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Corporate M&A GLOBAL PRACTICE GUIDES Definitive global law guides offering comparative analysis from top-ranked lawyers Corporate M&A Kenya Jacob Ochieng, Cindy Oraro, Sheila Nyakundi and Paul Kamara Oraro & Company Advocates practiceguides.chambers.com 2021 KENYA Law and Practice Contributed by: Jacob Ochieng, Cindy Oraro, Sheila Nyakundi and Paul Kamara Oraro & Company Advocates see p.20 CONTENTS 1. Trends p.3 6.6 Requirement to Obtain Financing p.13 1.1 M&A Market p.3 6.7 Types of Deal Security Measures p.14 1.2 Key Trends p.3 6.8 Additional Governance Rights p.14 1.3 Key Industries p.4 6.9 Voting by Proxy p.14 6.10 Squeeze-Out Mechanisms p.14 p.4 2. Overview of Regulatory Field 6.11 Irrevocable Commitments p.14 2.1 Acquiring a Company p.4 2.2 Primary Regulators p.5 7. Disclosure p.14 2.3 Restrictions on Foreign Investments p.5 7.1 Making a Bid Public p.14 2.4 Antitrust Regulations p.6 7.2 Type of Disclosure Required p.15 2.5 Labour Law Regulations p.6 7.3 Producing Financial Statements p.15 2.6 National Security Review p.6 7.4 Transaction Documents p.15 3. Recent Legal Developments p.6 8. Duties of Directors p.16 3.1 Significant Court Decisions or Legal Developments p.6 8.1 Principal Directors’ Duties p.16 3.2 Significant Changes to Takeover Law p.8 8.2 Special or Ad Hoc Committees p.16 8.3 Business Judgement Rule p.17 p.8 4. Stakebuilding 8.4 Independent Outside Advice p.17 4.1 Principal Stakebuilding Strategies p.8 8.5 Conflicts of Interest p.17 4.2 Material Shareholding Disclosure Threshold p.8 4.3 Hurdles to Stakebuilding p.9 9. Defensive Measures p.17 4.4 Dealings in Derivatives p.10 9.1 Hostile Tender Offers p.17 4.5 Filing/Reporting Obligations p.10 9.2 Directors’ Use of Defensive Measures p.17 4.6 Transparency p.10 9.3 Common Defensive Measures p.18 9.4 Directors’ Duties p.18 p.11 5. Negotiation Phase 9.5 Directors’ Ability to “Just Say No” p.18 5.1 Requirement to Disclose a Deal p.11 5.2 Market Practice on Timing p.11 10. Litigation p.18 5.3 Scope of Due Diligence p.11 10.1 Frequency of Litigation p.18 5.4 Standstills or Exclusivity p.11 10.2 Stage of Deal p.19 5.5 Definitive Agreements p.12 10.3 “Broken-Deal” Disputes p.19 6. Structuring p.12 11. Activism p.19 6.1 Length of Process for Acquisition/Sale p.12 11.1 Shareholder Activism p.19 6.2 Mandatory Offer Threshold p.13 11.2 Aims of Activists p.19 6.3 Consideration p.13 11.3 Interference with Completion p.19 6.4 Common Conditions for a Takeover Offer p.13 6.5 Minimum Acceptance Conditions p.13 2 KENYA LAW AND PRACTICE Contributed by: Jacob Ochieng, Cindy Oraro, Sheila Nyakundi and Paul Kamara, Oraro & Company Advocates 1. TRENDS As in many other jurisdictions, there have been efforts to enhance the use of technology to 1.1 M&A Market ensure business continuity. The High Court, The mergers and acquisitions (M&A) market has through a case filed by the Kenya Private Sector been affected by the outbreak of the COVID-19 Alliance Limited, issued orders allowing all com- pandemic, which has had negative economic panies to conduct virtual annual general meet- ramifications that have resulted in a significant ings if they found it impossible to conduct physi- reduction in projected investment, as well as cal meetings in the manner required under their reinvestment of earnings as depicted in the articles of association and the Companies Act. Central Bank of Kenya First Quarterly Review This was as a result of restrictions on physical of 2020. According to the Review, although the gatherings imposed as a result of the pandemic. economy staggered through the first quarter and The court extended the opportunity for virtual recorded a decline of almost 5.7%, some sec- meetings to all companies. It had initially limited tors – such as banking and services – recorded the order to public listed companies through a an increase in growth despite the risks posed by case filed by WPP Scangroup Plc. the pandemic. The Third Quarter Report, how- ever, indicated a recovery in economic activity, The fintech and e-commerce sectors experi- hence, recording an improvement from -5.5% enced increased activity as COVID-19 forced to -1.1%. individuals and businesses to turn to technologi- cal solutions to comply with government direc- East Africa reported about 30 M&A deals in 2019, tives restricting movement and encouraging with Kenya recording the highest number of social distancing. Online marketplace provid- deals (I&M Burbidge Capital, Annual East Africa ers like Masoko, Jumia, Glovo and Kilimall saw Financial Review 2020). In the past 12 months, increased online activity during the pandemic. there has been a noticeable reduction in M&A Fintech companies, most notably Safaricom Plc, deals in East Africa largely due to COVID-19 and experienced a boost in the use of their M-Pesa the political environment, with about 25 M&A product (a mobile phone-based banking ser- deals reported. However, with limited data pub- vice), while banks turned to mobile banking to lished on the same, it is too early to fully ascer- meet the demand for contactless financial solu- tain the unprecedented effects of COVID-19 on tions. the Kenyan M&A market, especially given that some deals are currently pending completion. The Companies (Beneficial Ownership Informa- tion) Regulations, 2020 came into force in Febru- 1.2 Key Trends ary 2020. The Regulations require all companies Kenya has experienced reduced M&A activity incorporated or registered in Kenya to keep a because of the pandemic. Some businesses register of beneficial owners with the relevant that were unable to merge have resorted to joint information relating to the said beneficial own- ventures. Even with this arrangement, some joint ers. ventures have experienced commercial setbacks due to supply chain disruption and suppressed Notably, the COVID-19 pandemic has resulted economic activity, given the general global busi- in increased participation in the affairs of the ness outlook. company by shareholders in the form of share- holder activism. This has more or less been achieved through constant examining of books 3 LAw AND Practice KENYA Contributed by: Jacob Ochieng, Cindy Oraro, Sheila Nyakundi and Paul Kamara, Oraro & Company Advocates of accounts, financial statements and participa- industries differently, for instance, the financial tion in the development of strategies to avoid the sector has witnessed a reduction of lending to collapse of the business. corporate entities while lending to key sectors such as transport, manufacturing, and commu- 1.3 Key Industries nication has risen due to the strong governmen- The banking, beverages and telecommunication tal measures implemented to curb the spread of sectors have maintained their positions as the the virus. preferred sectors for M&A deals in 2020. Major highlights include the following. According to a survey carried out by the Kenya Private Sector Alliance (KEPSA), the tourism, • The acquisition of Mayfair Bank by the Com- education and entertainment sectors were the mercial International Bank (CIB), the acqui- most affected industries following the lockdown sition of Transnational Bank plc by Access measures and bans on international passenger Bank plc, the acquisition of Jamii Bora Lim- flights, the temporary closure of schools, and the ited by Co-operative Bank Kenya Limited and shutting down of bars and restaurants save for the acquisition of certain assets of Imperial deliveries and takeaway services. Notwithstand- Bank Limited (In Receivership) by KCB Bank ing the impacts on the above-noted industries, Kenya Limited. sectors such as e-commerce, telecommunica- • The National Treasury increased its stake tion, online banking and online entertainment in Consolidated Bank to 93.4% following a reported a significant rise in demand as a result debt-to-share swap deal that saw the conver- of the sedentary life triggered by lockdowns, sion of about KES1.6 billion debt into shares. social distancing and curfew measures. • The merger approvals of the deal between Telkom Kenya Limited and Airtel may come through after a judgment was entered in 2. OVERVIEW OF favour of Telkom Kenya Limited against the REGULATORY FIELD Ethics and Anti-Corruption Commission (EACC); however, the deal appears to have 2.1 Acquiring a Company collapsed due to “challenges experienced in The primary techniques for acquiring a company getting all the approvals required to complete in Kenya are (i) purchasing shares of a targeted the transaction.” business, or (ii) the transfer of assets and lia- • Several notable cross-border deals includ- bilities from a target to the acquirer company. ing the impending increase in East African Acquisition of shares may be effected through Breweries Limited’s ownership in Serengeti a debt-equity swap wherein the investor for- Breweries Limited to 85% to tame competi- goes a debt in exchange for equity in the target tion from AB InBev’s Tanzania Breweries in business. For instance, the National Treasury Tanzania. has recently converted its KES1.6 billion debt holding in Consolidated Bank into equity, thus Industries Particularly Affected by the extending its shareholding to over 93%. COVID-19 Pandemic According to the Central Bank of Kenya Third Regardless of the methodology used, the Quarter Report, the economy contracted by underlying objectives of acquiring a company 1.1% as a result of the shuttering impacts of generally include, among others, improving the COVID-19.
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