French demand for $385m compensation over Telkom Kenya’s ‘vanished’ assets

Third, France Telecom is accusing the government of non-disclosure of material information with respect to tax liabilities, uncollectable debts, suspense accounts and unreconciled bank accounts.

Technically, the claims by the French are based on what is referred to in legal parlance as warranties — a situation where a party is allowed to claim monies from the seller of an asset if it turns out later that all facts were not fully disclosed before the transaction was concluded.

Apparently, the share purchase agreement signed between the government and the French company issued a number of warranties.

How the tussle turns out remains to be seen. But sources who understand the transaction told The EastAfrican that in cases where the government gave clear warranties such as the pension fund liabilities and tax arrears to the Kenya Revenue Authority, it is likely to agree to paying up.

“That agreement does not have warranties against the accuracy of financial accounts,” said the source, pointing out that France Telecom cannot turn around at this stage and take issue over matters it should have questioned at the time it was doing due diligence on Telkom Kenya.

Indeed, opinion among experts who were involved in the transaction is unanimous that the claim by the French is excessive.

“How can they claim $380 million when they paid us $390 million? Did we give Telkom Kenya to these French people for free?” asked a local investment banker who had been hired by one of the bidders as an investment adviser to the transaction.

Transparency

Clearly, France Telecom will be hard put to justify the massive claim. Indeed, the tender process for Telkom Kenya’s privatisation was fairly transparent.

Indeed, it is clear that the French only managed to bag the deal by bidding aggressively, making an offer way higher than the offers of the other two contenders — namely, Reliance Communications of India ($221.1 million) and Telkom South Africa ($282.8 million).

Thus, the gap between France Telecom’s offer ($390 million) and the nearest contender was a huge $100 million.