Tuesday, August 28, 2007


I blogged on this issue last November.I notice its been the top content on this blog ever since.It never leaves the top 10 list.After many comments on my blog i.e. Patriotic Kenyan,Gathara and many others, i give you my final thoughts on it in a Q & A format.

How many shareholders does Safaricom K Ltd have?
Two,-Telkom(K) Ltd(60% of Safaricom) and Vodafone (K) Ltd(40% of Safaricom).

What about Mobitelea?
Mobitelea is a shareholder in Vodafone(K) Ltd which is a Private Limited Company.

What about Mobitelea's stake in Safaricom?
Its an Indirect stake, Mobitelea owns 12.5% of Vodafone(K) Ltd while Vodafone Plc holds 87.5% of Vodafone(K) Ltd.Vodafone(K) Ltd main asset is the 40% shares in Safaricom(K) Ltd.
If you take 12.5% of 40% you get the 5% indirect stake Mobitelea has in Safaricom.

How was business was done in the Third World during the 20th Century?
In those days there were no worldwide Mergers and Acquisitions firms,lawyers or clients to perform proper due dilligence and show you the ropes.Think Morgan Stanley,Citibank,PWC and lately Rennaissance.Most firms were based in the WEst and 1 or 2 Asian Capitals i.e. HongKong and Tokyo.Mumbai was the name of some exotic perfume.

If you wanted to take over a local firm or go into a joint Venture with a Third World Government,you allied yourself with a local political operative and he did the 'due dilligence' opened the right doors and he got a stake in the new firm as his Partnership contribution.

If you doubt me just look at the list of top civil servants and politicians of the 1960s Kenya and compare that with their business interests.

Why the IPO must go on
The Safaricom IPO will ignite significant foreign interest that will grow our markets and put Kenya in focus of all the top markets.The market Growth will create more jobs for everyone and grow the economy.

If we stop the IPO we can get back Mobitelea's stake
Ha, Not a chance the Mobitelea stake is parked in a private company Vodafone(K) Ltd.Government cant interfere with private property that is unconstitutional
Let me put the point across using a story:
There was once an old mzee who had 10 acres of land.He sold 4 acres to his Best Friend.The Best Friend then sold 1 Acre to a stranger the Mzee didn't like.The Mzee wanted that particular 1 Acre(that was sold to the stranger back).Do you think he got it ?

This is unfair Mobitelea's owners are getting away with free money
Life is unfair that why some people have first class degrees and are clerks while others have Certificates and are millionaires.Thats the case whether in USA or Kenya.
Apparently,this is the crux of Muthoni Wanyeki's Article in this week's East African.I respect Muthoni and she is one of the people i admire but i doubt her capacity to look at the big economic picture.
This is the best time to list Safaricom, you can never wait for the best time to do something..that time may never come.

What about the Privatization Act 2005?
It gives the Minister of Finance the power to Gazette it and decide when it shall come into effect.By the way Laws are never applied RETROSPECTIVELY.Do you know who the Minister of Finance is?
I rest my case.

Thursday, August 16, 2007

Bamburi/EAPC merger

Lafarge is a large and clever company.It has stakes in its Kenyan competitors' Athi River Mining(15%),East Africa Portland Cement (41%).Its main regional company is Bamburi Cement(63% stake).For a while,the Government has been eager to stop its ownership of competitors.It has been proposing the sale of the Lafarge stakes in EAPC and ARM, especially EAPC since only 6.3% is listed on the NSE contrary to listing requirements that 25% of a company should be listed.
Regionally Lafarge have other holdings in the region i.e.Mbeya Cement-Tanzania(62% Lafarge held) and Hima Cement-Uganda(71% Lafarge held through Bamburi).
The industry
Right now there is a construction boom in the Middle-East so Eyptians are selling their cement to their brothers in the Gulf,at the same time the high freight rates and Port efficiencies make it expensive to import cement to East Africa.For now the two factors are saving the hides of our local cement producers.
At the same time local cement demand is rising installed capacity in Kenya is at 3.3million tonnes(actual capacity is probaly 2.5-3.0 million tonnes),Annual cement demand excluding what we send to Sudan,Rwanda and Uganda is at 1.8million tonnes and rising at 10% per year.
Eastern Africa
Cement demand is rising all over the region DRC,Rwanda,South sudan, Uganda and Tanzania are all consuming more cement.So unless, we have more factories we will have a supply constraint sooner rather than later.Unless,the boom in China and the Gulf explodes and we have a glut coming our way.

The issue
The Government of Kenya wants to introduce more competition in the Kenyan cement market by forcing Lafarge to sell its stakes in EAPC and ARM.On the other hand,Lafarge sees the Eastern african region as a growing economic area and doesnt want to sell the stakes.

The Proposition
Lafarge offers to merge Bamburi and EAPC and add Mbeya and Hima Cement to the deal to create a super East african cement company to fight external competition.(think of it as an East African Breweries for cement).
win-win for both parties i.e. Lafarge consolidates its holdings in the region and Government gets a large stake in a succesful East African Cement company.

Other players
The other players in the region such as ARM,Tororo Cement and Tanga may have to consolidate in order to achieve the size and scale necesary to compete with the new entity(if it happens)

My take
We should take the offer but ask Lafarge to add their other companies likePortland Cement-Malawi and Chilanga Cement -Zambia(which owns a stake in Mbeya Cement Tanzania) to the deal.
A new company comprising of Lafarge's major interests in Kenya,Tanzania,Uganda,Zambia and Malawi would be of the size and scope necessary to face any competition and satisfy regional cement demand.