Kampala — Amid much anxiety, bids for the coveted Kinyara Sugar Works were finally opened on July 21, and surprisingly revealed a huge disparity of Shs18 billion between Rai Holdings the leading bidder and Madhvani the lowest bidder.

That an agro forestry company can afford to bid more for a sugar factory than the sugar manufacturers themselves is a strange phenomenon indeed.

Even more shocking was that in spite of having the most to gain from the acquisition, Madhvani's was the lowest of the three qualifying bids.

With all the controversy surrounding Kinyara's privatisation in recent months, the stakes in this game were clearly at an all time high.

Kinyara is located in probably the best sugar-growing region of Uganda, as evidenced from its higher sugar recovery ratio from raw cane when compared to its peers.

Add to this the fact that it produces 32 percent of Ugandan sugar in an industry with huge growth opportunities (20 percent of the Country's total sugar requirement is still imported and world sugar prices have skyrocketed over the last year) and you have in Kinyara an enviable acquisition target by any measure.

And so each bidder would have independently analysed how much the company could possibly be worth to its shareholders, evaluated the likely maximum value of the company to competing bidders, and based on these crucial factors to put in a bid that would hopefully win them control of Kinyara.

Take each bidder's perspective from a purely corporate strategic point of view. Madhvani is Uganda's leading sugar producer churning out a whopping 88,000 tonnes a year or 46 percent of total sugar production.

Of all the bidders, Madhvani could profit the most from acquisition synergies: By consolidating their operations in Uganda, Madhvani would benefit from lower production, distribution and administrative costs that would arise from sharing corporate resources between Kakira and Kinyara; and acquiring Kinyara would give Madhvani control of 78 percent of Uganda's sugar industry - a virtual monopoly that would likely lead to the death of Lugazi's Sugar Corporation and eventually a true monopoly market position.

A monopoly gives rise to unimaginable revenue synergy possibilities: Shs100 increase per kilo in the price of sugar would result in Shs20 billion of additional annual revenue for the monopoly holder. This is exactly why Madhvani's bid would have been a non-starter in economies that enforce anti-competitive regulation.

Having managed Kinyara since embarking on the road to rehabilitation in 1992, TSB Booker Tate clearly has a vested interest in retaining control of the company.

Booker Tate's core business is the management of sugar producing companies. With 400 years experience in international food production and distribution, TSB Booker Tate clearly adds value to Kinyara through its professional management skills and transfer of technology that has resulted in the company generating Shs10 billion in annual profits.

Booker Tate's strength lies in management and not ownership, so this company was probably cornered into bidding for ownership of Kinyara in order to be able to build upon its 14-year recovery effort.

Thus, one cannot rule out the possibility that Booker Tate would have eventually sold its shares to the general public at fair market value and focused its corporate resources on management.

And finally to the highest bidder: Rai Holdings, a Kenyan and Mauritius-based agro-forestry company. One must question what corporate resources Rai Holdings brings to Kinyara and consequently how much value it can add to the sugar business.

Clearly Rai Holdings brings agro management experience to the table, but it is quite possible that it sees in Kinyara a company that can add value to its own corporate resources through the reverse transfer of sugar industry knowledge, technology and of course profits. The company may use this expertise to expand into other sugar businesses at a later date.

With the huge potential benefits in sight, it is truly surprising that Madhvani's bid was not the highest; when looking at it from a purely strategic point of view, they are the company that can afford to pay the most for Kinyara.

Either Madhvani and Booker Tate undervalued Kinyara or Rai Holdings has better management plans for the company. Under government ownership, Booker Tate was not merely driven by the need to enhance shareholder value but was obligated to consider the interest of the wider community around Kinyara.

Mechanising the cane growing and harvesting process by introducing combine harvesters and more traction would reduce the cost of production and boost cash flows; however this would result in substantial cut backs in labour.

Under private ownership, the lure of higher corporate profits might prove too strong a motive for the new acquirer to consider community benefits.

Corporate social responsibility is only now taking root in developed nations, and it will be decades before African companies treat the matter with any seriousness.

The onus is now on the Divestiture and Reform Implementation Committee to evaluate how government values its shares in Kinyara.

The government serviced $46 million of debt to get Kinyara to where it is today and one only hopes that asset valuation is not the basis being used to value the company.

The writer holds an MBA from the University of Melbourne.