Mergers, Acquisitions and Financial Results

African Lakes Corporation said last week it had started a fresh round to raise Sh110 million from its shareholders in Kenya and London through an open offer. The offer closes on May 21, 2003.

Leslie Davey, the firm’s finance director, said the money will be used to finance the working capital of its subsidiaries - Africa Online and MenaNet in Egypt.

She said the funds will help shore up the capital requirements of the Group until the company finalises selling its non-technology assets, which are expected to raise Sh840 million (UK£7 million). The none- core assets were supposed to have been sold by the end of the first quarter of 2003.

"The move is consistent with our stated strategy of reinforcing our Internet business and maintaining our focus of growing these businesses organically," said Davey. "Thus far, the strategy has paid off. Operations have been restructured in order to reduce costs, resulting in a much reduced outflow. Africa Online for instance, is trading profitably and above budget for the first half of 2003."

In the last two quarters, African Lakes attracted public attention after a deal that would have seen International Finance Corporation (IFC) and AIG Infrastructure Fund invest over Sh1 billion through an equity deal hit the rocks.

This was mainly as a result of the boardroom wars between the founders and top managers of Africa Online. The Financial Standard learnt that one of the investors balked at investing in African Lakes because of the bad blood between key managers and founders of Africa Online and the top management in London.

Late last year, African Lakes fired the top management of Africa Online in what people familiar with the matter said was a major disagreement on strategy. African Lakes management said that African Online managers were fired because they were drawing huge salaries. The squabble resulted in the firm’s share falling to Sh5 on the Nairobi Stock Exchange (NSE) from Sh15.

Earlier this year, African Lakes applied to be de-listed from the stock exchanges in London and Nairobi. It was, however, only suspended from the NSE. Unlike the London Stock Exchange’s de- listing, the suspension from the NSE left local shareholders with few options of exiting their investment other than trading privately on the Internet or selling back the shares to the company.

African Lakes shareholding is split among both Institutional and retail investors. There are 2,000 African Lakes shareholders, of which Kenyan representation stands at 1.3 per cent. The founders of Africa Online also hold a sizeable stake. The open offer will allow existing local shareholders a chance to invest in African Lakes at a rate of three new ordinary shares for one existing one at Sh0.239.

Leslie said the company optimistic that a significant number of shareholders will want to take up the offer. If they fail to take up the offer, their shareholding will be diluted.

"This is not surprising given that the medium term outlook and future prospects of the company are positive," said Davey. As African Lakes has continued to face a precarious cashflow position, focus is turning on Davey as she embarks on fund-raising. Noticeably, the company has slowed down on its bullishness over the viability of non- Internet technology assets and Africa Online-which has positive cashflows-has risen in prominence as the key asset.

"The strategic focus of the Group is now centred on the core Internet service businesses of Africa Online, MenaNet and the UUNet joint venture. Over the next three years, African Lakes is looking up to build on its core strengths as the Internet service company, with the aim of confirming its position as a pre-eminent regional Internet Service Provider. The open offer will help us to achieve this objective," said Leslie.

In the last few months, there have been major speculations over the strategic direction of the company. The Financial Standard quoted an African Lakes official earlier this year saying the firm was interested in selling to a trade buyer.