Three Kenyan billionaires – James Mogiye, the late Chris Kirby and Joe Wangui – have controlled UAP Holdings for years, which has paid them huge dividends from years of consistent profitability.
The money tycoons also made billions of dollars from calculated stock sales that left a bad taste in the mouths of minority investors — who suffered from drying up profits and no way out of the insurance company.
The contrasting fortunes of the founders and minority owners have led to a legal battle that represents a rare occasion when an investor sues his company for financial loss and demands an exit.
The 2010 law change that limited individual ownership in an insurance company to 25 percent meant something had to change.
By March 2012, Wangwei owned a 35.84% stake in the company, now operating as Old Mutual Holdings, meaning a restructuring of ownership was due if the insurer was to comply with insurance law.
The solution was complex – sell some shares to the public and convert debt held by private equity firms into equity.
This would automatically dilute Wangwei’s stake to less than 25% while raising new capital and reducing debt.
At that time, Mr. Mogiye held a 10.52% stake, while Mr. Kirubi and his company Centum Investment held 16.88% and 24.23% respectively.
In marketing the IPO in 2012, the company said it had a goal of listing its shares on the Nairobi Securities Exchange in 2014 to enable greater liquidity and price discovery for investors.
It has not yet been listed, and the shares continue to trade on the over-the-counter (OTC) market, which is less liquid.
Meanwhile, founding shareholders sold most of their shares in South Africa’s Old Mutual Ltd at a hefty profit, frustrating minority investors who now face the prospect of significant dilution at a time when the insurer has gone years without paying a dividend.
Mr Kirubi and Centum made profits of Sh3.2 billion and Sh4.5 billion respectively in February 2015 on their respective stakes of 9.58 per cent and 13.75 per cent.
Meanwhile, private equity firms AfricInvest, Aureos and Swedfund nearly tripled their money when they sold their 37.33% stake for Sh12.4 billion.
Private equity firms converted their Sh4.55 billion loans into equity just a year ago.
Meanwhile, Mr Wangwe and Mr Mogiye entered into a separate agreement with the multinational that earned them the highest rates of return when they sold a joint six per cent stake for Sh3.2 billion in 2020.
In total, the multinational acquired a 66.6 percent stake in the insurance company through multiple deals over the six years and renamed the company Old Mutual Holdings.
The multinational disclosed the agreement it had with Mr. Mogiye and Mr. Wangui, but the Kenyan insurance company, then still operating under the name UAP, did not disclose the contract, technically known as a put option.
The deals reduced Mr. Mujie’s stake in the insurance company to 4.6 percent as of December 2023, while Mr. Wangwe’s holdings in the insurance company fell to 15.79 percent.
Mr Joel Kibe, who bought a total of 1.54 million shares of the company at a cost of Sh246.6 million in the over-the-counter market between July 2014 and June 2015, has filed a lawsuit against the Nairobi-based insurer seeking to buy it at a price likely to exceed the Sh1 billion mark.
“The planned listing of the company on the Nairobi Stock Exchange was not carried out within two years of the (public offer),” Kibi told the Nairobi High Court.
“The company took a unilateral decision to postpone the intended listing without consulting the petitioner whose investment of Sh246.6 million has now been suspended.”
He added that all the original major shareholders in the company were allowed to exit by selling their shares to Old Mutual directly rather than selling through the OTC, thus depriving him of his right as he was not offered the opportunity to sell to the multinational company as well.
Mr. Kibi is the first investor to sue a Kenyan public company seeking compensation for alleged financial loss caused by directors’ misstatements or failure to disclose material facts.
This practice is common in developed markets, where shareholders sometimes receive large payouts after proving that non-disclosure or misrepresentation by companies led to a decline in the share price or loss of revenue.
In its response to the court case, Old Mutual did not address its promise to list its shares on the National Stock Exchange. But it rejected all other issues raised by Mr. Kibii, including the claim that Sh8.8 billion in loans from the parent company last year were converted into preference shares (with a claim to priority in dividends) without shareholders’ input.
“In sum, the Applicant’s majority shareholder has legally acquired effective control of UAP Holdings,” Old Mutual CEO Arthur Oginga said in a supporting affidavit.
“Therefore, it is not true that the acquisition was made at the expense of any minority shareholders. Moreover, the majority shareholder in the company applying for the acquisition was not legally obligated to purchase shares from other shareholders after obtaining the necessary exemptions from the Capital Markets Authority.”
The insurance company added that stock investments do not provide guaranteed returns, and that failure to distribute dividends is not an indication of shareholder oppression.
Old Mutual asked the court to lift interim orders that it said were harming its operations by restricting its ability to meet its obligations, borrow and sell assets.
This is the latest corporate battle for Mr Kebe who was previously involved in shareholder activism at CMC Holdings which was delisted from the NSE after being bought for Sh7.5 billion by Dubai-based Al Futtaim Group in April 2014.
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