How CEO’s Sh6.5bn bid to buy ARM Cement flopped

Former ARM Cement #ticker:ARM chief executive officer Pradeep Paunrana failed in a last-ditch effort to keep the business in his family’s hands after administrators of the collapsed company rejected his higher Sh6.5 billion bid for the company’s Kenyan assets, the Business Daily has learnt.

ARM administrators PricewaterhouseCoopers (PwC) have, in a letter addressed to creditors of the collapsed cement processor, disclosed that they received the $65 million offer filed by a consortium led by Mr Paunrana on May 17, more than a month after the April 5 deadline for submission of bids.

“The offer letter did not provide any concrete proof of funding and what was provided was simply a conditional “Expression of Interest” that did not provide comfort and deal certainty, a critical consideration for the bidding process,” said the administrators in the letter dated May 29.

PwC had already settled on the sale of ARM Kenya assets for Sh5 billion to National Cement Company Limited (NCCL) by the time Mr Paunrana lodged the offer on May 17, which was incidentally the date that the administrators were scheduled to sign the sale agreement.

National Cement is owned by billionaire industrialist Narendra Raval through his Devki Group of Companies.

ARM Cement, founded in 1974 by the late family patriarch Harjivandas J Paunrana, has been the flagship business of the wealthy Paunrana family.

The loss of the cement company marks a low moment for the family and particularly for Pradeep Paunrana, who has been the CEO and face of the business for decades.

The Paunrana family, alongside other shareholders of the Nairobi Securities Exchange (NSE) listed firm, are unlikely to get any payoff from liquidation proceeds of the company.

The decision to pick Mr Raval’s bid has in recent days also been the subject of a shadowy social media campaign that has alleged PwC ignored a higher price offer in the sale process.

Mr Paunrana declined to comment on the matter when contacted on phone Thursday.

The winning offer by Mr Raval provided the Sh1 billion cash guarantee required in the bidding conditions and was the highest among the competing bids.

Mr Paunarana’s bid did not meet the Sh1 billion cash guarantee condition.

“He sent his letter of interest on May 17 without any financial commitment. We had already paid ours, meeting the condition to give a Sh1 billion cash guarantee which was to be submitted together with the offer, which was done by all of us bidders,” said Mr Raval in an interview yesterday. “It was just to derail the process, nothing more.”

Mr Paunrana directed the Business Daily to contact PwC for any comments.

PwC’s letter to the ARM creditors also points to a late, frantic effort by Mr Paunrana to string together a financial package and consortium that would allow him to buy back the business.

“Despite having been invited to participate in the transaction process since the creditors sanctioned the process in October 2018, the shareholder did not submit any formal interest until very late in the transaction process, when he engaged the administrators in a series of possible, albeit inconclusive, bids and transaction scenarios with a series of different potential partners,” said the administrators in the letter.

The administrators, however, still allowed him to place the offer in spite of having at this stage already negotiated and agreed on a suitable asset purchase agreement with the preferred bidder.

Mr Raval last week said his deal is being financed through a combination of debt and internally generated cash.

Earlier reports had suggested that Africa’s richest man, Aliko Dangote, was interested in buying out ARM, but there has been no indication yet that he was among the interested bidders.

ARM, with operations in Kenya, Tanzania and Rwanda, was placed under administration on August 17 last year after failing to pay its creditors.

It had soaked in Sh14 billion in debt and had a negative equity of Sh2.4 billion at the time.

The Sh5 billion buyout price nearly matches the cement maker’s last market valuation of Sh5.3 billion before the stock was suspended from trading on the NSE. The Tanzanian subsidiary, whose sale is expected to go through in the next two months, is expected to fetch a higher price than the Kenyan business since it has a bigger operation.