CMA should review Carbacid-BOC Kenya deal

Billionaire investor Baloobhai Patel. FILE PHOTO | NMG

By JAINDI KISERO
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Summary

• The local business acquisition artist and majority shareholder in listed medical gases manufacturer, Carbacid Investment Plc, Baloobhai Chotobhai Patel is on to a good thing.
• Companies he controls have signed an irrevocable agreement with BOC Holdings Ltd, whereby they will purchase the 65 percent majority stake which the multinational owns in local oxygen manufacturer BOC Kenya.
• If the deal succeeds, the local tycoon will have assumed control and dominant influence in the local market for medical oxygen and industrial gases as never witnessed in the market before.

The local business acquisition artist and majority shareholder in listed medical gases manufacturer, Carbacid Investment Plc, Baloobhai Chotobhai Patel is on to a good thing.

Companies he controls have signed an irrevocable agreement with BOC Holdings Ltd, whereby they will purchase the 65 percent majority stake which the multinational owns in local oxygen manufacturer BOC Kenya.

If the deal succeeds, the local tycoon will have assumed control and dominant influence in the local market for medical oxygen and industrial gases as never witnessed in the market before.

Carbacid Plc is mostly manufacturer of industrial carbon dioxide. But the company regularly enters into partnerships with small oxygen traders to compete with BOC Kenya on contracts especially with the big hospitals.

Here is a bit of background to the latest saga in the mergers and acquisitions space in Kenya..

In a notice dated November 25, 2020- Carbacid Investments Plc- in which by Mr Patel has a dominant 40per cent stake-and a hitherto unknown entity by the name Aksaya Investment LLP- also owned by Patel - announced their intention to make a cash offer of Sh 1.2 billion to acquire 100 per cent of issued ordinary shares of BOC Kenya Ltd.

That notice was followed by another on December 9, 2020, where Carbacid Investment Plc served on BOC Kenya and offeror’s statement providing details of the terms of the offer.

According to that offer document, BOC Holdings, which is based in Munich Germany-,has accepted the offer and consequently signed an undisclosed agreement with the purchasers in which the parties have agreed on a completion date of July 31, 2021.

Enough of background. I go back to the statement I made at the beginning of the article that Mr Patel is on to a good thing.

The local tycoon has calculated that current circumstances provide the best opportunity to pounce, take out a rival, and achieve dominance in the local market for sale and manufacturing of industrial gases, medical gases and welding products.

Why do I say that the investor has decided to pounce on a good opportunity and take full advantage of current circumstances?

In the first place, the local investor is dealing with a multinational that has already made a decision at the global level that to quit Africa.

The deal in Kenya was announced by the multinational hardly weeks after it announced that it had also accepted an offer to sell its majority stake in BOC Nigeria an entity by the name TY Holdings.

These circumstances put Mr Patel at distinct advantage because he negotiating with a party that has already decided that it is leaving the continent.

Secondly, it is clear to the investing public that the inherent value of the business is not accurately captured in the share price.

Mr Patel is on to a good thing because the transaction allows him to take control of the company by purchasing only the shares of the company and at a price that does not take the value of land, factories, and warehouses into account.

I have seen estimates based on the numbers disclosed in the accounts of BOC Kenya that calculate the estimated undervaluation of the company’s assets in the order of sh 1.5 billion.

BOC Kenya has more land, factory, warehouses and offices than Carbacid.

Clearly, the opportunities for making billions through asset stripping will be very big.

What does this transaction pose in terms of national interest? First, before the Competition Authority of Kenya approves the deal, it needs to address us on risks and implication of the proposed merger of two companies on market dominance and monopolistic pricing.

I say so because if you scrutinise any medical bill of a Corvid 19 patient in Kenya today, you will find that oxygen represents the biggest part of the bill. The price of medical Oxygen has hit the roof especially after the advent of Corvid.

The Competition Authority must tell whether it is in our interest as a country to have a monopoly in the production and sale of medical oxygen especially in a context widespread scarcity of this essential product.

The second issue of national interest that this transaction raises is the whole question of transparency.

Is it not astonishing that Capital Markets Authority (CMA) has given the go ahead to the transaction without first demanding full disclosure of the secret irrevocable agreement between the parties? As it is, the selling party’s hands are tied to selling to Carbacid regardless of whether or not the offer price is competitive.

The CMA must insist that all transaction documents including a report of an independent valuation of the business that was commissioned by the board of BOC Kenya and the irrevocable agreement between the vendor and the seller be circulated to minority shareholders and made accessible to the investing public.