Coca-Cola avoids punishment in Sh10bn Centum deal

Coca-Cola avoided a Sh10 million fine or the cancellation of its Sh10.7 billion acquisition of stakes in three soda bottling firms from Centum Investment by violating one of the regulatory conditions linked to the deal’s approval.

The Competition Authority of Kenya (CAK) revealed that Coca-Cola Sabco East Africa, which is indirectly owned by the US soda giant to the tune of 66.5 percent, had barred retailers from stocking drinks from rival companies in its branded fridges.

Coca-Cola had violated an agreement attached to the Sh10.7 billion deal’s approval in 2019 that it would allow rival firms to use its coolers before September 2021.

The CAK issued a warning to Coca-Cola Sabco East Africa to comply with agreements by September of last year or face sanctions.

“The authority directed CCBA to amend the cooler agreements and provide evidence of the execution by distributors,” says CAK in its latest annual report for the year to June last year.

Section 26 of the Competition Act 2016 empowers the CAK to revoke an approved acquisition or fine firms or individuals who violate transaction approval conditions.

“Any person who, being a party to a merger — fails to comply with any condition attached to the approval for the merger — commits an offence and shall be liable on conviction to a fine not exceeding Sh10 million or to imprisonment for a term not exceeding five years, or to both,” says the Act.

In 2019, the CAK approved Coca-Cola Sabco East Africa’s acquisition of a 53.95 percent stake in Almasi Beverages from Centum under six conditions.

These included a requirement that Coca-Cola reserve at least 20% of the storage space in its cooling refrigerators for small and medium-sized enterprises (SMEs) to stock rival brands.

Almasi Beverages owned three bottling companies, Mount Kenya Bottlers, Kisii Bottlers, and Rift Valley Bottlers, which supplied Coca-Cola soda brands to parts of Central Kenya, Nyanza, and the Rift Valley.

The CAK believed that small retailers needed protection because they had limited space and lacked the financial resources to acquire coolers from Coca-competitors.

Small retailers are defined as stores that buy fewer than ten crates of soda per week, and they account for 69 percent of retailers who have Coca-Cola-branded coolers.

Other terms of the agreement include Coca-Cola retaining 1,739 of the 1,760 permanent employees under Almasi and continuing to operate the plants in Nyeri, Eldoret, Nairobi, Molo, and Kisumu for at least three years after the deal is completed.

Centum’s sale of a 53.9 percent stake in Almasi was completed alongside two other transactions as the company sought to raise funds to repay a Sh7.5 billion dollar-denominated bank loan.

The transactions included the sale of a 27.6% stake in Nairobi Bottlers Limited to Coca-Cola Sabco for Sh8.8 billion.

Centum also raised Sh100 million by selling a 100% stake in King Beverage Limited.

Centum received Sh19.4 billion from the three transactions, compared to the previous total cost of Sh3.6 billion. Centum valued its investments in Almasi and Nairobi Bottlers at Sh16.8 billion prior to closing the deals.

Centum also stated that it intended to invest between Sh10 billion and Sh15 billion of the cash over the next five years, primarily in high-returning sectors.

Centum is particularly interested in the financial services, consumer, agriculture, education, healthcare, information technology, power, and automotive sectors.

According to the CAK, Coca-case Cola’s was one of 17 mergers and acquisitions that were subject to checks to ensure they met the conditions of the transactions.