Category Archives: Scangroup

Nairobi New Media Stocks, 5 Years Later

It’s been over five years since a wave of new media stocks appeared at the Nairobi Stock Exchange  (NSE) including Access Kenya Safaricom, and Scangroup. They are all in the news this month, but for different reasons.
For Access Kenya, the deadline for shareholders to vote on a takeover by Dimension Data was extended by a day due to a national Holiday last week, However, Dimension Data just announced that they have received acceptances from 75% of shareholders and approval the Competition Authority of Kenya and will now proceed with the takeover which will lead to a de-listing of Access Kenya at the NSE.
Safaricom shares seem to have stabilized in the Kshs 7-8 price range after spending quite a bit of time at Kshs 3/=, well below the IPO price of Kshs 5/= in 2008. This disillusioned a lot of retail shareholders who bought their shares hoping to quadruple them when they listed but then had to sell them at a loss. The company has since weathered many changes but remains the market leader in Kenya, thanks largely to M-Pesa and the floundering of their rivals (Orange, Airtel and Essar).
Scangroup got an investment from the WPP, in 2008 who gained a controlling interest for about $18 million. The shares traded at about Kshs 72, and while they have lagged other shares this year, this is still a tremendous gain from the IPO price from Kshs 10.45.
This week, WPP announced, that they would seek to increase their stake to just over 50% in a deal worth about $95 million. This will be done through a combination of cash, new shares and exchange of partnerships in joint companies (Ogilvy & Mather, Ogilvy Africa, Ogilvy (in Kenya, Tanzania, Mauritius) Millard Brown (East Africa, and Mauritius), and Hill & Knowlton (East Africa and Africa) which will become full subsidiaries of Scangroup over the next one year.

Scangroup & Ogilvy Redux

Scangroup shareholders today did their part and unanimously approved the proposed deal to buy into Ogilvy Africa as they also endorsed the creation and allocation of new shares to be swapped under the deal.

This will give Scangroup (thorough Ogilvy) an opportunity and footprint to enter about 8 African countries as a minority partner and links with 15 affiliates, and CEO Bharat Thakar mentioned that creation of a Pan-African agency was fulfillment of a long ambition and the only way to grow the company since the Kenyan (and east African) advertising market was saturated.

The deal still hinges on approval of South Africa authorities for the share swaps (otherwise Scangroup/WPP will have to pay $5 million to complete the deal). By using shares to complete the deal, Scangroup’s war chest of cash at WPP is still available and ready to be used to seek majority stakes from these new Ogilvy partners around Africa.

Scangroup & Ogilvy Africa

Edit September 2018: Ogilvy Africa has opened a Nigeria office ahead of the celebration of its 70th anniversary. The opening of the 24th office in Sub-Saharan Africa comes after an out-of court-settlement that the firm reached with Prima Garnet Communications who previously represented Ogilvy in Nigeria.

July 2010: At the end of April Scangroup announced a deal to buy into the Ogilvy Africa group and has now invited its shareholders to approve the transactions.

1. The acquisition of 51% in O&M Africa and 50% in Ogilvy East Africa will be structured as
O&M Africa: 51% is to be acquired by payment of $238,360 (Kshs 19 million) cash and transfer of 6.2 million shares of Scangroup worth Kshs 166 million.
Ogilvy East Africa: 50% will be acquired by payment of Kshs 13 million to Ogilvy South Africa (paid in US$) and transfer 4.4 million shares worth Kshs 118 million, and a payment to fellow shareholder Russell Holding of one euro and payments to Koome Mwambia comprising cash of Kshs 20.6 million and transfer of 3.12 million Scangroup shares worth Kshs 82.4 million.
2. Shareholders will have to approve the creation of 14 million new shares and waive their pre-emptive rights to allow the new shares to be allotted to Ogilvy South Africa and Koome Mwambia.

Winners
– Scangroup gains entry via minority shareholding in Ogilvy into Namibia, Cote d’Ivoire, Senegal, Burkina Faso, Cameroon, Gabon, Zimbabwe, Nigeria and non-equity affiliates in 11 other African countries to create a Pan-African agency.
– Koome Mwambia sells out his shareholding gets cash and becomes a top 10 shareholder in Scangroup and he is to enter into a management agreement to remain MD Ogilvy East Africa.
– MD Bharat Thakar gains a pan African footprint and loses just 5%.

Losers
– Local investment bankers: No transaction advisers were appointed and the IM only has an opinion from BDO East Africa that the issue price of Kshs 26.4 is fair and reasonable and that Deloitte’s calculation of this price (Scangroup now trades at Kshs 36).

– Kenyan corporates whose choice of partners in media, PR, advertising got smaller – as Scangroup, Ogilvy, Hill & Knowlton, Blueprint, Mindshare, Millard Brown, Squad Digital, Smollan are all under one roof.
– Scangroup if the share swaps are denied by the South African authorities, will have to pay Kshs 427 million ($5.2 million) to proceed.

New Media Companies Redux

It’s been two years since this blog post comparing Access Kenya and Scangroup which debuted at the Nairobi Stock Exchange (NSE) at about the same time. They are both back in the news this week for diverse reasons along with a third ‘new media’ company Safaricom, which debuted later in 2008 on the NSE.

Scangroup: has just announced plans to buy stakes of 51% in Ogilvy & Mather Africa and 50% of Ogilvy East Africa. (statement here) – two companies are both subsidiaries of UK’s WPP Group who own 27% of Scangroup.

The investor at the Scangroup notes that group has recorded growing ads in TV and radio but declining in print media. In 2009, the communications sector was their largest customers with 29% followed by finance at 15%. Scangroup has 61% of the advertising market in Kenya followed by Access Leo Burnett with 13% and then Ogilvy & Mather with 10% – while their plans going forward are to do more online adverting and take the Ogilvy as their main brand across Africa

a version of this Safaricom by Squad digital, a Scangroup venture appears in the NY Times pages

Access Kenya: are in the news (details here) following their postponed by another three months of the annual general meeting that was to have taken place yesterday May 4 and payment of their divided. The company has not commented beyond a press statement.

From the blogs: On AK – a year ago, they were very very liquid while as recently as two months ago, they were hailed as a must buy stock.
from Twitter @bankelele not a shareholder, but as a concerned proxy lack of info is bad. AK should issue a profit warning or cautionary statement on restructuring
@mainaT I figure if AccessK is struggling now when internet is a growth sector, its got issues & a cash flow problem that won’t go a way 4 a while…but, Centum did the same in late 08 early 09 when it was having Cflow issues that meant it couldn’t pay a dividend
@roomthinker: Access Kenya customers, used to their speeds were not surprised to learn their AGM would be late
@coldtusker Y announce a dividend if u have CF shyte? For AK to say, ‘no div coz expanding’ is easy & plausible. Or pay only 5 cents like safcom…I think this is a bigger issue… Sold off at 22 so dont really care but I think they are in play. AK cud always delay div after AGM…I think less of cashflow issue. More of a acquisition/takeover/sale matter http://bit.ly/aJVCMm [#nairumours]

Finally we have Safaricom who initiated a spat with the government [statement here] after the Minister for Information (gazetted new rules for the sector including a fair competition one (draft here) and accusing the government regulator, Communications Commission of Kenya (CCK) of seeking to curtail Safaricom’s growth through price controls and to allow competitors to increase their market share.

The next day the three other mobile companies, Yu, Orange, and Zain replied in a joint statement applauding the new rules and saying they were not targeted at anyone (read Safaricom) but anyone who abuses of a dominant position in the market CCK had adopted international practices to bring real competition to the mobile sector.

This is new ground for Safaricom – when Orange raised a fuss about the uncompetitive Kenyan market, it looked like GoK would side with large taxpaying Safaricom, but now that all the small (unprofitable, they admit) new mobile entrants have teamed up, some token measures are likely to be brought to rein in Safaricom which is estimated to control at least 80% of the mobile sector by most measures. How do you bring down Safaricom from 80% to 60%?

Banking on Other Income

It’s crunch time in Kenya’s economy and many companies are feeling the pinch. While operations may be hurting, listed (and unlisted) companies still strive to report (increasing) profits to shareholders and they will look to unconventional, or other income opportunities to deliver by year-end:

some examples; 

East African Portland Cement: Went from a profit warning issued at their ½ year to a full year profit increase thanks to a property revaluation exercise.

Mumias Sugar: Full year profits were attained due to a tax credit they gained from investing in electricity co-generation.

Scangroup: Profit in the ½ year was credited to income from their investment in Government bonds.

Access Kenya: Profit growth in the ½ year was attributed to the strengthening of the US$ against the Kenya shillings – and most of their revenue is dollar-denominated.

Counting on Other Income: Going forward, other companies can also employ similar measures to plug income gaps e.g.

  • Tax breaks from listing – Safaricom .
  • Green energy – carbon credits, co-generation – Kengen, Safaricom.
  • Fibre cable/IT investment writebacks.
  • Property and investment revaluations.
  • Forex: a weak shilling is usually good for Kenya Airways and tea companies.