Listen to fund managers on EABL stake sale

That is why its recent letter to the Capital Markets Authority (CMA), urging enforcement of the mandatory takeover provisions in the EABL–Asahi transaction, deserves serious and transparent consideration.

At the heart of the matter lies a straightforward regulatory question. The Capital Markets (Takeovers and Mergers) Regulations, 2002 are clear. Regulation 3 defines “effective control” as the acquisition of 25 percent or more of a company’s voting rights.

Once that threshold is crossed, the law deems the transaction a takeover, triggering a mandatory obligation to extend an offer to all remaining shareholders on equal terms.

In this case, Asahi’s acquisition of 65 percent is not marginally above the threshold — it is nearly three times the trigger level. On the plain reading of the regulations, this is a control transaction that should require a mandatory offer to minority shareholders.

To be sure, the regulations give the CMA discretion to grant exemptions. But discretion is not the same as arbitrariness. Exemptions were contemplated for exceptional situations — rescuing a distressed firm, facilitating a court-approved restructuring, or advancing an overriding public interest that would be undermined by strict compliance.

EABL is not a distressed company on the brink of collapse. Nor has this transaction been framed as a systemic rescue. It is, by all accounts, a strategic control acquisition.

In such circumstances, the burden must lie on the regulator to explain why the mandatory offer provisions should not apply. Clearly, the principle at stake is larger than this single transaction.

Mandatory takeover rules exist for one central reason: to protect minority shareholders when control changes hands.

When an acquirer pays a premium for control, that premium reflects the value of strategic direction, board influence and future cash flow dominance. Minority shareholders are entitled, under the law, to share in that premium by being given the option to exit on equivalent terms.

Without that protection, they may find themselves locked into a company under a new controlling shareholder whose priorities or governance style may differ fundamentally from the past.

Kenya has precedents that reinforce this principle. In past control transactions — including high-profile deals such as Bamburi — minority shareholders were accorded the protections envisioned under takeover regulations.

Consistency matters. Capital markets thrive not merely on good rules, but on predictable and even-handed enforcement of those rules.

If the regulator departs from precedent, it owes the market a detailed and reasoned explanation. Silence or opacity breeds suspicion. Transparency builds trust.

It is also important to clarify what this debate is not about. It is not an attack on the commercial merits of the EABL–Asahi transaction. Strategic foreign investment is welcome. Control changes are part of dynamic markets. Nor is it about vilifying the CMA.

Regulators operate under complex pressures and must balance competing interests. Rather, this is about regulatory credibility.

Investors — local and international — allocate capital based on their assessment of regulatory predictability. If enforcement of takeover rules appears discretionary or inconsistent, risk premiums rise. That ultimately raises the cost of capital for Kenyan companies and undermines efforts to deepen the capital markets.

Kenya is at a critical juncture in financial sector reform. Policymakers are pushing for greater domestic retail participation in capital markets, encouraging retail investment and mobilising long-term savings for infrastructure and industrial growth. These ambitions rest on a simple premise: that markets are fair, rules-based and transparent.

Kenya's capital markets do not operate in isolation. The FMA letter to the CMA correctly points to recent precedents that demonstrate how serious regulators handle these situations.

When Tolaram acquired Diageo's 58.02 percent stake in Guinness Nigeria, Nigerian regulators enforced the mandatory takeover offer.

Similarly, when Canal+ exceeded the takeover threshold in MultiChoice Group in South Africa, the Takeover Regulation Panel compelled a mandatory offer to all shareholders. These regulators understood that protecting minority shareholders is not optional—it is the foundation of market integrity.

The writer is a former managing editor of The EastAfrican.