A consortium led by Vitol and Helios Investment partners is negotiating with Royal Dutch Shell to clinch the largest private equity deal in sub-Saharan Africa.

This deal, which insiders say is worth close to $2.4 billion, will see one of Africa’s largest and fastest emerging private equity firms, and the world’s largest independent energy trader based out of Rotterdam, create one of the continent’s largest distributors of petroleum fuel and lubricants.

“This will be the largest deal outside of South Africa,” said a person close to the negotiation. “The deal has not yet closed, but is very near that stage.”

Africa’s corporate finance world has been watching this transaction closely, realising it could be a transformative deal because of its sheer size and complexity and also because of its geographic footprint.

If it closes successfully, analysts say, it will mark the beginning of a new era in which emerging financiers and entrepreneurs in sub-Saharan Africa find themselves winning the confidence of the establishment in global financial markets.

Vitol and Helio had confirmed on July 21 that they were in exclusive negotiations with Shell Oil Products Africa for the potential acquisition of equity in their downstream businesses in 19 countries in Africa, subject to final negotiations and any necessary regulatory and final company approvals.

Jimmy Mugerwa, Shell’s country manager for Kenya and sales and operations manager for East Africa, wrote to Peter Nyoike, Permanent Secretary at the Ministry of Energy on August 3 informing him of the negotiations.

Under the terms of the proposed deal, the consortium will retain the Shell brand and products in each country.

Vitol and Helios will become majority shareholders, with Shell as a minority sharehlder. This deal affects the retail fuel stations, also known in industry jargon as the downstream business, in 19 countries.

These countries are: Kenya, Uganda, Tanzania, Morocco, Tunisia, Egypt (excluding lubricants), Cote d’Ivoire, Burkina Faso, Ghana, Togo, Senegal, Mali, Guinea, Cape Verde, Botswana (excluding LPG), Namibia, Madagascar, Mauritius and La Reunion.

Shell said its fuel, lubricants, and refining activities in South Africa, its lubricant business in Egypt, its liquefied petroleum gas businesses in South Africa and Botswana, and its exploration and production businesses, as well as its natural gas and international trading interests elsewhere “in Africa are not in the scope of this deal.”

While the deal has drawn some attention around the world, in Africa, it has been the catalyst of labour unrest. In Kenya, workers have sued for the right to be paid more generously than what the company is offering and want the transfer of shares blocked.

In Ghana, there have been threats of a strike over the same issue, and in Senegal, workers have taken to the streets protesting that they are not for sale.

The scope of the business on sale includes 1,300 retail sites, retail sales of around 3,500,000 cubic metres, and 1,200,000 cubic metres of terminal storage. There are around 2,500 employees currently employed in the various businesses in the 19 countries.

Helios is known in the region for the 25 per cent investment in Equity Bank that helped transform this once tiny microfinance lender into the third largest bank in the region.

It was founded by Babatunde Soyoye and Tamipote Lawani, two Nigerians working out of London. It counts George Soros, one of the world’s richest Hedge Fund managers, Madelaine Albright, a former American secretary of state, and Jacob Rothschild, a descendant of Europe’s leading banking family, among its investors.

The Vitol Group was founded in 1966 in Rotterdam, the Netherlands. Since then the company has grown to become a major participant in world energy markets and is now the world’s largest independent energy trader. Globally, Vitol trades over 5.5 million barrels of crude oil and products per day.
It has been doing business in Africa for more than 40 years.

Shell Employees in Kenya list takeover demands

Dealing with its 2,500 employees in the 19 African countries it operates in, remains a major headache for Shell Oil Products Africa as it finalises negotiations to divest from the continent.

From the moment rumours of the impending divestiture leaked, the firm’s employees have kept the management on its toes with sustained demands for a handsome compensation package.

In Kenya, a flurry of communication with headquarters and a case at the Industrial Court are among the avenues that employees of Kenya Shell Ltd are using to ensure their interests are addressed in the impending ownership transition.

According to a communication seen by The EastAfrican, the workers are demanding the choice of staying on with the new owners or quitting, each option with a comprehensive package whose details, they insist, should be communicated to them before the deal is signed and Kenyan regulatory authorities give it a nod.

However, the management is keen on having the staff stay on. “The intention is that all staff will remain in their roles even after the share sale,” Shell’s country manager for Kenya and sales and operations manager for East Africa, Jimmy Mugerwa, wrote to the employees.

“However, if there are any individuals who do not have roles under the new shareholders, they will be paid normal severance as per existing policies,” Mr Mugerwa added in a letter he wrote on behalf of Xavier Le Mintier, the executive vice president of Shell Oil Products Africa, in response to the employees’ concerns.

Then there is the thorny issue of compensation that the employees and management have been unable to agree on, leading to the court case.

Those employees who are leaving altogether, are demanding a package that includes: Six months’ gross salary for each year of service; five months’ gross salary in lieu of notice and three months’ gross salary resettlement allowance; transport and relocation allowance as well as performance bonus for 2010 and other arrears from previous years.

Those transitioning to the new owners want a guarantee of employment for at least three years besides three months’ gross salary for each year of service; while those on contract want 12 months’ gross salary and consideration for employment by the new owners.

In addition to this, the employees want all loans owed to the company or those issued by third parties to Shell staff to be written off for those leaving or terms and conditions maintained for those staying on; as well as two-year medical cover for the exiting staff and their dependents, and pay-off for any leave balance at the time of separation at prevailing gross salary.

They also want all taxes on the compensation package given to them to be borne by Shell; and expatriates to be compensated for the period of their expatriation they will forfeit as a result of the divestiture.

In presenting their case for the compensation package, they argue that it is through their contribution that the firm has built its current asset base, besides creating and sustaining the value and goodwill being sold by Shell in Kenya.

“Staff should therefore be compensated adequately and fairly commensurate with their contribution in creating this value, and for the loss to their career development as a result of the divestiture,” a letter addressed to the management states.

Besides being compensated, the Shell employees want immunity from victimisation on account of their views and counselling services.

In response to the concerns, Mr Mugerwa assured the workers that the new owners would have a session with them to explain the future plans for the business.