Pan Africa buys additional stake in Gateway Insurance
By VICTOR JUMA, vjuma@ke.nationmedia.com http://www.businessdailyafrica.com/Corporate-News
Pan Africa Insurance Holdings chief executive Mugo Kibati. PHOTO | FILE
By VICTOR JUMA, vjuma@ke.nationmedia.com
Posted Monday, March 28 2016 at 23:00
Posted Monday, March 28 2016 at 23:00
IN SUMMARY
- Pan Africa first bought into the general insurer in March last year, acquiring a 51 per cent stake for Sh561 million.
- The company later raised its interest in Gateway to 56 per cent at a cost of about Sh55 million.
- The move by Pan Africa to raise its stake in Gateway signals its confidence in the company’s future prospects though the subsidiary’s earnings have deteriorated following its acquisition.
Pan Africa Insurance Holdings has acquired an additional five per cent stake in Gateway Insurance, raising its equity in the subsidiary to 56 per cent.
The company had announced that it would buy additional shares in Gateway to make the subsidiary’s founders comply with insurance regulations that cap ownership by individuals at 25 per cent.Pan Africa chief executive Mugo Kibati told the Business Daily that the company subsequently raised its interest in Gateway to 56 per cent at a cost of about Sh55 million.
Pan Africa did not say to what level it was prepared to raise its stake in Gateway but noted that the extra shares would be bought from the family of the company’s founder, the late Godfrey Karuri.
The additional shares were to be bought at the same price of Sh17.56 per share that Pan Africa paid to buy the initial 51 per cent stake.
The move by Pan Africa to raise its stake in Gateway signals its confidence in the company’s future prospects though the subsidiary’s earnings have deteriorated following its acquisition.
Acquisition of Gateway marked a change in strategy at Pan Africa which in 2011 exited the general insurance business to focus on life policies by selling its 39.9 stake in APA Insurance for Sh855 million.
The company later said it needed to re-enter the general insurance business if it was to get a share of economic growth driven by sectors such as construction.
This prompted the Gateway acquisition whose completion coincided with increased competition in Pan Africa’s mainstay life insurance business where it previously was among the largest players.
Gateway’s performance has, however, disappointed, with Pan Africa taking a Sh564 million hit from the subsidiary last year and contributing to a 97 per cent fall in the parent firm’s profit in the year ended December.
Pan Africa reported that the excess value it anticipated from the takeover of Gateway has surpassed the net worth of the subsidiary by the Sh564 million.
This means Pan Africa paid a hefty premium in the acquisition whose payback is likely to take longer than initially expected.
The accounting loss contributed to the 97 per cent drop in the listed firm’s net profit to Sh27.3 million in the review period, down from Sh871.1 million the year before.
