Economy

CAK seeks Tobiko’s help to prosecute Tuskys, Ukwala

tuskys

Tuskys branch, formerly Ukwala supermarket, along Tom Mboya Street. Photo/Diana Ngila

Directors of Tuskys and Ukwala risk jail terms and multi-million shilling fines for defying an order to reverse an unsanctioned outlet acquisition deal.

The supermarket chains missed a Monday night deadline set by the Competition Authority of Kenya to terminate the acquisition of three Ukwala outlets by Tuskys.

The authority now says it will forward the matter to the Director of Public Prosecutions as a violation of laws against restrictive trade practices.

If charged and found guilty under Section 21 of the Competition Act, the owners of the two businesses could face up to five years in prison, a fine not exceeding Sh10 million or both.

CAK could also impose a penalty of up to ten per cent of their turnover.

Tuskys, which acquired part of its rival’s business for Sh200 million in April last year, had until the end of last month to reverse this deal after the competition watchdog determined it was restrictive to business.

On Tuesday, a spot-check by the Business Daily revealed the former Ukwala stores, situated on Jogoo Road, Ronald Ngala and Tom Mboya streets were still operating as Tuskys outlets.

Not only had Tuskys failed to strip its signage from its former rival’s branches, it had also not changed the receipting system or plastic bag packaging back to Ukwala.

READ: Tuskys breaches Ukwala bid deadline

Tuskys managers would not shed light on what was going on. None of the directors of the two chains could be reached for comment.

Wang’ombe Kariuki, the CAK director general, now says his officials will visit the concerned stores to collect evidence of the ongoing “infringement” and forward it to the DPP for prosecution proceedings to begin.

“By continuing to operate under the Tuskys brand, the infraction we had fined them (Sh5.3 million) for (in June) is still ongoing,” said Mr Kariuki.

“As an authority, we cannot enforce criminal charges on the management. However, we will in a few days conduct investigations and then forward all the evidence we collect to the DPP’s office.”

Tuskys is a family-owned business currently run by five brothers, led by Stephen Kamau, the managing director. The brothers took over the company from their father Joram Kamau, who died in 2002, and have grown it into a household name with over 50 branches and a turnover of more than Sh25 billion.

The ownership structure and financials of Ukwala, on the other hand, are not public knowledge. It is run by managing director Anil Dhingra who has previously told the Business Daily he has no knowledge of the transaction with Tuskys.

According to the director general, CAK will be relying on Section 21 of the Competition Act, which empowers it to institute charges on individuals who continue with unlawful business practices despite notices.

“A person who contravenes the provisions of this section commits an offence and shall be liable on conviction to imprisonment for a term not exceeding five years or to a fine not exceeding ten million shillings, or both,” the law states in part.

This is not the first time that CAK will be seeking the help of the DPP’s office to prosecute directors of a Kenyan firm.

In January this year, the regulator found that French research firm Ipsos acquired Synovate, the largest research firm in the country, without seeking approval.

READ: Synovate directors risk jail, hefty fines

When the case was forwarded to the DPPs office, the prosecutor advised the Directorate of Criminal Investigations to investigate the matter.

The irregular deal between Tuskys and Ukwala was the start of a due diligence effort expected to end with the total acquisition of Ukwala.

However, the two businesses failed to notify the competition watchdog about the acquisition plan and in December last year investigations into the deal began in earnest.

Last month, CAK released its verdict saying the two businesses were engaging in a “horizontal restrictive trade practice”. This occurs when companies in the same line of business are in a partnership that could ultimately curtail competition.

CAK fined both Tuskys and Ukwala 0.1 per cent of Sh5.3 billion – the turnover of the three stores over the period of breach – sparing them a fine of up to Sh53 million had they contested the charge in a court of law.

READ: Why regulator stopped Tuskys bid to acquire rival Ukwala

Tuskys was then given one month to revert the three affected stores back to their original state – a directive the two supermarket chains have since ignored.

“Tuskys had already made some investments in the three outlets and we thought it wise to give them time to get their house in order,” said Lizz Ntonjira, the CAK head of Communications and External Affairs said last month.

Had the two businesses complied with CAK’s order, Tuskys would then have been given the chance to make a fresh application to acquire Ukwala.

“To the best of my knowledge, Tuskys has not made a fresh bid,” said Mr Kariuki.