KENYA – The competition regulator has told Tuskys Supermarket to resolve shareholder wrangles that could derail the retailer’s intended merger with rival Nakumatt.
The competition watchdog’s Director-General, Wang’ombe Kariuki, in a letter to Tuskys’ shareholders says the Competition Authority of Kenya (CAK) cannot consider the merger application before allegations of ownership wrangles and financial stability that were raised in an objection to the deal have been resolved.
The merger application is at risk of stalling following an objection raised by one of Tuskys’ shareholders, Yusuf Mugweru, who insists that the retailer does not have the capacity to get Nakumatt out of its current financial turmoil.
Tuskys had in its merger application indicated that it intends to loan Nakumatt Sh650 million to offset operational costs such as rent and salaries.
The retailer had also offered to issue payment guarantees of up to Sh3 billion to suppliers.
The shareholder wrangles threaten to deal a death blow to Nakumatt, which has said it is banking on the proposed transaction to kick start a turnaround and convince creditors to ease their pursuit of its liquidation.
“The objector has raised various issues relating to the ownership of the acquirer, its financial status and the overall viability of the intended transaction, which are the issues the Authority normally looks into as part of the public interest considerations of the transaction.”
“Equally the objector has brought to the attention of the authority pending suits among shareholders of the acquirer, concerning fraud which are yet to be determined by the courts.
Given the gravity of the allegations we advise that it is prudent for Tuskys’ shareholders to resolve their disputes to enable us be properly seized of the proposed transactions,” Mr Wang’ombe says in the letter.
The letter is addressed to Tuskys’ lawyers Mboya Wangongu & Waiyaki Advocates and copied to Iseme Kamau & Maema Advocates (Nakumatt) and Murgor & Murgor Advocates (Mr Mugweru).
Mr Mugweru had claimed that Tuskys locked him out of the Nakumatt transaction, which under Kenyan law requires unanimous consent from all shareholders.
Mr Mugweru added that the retailer has not made profits for years revealing he last received dividends in 2012. Nakumatt is currently seeking the appointment of an administrator to run its affairs until it gets back on its feet.
The move has split creditors as some have offered support to Nakumatt while others have insisted that the retailer should be put out of its misery through liquidation.
Tuskys had initially indicated that it would purchase a 51 per cent stake in Nakumatt, but has since opted for a merger.
Under the proposed merger, Tuskys was to also take over managerial control of Nakumatt’s operations.
Nakumatt was to retain its current ownership structure under the deal.
The struggling retailer is wholly owned by its long-serving managing director Atul Shah, who doubles up as its CEO.