As Kenya’s Senate moved to inquire into the affairs of East African Breweries Ltd (EABL) and its parent company, Diageo, legal experts swiftly took issue with the matter, dismissing it as a sham that could only serve to scare away foreign investors.
Consequently, Parliament has been called out for overstepping its mandate and even lacking the capacity to investigate internal affairs of a private company listed on Nairobi Securities Exchange (NSE). On Thursday last week, the Senate’s Committee on Trade, Industrialization and Tourism summoned the top management of East African Breweries PLC to investigate what it claims to be ‘fraudulent acquisition’ of the company’s shares.
The harried inquiry was a response to a petition by Mr Rono Nicholas, a Public Information Officer at Bomet County who is also understood to be a Senate employee, sponsored by Bomet Senator Hillary Sigei.
Mr Rono argues, ignorantly perhaps, that the recent acquisition of additional shareholding in EABL by Diageo was fraudulent. Diageo, a British company, recently increased its shareholding in EABL to 65% from 51%. Being a listed company, the purchase of shares from other shareholders was approved by the Capital Markets Authority and the Nairobi Securities Exchange.
Top legal minds in Kenya have termed the investigation as a waste of time, which would soil Parliament’s name and called on National Assembly Speakers Moses Wetang’ula and Senate’s Amason Kingi to review the overbearing powers of the House Committees.
“Surely, summoning EABL whose shares are openly traded in the Nairobi bourse to explain why X bought Z shares is not just a waste of time but paints the Houses of Parliament in bad light,” Senior Counsel Ahmednasir Abdullahi said in a post on X (formerly known as Twitter). “The speakers must vet the processes and procedures for conducting the house’s oversight powers.
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Mr Edwin Dande says it was “painful to watch” the widely broadcast story on Citizen TV. Mr Dande, an avid investor and leader of an investing company, Cytonn, said the senate has no business investigating EABL share sale. “Senators asking a private company, EABL, why it’s selling its assets and/or its shares? Surely, it’s none of our business as EABL is private property protected by constitutional right to property,” said Mr Dande.
There are well-established steps before a petition can be brought to the floor of the House and referred to a committee for an inquiry to be sanctioned.
The petition is first scrutinised by the Clerk of the House to determine its merits and whether the House has the powers or jurisdiction to delve into it. The manner in which the EABL petition was handled has raised doubts whether indeed the procedures were followed.
It is suspicious that the Clerk yielded to the will of Senator Sigei, who sponsored Rono’s petition.
Rono Nicholas identifies himself on LinkedIn as a Public Information Officer in Bomet County but it is understood that he is actually an employee of the Senate, meaning that the Senate is admitting an inquiry from its own employee on a matter that’s outside its domain.
Among the most vocal at the meeting with EABL Group CEO on Thursday was Uasin Gishu Senator Jackson Mandago, with Senators Okiya Omatata and Karungo wa Thang’wa also asking questions.
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Diageo’s acquisition of additional shares in EABL was approved by the CMA in January, about two months after the company announced its intention to buy an extra 14.97%. The stake represented up to 118.4 million shares at an offer price of Ksh192 per share.
EABL has been a public company since 1933 and was the first company to be listed on the NSE when it was created in 1954. As a listed company, the shares of EABL are publicly traded, and anyone can buy them. No law bars foreigners from buying shares in listed companies. In any case, foreign investors have dominated major players at the NSE for years.
“EABL is not a government company,” writes Mungai Kihanya, “In fact the government doesn’t even own a single share. Why is this matter being discussed in Parliament? Who cares if Diageo sells off the shares for a profit?”
Ms Karuku said there was no evidence to substantiate the wild claims made by the petitioner.
That’s the feeling among most Kenyans who understand the law and operations of listed companies. EABL defended itself well, in a response that offered legislators lessons in commercial transactions. EABL’s chief executive, Ms Jane Karuku, said the transaction was above board, and dismissed the petition as lacking credibility and legal grounds.
The petitioner’s alleged that the recent shareholding acquisition by Diageo was a fraud as it was done for onward transfer to a new buyer at a much higher value for the benefit of Diageo shareholders.
The petitioner alleged that the onward sale of the shares that had been agreed with Heineken/Castel Group with the purchase of the additional shares was to allegedly assure it of a controlling stake in EABL after the onward sale.
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But Ms Karuku said there was no evidence to substantiate the wild claims made by the petitioner. The deal was done through a tender offer where existing shareholders of the Nairobi Securities Exchange-listed firm were invited to sell their holdings at the offer price.
“As part of its disclosures in the 2023 public tender offer,” Ms Karuku said. “Diageo Kenya disclosed that it had made no agreement or arrangement to sell EABL shares to any other person. Our position is that the petition lacks credibility and has no legal or solid grounds.”
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