How to sell your company without losing your shares


The Sunday Nation


23 July 2023


The Principal Secretary (PS) in the State Department of Industry, Mr. Juma Mukhwana, recently told the National Assembly that the government has found a strategic investor willing to take up 30 per cent ownership of the East African Portland Cement Company (EAPCC) at a price of Sh15 billion. The PS added that the plan will see the major shareholders of EAPCC – Treasury, the NSSF and French firm Lafarge – cede part of their shares to create a 30 percent stake for the new investor.

However, a representative of Larfage told members of parliament at the same meeting that his company was not aware of plans to cede any of their shares! This embarrassing affair prompted me to ask a few more questions.

First, is it possible to grant a portion of a company to a new shareholder without the old owners losing any of their shares? The answer is yes: New shares can be created and offered to the new investor.

According to its latest audited financial report, EAPCC is divided into 126 million shares. However, only 90 million of them have been issued and fully paid for. The remaining 36 million do not belong to anyone and therefore they don’t represent any capital in the company. This is not unusual; it is quite common to find companies with extra shares that are not allocated to anyone.

Now, the 90M issued shares are 100 per cent of the company; when the strategic investor comes in, the 90M shares will now represent 70 percent. So, in that case, how many shares will be in EAPCC? The answer is 90M divided by 0.7; which comes to 128.6M shares.

The extra 38.6M will now represent 30 per cent of 128.6M – check it in your calculator! So, if the strategic investor is given 38.6M shares in exchange for the Sh15B investment, he would get the desired proportion of the company.

But who would take the money? It is certainly not the old shareholders – they did not give up any of their 90M shares in the transaction! The 38.6M share came from EAPCC so, it is the one to receive the Sh15B. Indeed, the PS for Industry told parliament that the investor wishes to inject capital into the company, so such a plan works as desired by all parties.

But there are more questions: paying Sh15B for 38.6M shares means that each share is going for Sh387. The current market price is Sh6.40. Why would anyone be willing to pay over 60 times the market price? Something isn’t adding up!

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