CDC walks away from CEC Deal
Copperbelt Energy Corporation Plc, Energy

Over the last couple of months, the team at Financial Insight Zambia has been watching the CDC acquisition of CEC unfold. We published “CEC Conditions Precedents to the CDC Deal” which indicated the progress of the deal and the status of the deal. However, yesterday we received this email from the CDC press office and it is clear CDC are walking away from the deal:

CDC’s official statement.

“The offer made by Zambian Transmission LLP, a CDC-backed entity, for shares in Copperbelt Energy Corporation plc (“CEC”) has lapsed as a result of non-fulfilment of certain conditions precedent.

CDC wishes to thank the management team of CEC, its shareholders, and the various Zambian governmental representatives and agencies who have supported the transaction. CDC will continue to look for opportunities to expand its portfolio of investments in Zambia in the future.

As we had indicated in our sophomore article on the deal, a condition precedent (CP) is an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual duty exists.

We understand that 5 out of the 7 CPs were meet and the 2 that were not were in relation to a third party consenting to the deal and agreeing to extend a currently existing contract. As a recap to what the CPs were, we referred to the SENS Announcement of 30 January 2018 whose subject was “ANNOUNCEMENT REGARDING A FIRM INTENTION TO MAKE A BINDING OFFER FOR ALL OF THE ORDINARY SHARES OF COPPERBELT ENERGY CORPORATION PLC FOR A CASH CONSIDERATION OF US$0.2338 PER SHARE”.

According to the announcement, “the Offer would be subject to the Terms and Conditions set out in the Offer Letter and further terms to be set out in the Offer Document and the Form of Acceptance.

In summary, the Offer is conditional upon:

  • receipt of Merger Control Clearance;
  • the consent of the holder of the Golden Share to the Transaction as required by the Articles of Association of CEC;
  • the consent of ZESCO to the Transaction as required pursuant to the Bulk Supply Agreement;
  • the execution by CEC and ZESCO of an amendment of the Bulk Agreement which provides for an extension of the term for an additional period of 20 years;
  • the lenders to CEC unconditionally consenting to the Transaction and agreeing not to demand repayment of any outstanding amounts as a result of the Transaction; and
  • valid acceptance being received in respect of CEC Shares which, together with any CEC Shares acquired by the Offeror and persons acting in concert with it (whether pursuant to the offer or otherwise), will result in the Offeror and persons acting in concert with it holding more than 50% of the voting rights attaching to the CEC Shares.”

However, we learnt through a subsequent SENS Announcement that not all the CPs were agreed to as at 18th May 2018. According to the statement, “In accordance with Rule 39 of Schedule 3 of the Securities (Takeover and Merger) Rules, the Offeror wishes to announce that the Offer Period has been extended for a period of 28 days in order to allow time for the following condition to be satisfied, namely:

 

(a) the execution by CEC and ZESCO of an unconditional and irrevocable amendment to the BSA which provides for the extension of the term of the BSA for an additional period of 20 years on commercial terms which are no less advantageous to CEC than the existing terms of the BSA in a form and on terms satisfactory to the Offeror.”

 

Without a doubt, this contract in question is the key to CEC’s value creation preposition. An astute investor will ensure that whatever asset they are acquiring has the capability of continuously creating value as assessed by the trend analysis (historical and projected financials) that the due diligence would have revealed.

CDC has made many investments in Zambia. One of their most recent ones is the acquisition of shares in Zambeef. It is easy to deduce that they are an entity that pursues companies at a particular stage in their growth cycle. Furthermore, as we have reported on how they call the shots when they have a seat at the board. They have mastered the art of transforming and turning around companies.

For the management team at CEC though, with the deal off the table, all eyes will now turn to how to focus on the way forward. Henson Sindowe, their Chairman, had already issued a signal to the market on the company focusing on the execution of their strategy to achieve sustainable performance and created sustained value for shareholders. One of the ways his management team hopes to achieve this will be to mitigate any risks they may face. No doubt the BSA with ZESCO will be one of those items in the bucket list.

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