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The East African: CMA finally allows Kenya Oil to buy up Kobil’s assets

3 December 2007

By PHILP NGUNJIRI
Special Correspondent

Kenya’s Capital Markets Authority’s has approved the acquisition of Kobil’s Kenya assets by Kenya Oil Company Ltd (Kenol).

One of the implications of the move is that Kenol will have a much larger asset base with which to negotiate more favourable borrowing terms from banks. 

Kenol will also have more negotiating power with respect to suppliers such as overseas oil producers, according to a statement by Kenol/Kobil’s acting chairman and group managing director Jacob Segman.

Apart from the acquisition resulting in elimination of the existing joint operation agreement, which will reduce both management time and costs, a larger post-merger Kenol should attract more investor interest on the Nairobi Stock Exchange. 

Under the agreement, Kenol provides the management team. The two companies have, however, had different shareholding structures. Kenol will purchase Kobil at only a 19 per cent premium in respect to goodwill as per the valuers’s estimate of the current value of Kobil’s tangible net assets as at December 31, 2006.

However, Kobil will remain a separate brand owned by Kenol with its own petrol stations, lubricants and aviation fuelling services in Kenya. Kenol will also continue to use the Kobil brand outside Kenya on subsidiaries in Uganda, Tanzania, Rwanda, Zambia and Ethiopia. 

The acquisition now awaits approval from shareholders during an extraordinary general meeting slated for December 19.” 

Shareholders will receive a detailed circular giving full information about the transaction and notice of the EGM.

Under the deal, Kenol will be seeking to purchase 100 per cent of the issued shares of Kobil Petroleum Ltd. The deal’s completion had been subject to regulatory approvals being obtained from CMA under the Capital Markets Act and the Minister for Finance. 

Immediately the deal received approval from Treasury last month, the company’s share price started a steady rise. Kenol was quick to warn its shareholders to be careful about speculation. 

In the past year, the price has hit a high of Ksh152 ($2.4), up from Ksh80 ($2.8).

Similarly, this announcement is expected to push up the current share price of Ksh115 ($1.8) further, buoyed by news of the expected consolidation.

The Kenol/Kobil deal is akin to the recently terminated British Petroleum / Kenya Shell arrangement where Shell managed the joint venture.

The Kenyan BP arm, which was until last year jointly run with Shell on a 50/50 shareholder arrangement, wound up its operations in the country after it sold its interests to Shell.

The joint venture, including Kenya Shell, BP Kenya Ltd and Shell BP (Malindi) were engaged in marketing of fuels, bitumen and LPG and were supported by two main terminals and 130 outlets.

In a strategic move meant to consolidate the company’s position as the leading player in Africa’s down and midstream oil market, Kenol/Kobil recently appointed new members to its board. 

The appointments are meant to enhance good corporate governance as a precursor to wealth creation for the company and the shareholders, according to the company’s head of subsidiaries and international sales, Patrick Kondo.

In addition, the company aims to strengthen its position in the LPG, aviation, lubricants and bitumen segments in the region, according to Mr Kondo. 

These market segments have been “abandoned” by multinational oil companies to concentrate on the lucrative upstream market, which involves production and exploration. The same multinationals are heading to Asia, especially China, where demand for oil has been phenomenal in the past decade. 

Recently, the board appointed Terry Davidson, the former chief executive officer of Kenya Commercial Bank, as a non-executive director. His appointment came shortly after the engagement of another three directors — Bob Patterson, former chief executive of Mobil Oil Kenya.

Kenol has been enhancing its competitive position on the continent and is currently a key player in Kenya, Uganda, Tanzania, Zambia, Rwanda and Ethiopia, where it has vast business interests.

Kenol/Kobil is the local market leader with a 23.78 per cent share of the oil market and Shell has 21.04 per cent. 

Total and Chevron have 17.94 per cent and 15.26 per cent respectively, according to the Petroleum Institute of East Africa.

http://www.nationmedia.com/eastafrican/current/Business/biz031220073.htm

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