Category Archives: Scangroup

Scangroup plans online EGM

WPP Scangroup will hold a unique extraordinary general meeting to obtain shareholder approval to complete the sale of one of its subsidiaries. 

The deal comprises the sale of its Kantar business, which includes 80% of Research & Marketing Group Investments, 100% of Millward Brown East Africa and its shareholding (through Scangroup Mauritius) in Millward Brown Nigeria and Millward Brown West Africa (with interests in Cameroon, Cote d’Ivoire, Ghana, Senegal and the United Kingdom). The buyer is Kantar Square Two, which is owned by Bain Capital.

Earlier this month Kenya’s Capital Markets Authority (CMA) authorized listed firms to publish their results online, pay out dividends and appoint auditors without summoning shareholders – and have these decisions ratified the next time that shareholders meet at an annual general meeting. 

However, a listed company is still required to obtain shareholder approval before selling shares in a subsidiary that results in it ceasing to be a part of the company. WPP Scangroup’s CEO Bharat Thakrar then sought court approval to hold a virtual meeting of shareholders to conclude the deal.

The Court ruled that Scangroup could go ahead as long as the CMA’s rules on adequately sharing information with shareholders, processing their feedback, questions and voting are facilitated, understand and observed.

This is a first-of-its-kind session but expect more companies to try this as May and June are when most annual general meeting’s (AGM) are held.

EGM Details: Registration is now open, for shareholders to be able to vote at the May 27 extraordinary general meeting (EGM) of Scangroup by sending in their proxies, up through May 25. Shareholders are to register using their phones, and after verification, they will get access to transaction documents. They can email or send in questions, for clarification, that Scangroup will compile and share its responses with all shareholders before the May 27 meeting which shareholders will watch via a live stream. Results of the shareholder vote will be published within 24 hours.

Deal Size: The amount due to be paid to WPP Scangroup is $49.7 million, plus a $3.3 million share of the 2019 profit, that will result in a total deal amount valued at about $53.1 million (~Ksh 5.7 billion). 

Shareholder Bonus: It is expected that about 40% of the Kantar sale gains will come back to shareholders in the form of a special dividend.

Impact of the Deal: The sale will result in a one-off gain for WPP Scangroup in 2020 and a reduction of revenue from 2021. The discontinued operations accounted for Kshs 3.3 billion (26%) of Scangroup’s Kshs 12.5 billion revenue as well as 65% of its Kshs 835 million pre-tax profit in 2019. The deal will also remove Kshs 4.1 billion of assets, held for sale at the end of 2019, from Scangroup’s balance sheet going forward.

Deal Background: From 2018, WPP sought a buyer for Kantar through Goldman Sachs, Ardea Partners, Lazard Freres and Bank of America/Merrill Lynch. This resulted in bids from four private equity firms, and in July 2019, WPP agreed to sell 60% of Kantar to Bain Capital. WPP, which had an option to buy the business, will instead remain a 40% shareholder in, and do business with, Kantar. 

Deadlines: The valuation was arrived at before the global extent of the coronavirus outbreak was known, and the November 2019 deal has a long stop date of June 30, 2020. 

Deal Advisors: Anjarwalla & Khanna (legal) and Dyer & Blair Investment Bank (valuation). Three independent, non-executive, directors of Scangroup, Patricia Ithau, Richard Omwela and Pratul Shah, oversaw the transaction details on behalf of shareholders. 

Edits: (May 29)

  • Final Results of the vote, that had been audited by PwC were published on the Scangroup website early on Friday May 29. They showed that 88% of the registered owners had participated and had voted 99.98% in favor of the Kantar deal.
  • Here is a video stream of the EGM
  • Here are the questions posed by shareholders ahead of the meeting and responses from Scangroup.

Edit (August 7): Scangroup booked a net gain on disposal of Kshs 2.24 billion in the sale, in the first half of 2020 and reported sales of Kshs 1.09 billion down from Kshs 1.37 billion, with the dip attributed to advertising cutback by clients during COVID. It also booked Kshs 329 million as a provision from bad debts owed by a parastatal (government agency) client, a sharp rise from 53 million in the same period the previous year, and an operating loss of Kshs -267 million, for the period.

But as a result of the sale of the discontinued operation, first-half profit was Kshs 1.5 billion, up from KShs 250 million in 2019, and a special interim dividend of Kshs 8 per share will be paid later this month.

$1 = Kshs 107.

Social Media That Matters by Ogilvy

Ogilvy Africa and Ogilvy Social Lab held a session in Nairobi a few days ago. Speakers tackled the state of social media in 2019 in terms of technology usage, making brands stand out, and the role of influencers, among other items. 

It looked at trends in the world of media dominated by platforms like Facebook, Twitter, Amazon, Google (the four horsemen of the internet), and we learnt that we are in the middle of the biggest social experiment ever as billions across the globe use these platforms every day to network, communicate, transact, engage and get information.

Some of the highlights included:

  • People look at their mobile phone screens an average of 53 times a day – consuming information as text, images, video, and stories in bit sizes.
  • Users spend an average of 6 hours 45 minutes per day consuming digital media, with social media accounting for 2 hours and 20 minutes of that. In Kenya, one study found that young users spend 3 and ½ hours a day on social media.
  • Kenya has 8 million Facebook users and 700,000 Twitter users. It also has 1.5 million on Instagram and 2.1 million on LinkedIn.
  • But engagement is a poor predictor of business results. Brands should produce less content, personalize it and pay to promote it.

  • Everything is becoming a shop – thanks to tools like augmented reality, ordinary objects like posters and benches can come to life when viewed through a phone lens – and lead to hidden videos and links to merchants as seen in Snapchat Lens, Google Lens and Shopping on Instagram. An example was cited of the Jordan shoe sale marking the 30th anniversary of Michael Jordan’s iconic dunk – people at special Nike parties who watched a geo-located augmented-reality advert on Snapchat were able to order a new release of the vintage shoes, in their size, and have them delivered to their homes in two hours. The shoes sold out in a few minutes.
  • People go to YouTube with ‘intent’ – they know what they are looking for and want to watch (usually in the evenings) and this contrasts with ‘discovery’ driven video consumption in the daytime. Also, the first seconds matter the most – there is 47% awareness created in the first three seconds of a video message.
  • The most ignored influencer is the one who works in customer care.

Reading the Kenya Rugby tea leaves

The Kenya Rugby Union held its annual general meeting on March 20. On the agenda too was the election of officials, including a new Chairman.

Officially called the Kenya Rugby Football Union (KRU)  the AGM came after a tough year, for the sport. Kenya does relatively well in international rugby, with its colourful ‘Sevens’ team featured on television broadcasts and with a loyal fan following around the world. The sevens team is currently ranked number 14 (after finishing number 8 in 2018)  and sometimes features Collins Injera, the all-time top try scorer.

But the team and the sport is rankled with management and funding issues, and while some corporations have supported different rugby series, competitions, and programs, there are still issues of team selection, coaching support and player welfares. During one series in Paris, the sevens team covered up logo of their shirt-sponsor, Brand Kenya, in protest over not receiving their allowances by the time they started their matches, and that drew the wrath of Kenya’s Tourism Minister, Najib Balala, who angrily cancelled their sponsorship contract, only to reinstate it a few days later.

AGM: The meeting was held after members overruled a request from the Government for them to postpone the AGM. The financial accounts of the Kenya Rugby Football Union (KRU), audited by PFK auditors, were shared with members at the meeting.

What do they tell us about the state of rugby?

Income: The income for 2018 included national squad income of  92 million (down from 117M in 2017), annual competitions income of 80M (up from 17M in 2017), World Rugby 21M and World Rugby sevens team support of 20M. There was also other income from jersey sales of just Kshs 736,000.

The annual competition income included 35M from Radio Africa and 9M  from Stanbic. East African Breweries donated 24M and 15M in 2018 and 2017 respectively while tickets sales in both years were 5.5M and 11.6M respectively. 

Of the national squad income in 2017, 97% of that (Kshs 113 million) came from Sportpesa, who later withdrew all sponsorships in protest at the Government increasing taxes on sport betting companies.  The 2018 income was more balanced, with Kshs 52M from the Government, and 20M from Brand Kenya as, to their credit, the Government fulfilled a pledge, at least for rugby, to plug the hole left by the Sportpesa departure.

In 2018, they also got 18M from Bidco, and enjoyed use of a vehicle that was donated by Toyota Kenya and containers from Bollore Logistics. Sponsorship income in 2017 included Kshs 20M from Wananchi (Zuku), Tatu City 5M, 4M from Bidco and a 2M bonus payment from Sportpesa

Expenses: In 2018, Kshs 132 million was spent on national squad operations (comprising 65M for the sevens team and 57M for the 15’s team), and 38M on competitions (comprising 10M each for club subsidy and the Safari Sevens tournament, and 8M each for international matches and the national sevens circuit). On rugby development, 10M was spent while 40M went towards administrative expenses (including 21M of salaries and 6M million on marketing and agency – which was down from 20M in 2017).

Overall: The Kenya Rugby Football Union (KRU) took in Kshs 227 million in 2018 and spent the same amount to end with a Kshs 527,104 surplus. The year before it took in 212 million and spent 247 million, resulting in a deficit of Kshs 36 million.

KRU has an accumulated deficit of Kshs 61 million, on its balance sheet with current liabilities of Kshs 120 million far greater than its current assets of Kshs 47 million. KRU had a negative bank position of minus 1.9M in 2018 (comprising a cash balance of Kshs 661,822 and overdraft of 2.5 million. They are owed 47M in receivables but owe 118M in trade payables (62M) and accruals of (50M)

These items were flagged by the auditors who also noted that KRU does not have a tax exemption certificate and the Society has made no provision for the payment of corporate tax.

Elections and Way Forward: The campaign manifesto of Sasha Mutai, one of the candidates for Chairman, was circulated online a few weeks before the election. In it, he articulated his plans including, short-term ones of settling the KRU debt, encouraging more (tax-eligible) corporate sponsorships, ensuring salaries are paid on time, supporting programs to nurture more women and schools rugby, increasing broadcast coverage and improving player welfare (including providing health insurance). His long-term goals include building an affordable national rugby stadium at Kasarani and to have Kenya qualify for the 2023 Rugby World Cup in France.

After the votes were counted, George Gangla was elected to succeed Richard Omwela as the  Chairman of the Kenya Rugby Union. He received 33 votes against Sasha Mutai 20 and Asiko Owiro who got two votes.  Geoffrey Gangla is the CEO of Genghis Capital, an investment bank while Omwela is Chairman of Scangroup and a managing partner at a leading law firm – HH&M.

Scangroup and Russell in Kshs 926M Mauritius Share Swap Deal

WPP Scangroup and its subsidiary Russell Square Holdings (Russell) and have entered an agreement for the purchase of Russell’s 3,660 shares in Research &  Marketing Group – a market research firm in Mauritius, that is owned by Russell. The shares represent 70% of the shares of the target firm and payment will be by way of 53.29 million shares of Scangroup which Russell Square Holdings (Russell BV) has subscribed for. 

It’s been a decade since the WPP deal to buy Scangroup and the new deal with Russell is meant to improve on client services at one of the largest marketing and communication groups in Sub-Saharan Africa.

WPP owns 50.1% of Scangroup, and after the share deal valued at Kshs 926 million (~$9.26 million), will own 56.25% of the company. Scangroup shareholders must approve the deal and WPP will also seek an exemption from being required to make a formal takeover offer as their increased equity position is the result of the strategic investment in Mauritius restructuring  their balance sheet. They also intend for the shares of Scangroup to remain listed at the Nairobi Securities Exchange (NSE).

Scangroup reported revenue of Kshs 4.1 billion (from billings of Kshs 14.1 billion) compared to 2016’s revenue of Kshs 4.8 billion (from billings of Kshs 16.3 billion) and a pre-tax profit of Kshs 696 million (compared to Kshs 725 million in 2016). The decline was attributed to the economic crunch and prolonged electioneering period in Kenya. Revenue from outside Kenya also declined due to cutbacks by clients, while digital and public relations were bright spots,  providing the greatest growth for Scangroup in 2017.

WPP Scangroup was trading at Kshs 16.95 per share on the NSE today and the deal comes a few years after the group also bought into Ogilvy across Africa. Scangroup has a Mauritius company that is the holding company for other subsidiaries incorporated outside Kenya including STE Scanad DRC, Scanad Burundi SPRL, Scanad Rwanda, JWT Uganda, Scangroup (Malawi),  Scangroup (Zambia), and Scangroup Mozambique.

$1 = Kshs 100

East Africa M&A Moment: June 2015

Recent stuff in the newspapers (mainly the Business Daily), Kenya Gazette  (some of the just-approved deals were first announced two years ago) and press releases. $1 is about 95 Kenya shillings (and about 90 when deals were formulated)

Overall

Earlier this month, the Financial Times (FT) reported that mergers and acquisition (M&A) activity in Africa has fallen to its lowest level in more than a decade, as a result of collapsing commodity prices, political volatility and an anticipated rise in US interest rates. The value of African deals so far this year stands at $9.2 billion — 23% lower than the same period 12 months ago and the lowest level recorded since 2004, according to data from Dealogic.

Burbidge Capital also found that Kenya’s merger & acquisition deals slowed down in 2015 – with 11 M&A deals so far compared to 17 in the first four months of 2014. This year, the largest concluded deals have seen Helios sell a stake in Equity Bank to Norwegian funds and Old Mutual’s purchase of a 60.7% in UAP Holdings.

Banking/Finance

More mergers are expected in the Kenyan banking sector as the Treasury Secretary announced that an increase in the minimum capital to strengthen banks’ capital base and increase competition…progressively from the current Kshs 1 billion to Kshs 5 billion (~52 million) by 2018. 20 banks are below the Kshs 2 billion mark.

  • Helios cashing out;  Norfund & Norwegian private investors are acquiring 50% of Helios partners investment in Kenya’ Equity Bank Group and will now own 12%. And today, Uganda’s National Social Security Fund has bought a 2.44% stake in Equity Bank Group from Helios Investors at Kshs 50 per share – and the new deal is worth ~$50 million.
  • National Bank management said it has not been briefed on any merger plans with its State-owned rival Consolidated Bank. Treasury Secretary Henry Rotich said National Bank would be merged with another bank before it’s planned rights issue. The government is the biggest shareholder of National Bank controlling about 79% of shares consisting of Treasury and NSSF stakes. As part of a rights issue, it is expected that NBK will retire its preference shares (held by the Treasury and NSSF) by converting them into ordinary shares.
  • High-level talks regarding a merger between NIC Bank and Commercial Bank of Africa are reportedly taking place but Mshwari may be spun out of any resulting entity. Both are mid-tier banks with quite a focus on corporate and high-end clients.
  • While Mwalimu SACCO is acquiring 51% of Equatorial Commercial Bank (ECB), the Society is not converting into a bank nor merging with ECB.
  • Kenya’s Nairobi Securities Exchange is acquiring 77% of their associate company CDSC, which they own with stockbrokers, in a deal worth~Kshs 260 million.
  • Barclays Africa advised on the largest sale of an African Bank in 2014 – a deal, in which Nigeria state-owned Asset Management Corporation of Nigeria (AMCON) sold Mainstreet Bank to Skye Bank.
  • Equity Group Holdings agreed to acquire 79% of ProCredit Bank Congo, the 7th largest bank (by assets) in DRC. ProCredit has total assets of $200 million, a customer base of over 170,000, and has KfW (12%) and IFC (9%) amongst its shareholders.
  • Liaison Financial Services who have just been approved as an investment advisor in Kenya recently acquired the African business of Knutson Global who were involved in asset-backed securities, municipal development bonds and consumer lending.

Insurance

Oxford Business Group expects strong Kenya insurance M&A as companies merge to increase market share & meet higher capital requirements.

  • The Mauritian Minister for Financial Services, Roshi Bhadain, said the State Insurance Company of Mauritius (SICOM), would take over the 23.9% stake (valued at more than Kshs 13 billion) held by Businessman, Mr. Dawood Rawat, in financial services firm British-American Investments Company (Kenya)  – a.k.a. Britam. This comes after the government of Mauritius placed Rawat’s firms in receivership over alleged financial impropriety charges.
  • UAP and Old Mutual agreed on a merger ahead of listing. This comes after Old Mutual raised its shareholding to 60% from 23% after buying 37% from private equity (PE) firms Aureos, Africinvest and Swedfund for around Kshs 14 billion. Old Mutual will not buy out the other 1,000 minority shareholders (who are staff & agents). Old Mutual first bought into UAP in January by acquiring a 23.3% stake from Centum Investments and businessman Chris Kirubi. Centum sold its stake to get the funding it needed for its massive real estate, financial services and power projects.
  • Also, the Competition Authority approved the acquisition of 60% of UAP Holdings by Old Mutual Holdings and Old Mutual Life Assurance.
  • Barclays Africa will acquire 63% of First Assurance, Kenya’s No. 10 insurer, for Kshs 2.8 billion (~$30 million).
  • KCB Group is said to be considering a takeover of Madison Insurance.
  • Pan Africa Insurance shareholders approved the acquisition of at least 51% of Gateway Insurance. Through this acquisition, the company will enter into the general insurance business.
  • Kenya’s competition authority approved the acquisition of 61.2% of Resolution Health East Africa by Leapfrog II Holdings.

Hotels/Tourism

  • The Heron Portico, which is managed by Indian hospitality group Sarovar Hotels & Resorts, says the acquisition of rival Zehneria Hotel in Nairobi’s Westlands in a Kshs 1 billion buyout to expand its market share in conference tourism and hospitality industry in Kenya. The Heron Portico financed 80% of the purchase price using debt while the rest is self-financed.
  • Minor Hotel Group of Thailand, and Elewana Afrika, are acquiring 6 camps spread across national parks in Meru, Samburu and Narok counties. Stefano and Liz Cheli (Cheli and Peacock Group), the founders of the camps, will continue to run the resorts and focus on business development.
  • Kenya’s Competition Authority approved the acquisition by Fortune Hotels of Paradise Safari Park and 85% of Paradise Investments and Development Kenya held by Paradise Company.
  • TPSEA (Serena) acquires 25.1% of TPS (D) that was set up to run the Movenpick Hotel in Dar, now known as the Dar es Salaam Serena Hotel in Tanzania.

Logistics/Transport

  • Frontier Services Group (FSG), a Nairobi-based logistics firm, has completed its purchase of Cheetah Logistics SARL – Congolese transport company as part of central and western Africa expansion plan. Kenya’s competition authority also approved the acquisition of Phoenix Aviation by Frontier Services Group as well as the acquisition of 55% of Tradewinds Aviation Services by NAS Africa Aviation.
  • UK logistics and engineering firm Atlas Development says it is in advanced stages of discussions with potential takeover targets in Kenya, Tanzania and Ethiopia.
  • Part of Best Wing Cargo operations at JKIA have been transferred to Suppercare Freight Services.
  • Part of  Fastlane Freight Forwarders operations at JKIA have been transferred to Airwagon Cargo Movers.

Energy

  • Norfund to acquire a stake in Globeleq Africa from Actis for $225M and partner with CDC to pursue power generation opportunities.
  • UAE’s Gulf Petrochem Group acquires Essar Petroleum East Africa and renames it as Aspam Energy (Kenya) in a deal to enhance the group’s integrated services and products for the downstream supply chain in the oil and gas sector in East Africa.

Media/PR

  • Scangroup dropped a bid to acquire 80% of Experiential Marketing, as approvals were not granted in time. Scangroup shareholders later renamed the company WPP Scangroup signifying that WPP Scangroup and WPP plc. are now fully together, with a shared vision for developing marketing communications across Sub Saharan Africa.
  • Hill+Knowlton Strategies (H+K), and Buchanan, one of the world’s leading financial communications consultancies, joined forces to launch H+K Financial, a specialist financial communications division dedicated to the Middle East and Africa.

Telecommunications/ICT

  • Millicom is to acquire 85% of Zanzibar’s Zantel for $1 and take over $74 million of its debts. Zantel is the leading Telco in Zanzibar (but just 5% to Tanzania’s total) with $82m in revenue and 1.7m customers.
  • Kenyan innovation, Wezatele, was acquired for $1.7 million by AFB Kenya.
  • Techno Brain acquired the trips™ suite of integrated customs &revenue software from Crown Agents to provide tax and customs solutions that target the broader financial management needs of the government.
  • Akvo Kenya transfers the business of building open source internet and mobile software to support international development partnerships to Akvo Kenya Foundation.

Industry

  • A Paris-based PE fund bought 30% of Ramco Plexus, a subsidiary of Ramco Group that has an annual turnover of Kshs 5.5 billion. The Ramco Group was started in 1948 as a hardware store and has grown into a 34-subsidiary strong business, which employs 3,000 people.
  • The Competition Authority approved the acquisition of 51% of Bullpark by Nampak Holdings.

 Pharmaceuticals

  • Business transfer:  Antipest Kenya Limited, has transferred to Modern Ways.
  • Business transfer: Unicorn Pharma Kenya has been sold and transferred to Medisel (Kenya)
  • The Competition Authority approved the acquisition of the assets of European Perfumes and Cosmetics by Charm Industries. The deal excludes the debts of Varanasi Deepak, and Chirag Savia.

 Agri Business/Food Business

  • Syngenta rejected Monsanto’s $45 billion merger offer. An eventual agreement will have an impact on Kenya’s agricultural sector.
  • Shareholders of REA Vipingo Plantations approved the sale of the firm’s land at Vipingo to Centum Investments as agreed upon in a settlement with R.E.A Trading.
  • Giant milk processor Brookside Dairy has bought out Sameer Agriculture & Livestock business in Uganda for Sh3.5 billion (~$38 million). The government of Uganda, which owns 49% (of Sameer) confirmed this on March 25.
  • Business transfer: Pure Imported (formerly European Foods E.A. Limited) (which was in the business of importing & selling deep frozen foods and supplying fresh juices) to European Foods Africa.
  • The Competition Authority exempted the production, bottling supply and distribution business between Distell and Kenya Wine Agencies Business transfer: for 5 years.
  • Business transfer: The ice cream production & trading business of Alpha Dairy Products is being transferred to Razco.
  • Tanzania’s Competition Commission may reverse its decision approving for EABL to merge with Serengeti Breweries, as Serengeti’s performance failed to meet expectations.
  • The Competition Authority approved the acquisition of an additional 30% in Largo Investments by NAS Holdings.
  • The Competition Authority approved the acquisition of the brands and assets of Chirag (Kenya) by Chirag Africa. Elsewhere these were acquired by newly-listed Flame Tree.
  • The Competition Authority approved the acquisition of 52% of Ennsvalley Bakery by Unga Holdings.
  • Norwegian private equity fund, Norfund, has bought shares in agriculture firm Vertical Agro in a Kshs 476 million (38.7 million Norwegian krone) deal. Vertical Agro is the parent company of Sunripe and Serengeti Fresh which makes it the largest exporter of organic vegetables in the country. The company produces 6,500 tonnes of fruits and vegetables annually from its farms in Kenya, Tanzania and Ethiopia.

Property

  • Kenya’s Competition Authority has approved (i) The acquisition of 50% of Equatorial Commercial Bank Centre by Fidelity Shield Insurance  (ii)  The acquisition of Parkway Investments by Mt. Kenya University Trustees (iii) The acquisition of Endebees Estate (Kilifi Holdings) by Balloobhoni Chhotabhai Patel.