Retail chain Tuskys has pulled the plug on a rescue partnership it has been seeking with Nakumatt in what could push the troubled supermarket into deeper crisis, Business Daily reports.
Tuskys, through its lawyers, wrote to the Competition Authority of Kenya (CAK) nine days ago saying it was re-considering its interest in the partnership deal with Nakumatt.
Tuskys said the decision was informed by rising concern over some of the proposals Nakumatt’s court-appointed administrator had presented to the creditors at a meeting in March.
“Our client has raised concerns over certain proposals by the Administrator of Nakumatt Holdings Limited on the restructuring of the company.
“As a result we are instructed to advise you that our client is re-considering its proposed investment in NHL [Nakumatt Holdings Limited] which was to be preceded by a Management Services and Loan Agreement now under consideration for exemption by the Authority,” Tuskys said in the March 28 letter sent to the CAK by Godwin Wangond’u of Mboya, Wangond’u and Waiyaki Advocates.
Under the proposed deal with Nakumatt, Tuskys was to provide Sh650 million to support Nakumatt’s operations and an additional sum of between Sh1.5 billion and Sh3 billion for restocking the stores.
Tuskys would charge a management fee of one per cent of sales in addition to offering suppliers guarantees.
The CAK had rejected a December 2017 application seeking exemption to merge the two supermarkets on grounds that it had not been filed properly.
People familiar with the proposal say Tuskys had sought a majority stake in Nakumatt Holdings in exchange for the support.
Nakumatt’s court-appointed administrator, Obondo Kahi, sought to play down Tuskys’ intended pullout.
“My view is that Tuskys do not want to pursue the investment route but will be willing to come in as an operating manager,” said Mr Kahi.
He dismissed claims that differences had emerged over a restructuring plan he had presented to creditors, insisting no vote had been taken on the proposals, rendering premature any decision based on it.
“No vote was taken on the proposals so I cannot tell whether the creditors approved it or not,” said Mr Kahi.
The administrator had, among other things, proposed that creditors convert part of the debt Nakumatt owes them to equity.
The March 15 meeting between Nakumatt creditors and Mr Kahi broke up acrimoniously after the creditors rejected the raft of recovery proposals presented to them.
Mr Kahi in his report had revealed that Nakumatt lost Sh18 billion worth of stock in the year to December 2017, showing the extent of fraudulent activity that brought the company to near collapse.
Tuskys chief executive Dan Githua declined to comment on the letter to the CAK.
Mr Kahi had sought the competition watchdog’s approval to bring on board Tuskys as part of a plan to revive Nakumatt.
He had earlier announced the appointment of Tusker Mattresses Limited as the new managers for the troubled retailer.
The merger application had initially faced strong headwinds after Yusuf Mugweru, the fourth born of seven siblings who own Tuskys, opposed it, claiming that his siblings sidelined him in the ongoing negotiations with Nakumatt.
“We reiterate that that our clients, as a shareholder of Orakamand, a director in Tusker Mattresses Limited Kenya have not had the benefit of the all the information surrounding the proposed merger which by law they are entitled to,” Mr Mugweru had argued through lawyer Philip Murgor.
“In any event assuming that the transaction was viable, which it is not, the proposed merger will most likely result in existence of cross-directorship between Nakumatt Holdings and Tusker Mattresses both conducting the same business, considering the significant number of premises held by both Nakumatt Supermarket and Tuskys Supermarket, and the total market share held between the two entities, will amount to unwarranted concentration of economic power,” argued the lawyer.
Under the plan, Tuskys would oversee attempts to revive the sagging fortunes of its rival Nakumatt which has suffered branch closures and perennial stockouts under a mountain of debt as suppliers shun it.