Category Archives: Telkom Kenya

M&A Moment: March 2018

Various merger/acquisition (M&A) deals in the last few weeks and months in East Africa since the last update.

Banking and Finance: Finance, Law, & Insurance M&A

Centum Investments is selling its shareholding in GenAfrica Asset Managers to Kuramo Capital LLC, an independent investment management firm based in New York City with offices in Nairobi and Lagos, and registered as an investment advisor by the Securities and Exchange Commission (“SEC”).

Centum sold 25% of Platcorp Holdings to  Suzerian Investments a consortium of the Platcorp management team (platinum credit and premier credit) which provides emergency loans to individuals in  Kenya Uganda Tanzania while Premier offers working capital loans to companies – at a 31% return.

AfricInvest, a leading pan-African mid-cap-focused private equity firm invested in Britam Holdings Plc (Britam),  taking up a 14.3% stake. The investment was made in partnership with DEG-Deutsche Investitions- und Entwicklungsgesellschaft mbH (DEG), The Dutch Development Bank FMO, and Proparco, a subsidiary of Agence Française de Développement (AFD), focused on private sector development.

Hamilton Harrison & Mathews Advocates (HH&M), one of Kenya’s oldest and largest law firm has entered into an agreement to combine with Dentons, the world’s largest law firm. Upon regulatory approval, HH&M will become part of Dentons, which is combining with seven elite firms in Africa, the Caribbean and South East Asia.

The Competition Authority of Kenya has authorized the proposed acquisition of control in AON Kenya Insurance Brokers by Extologix Proprietary through Heartland Holdings.

BitPesa, the first and largest blockchain payments platform for Africa and Europe, announced their acquisition of TransferZero, an international, online money transfer platform that specializes in sending money to consumers and companies in 200 countries using over 50 different currencies.

Mastercard has completed its acquisition of mobile payments technology company Oltio from Standard Bank Group. The acquisition builds on Mastercard’s longstanding relationship with Oltio’s technology enables consumers to authenticate Masterpass digital wallet purchases in South Africa using their bank PIN and mobile phone.

DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, is investing EUR 4 million in M-BIRR, a cashless money transfer and payment service in Ethiopia to improved access to banking services in Ethiopia on a wide scale. Other investors include the European Investment Bank (EIB). The Finnish development finance company Finnfund has been a shareholder in M-BIRR since as early as 2012 which is inspired by the success story of the Kenyan provider M-PESA.

The Competition Authority authorized the proposed acquisition of 100% of the issued share capital of Youjay’s Insurance Brokers by I & M Insurance Agency.  I&M Bank, through its subsidiary, I&M Insurance Agency, has completed the acquisition of Youjays Insurance Brokers. Founded in 1987, Youjays deals in life and non-life products and has 400 customers and has an insurance premium portfolio of Kshs 400 million.

Customers of Chase Bank were given an update by the Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) on the ongoing takeover of selected assets and liabilities of their  bank by State Bank of Mauritius (SBM).

 

Food & Beverage M&A

A South-African based private equity fund has invested Sh404 million ($4 million) to acquire an undisclosed stake in Kenyan fast food chain Big Square. Uqalo says its investment will expand its footprint from the current nine stores to 30 over the next four years. Uqalo, which targets investments located in Kenya, Ethiopia and Nigeria, is primarily funded by Hong Kong-based supply chain and logistics conglomerate Fung Group and its strategy is to acquire minority stakes by investing between Sh202m and Sh506m ($2m and $5m) in “mature businesses” through equity or convertible debt (via Business Daily).

The Competition Authority approved the proposed acquisition of 100% shareholding in Nairobi Java House limited by Star Foods Holding

Wow Beverages  has made an application to enter into exclusive import arrangements with specified international and local manufacturers and suppliers of ‘premium’ wines and spirits in Kenya – from Gallo Vineyards Inc. trading as E&J Gallow Winery Europe, Vina San Pedro Tarapasca S.A, Felix Solis Avantis S.A, Afrique Interlink (PTY), Interlink (PTY) Limited, Edrington Group Limited and Tradall S.A (Bacardi-Martini Group).

Seaboard has made a low offer to buy out other minority shareholders of Unga.

The Kenya Tea Development Agency (KTDA) Chebut factory is set to take over management of 260 acres of mature tea owned by the Nandi county government after the conclusion of ongoing negotiations.

Kenyan billionaire David Langat has acquired one of the largest tea farm in Tanzania in a deal that puts his company as one of the single largest tea producers in East Africa. Langat is thought to have paid a British firm, Rift Valley Corporation, close to Sh6 billion ($60 million) for a controlling stake, 99 per cent, in Mufindi Tea and Coffee Limited, Rift Valley Tea Solutions Limited and Kibena Tea Limited. The businessman owns Koisagat Tea Estate in Nandi and Kapchepet tea factory that processes CTC tea for export under his company D L Koisagat. He also runs Selenkei Investments Ltd, a company that generates electricity from solar energy plus the imposing Nyali Centre in Mombasa County as well as the Sunrise Resort in the same county.

Carnivore owner Tamarind acquires Kengeles: The Competition Authority has approved the deal with a notice that “The merger will not affect competition negatively; and the combined turnover of the parties for the preceding year, 2016, was Sh1,224,757,242. However, the target had a turnover of Sh94,067,983, which is less than Sh100 million, and therefore, the transaction meets the threshold for exclusion under the Merger Threshold Guidelines” (via the Business Daily).

Logistics, Engineering, & Agri-Biz M&A

Ascent Rift Valley Fund (ARVF), a leading SME Private Equity Fund investor will acquire a majority stake in Auto Springs East Africa, a Limuru-based factory that produces a wide range of products for the motor assembly and vehicle spare parts industry. It will be done in a partnership deal with SFC Finance.

Sendy, an app-based on-demand delivery services platform operating across Kenya, has completed a Series A investment round, led by DOB Equity. DOB Equity will invest alongside CFAO, member of the Toyota Group, and other private investors. DOB Equity says that the new funds will enable Sendy to increase their platforms’ service offering. This includes adding more delivery vehicles to their platform, increasing their coverage area, expanding the sales and technology team, and preparing for future expansion into neighboring countries in East Africa.

The owners of flower farm Karuturi Limited have secured an investor to inject fund into their business as they fight to save their priced asset from being auctioned by CfC Stanbic over Sh1.8 billion loan default. The firm in a statement said that it has reached an agreement with Phoenix Group for a ‘blend of debt and equity’ which will help it to meet its current debt obligations and restart its operations (Via Business Daily)

Ethiopia acquires 19% in Berbera Port becoming a strategic shareholder; UAE’s DP World has 51% while Somaliland gets 30% following the agreement being signed.

Trading on Express Kenya shares has resumed at the Nairobi Securities Exchange (NSE) after a three-month suspension following a takeover bid by the firm’s CEO Hector Diniz. Diniz Holdings, an investment firm, has bid to acquire the 38.36% stake held by other shareholders other than its affiliates for Sh5.50 a share. (Via Business Daily).

The Competition Authority authorized the proposed acquisition of the entire issued share capital of Trillvane Ltd by Kuehne+ Nagel limited.

The Competition Authority authorized the proposed acquisition of Carzan Flowers (Kenya) limited by Star Bright Holdings.

The Competition Authority authorized the proposed acquisition by Diamond (bc) b.v. of the Diversey Care division of Sealed Air corporation (“sealed air”) and of Sealed Air’s food hygiene and cleaning business within its food care division.

The Competition Authority authorizes the proposed acquisition of 51% shareholding in Mavuno Fertilizers Limited by Omya (Schweiz) Ag.

Trans Miller Limited carrying on the business of food processing, packaging and distribution and other related agri-business activities, situate at L.R. No. 4953/1185, Thika, have been sold and transferred by the transferor to Tahuna Limited, who will carry on the said business of manufacturing under the name and style of Tahuna Limited.

Funguo Investments Limited has acquired a majority – 51% stake in Feastfoods Processors Limited, a food processing company that has been set up to manufacture fruit juice puree and concentrates in Kwale County (via Business Today)

The Competition Authority of Kenya excludes the proposed acquisition of 51% of the issued share capital of Ess Equipment Kenya Limited by Vronbisman Limited from the provisions of Part IV of the Act due to the following reasons as the acquirer does not operate in Kenya and the targets turnover for the preceding year 2017 was KSh. 79,314,330 and therefore, meets the threshold for exclusion under the merger threshold guidelines.

Airline/ Oil/Energy/Mining M&A

Kenya Airways PLC, KLM Royal Dutch Airlines (KLM) and Societe Air France S.A (Air France) have made an application under section 25 (1) of the Act for the exemption of their proposed Agreement of Accession and Amendment to Joint Venture Agreement (proposed Amended JV) from the provisions of section• A of Part III of the Act. The application for exemption is for an indefinite period (as long as the amended N Agreement remains in force).1. The proposed Amended N agreement provides as follows —(a) the inclusion of Air France as a party to the Joint Venture Agreement (original JV agreement) between Kenya Airways and KU* and(b) that all references to KLM in the original JV be construed as a reference to both KLM and Air France.

There has been an ownership change at Safarilink as ALS Limited, one of the shareholders of the firm, sold its entire to Bridges Limited, a Ramco Group affiliate, and an existing shareholder. As a result of this private transaction, Captain Aslam Khan of ALS relinquished his position of chairman with Safarilink’s owners settling on Mr. Ngunze to steer the airline’s board (via Business Daily)

Ethiopian Airlines, the largest Aviation Group in Africa announced that it has finalized shareholders agreement with the Government of Zambia for the re-launch of Zambia Airways. The Government of Zambia will be the majority shareholder with 55% and Ethiopian will have 45% stakes in the airline – and this comes after another consolidation at Ethiopian.

Base Resources announced that it reached  agreement with World Titane Holdings whereby Base Resources will acquire an initial 85% interest in the wholly owned Mauritian subsidiaries of World Titane, which between them hold a 100% interest in the Toliara Sands Project in Madagascar. Base Resources will acquire the remaining 15% interest, with a further US$17 million payable on achievement of key milestones, as the project advances to mine development. The acquisition is to be funded by the A$100 million share offer currently underway, refer below for further details. Completion of the acquisition is expected to occur in late January 2018.

Investec Asset Management through its Africa Private Equity increased its investment in Mobisol with consortium partners the IFC and FMO. Mobisol, headquartered in Berlin deals with the energy demand from off-grid households and has operations in Kenya, Tanzania and Rwanda where it has sold 110,000 systems benefiting over 550,000 people.

Following Total SA’s commitment, the Government has consented to a proposed acquisition of the issued and to-be-issued share capital of Maersk Oil Exploration International (Mogas Kenya) in respect of Blocks 10BA, 10BB and 13T. Earlier, Total had acquired Maersk Oil for $7.45 billion in a share and debt transaction.

Africa Finance Corporation and Harith General Partners (Aldwych Holdings) have merged their electricity generation assets into a new company – Anergi Holdings (includes Lake Turkana Wind Farm and Rabai Heavy Fuel plant in Kenya.

The competition Authority approved the proposed acquisition of indirect control of Savannah Cement by Benson Sande Ndeta. 

The Competition Authority approved the proposed acquisition of Associated Vehicle Assemblers by Simba corporation. 

Real Estate & Supermarkets M&A

Actis has agreed to sell its 79.5% majority stake in Mentor Management Limited a Kenyan project management company, to Turner & Townsend, a global construction and management consultant. The management team of MML will retain its minority stake. Actis acquired a controlling stake in MML in 2011 (Via Business Daily).

Mr. Price franchised business carried on by Deacons (East Africa) PLC will be transferred on or after 1st April, 2018 to MIRP Retail Kenya Limited  which will carry on the business.

Nakumatt Holdings and Tusker Mattresses have made an application under section 25 of the Act for the exemption of their proposed management services and loan Agreement for a period of three years.1. The terms of the agreement are that: Tuskys shall provide management services to Nakumatt including procurement and inventory management; Tuskys shall advance a loan to Nakumatt to provide it with emergency funding which shall be used to pay some of the outstanding amounts to employees and landlords; Tuskys shall provide recurring payment guarantees to the suppliers of the target to ensure the suppliers supply stocks to the following Nakumatt’s outlets: Village Market, Galleria, tikay Center, Lavington, Prestige, Mega, Highridge, Karen Crossoads, Ridgeways, Lifestyle, Embakasi, Garden City.

After 40 years, Makini Schools are being old to Schole Ltd, who will acquire all shares of Makini, and who will work with ADvTECH to enhance the quality of education as Makini continues with the Kenyan curriculum.

Telecommunications, Media & Publishing M&A

Kwesé has acquired a significant stake in iflix Africa, which will now form part of Kwesé’s diverse broadcast offering, as the core vehicle to deliver seamless mobile experiences to millions of viewers in Africa. Having set up operations in Nigeria, Kenya, Ghana and South Africa, iflix offers users the region’s most extensive collection of highly acclaimed local African and international series and movies, including first-to-market exclusive programming. This, in partnership with Kwesé’s broadcast operations and footprint, will create an exceptional mobile offering for consumers on the continent.

TPG Growth, the middle market and growth equity investment platform of global alternative asset firm TPG, announced today that it has signed a definitive agreement to acquire a majority stake in TRACE, the market leader in afro-urban music and entertainment. The remaining stake will be owned by TRACE’s co-founder and management team. TPG Growth will invest alongside Evolution Media and Satya Capital. As part of the transaction, MTG, a leading international digital entertainment group that invested in TRACE in 2014, will sell its stake in the company.

International Paper and Board Supplies carrying on the business of trading in printing and packaging materials and consumables at L.R. No. 209/11066, will transfer all its business, stocks and assets to The Print Store who intends to carry on the business from the aforesaid premises.

The Competition Authority authorizes the proposed acquisition of the entire issued share capital of Alldean Networks limited, Simbanet com limited and Wananchi telecom limited by Synergy.

Pressmaster carrying on the business of trading in printing and packaging materials and consumables at L.R. No. 209/12156, will transfer all its business, stocks and assets to Pressmaster Africa Ltd.

The Competition Authority authorized the proposed acquisition of the assets and business of International Paper and Board Supplies Limited by the Print Stores Limited, on condition that the acquirer absorbs not less than 45 out of the current 78 employees in the target business.

The Competition Authority authorizes the proposed acquisition of the entire issued share capital of Pressmaster Africa Limited by Ramco Plexus.

Edit From Tanzania where businessman Ali Mufuruki is seeking to increase his stake in Wananchi Group,  incorporated in Tanzania from 1% to 51% by acquiring 50% of the company, according to this notice (PDF) to Tanzania’s Fair Competition Commission.

Edit American Tower Corporation (ATC) has reached an agreement to acquire 723 telecommunication towers held by Telkom Kenya for an undisclosed amount. The deal, which is expected to be completed in the first half of 2018, will give the multinational a presence in the country, nearly a decade after making its maiden foray into East Africa through similar acquisitions in neighbouring Uganda and Tanzania. Read more

Other M&A

The Competition Authority authorized the proposed acquisition of 40% of the ordinary shares in AAH (BVI) limited by Oman Trading International with certain veto rights.

Regulatory hammer for Kenya telco reverses gains

Reading a version of a report (August 2017) on the telecommunication competition market study in Kenya by  Analysys Mason (AM) of London for the Communications Authority of Kenya presents some startling observations and unwieldy regulatory recommendations.

They regulatory target is the telco – Safaricom, which is the market leader in Kenya’s telecommunications and mobile money space. The reports documents areas where Safaricom is dominant as well as other telco spaces and areas where other companies like Telkom Kenya, Airtel, Wananchi, Equitel (from Equity Bank) and Multichoice (who were beyond the scope of the study) also dominate.

The AM report looks at the current state of the telecommunications sectors, but it ignores the reality of how it got to be where it is – the history of telecommunications in Kenya, strategic-decision-making, investment & management decisions, price wars, new technologies like mobile money and fibre cables etc.

Other studies have been done on the telco sector in Kenya by different agencies. In 2012 Citi did a report on Bharti Airtel (after Bharti-Airtel bought out Zain Africa in 15 countries for $10.7 billion in 2010) and at the time; It noted:

Safaricom is by far the largest operator, with a 65% market share. Bharti is a distant second with a 15% share. Safaricom’s dominance has come down from a  peak of ~80% a couple of years back as the smaller operators have become more aggressive.. while they both launched in 2000, Kencell (now Bharti) focused on the quality of network and high ARPU customers, Safaricom focused on the mass market. Also innovations like per-second billing, which Bharti took some time to introduce and M-PESA also helped  (Safaricom) cement its dominant market position and Safaricom’s stable management in contrast to Zain’s frequent management (1. Kencell 2. Celtel 3. Zain 4. Bharti) changes also helped it compete more effectively.

Kenya has other dominant players such as EABL (alcohol), BAT (cigarettes), Kengen (energy production) and Brookside (milk), but the Communications Authority (CA) is the only agency that can declare if there is a dominant telco market player.    

In the past, the CA  has pushed some changes to level the telco field such as rolling out number-portability, the ending of mobile money agent exclusivity, and the upcoming rollout of mobile money interoperability.  

But some AM report proposals are regressive such as at least five days before launching a new tariff, loyalty scheme or promotion, Safaricom should provide a justification that the proposals can be replicated by a reasonably efficient operator – AM or that Safaricom may not offer loyalty bonuses or promotions for which the qualification criteria require different levels of expenditure or usage by different subscribers in the same category – AM
The range and messaging of different Safaricom promotions like Tunukiwa, Bonga, Flex and now Platinum, is sometimes confusing but they should not be restricted from competing and innovating. Already, another investor report by Citi has already expressed concern about the impact on telcos of some of the regulatory recommendations in the AM report including that they may have effects that will be unclear, they do not foster innovation, and they may result in high prices. 

The AM report notes that there is some concern among investors in that, as Safaricom has maintained a high share of the market for many years and that recently Essar/Yu exited Kenya (2014), Orange sold out (to Helios who re-branded as Telkom-Kenya) and Bharti indicated that they may  also consider leaving Kenya, and perhaps other countries in Africa.

While appeasing investors is good, they have to contend with Safaricom and its impact on a telco regulator with targets, and to the Kenya government country as a significant taxpayer (Safaricom’s 2017 annual report cites payment of Kshs 84.3 billion in taxes and fees to the government, in addition to 35% of Kshs 57 billion dividends that was paid to shareholders)

Finally, Safaricom is a vertically-integrated company, and dominant players come and go and they evolve over time as market forces, customers, and technologies changes. The AM report notes the introduction of Pesalink, which can be seen as a reaction by the banking sector to M-Pesa, and it also cites the use of Equitel – on average, a Safaricom M-Pesa subscriber makes 6 transactions per month, whereas an Airtel Money subscriber makes 0.6 and an Orange Money subscriber makes 0.1. However, the average Equitel subscriber makes 10 transactions per month – AM. 

No one knows what the telco sector will look like in the next decade, but the consumers, not regulatory muscle, should be the decider.

Telkom Kenya is Back

  • Telkom Kenya has relaunched almost 12 months after the exit of the immediate former majority shareholder, the Orange Group (formerly France Telecom), – who sold its majority stake to private equity firm, Helios Investment Partners. The Kenyan Government owns 40% of Telkom. 
  • “We are committed to gradually restoring Telkom’s relevance in Kenya’s social and economic dynamic to transform it into a viable market player in the telecommunications sector and a profitable national asset,” says Company Chair, Eddy Njoroge.
  • Telkom also launched a 4G network with free daily data in all major towns and also  entered the home broadband market offering 4G to homes in an offer dubbed ‘Home Plan’..

Telkom nationwide coverage across Kenya

Telkom has got extensive coverage across Kenya. For companies, Telkom Enterprise offers the best options in three different packages of data and voice products in all counties that can be tailor-made to suit any customer’s needs:

  • BVPN (business VPN) provides connectivity for large companies and is available in all the 47 counties of Kenya. BVPN can also be extended to even more remote areas using satellite and is scalable which means a company can add new locations with voice and video. This is ideal for large companies with a presence in different locations that want security and which have sensitive, encrypted data that needs to be transferred nationwide.
  • JamboNet is a dedicated access offering with fast reliable Internet for businesses that range from 1 MBPS to 150 MPBS. An online customer portal enables monitoring and reporting and the service is backed by a strict service level agreement (SLA) that aims at 99.9% uptime.  The quality of JamboNet service does not degrade as more users join on, and it comes with a firewall as a standard. JamboNet is available nationwide and there is also a wireless option to extend the service to areas that don’t have cable already
  • E@zyNet is an unlimited fixed bandwidth solution for SME customers. There are different monthly cost packages starting at an affordable price of Kshs 3,499 (~$35 per month). It is easy to start and reliable, offering high download speeds and flexibility for users.

Telkom, which has data centres and cloud storage also manages the Kenya government’s National Optic Fibre Backbone (NOFBI) – a national inland fibre optic cable network. Telkom has also invested in VSAT, satellite communications in remote areas, a terrestrial fibre optic cable network, GSM, and 4G LTE. Other products that are optional include free intra-company calls (within a local user group), wireless landline, fleet management, and County government solutions and other value-added services designed for hospitals and schools.

According to the latest Communications Authority of Kenya quarterly report (December 2016), the number of fixed fibre optic subscriptions grew by 18% during the quarter while that of fixed cable modem subscriptions increased by 2.8%. In a statement, Managing Director of the Enterprise Division at Telkom Kenya, Kris Senanu said “success for a Kenyan enterprise should be seen in the lens of reduced downtime through reliable connectivity; operational efficiency through uninterrupted connectivity; great customer service and clear communication lines with stakeholders and ultimately revenue-generating that leads to business growth.”

Rediscovering Telkom Kenya

Monday’s nationwide outage of telephone, internet data, and mobile money services showed the practical need for people and companies to have viable alternatives for their daily connectivity. One of the oldest companies in this space is Telkom Kenya.

While it has been in the news more for its foray into mobile phone business under the Orange brand, other parts of the company have continued to chug along providing affordable and reliable services to customers, governments, and institutions  all across the country

Telkom Enterprise has three key connectivity products:  JamboNet for large businesses, E@synet Broadband for SME’s, and Flybox for homes and small businesses. Telkom has continued to invest and grow its infrastructure as well as through partnerships in submarine cables to extend broadband connectivity. The Telkom Kenya Entreprise division is now led Kris Senanu, long-associated  with Access Kenya and the history of internet service businesses in Kenya. Telkom manages the National Optic Fibre Backbone (NOFBI) for the Kenya Government and was recently contracted to roll out free Wi-Fi to over one thousand,  government-funded, incubation hubs in 290 constituencies around the country.

Telkom is 60% owned by Helios, an Africa-focused investment firm, and the Kenya government owns the other 40%. Other investments by Helios in Kenya include Africa Oil, Vivo Energy, and the Wananchi Group. It is also invested in Interswitch which supports financial connectivity services at a dozen Kenya banks and 1,000 ATM’s.