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Kenya: Olympia Capital in Bid to Take Over South African Firm
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Business Daily (Nairobi)
19 March 2008
Posted to the web 19 March 2008
Emmanuel Were
Olympia Capital is back on the acquisition path with its subsidiary in Botswana about to conclude the takeover of a South African company.
Chief executive Michael Matu said the deal by Olympia Capital Corporation Limited (OCCL) would be sealed within a fortnight, but he declined to name the target.
He, however, said the targeted firm is entrenched in building and construction; a sector Olympia has been active in providing solutions to over the years. Mr Matu said he was bound by a confidentiality agreement not to disclose the firm. Olympia issued a cautionary statement on Wednesday asking investors to beware of the goings on as they deal in its shares.
That caution, analysts say, could see Olympia prices rising. "Such an announcement might lead to the speculators pushing up prices," says Samuel Wachira, an analyst at Drummond Investment Bank.
In balance, however, the upcoming Safaricom IPO and failure to identify the target by name will act as resistance factors towards a substantial gain in prices.
Faced with a merger and acquisition, investors take positions on the basis of anticipated future earnings which cannot be assessed until all parties in the transaction are known.
The only hints Mr Matu gave were that the cost of acquiring a 51 per cent stake in the company would be Sh75 million, financed through debt and internal funds.
He estimated the profit share resulting from operations of the new company at between Sh40 and 50 million per year. Interest in the new firm appears meant to tackle the marketing challenge in South Africa.
"One of the major cost elements in supply to the retail trade in South Africa is distribution costs. Our intention is to merge the warehouse and distribution of Plush and the new company together," says Mr Matu. In December 2006, Olympia bought a 74 per cent share of Plush Products which deals in building materials through OCCL.
Before the cautionary the company's shares had fallen from Sh12.80 on Monday to Sh11.55 on Tuesday, a 9.8 per cent fall, as sell offs related to the Safaricom take their toll on other counters at the Nairobi Stock Exchange. On Wednesday it stabilised at Sh11.50 per share.
Expansion in southern Africa is key to Olympia because the region accounts for 90 per cent of its turnover. It has a 50.9 per cent share in OCCL, which owns other subsidiaries both in Botswana and South Africa.
The southern African regions is also experiencing good growth thanks to extraction of minerals such as gold, copper and oil which are driving the growth in construction.
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Construction in South Africa has intensified as the soccer world cup in 2010, draws nearer but power shortages are a key risk.
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