CMC chairman ousted in fresh war for control of motor dealer
Peter Muthoka, the ousted CMC board chair. According to CMC Group Chief Executive Officer, Mr Bill Lay, the suspicions of fraud emerged from an audit done on operations of the company. Photo/FILE
The battle for control of Kenya’s third largest automobiles dealer, CMC Motors, took a new turn last week with the ouster of Mr Peter Muthoka from the chairmanship of the company’s board.
Mr Muthoka, who replaced CMC’s long serving chairman Jeremiah Kiereini in April lost his position in a boardroom coup engineered by an alliance of new principal shareholders and communicated to him at a board meeting held last week.
CMC on Thursday sent a notice to the Nairobi Stock Exchange (NSE) announcing the appointment of Mr Joel Kibe as the new chairman of the board, sparking sharp reaction from Mr Muthoka’s supporters.
CMC boardroom insiders said the latest round of wars has been sparked off by differences over strategy and rising concern over the slow pace of growth in sales.
CMC Motors has in the past two years struggled to match its 2008 peak performance when its net profit stood at Sh927.1 million. (READ: New motor vehicle sales defy shilling’s fall to rise by 10 pc ) That more than halved to Sh406.6 million last year, even as the economy expanded by 5.6 per cent causing impatient shareholders to remove top managers in March, including the long-serving chief executive Martin Forster.
CMC posted a net profit of Sh406 million in 2010 compared to Sh927 million in 2008, more than halving the dividend payout to Sh0.20 a share from the Sh0.45 it paid out in 2008. Mr Muthoka and his supporters in the board insist that improper procedures were used to appoint Mr Kibe, signalling a possible long-drawn battle for control of the firm.
“His removal is unlawful as it is in breach of CMC’s Articles of Association and the Companies Act,” said an ally of Mr Muthoka’s, who sits on the company’s board.
The battle for control of CMC is being seen as showcase of the quiet but bruising struggle between Kenya’s nouveau riche who have made money under President Kibaki and the old guards represented by the likes of Mr Kiereini and Mr Joshua Kulei.
Mr Muthoka was himself appointed CMC chairman in what was seen as the new and assertive shareholders’ revolt against Mr Kiereini on March 25.
Mr Muthoka’s supporters claim that he was ambushed with the demand to quit at a meeting held last week instead of being given the 28-day notice of the meeting’s agenda as required by the firm’s internal procedures.
During the meeting, seven out of the nine-member board reportedly voted in favour of Mr Muthoka’s ouster and his replacement by Mr Kibe.
All board members were present, save for Mr Ashok Shah (the managing director of APA Insurance) who sent a proxy to the controversial meeting.
Mr Muthoka’s ouster is said to have arisen from his disagreement with fellow board members on key strategic proposals he felt risked exposing the company to more losses.
Top among the points of disagreement are plans to move CMC’s head office, showroom, and service centre from the Lusaka Road location and outsourcing of the auto dealer’s sales and marketing functions targeting the government – CMC’s single biggest client.
It is expected that the outsourcing plan that is being spearheaded by the company’s chief executive, Mr Bill Lay, seeks to leave CMC with a leaner and efficient workforce and lower the cost of operations.
Mr Lay is only three months old in the position having been head-hunted from rival General Motors East Africa in June.
“Mr Muthoka insisted that these moves have little value in terms of cost-savings,” said our source. Mr Muthoka is said to have particularly opposed the proposed relocation of CMC from Lusaka Road, arguing that it is likely to drive up the cost of vehicles in an increasingly competitive and price sensitive market.
He also insisted that the company needed shareholder approval for such weighty decisions, a proposal that other board members did not find attractive.
Capital Markets Authority (CMA) guidelines on corporate governance demand that shareholders should participate in major decisions, including but not limited to “major disposal of a company’s assets, restructuring, takeovers, mergers, acquisitions or re-organisation.”
Mr Muthoka declined to comment on the matter on phone, but promised to make his position clear ‘in the near future.’ CMC’s next annual general meeting will be held in the first quarter of next year.
Mr Kibe’s backers see his appointment as a score for good corporate governance, foisting his independence as opposed to Mr Muthoka who has business interests in Andy Forwarders – the largest logistics company in Kenya that does business with CMC. Mr Muthoka is one of the top shareholders and the chair of Andy Forwarders.
The company handles CMC’s supply chain and is also one of the biggest buyers of the motor dealer’s heavy commercial trucks for its logistics business, including Iveco and Nissan Diesel (UD) brands.
Mr Muthoka’s opponents have used these business links to argue that he does not qualify to serve as an independent chairman -- at least according to CMA guidelines.
CMA regulations demand that the board of a public company be chaired by a non-executive and independent director who is defined, among other criteria, as not having had any business relationship with the company other than service as a director.
Mr Kibe insists that he fits the bill of independence unlike his rivals on the board who have business interests in the matter.
“I have no business relations with CMC and my only objective is to drive the company’s growth,” said Mr Kibe, who is rooting for Mr Lay to be given a free hand to implement his ideas. In headhunting Mr Lay, CMC is said to have been attracted by his management style at General Motors that most CMC directors agree is a study in operational efficiency.
Mr Lay has the job of leading CMC’s restructuring, but disagreement remains on the method of execution.
For Mr Muthoka and his partners and Andy Forwarders, loss of the top position at CMC risks shaking the strategic influence in a company whose growth is critical to its own survival.
Andy Forwarders has recently accumulated CMC shares to emerge as the single largest shareholder in the auto dealer.
The logistics firm holds an estimated 132 million shares or a 22.6 per cent stake in CMC under its own name and CFC Stanbic Nominees.
“I buy trucks worth hundreds of millions from CMC and it makes sense to get a dividend from that kind of business,” Mr Muthoka told the Business Daily in an earlier interview. Andy also handles the supply chain and local distribution networks for big Kenyan corporations like East African Breweries Limited, Safaricom, Coca-Cola, and General Motors.
The firm has direct operations in a number of countries in the region and has a global presence through its partnership with Hellman Global Logistics.
Mt Muthoka’s other business interests include a stake in Transglobal Cargo Centre – one of the largest fresh produce warehouses at the Jomo Kenyatta International Airport in Nairobi.
Though Mr Muthoka represents investors with the single largest stake in CMC, his opponents at CMC’s boardroom are said to have used their combined shareholding to topple him from chairing the board.
Mr Kibe holds 53.7 million shares under his name and through Rift Valley Finance Services – an investment vehicle he bought five years ago from Mr Kulei, a powerful operative in former President Moi’s regime.
Mr Kibe also has the backing of his business partner, Mr Paul Wanderi Ndung’u – the third single largest shareholder with 55.8 million shares.
The reclusive duo are also directors of Telkom Kenya’s biggest dealer Mobicom Investments that owns 11.5 million shares in the auto dealer, bringing their combined stake to 20.7 per cent or 121 million shares and among the top shareholders.
Mr Kibe and Mr Ndungu have interests in a number of listed firms such as Kenya Airways and Olympia Capital besides owning a major dealership for top electronic and auto brands such as Yamaha.
Like Muthoka, they have powerful connections in political circles and in government. The fallout is, however, bad news for CMC as it signals that the company is yet to settle down to business after nearly a year of internal fighting that culminated in the ouster of Mr Forster and Mr Kiereini.
The company has retained its position as the third largest motor dealer in Kenya with a market share of 19.9 per cent despite the decline in sales since 2009. Toyota Kenya tops the auto dealership market with a 25.2 per cent of the market followed by GMEA with 21.2 per cent stake.
Investor confidence in CMC has been rising in recent months following the recent boardroom and executive changes – including the hiring of Mr Lay but some top shareholders how fear that renewed fights may have a reverse effect on that.
The auto dealer’s shares traded at an average of Sh12.5 on Friday, gaining 32 per cent in the past six months despite the stagnation of its first half net earnings at Sh187.6 million in March.
