Creditors make a move on Tuskys

Sources close to the talks have revealed that all investors have given the retailer a non-negotiable condition that, for any deal to sail through, they must take over 100 per cent of ownership and management of the retailer’s stores in Kenya and Uganda.

Tuskys has already alerted the Competition Authority of Kenya (CAK) that it is engaging strategic investors, who will pump in the much-needed capital to rescue the company.

The August 7 letter to the CAK also states that the retailer has been holding weekly meetings with creditors.

“The shareholders are evaluating offers from investors for injection of capital through sale of a stake in the business. The shareholders have continued to provide the necessary support and recapitalisation efforts are in high gear and running on schedule. As earlier mentioned, the shareholders met last July and unanimously agreed not to be the stumbling block to business recovery efforts,” the letter reads in part.

But any potential deal is already in turmoil as one of Tuskys’ shareholders, Yusuf Mugweru, has vowed to block any takeover because he has been excluded from the talks with investors.

Mr Mugweru says his siblings have not reached out to him about any sale of shares.

The fourth-born in Kago’s family argues that he will have to do his own due diligence on any investor looking to buy out the family business, but cannot as he has not been furnished with any information on potential deals.

“At this point in time, Yusuf Mugweru is fully unaware of any investor that has come forward, and in typical fashion they will confront him at the last moment and expect him to agree. Which of course he will not. He needs to do his own due diligence and take legal opinion on any contracts that have been signed,” Mr Mugweru’s lawyer Philip Murgor said.

Tuskys CEO Dan Githua was yet to confirm the identities of the potential suitors by the time of going to press.

Mr Kago started with a small shop in Rongai,Nakuru, and grew it into Tuskys, the largest retail chain in East Africa following the death of Nakumatt in 2017.

The Tuskys founder was a Nakumatt employee until 1985, when he retired and set up a mattress selling store with the help of his former employer.

When he died in 2002, his children took over ownership and management of the retail chain.

For such takeovers to succeed, the company being acquired must file an application with the CAK. If anyone objects to the proposed deal, the CAK will hear all the parties involved and then make a determination.

This means that Mr Mugweru’s opposition could stall any proposed takeover.

Mr Mugweru says he would be open to a takeover if his siblings fully account for Sh1.6 billion he claims was embezzled by his brothers Stephen Mukuha and George Gachwe in 2012.

Mr Mukuha and Mr Gachwe were charged with theft in 2015 and the case is still proceeding.

The chief magistrate’s court in 2017 gave the siblings time to settle the matter out of court but no deal was reached.

They were charged following a complaint to the Directorate of Criminal Investigations by Mr Mugweru.

Kago’s children have been in never-ending boardroom wars.

They are now cornered, as the business their father built from a small store in Nakuru is badly in debt and could go under if it does not get at least Sh6.2 billion to pay suppliers.

The Sh6.2 billion debt is owed to more than 200 traders, who have for the past three months restricted supplies to Tuskys.

More than 6,000 employees are hoping that Tuskys gets a new lease of life, as they risk being jobless at a time the coronavirus pandemic has already hit the economy hard and made alternative employment hard to come by.

In its letter to the CAK, Tuskys said that it has received the backing of some suppliers, who have pledged to furnish the retailer with stock worth Sh1.2 billion.

A new portal for suppliers is already in place, which will stop Tuskys from directly handling suppliers’ cash.

Escrow account

Money paid at the till will be deposited in an escrow account, from where suppliers’ dues will be sent to them and the balance left to Tuskys.

“This innovative trading platform has already been developed and 102 suppliers had already signed up for it by close of August 6, for the pilot runs. We intend to sign in 300 suppliers by the end of August, representing 90 per cent of our trade,” Mr Githua said in the letter to CAK.

The retailer has already reached a deal with some suppliers to repay the Sh2.4 billion debt in instalments over the next two years.

Currently, Mr Mugweru owns 17.5 per cent of the company through Mugweru Investments.

Other shareholders are John Kago (10 per cent) through Green Pharm Investments, Stephen Mukuha (17.5 per cent) through Mitiki Investments, Sammy Gatei (17.5 per cent) through Future Group Ventures Investments Limited, George Gachwe (17.5 per cent) through Aliann Investments Limited, deceased Mary Njeri (10 per cent) through Kendan Investments Limited and Mary Njoki (10 per cent) through Njowawa Investments Limited.