How family feud is killing Tuskys founder’s dream

Mr Kago gave his blood and sweat for the Shah brothers, and when he decided to retire in 1985 his employer gave him a gift that many would consider strange. To award Mr Kago’s dedication, they opened for him a store in Rongai, Nakuru, which he named Magic Super Store. While most employers would loathe a former worker setting up a competing entity, the Shah brothers ensured that Mr Kago’s Magic Super Store was stocked and well-managed.

In fact, the Shah brothers would give him goods on credit – just to make sure the old man thrived.

Because of his past experience, Mr Kago moved to Pandit Nehru Street in Nakuru, and with the help of Nakuru Mattresses, he opened another store to compete with his former employer. Mr Kago knew the inside working of a supermarket and that is how he expanded to Nairobi’s Mfangano Street, where he opened Tusker Mattresses.

A legacy

It was a dream come true: a retirement plan fulfilled and a legacy rolled out.

Tusker Mattresses mirrored Nakuru Mattresses in many ways and the two grew side by side in Nairobi. While Nakumatt, as Nakuru Mattresses was later named, adopted the elephant as its logo, Mr Kago’s outfit picked the Big Five, with the tusk as part of the logo. His vision was to run it as a family business.

And soon, a cut-throat battle started between the two and when Nakumatt had 32 branches, Tuskys had 30. When Nakumatt grew to 64, Tuskys grew to 60.

Both retailers hid loss-making ventures by chest-thumping, failed to pay billions in suppliers’ debts, got away with tax evasion and money laundering links at the collapsed Charterhouse Bank, and went into aggressive expansion drives using money they didn’t have.

As Nakumatt reported a Sh70 billion turnover, Tuskys boasted Sh40 billion. They were the top two giants and both took advantage of Uchumi’s perennial troubles to climb to the top.

Nakumatt ventured into three other East African countries (Uganda, Tanzania and Rwanda), while Tuskys went into Uganda with plans to expand to the other two.

Behind Nakumatt

Even after Mr Kago died in 2002, Tuskys remained just a few steps behind Nakumatt. It was the second-largest retail chain.

Even with death, Nakumatt was first, and Tuskys is now closely following behind. If Mr Kago’s scions fail to pick one out of the 10 foreign investors that have shown interest in buying the supermarket, then Tuskys will be as good as dead.

Mr Kago’s death would expose to the world that the patriarch was the glue that held the family together, as five of his children would go into a bitter war for control of the company.

This rivalry has been one of the main reasons why Tuskys’ owners are unable to sit down and come up with strategies that may rescue their father’s dream from the jaws of death.

On one side sits Yusuf Mugweru and on the other are Stephen Mukuha, Samuel Gatei, John Kago and George Gachwe.

They don’t like each other. Samuel, John, George and Stephen believe their brother is stubborn and is trying to take control of the firm’s management.

Yusuf insists his brothers have deliberately locked him out of company affairs to hide dirty deeds, including embezzlement.

A reason the company survived this long is because the Office of the Attorney-General is yet to issue guidelines on how shareholders can wind up a company under the Insolvency Act of 2015.

When National Assembly passed the Insolvency Act into law, the Attorney-General’s office was supposed to issue guidelines on how to commence winding up proceedings, which can usually be done through two ways: by shareholders or by creditors.

Then Attorney General Githu Muigai only published guidelines on winding up by creditors.

Current AG Paul Kihara Kariuki has been in office for two years, and is yet to publish guidelines on how shareholders can start winding up proceedings.

Since 2015, Yusuf has been waiting for the guidelines to be published, so that he can file a motion to wind up Tuskys.

The Nation's investigations desk has seen correspondence between the rival sides in 2015 after Yusuf made his intention clear.

Stephen, George and John offered to buy him out of the firm and valued his shares at Sh100 million. Yusuf declined the offer and countered, pledging to buy out his brothers at the same rate. They also declined.

Mexican standoff

It was a situation in which no strategy would allow either side to win. It was akin to a Mexican standoff.

On Friday, Yusuf vowed to block any takeover attempts because he has been excluded from talks with potential buyers, and is yet to see the company’s books of accounts for years.

The other siblings last week wrote to the Competition Authority of Kenya (CAK), revealing that they are in talks to restructure supplier debts totalling Sh6.2 billion as they conclude talks with interested buyers.

Sources close to the transaction said 10 foreign-owned private equity funds have expressed interest to buy out Tuskys, but all have one condition: that all siblings must exit the company.

The potential buyers are not relishing partnering with Joram’s family as they could become the centre of nasty sibling wars that risk burning their investment.

“The problem with Tusker Mattresses Limited is the manner in which it is run by a couple of directors to the exclusion of others. At this point in time Yusuf is unaware of any investor that has come forward.

“And in typical fashion, they’ll confront him at the last moment and expect him to agree. Which of course he will not,” Yusuf said of the plans to bring on board investors.

The fourth born insists that until he is shown Tuskys’ books of accounts and told in detail about the Sh1.6 billion allegedly stolen in 2012, he will not consent to the deal.

The sibling rivalry played out again in 2017 when Stephen, John and George resolved to rescue Nakumatt by injecting Sh3 billion into the now collapsed retailer. Yusuf was left out of the talks and he opposed the move, which the Competition Authority was eventually unable to allow, owing to the boardroom wars.

If Tuskys is unable to get out of the ICU, the retail chain risks laying off its over 6,000 employees at a time the Covid-19 pandemic is ravaging the economy.

But even if the siblings manage to seal a deal, they will have to kiss goodbye to the family’s time at the retail chain. As they will have to sell all their shares, their father’s legacy will come to an end.

Currently, Yusuf 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, Mary Njeri, who is dead, (10 per cent) through Kendan Investments Limited and Mary Njoki (10 per cent) through Njowawa Investments Limited.

A complaint

In February 2012, Yusuf filed a complaint with the Directorate of Criminal Investigations, claiming Stephen and George had stolen Sh1.6 billion from the retailer and wired it to companies they own in Kenya and Uganda.

Investigators got court orders to investigate Tuskys’ bank accounts to trace the missing money, and Yusuf’s rival siblings unsuccessfully sued to stop the probe.

Three years later, Stephen and George were charged with theft of the Sh1.6 billion. In 2017, the matter was settled out of court when the supermarket chain decided to treat the funds allegedly stolen as a shareholder loan to Stephen and George.

Controversy is not new to Tuskys. In fact, the retail chain has danced around it since 2006 when shadow Finance minister Billow Kerrow revealed in Parliament that Tuskys was among several companies evading taxes and laundering money through Charterhouse Bank.

Investigations revealed that Tuskys and Nakumatt had secret bank accounts at Charterhouse where they both stashed billions of shillings made from sales.

The secret account Tuskys ran at Charterhouse Bank was opened with a Sh17.3 million balance. The retailer went on to stash Sh4.3 billion in the account.

Sh911 million

The money was largely shipped off elsewhere before Central Bank detectives raided the lender and shut it down in 2006.

The account was only disclosed in 2003, but by this time undeclared sales at the till totalling Sh911 million had vanished.

Investigations also revealed that Tuskys directors ran 75 personal accounts at Charterhouse.

By the time the bank was being shut down, Tuskys had a Sh66 million balance. It is unlikely that they will ever get the money now that Charterhouse Bank is dead.

A government task force that investigated economic crimes at Charterhouse recommended that directors of Tuskys be charged with tax evasion.

Interestingly, no action has ever been taken on Tuskys or anyone that was mentioned in the Charterhouse Bank scandal, despite it being one of the biggest tax evasion and money laundering schemes in Kenya’s history.

And now, a family feud is threatening to bring down its founder’s legacy.