Hunter becomes the hunted as Carbacid tycoon makes takeover bid for BOC

Packaging and selling air has turned out to be one of the most lucrative ventures this year.

And if everything goes according to plan billionaire Baloobhai Patel is set to breathe a profitable air for years to come.

Carbacid Investments in a joint partnership with Aksaya Investments has placed a Sh1.2 billion takeover bid for BOC Kenya, a transaction set to birth a giant industrial gas business.

Aksaya Investments is owned by Patel who together with his wife are among the majority shareholders of Carbacid Investments with a 40.38 per cent stake.

Fifteen years ago, BOC, which owns a 5.38 per cent stake in Carbacid Investments, had made a similar takeover bid for Carbacid but flopped after a four-year regulatory frustration. 

It extended into a protracted legal battle with the Capital Markets Authority up to the High Court that saw the suspension of the two companies from trading at the securities exchange.

A cresfallen BOC returned share certificates it acquired from shareholders of Carbacid.

Now all eyes are on the capital markets regulator to see whether they will approve the new deal. The approval also needs a nod from the Competition Authority of Kenya.

BOC is a supplier of industrial, medical and special gases while Carbacid produces food grade carbon dioxide that is used in fizzy drinks.

Both firms control the largest market shares in their respective areas.

BOC has seen a peak in business with oxygen being key in the fight against Covid-19.

Its main products include oxygen, nitrogen and dissolved acetylene which are used in hospitals. 

One of the effects of coronavirus is the attack on the lungs making it harder for patients to get enough oxygen into their bloodstream to support other body organs.

In the financial year ended December 2019, BOC saw revenue from bulk medical gases rise by 79 per cent following the awarding of a “large public sector hospital tender.”

By 2008, when BOC was sure it would acquire Carbacid, it was at the height of its powers.

Its share price had hit Sh160 and it was recording good earnings and dividends were growing.

The previous financial year, it had paid Sh9.25 dividend inclusive of an interim bonus of Sh3 per share, totaling Sh181 million in dividends.

The firm had also invested some Sh128 million in an expansion plan to bolster its subsidiaries in Uganda and Tanzania.

It also had the confidence of global firms with German outfit Linde Group owning 65.38 per cent of the gas manufacturer at the time.

Aside from manufacturing industrial, medical and scientific gases, the firm also dealt in refrigerants, welding equipment and consumables and safety equipment.

It has enjoyed a near monopoly for years as the largest dealer of the products in its portfolio.

The German firm Linde also had 56 per cent shares in South Africa’s African Oxygen, showing how lucrative the medical gas business was.

However, in October 2009, BOC Gases withdrew its offer for Carbacid Investments after a frustrating four years in pursuit.

The move then paved the way for the relisting of the two firms at the bourse.

Interestingly, all the parties privy to the transaction — BOC, Carbacid and CMA — called the press conference to announce that the deal couldn’t be completed.

It had been a Sh1.5 billion transaction and CMA had ruled against the takeover deal from the onset in December 2005.

The two were suspended from the bourse in December 2005 after the CMA ruling.

Following the flop, Carbacid would later sell a 22.6 per cent stake to Centum Investments in May 2009.

Carbacid shares were trading at Sh137 and BOC shares were at Sh160 per share at the time of the suspension.

Now, as of close of Friday, Carbacid shares closed at Sh10.80 while BOC at Sh67.75.

BOC was obsessed with entering the carbon monoxide business. It knew of the threat of competition from Carbacid hence the aggression to acquire it.

Carbacid controlled 90 per cent market share of that business and still is the largest.

BOC gases had planned acquisition of 94 per cent of Carbacid. This was 10.6 million shares at an offer price of Sh144.35 per shares.

In this new bid, Carbacid and Aksaya have made an offer price of Sh63.50 per ordinary share of BOC.

In the failed acquisition, CMA had blocked the deal as the agreement was that BOC required at least 80 per cent of Carbacid’s shareholders to back the bid.

However, with a 71 per cent approval, BOC went ahead on with other formalities to legitimise the deal.

The snag had been caused after Alliance Nominees — linked to late politician Kenneth Matiba, then top shareholder with a 22 per cent stake in Carbacid — declined to endorse the takeover.

CMA had also argued that the deal was likely to set a bad precedent that would plunge future takeovers of listed companies into confusion.

Carbacid has since grown and also has investments in property, shares in other listed companies, investments in bonds and financial assets.

Patel and his wife Amarjeet are serial investors in listed and non-listed companies and have a combined net worth of more than Sh1.7 billion.

Their stake in Carbacid is worth over Sh725 million.

Their son Rohan Baloobhai Patel is also a non-executive director of Carbacid Investments.

This year, Patel bought an additional five per cent stake worth Sh101.7 million in Carbacid Investments that brought his stake to 40.38 per cent. 

Patel is the managing director of Transworld Safaris Ltd, which he owns.

He has minority stakes in a number of NSE-listed companies including Absa Kenya, Bamburi Cement, Diamond Trust Bank and Safaricom.

He is also a shareholder in Grenadier Limited, which owns Sankara Hotel.

In the half year ended January, Carbacid saw net profit rise by 70 per cent with net earnings standing at Sh178.6 million.

Carbacid reported a profit before tax of Sh427 million for the year ended July 31, 2020, marking a 13 per cent increase from the Sh377 million posted a year earlier. 

However, the firm was negatively impacted by an unrealised loss on equity holdings by listed companies of Sh39 million.

BOC’s performance has not been solid in recent times and last year, it said that pending bills with the government which it supplied with medical gas, were a big problem.

In the last five years, it suffered a decline in revenue that only improved last year by one per cent after the awarding of a government tender to supply medical gas.

Cement its position

Carbacid chair Dennis Awori said the acquisition would make BOC locally owned and cement its position in the market.

“Carbacid Investment will bring its effective business and strategic acumen and deep knowledge and experience of the local industrial gas market, which can generate significant synergies between the two businesses,” he said.

“This structure will lead to swifter decision making. The enlarged group will also provide greater opportunities for employee development and growth for staff of Carbacid and BOC.”

The transaction is expected to be completed in July next year and if BOC shareholders, with a 75 per cent stake, agree to the Carbacid offer, BOC will be delisted from the NSE. 

Also, Carbacid is acting jointly with Aksaya in making the offer as the companies Act prohibits a subsidiary from being a member of its holding company and BOC has a stake in Carbacid.

“Carbacid cannot at this stage acquire more that 49.99 percent of the shares of BOC.

“For this reason, Carbacid Investments is acting jointly with Aksaya in making the offer,” Carbacid said in a cautionary statement.