Puma takeover of KenolKobil runs into trouble again with Total

The planned takeover of KenolKobil by Swiss firm Puma Energy has run into trouble again following a fresh counter move by Total Kenya.

In an exchange of letters between the two oil firms, Total, which jointly operates storage depots in Mombasa and Nairobi with KenolKobil, says it must be offered the first right to buy KenolKobil’s shares in the depots, or it will to go to court to stop the acquisition.

But KenolKobil dismisses Total’s claim to pre-emptive rights, on the grounds that it entered the joint projects through its subsidiary Kobil Petroleum. It argues that what is up for acquisition by Puma Energy is KenolKobil, not Kobil Petroleum.

Total’s move presents yet another hurdle for KenolKobil’s investors, especially for the majority shareholders who have been eager to sell their shares to a better capitalised international player with the financial muscle to drive the company’s growth.

The top four majority shareholders in Kenolkobil — Wells Petroleum Holdings with a 24.9 per cent stake, Petrol Holdings with 17.34 per cent, Chery Holdings with 7.8 per cent and Energy Resources Capital with 5.99 per cent — announced in May they had entered into an agreement whereby Puma Energy would acquire their shares.

READ: Puma to conclude due diligence on KenolKobil in July, deal seen going through

This meant the other shareholders of the company, which is listed on the Nairobi Securities Exchange, would have to accept the offer.

But since the acquisition was announced, all sorts of challenges have come crawling out of the woodwork. The stiffest resistance has come from the oil marketer’s own employees, who have sought injunction after injunction blocking the sale.

KenolKobil’s management has responded by sacking employees, forcing some into early retirement and even slashing the salaries of some of the employees and transferring them outside Nairobi.

In Tanzania, employees have similarly gone to court seeking to halt the takeover.

READ: New twist in KenolKobil’s tussle with workers over takeover

The Kenya Pipeline Company (KPC), the state corporation that transports and delivers petroleum products, also jumped into the fray last month when it obtained court orders stopping the planned sale over claims that Kenolkobil owes it Ksh2 billion ($23.8 million) for transportation and storage services.

The challenges facing the acquisition have seen KenolKobil’s share price fluctuate.

On the announcement of the deal, the share price rose to hit a year-high of Ksh16.95 (20 US cents) as speculative investors bought into the counter anticipating that Puma would buy them out at a premium. The share has since slid to Ksh15 (18 US cents), and at one point had even touched a low of Ksh13 (15.5 US cents).

Ownership

A Ksh3.8 billion ($45 million) loss announced last month sent the share price down 10 per cent.

The bone of contention in the latest battle is the ownership of the multimillion-dollar business arising from the oil storage depots in Nairobi and Mombasa as well as the aviation fuelling terminals in Kenya’s two major airports — Jomo Kenyatta International Airport and Mombasa Airport.

Under their business agreement, Total meets two-thirds of the costs while Kenol meets a third of the costs as well as capital expenditure.

The joint facilities were earlier owned by three oil marketers – Kenol, Total and Caltex – equally. But after Total bought Caltex’s assets in Kenya in 2009, it gained the Caltex share in running of the joint facilities.

One of the clauses signed by the three oil marketers in running the joint operations stipulated that if any of them sold more than 50 per cent of its shares, it must first offer the shares on sale to its partner in the joint venture. It is this clause that has caused the row.

“If indeed Puma Energy is going to acquire the majority shareholding in KenolKobil Ltd, then we expect to receive the requisite pre-emption notices. If such notices are not issued, then any attempt to complete the transfer of shares in KenolKobil will be deemed to trigger a breach in the relevant agreement and we will then take legal action to enforce our rights as per the agreement,” Total said in a letter to KenolKobil.

According to KenolKobil, Total’s interpretation of the agreement is wrong, since it is the subsidiary Kobil Petroleum that entered into the agreement.

“We would like to bring to your attention that Kobil Petroleum Ltd is in fact a subsidiary of KenolKobil Ltd (which is not a party to the joint operations agreement) and any proposed change of control is in KenolKobil,” Kenol said in a letter to Total.

Total’s chief executive officer Alexis Vovk refused to comment, only saying the correspondence was privileged and that the dispute was a private matter between the two parties.

“We wish to reiterate our earlier position and emphasise that this is a private commercial matter relating to conflicting contract interpretation between two parties. The contract itself provides for mechanisms that may be invoked should the parties fail to resolve the issue amongst themselves,” Total said in an e-mail to The EastAfrican.

Reached for comment, KenolKobil chief executive Jacob Segman said he read malice on the part of Total, saying the move was meant to scuttle the acquisition.

“Total does not have any pre-emption rights on this matter and Total Kenya knows it, but some people in their Paris office want to block foreign investment, [Puma/Trafigura, who are Total’s competitor].

Therefore, any attempt to pre-empt the matter should be thrown out fairly swiftly as the judges in this country understand company law very well,” said Mr Segman.

Market watchers say if Total’s move to pursue the pre-emptive rights succeeds, it could lower KenolKobil’s attractiveness as an acquisition target by Puma, especially given that one of the major assets of Kenol is its storage facilities.

The company has storage terminals in Kenya, Tanzania, Burundi, DR Congo and Uganda.

Kenolkobil acquired the 33,000 m³ storage World Oil Terminal Complex in Dar es Salaam in July last year. The facility also includes two large dry cargo warehouses ideal for storing large quantities of liquid petroleum gas cylinders and lubricants.

In Uganda, the company bought Phoenix Uganda Petroleum Ltd for an undisclosed fee, acquiring oil storage capacity of 1,800 m³.

“Trading companies like Puma really like storage facilities because it gives them flexibility in moving their products because they do not rely on state-owned storage facilities,” said an analyst.

KenolKobil’s extended network of petrol stations — over 400 in Kenya Uganda, Ethiopia, Tanzania, Burundi, DR Congo, Zambia, Rwanda, Zimbabwe and Mozambique — has attracted Puma.

With countries like Kenya and Tanzania buying most of their oil through the bulk purchase system — where the government contracts one oil company to import oil on behalf of the others — KenolKobil’s extensive network makes it attractive.

Access to cash

In June for example, Kenolkobil won the tender to import and deliver 160,000 tonnes of Murban crude oil to Kenya.

“KenolKobil would offer a large outlet for Puma Energy’s parent company, Trafigura, for oil supply and trading activities in the greater East African region,” Kestrel Capital said in its latest research report on the oil marketer.

For Kenol, the buyout would offer access to the cash it needs to expand its business through acquisitions as well as provide it with the funds it needs to build new depots and expand its business lines.

If Kenol is able to access funding and expand its trading arm, analysts at Dyer and Blair say the company will be able to shield itself from the fluctuation in exchange rates common in the 10 or so countries it operates in.

“Focus on trading, aviation and commercial customers will also reduce the company’s exposure to foreign exchange as the volumes are sold in dollars,” said Dyer and Blair.