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Regulator now wants Naikuni out of Portland Cement board [Business Daily (Kenya)]
[February 02, 2014]

Regulator now wants Naikuni out of Portland Cement board [Business Daily (Kenya)]

(Business Daily (Kenya) Via Acquire Media NewsEdge) Kenya Airways managing director Titus Naikuni is facing ouster from the leadership of a key East Africa Portland Cement Company (EAPCC) board committee, setting up the French shareholder he represents in the cement firm for a new round of battle with the Kenyan government.  The Competition Authority of Kenya (CAK) has recommended that Mr Naikuni stops chairing the Technical Committee of Portland's board, citing the risk that his position poses to the firm's strategic leadership in light of the fact that he represents Lafarge which has a controlling stake in the rival Bamburi Cement.

The competition watchdog says Lafarge's two board seats and control of strategic committees at Portland amounts to anti-competitive behaviour that needs to be reviewed.

Mr Naikuni chairs the influential Technical Committee of the Portland board while lawyer Hamish Keith, another representative of Lafarge, is the chair of the Tender and Procurement Oversight Committee.

The authority has for the first time concluded that Lafarge's sizeable shareholding in Kenya's leading cement makers, Bamburi and Portland gives it control of more than half of Kenya's cement market and amounts to monopolistic behaviour and undue concentration of economic power.

"The authority was of the view that this high market share and directorship of Lafarge in key strategic committees (tender and procurement and technical committees) at EAPCC exhibited features of unwarranted concentration of economic power," said the CAK in its 2013 annual report.

"This arrangement would unreasonably lessen, distort, prevent or limit competition in the production, supply, or distribution of cement in Kenya." The regulator made the recommendation in response to Industrialisation principal secretary Wilson Songa's December petition over Lafarge's dominance of Kenya's cement market that is linked to the French firm's multiple ownership of cement makers and its representation on Bamburi and Portland boards.

READ: State takes Lafarge to the competition chief in Portland row Dr Songa argued in his petition that Lafarge's investment in Portland was purely aimed at controlling the financial position and management of the company for selfish reasons.

"We kindly submit our request that the Competition Authority investigates this matter and take appropriate action against Lafarge and its appointed directors, namely Titus Naikuni and Hamish Keith," said Dr Songa in a letter, dated December 19, 2013, to the director-general of the competition watchdog Kariuki Wang'ombe.

The French firm, Dr Songa added, has a dominant position that results in market share accretion and negatively impacts other industry players.

The PS made the petition in the wake of a protracted war for control of the Athi River-based cement maker's board pitting Lafarge against the Kenya government, which has a controlling stake in the company.

Mr Naikuni and Mr Keith have in recent months formed a strong voting alliance with board chairman Mark ole Karbolo and the company's managing director Kepha Tande that has neutralised government influence in the decision-making organ.

Lafarge, the world's largest cement manufacturer, owns 58.6 per cent of Bamburi Cement and a 41.7 per cent stake at Portland.

READ: Lafarge spoils for a fight with State over Portland Bamburi, a subsidiary of Lafarge, is Kenya's largest cement maker with a total production capacity of 2.1 million tonnes a year and a market share of 39 per cent ahead of second-placed Portland, which controls 20 per cent of the market.

The competition authority's findings are expected to embolden the government, which owns 52 per cent of Portland, to try to wrest control of the board from Lafarge or force the French firm to exit the Athi River-based firm.

The Treasury directly owns 25 per cent of Portland and has teamed up with the National Social Security Fund (NSSF), with a 27 per cent stake, in the quest to to take control of the Nairobi bourse-listed company's boardroom.

The Technical Committee chaired by Mr Naikuni oversees Portland's capital expenditure plans, marketing strategies, technology and research projects, and vets capital budgets for all hardware and software purchases.

The Treasury has always argued that the position gives Bamburi first-hand information on its rival's strategies given Lafarge's cross-ownership in the two cement firms.

The Tender Committee chaired by Mr Keith approves all Portland's procurement plans – again giving Bamburi a window of information and influence over its rival's strategic decisions.

This arrangement is seen to have ensured Bamburi's winning of a four-year contract to supply Portland with clinker -- raising questions over possible conflict of interest in the deal.

The ongoing boardroom unrest at Portland is primarily fuelled by the government's failure to snatch one board seat from Lafarge that would effectively tilt the power balance in its favour.

The latest of the many failed attempts occurred during last year's chaotic annual general meeting in which the Naikuni axis neutralised Industrialisation ministry's attempt to replace Mr Keith with a director not aligned to Lafarge.

Dr Songa and NSSF executive Gideon Kyengo walked out of the shareholders' meeting and immediately fired a letter to the Capital Markets Authority (CMA), protesting the manner in which the AGM was conducted.

This was after Lafarge flexed its boardroom muscle and had Didier Tresarrieu, a former managing director of Bamburi, replace Mr Keith who was retiring.

The government had wanted to have former CMC chief executive Bill Lay replace Mr Keith on the Portland board, sparking a vicious round of boardroom fights that ended up in court.

The letter authored by the Treasury and NSSF questioned the accuracy of Portland's books of accounts as well as the conduct of Mr Karbolo, Mr Tande and two other directors Mr Naikuni and Mr Keith.

The CMA has since ordered the Nairobi Securities Exchange (NSE) to recall resolutions of the Portland AGM to allow for investigations.

READ: CMA moves to probe Portland after chaotic AGM The move has seen Portland shareholders miss out on the Sh0.75 dividend that was due to be paid on January 20, 2014. It has also stopped the election of Lafarge representative Didier Tresarrieu as well as confirmation of the cement maker's financial accounts.

Portland's board responded to the government's move with court action, seeking to lift the CMA's suspension of its shareholder meeting resolutions.

The board argues that the regulator lacks the mandate to take such action since AGMs are overseen by the registrar of companies.

The government has three seats on Portland's seven-member board that are currently held by Dr Songa, Treasury PS Kamau Thugge and Mr Kyengo, the NSSF executive.

Lafarge has two seats held by Mr Naikuni, and Mr Keith but has been able to win the support Mr Karbolo and Mr Tande, giving it an upper hand in the boardroom.

The boardroom wrangles at Portland first played out when Industrialisation secretary Adan Mohamed differed with the board's push to grant Mr Tande a fresh three-year term as managing director.

Mr Mohamed is yet to gazette the appointment of Mr Tande, whose second term at Portland began on November 16.

In December 2011, then President Kibaki sacked the entire Portland board blaming it of poor governance but the directors had the courts quash the action and have them reinstated.

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