PwC Should Shift Above A White Knight Investor to Turn Around ARM’s fortune
Since ARM Cement was placed in administration in August this year and Price Waterhouse Coopers (PwC) Muniu Thoithi and George Weru named as the Joint Administrators, pundits have been weighing in on the best way forward for the cement making company.
This is after it emerged that the World Bank’s financing arm – International Finance Corporation (IFC) indicated that it might be interested in buying into the struggling cement maker. Speaking at a press briefing in Nairobi on 28 September, IFC Kenya Country Manager Manuel Moses said that they are ready to talk to the business if and when a proposal comes their way.
However, the burning issue among stakeholders is whether the appointed administrators will opt for a quick buyout commonly referred to as a ‘white knight’ investment or whether they’ll explore more options to keep the company afloat.
For a company like ARM that was founded in Kenya in 1974 and grew from strength to strength over the years, more can be done to save the company than simply selling it to the highest bidder.
One of the main reasons cited by the company’s CEO Pradeep Paunrana that led to the company’s woes was their move to pitch a tent in Tanzania. The Tanzania business was not as profitable as originally envisaged owing to price wars occasioned by the entry of Nigerian cement manufacturer Dangote Cement, scarcity of coal needed to fire generators and currency exchange losses.
The PWC administration managers, therefore, have an option of selling the assets and business of the Tanzania branch. This should include all other company assets that can be sold to reduce maintenance costs and increase profitability.
The administration managers also have the option of restructuring the company in order to cut costs of running the business. This can be done by consolidating different departments and functions as well as downsizing their staff and operations.
Refinancing is another option available to the PwC administration managers. The company can talk to existing and new shareholders to pump in more capital into the business. Unlike white knights who might end up closing or renaming the business, shareholders are interested in the existing company’s survival and recovery.
Lastly, white knight deals are not always the magic bullet that solves every business financial crisis. A good example is Kenya Railways which was taken over by the Rift Valley Railways. In the long run, the deal turned sour for Rift Valley Railways who were not able to meet the conditions under the concession agreement signed in 2006. The deal was eventually called off in 2017.
As the PwC administration managers look for the best fit solution for ARM, they need to ensure they cast their nets wide since their service is not only to the creditors. Their service goes beyond the creditors to the company’s enduring legacy, its shareholders and stakeholders.