Parliament has questioned Tanzanian tycoon Edhah Abdallah Munif’s bid to purchase an additional 29.2 percent stake in East Africa Portland Cement (EAPC) amid concerns that he would dominate the board of the firm and share trade secrets with a rival company.
The Committee on Trade, Industry, and Cooperatives raised concerns that Mr Munif, through his investment vehicle, Kalahari Cement Limited, may dominate EAPC voting rights and strategic direction with his increased 41.75 percent stake.
The deal comes months after his firm, Amsons Group, completed the full acquisition of Bamburi Cement in December for Sh23.6 billion, tightening its grip on Kenya’s cement market.
The cross-ownership of firms in the same sectors could lead to the sharing of strategic information such as marketing, sales and pricing plans, which could prevent, distort, or lessen competition and hurt consumers.
The MPs sought to know whether the acquisition of a 41.7 percent shareholding of EAPC by Kalahari Holdings will give the Tanzanian firm the power to reverse board decisions at the Kenyan company.
“Will the acquisition of 41.7 percent shares of EAPC not give Kalahari dominance on the board? Doesn’t it mean that they will have the power to countermand decisions by the board?” Maryanne Kitany, the committee vice-chairperson, asked on Thursday.
The ownership will effectively give companies controlled by Mr Munif board-level influence and muscle to access strategic information in two of Kenya’s top cement firms that have a combined share of 31 percent of the country’s production capacity of 14.5 million tonnes per annum.
This position places Amsons Group and Kalahari Cement at risk of sharing strategic information on the operations of the two cement makers.
MPs accused the Competition Authority of Kenya (CAK) of failing to ascertain whether the proposed sale of shares to Mr Munif will make the Tanzanian tycoon dominant and take control of decisions on the board of EAPC over other shareholders.
The committee also sought to know whether the CAK had reviewed the deal, its effects on EAPC operations, and public interest. The competition watchdog says it did not approve the deal because it does not meet the threshold for a merger.
“The 41.7 percent will not result in the acquisition of control directly by Munif. Additionally, the shares do not offer any veto rights that would amount to indirect control,” said David Kemei, CAK Director-General, in a statement to the committee.
“Therefore, the proposed transaction does not amount to a merger. The authority did not conduct any assessment on public interest to prevent any monopolistic tendencies.”
With its 41.75 percent stake in EAPC, Kalahari Cement will have powers in appointing the company’s directors together with the National Social Security Fund (NSSF) and the Treasury, which have 27 percent and 25 percent stakes, respectively.
In Bamburi, Amsons Group has full control over board appointments after its complete buyout and delisting from the Nairobi Securities Exchange (NSE).
The EAPC board last week told MPs that the deal would give Kalahari powers to dominate the cement maker’s voting rights and strategic direction.
“It would alter the dynamics of board deliberations and voting, moving from a structure with several significant, distinct shareholders to one where a single controlling interest holds a dominant position,” said Richard Mbithi, Board Chairman at EAPC.
“This means that post-transaction, a single beneficial owner will exert influence over a combined 41.7 percent of the company. The alignment between the NSSF and the Treasury will become even more critical to balance the consolidated power.”
The Attorney-General is reviewing the terms of the buyout to guard against loss of strategic assets and rights of existing shareholders. The government’s chief legal adviser will also seek to establish if the rights of the Treasury and the NSSF were breached.
