Nigeria’s Dangote Cement is among bidders for Kenya’s ARM, the troubled cement maker that is currently under the administration of accounting firm PricewaterhouseCoopers (PwC).
Africa’s richest man Aliko Dangote revealed the Nigerian conglomerate’s interest in ARM on Tuesday in an interview with Bloomberg News.
“There is a company which … has operations in Tanzania, Kenya and Rwanda and we are talking to that company to see if we can take it over,” Mr Dangote said without naming the acquisition target.
His description, however, fits ARM, which is the only cement manufacturer with operations in the three markets he named.
ARM portfolio in Kenya includes a clinker and cement grinding plant in Kaloleni and a cement grinding plant at Athi River.
The company also manufactures, imports and sells cement in Rwanda through its wholly owned subsidiary, Kigali Cement Company.
In Tanzania, ARM runs limestone, clinker and cement plants through its subsidiaries, Maweni Limestone Limited and ARM Tanzania.
Dangote Cement had not responded to our queries by the time of going to press.
The latest attempt to sell the Nairobi Securities Exchange-listed ARM comes after several bidders, including French multinational Vicat Group, walked away earlier this year.
PwC said the process of selling ARM or part of its assets was being handled by South African banking giant Absa, which was appointed as the transaction adviser.
“Various parties have been in contact with the administrators expressing interest in the company’s businesses and assets in both Kenya and Tanzania,” the administrators said in a report to ARM’s creditors.
“The transaction roadmap that has been agreed with Absa envisages receipt of binding offers by the end of January 2019.”
PwC will be able to receive more bids until December 3, after which shortlisted firms will be allowed to start their due diligence, including interviewing management. The interest in ARM comes after the administrators established that the company has a negative equity of Sh2.4 billion, meaning that current shareholders will suffer a major dilution if a takeover deal is concluded.
The plans of the bidders and the price they are willing to pay for the company or part of its assets remain unclear.
PwC, however, says the top priority is to keep ARM operational for the benefit of various stakeholders, including employees and lenders which it owes some Sh14 billion.
For Dangote, a buyout of a distressed ARM offers a bargain and a smooth entry into the Kenyan market where it had planned to venture into by 2021.
The premium investors are willing to pay to acquire the company has dropped drastically from the lofty stock market valuation it enjoyed in 2014.
ARM reached a market capitalisation of Sh44.5 billion or nearly 30 times its net earnings of Sh1.5 billion in that year as investors extrapolated its historical profit growth.
If Dangote’s bid is successful, the Nigerian multinational will inherit an ongoing business complete with plants, distribution networks and mining licences.
Dangote will then integrate ARM into its Pan-African operations which ride on economies of scale to set lower prices that in turn grows its market share at the expense of rivals.
The Nigerian firm, for instance, has cement plants in Ethiopia and Tanzania, each with an annual production capacity of three million tonnes.
Prior to its interest in ARM, Dangote had planned to build two cement plants with an annual output of three million tonnes in Kenya by 2021.
The multinational already has a licence to prospect for limestone in Kitui.
It has incorporated two majority-owned subsidiaries to house its local limestone mining and cement production operations.
It has a 90 per cent stake in Dangote Cement Kenya Limited and a similar stake in Dangote Quarries Kenya Limited.
Ahead of the proposed entry of a strategic investor, ARM’s administrators are planning to raise up to Sh1.9 billion in new debt to maintain the company’s production.
Such debt will rank higher than the existing loans. PwC says an operating ARM will fetch a higher price compared to selling dormant assets.