Al Futtaim Group has cleared another hurdle to take over Kenya’s listed car retailer CMC Holdings as the Dubai-based conglomerate aims to tap into lucrative new African markets.
The offer to existing shareholders of CMC is now open, in what will be one of Kenya’s biggest foreign direct investment deals this year.
In September, Al Futtaim announced its intention to buy 100 per cent of the share capital of CMC at 13 Kenyan shillings per share. The acquisition will be made through its subsidiary Al Futtaim Auto & Machinery Company (Famco).
The takeover proposal has received the approval of 50.6 per cent of CMC shareholders, who have undertaken to sell their shares once the offer opened.
CMC shareholders have up to January 24 to sell their shares to Al Futtaim. On successful completion of the transaction, CMC Holdings is expected to be delisted from the Nairobi Stock Exchange, making the shares illiquid for those who do not take advantage of the offer.
“Kenya, the key East African market, represents an underpenetrated corporate and consumer opportunity in segments like autos for proven foreign businesses,” said Hasnain Malik of the independent research provider Frontier Alpha.
“The key is to establish operational control, manage supplier relationships, navigate local regulations and maintain quality. Al Futtaim has clearly achieved this in its home market and has the opportunity to leverage that track record and expertise in Kenya,” he added.
African countries are becoming more attractive for Arabian Gulf investors. With fast economic growth and a growing middle class, they are becoming more appealing than stuttering European markets.
Gulf investors had previously focused on North Africa because of the language and culture similarities. However, this trend is evolving. The UAE telecoms operator Etisalat runs a number of operations in African countries such as Nigeria, Tanzania and Sudan. The telco also bought a stake in Maroc Telecom to give it access to new African markets such as Burkina Faso, Mauritania and Mali.
Despite the attractive opportunities, a lack of security remains a challenge for Gulf investors. In September, more than 60 civilians and six soldiers died in a terrorist attack on a mall in Nairobi, as the East African country tackles terrorist groups.
“Sporadic civil and economic disruption is par for the course in frontier markets and actually makes the barriers to entry, and therefore potential economic returns, around successful businesses that much higher,” said Mr Malik.