises by buying them out or forcing them into joint ventures.

Such moves have been seen to arise from the desire to take a bigger chunk of profits as well as enforce standards, including pricing, marketing and customer service.

Fashion retailer Deacons East Africa, for instance, suffered a major revenue setback after it relinquished its key Woolworths and Mr Price franchises to the South Africa-based owners.

The BIC buyout took away one of Haco’s major revenue lines, with the BIC brand of pens having the largest market share in the regional stationery industry.

BIC said the transaction was in line with its continued growth strategy in Africa, with the multinational attracted by a positive outlook for the stationery market.

“This is a tremendous opportunity to strengthen BIC’s position in one of the most promising markets for BIC products in the world,” the multinational said in an earlier statement referencing the deal with Haco.

“We estimate the regional stationery market to be around 1.5 billion units annually and growing mid to high single-digit.”

Besides their high quality, sales of BIC pens have been helped by strong relationships with large customers, including companies that order branded units.

The deal with BIC followed Mr Kirubi’s move to regain full control of Haco with the buyback of the 51 percent stake he had sold to Johannesburg-based Tiger Brands.

In June 2008, he sold the stake in the firm to Tiger Brands for more than Sh300 million and bought it all back after the partners disagreed over the company’s strategic direction.

Mr Kirubi has in recent years concentrated his wealth in Nairobi Securities Exchange-listed Centum Investment Company in which he plans to acquire an additional 20 percent stake at an estimated cost of Sh2.7 billion.

This will boost his ownership in Centum to nearly 50 percent, cementing his control at the company whose stock trades at a major discount to its net assets.