Bill Lay exits CMC as warring owners call for ceasefire

Bill Lay, the chief executive of troubled motor firm CMC, has left the firm barely 19 months since he controversially took office, sparking a shareholder war that has forced out a number of directors and strained company’s dealings with key suppliers.

Mr Lay was reported to have tendered his resignation to board chairman Joel Kibe in unclear circumstances and immediately vacated office.

Mr Kibe however maintained that Mr Lay has gone on terminal leave pending the end of his contract in April.

“He has proceeded on leave and will retire from the company upon the expiry of his two-year contract in April,” said Mr Kibe.

People familiar with the matter however said Mr Lay departed as part of the effort to reconcile the company’s top shareholders whose differences have nearly paralysed the motor dealer’s operations.

The boardroom wars that peaked with the ouster of top shareholder Peter Muthoka from the motor firm’s board culminated in the suspension of CMC shares from trading at the Nairobi Securities Exchange (NSE) and prevented the firm from holding an annual general meeting as required by law.

The shareholders have also fought vicious battles in court through multiple of legal suits and in parliament where CMC was the subject of an investigation.

(Read: MPs question Lay’s tenure at CMC)

Mr Lay, who moved to CMC from General Motors East Africa, has been at the centre of the boardroom wars that forced the motor firm to replace nearly all its directors in a span of 18 months.

Mr Lay, an American citizen who has lived in Kenya for more than 30 years, kicked up a storm at CMC upon taking office in May 2011 after he accused Mr Muthoka’s company Andy Forwarders of overcharging the motor dealer for logistics services to the tune of Sh1.5 billion in five years.

His master stroke, however, lay in the claim that former directors of CMC, including former attorney-general Charles Njonjo and former head of civil service Jeremiah Kiereini had stolen the motor firm’s money and kept it in secret offshore accounts.

The sensational claims forced the capital markets regulator Capital Markets Authority (CMA) to launch its own investigations into the motor firm.

The investigations have since culminated in the barring of a number of ex-CMC directors from sitting in the boards of public companies.

(Read: End of an era as regulator ejects veteran directors)

CMC’s protracted boardroom wars have also put it in trouble with key business partners and suppliers such as banks and owners of the motor vehicle brands it sells such as the flagship Jaguar Land Rover.

Some of CMC’s financiers are said to have recalled their loans in response to the protracted boardroom wars.

Mr Lay was hired in June 2011 on a gross salary of Sh3 million per month among other perks and was expected to leave with millions of shillings in golden parachute terms tied to his contract.

Sources within the motor firm however said the American is not entitled to an exit compensation.

Former rivals Mr Kibe and Mr Muthoka have been meeting in recent weeks to resolve their differences and save the firm from total collapse and Mr Lay is being seen as the casualty of the newly-found rapprochement between the two.

Mr Lay’s exit comes after CMC hinted that it would soon hold its first annual general meeting in 14 months, raising the prospect of an ugly face-off with shareholders.

“The date and venue of the Annual General Meeting will be communicated at a later date,” Mr Kibe said when he released the firm’s trading results last month.

Mr Muthoka with a 24.7 per cent stake at CMC and Kiereini (12.5 per cent) had made clear their intention to oust Mr Lay from the helm of Kenya’s fifth largest auto dealer.

Mr Lay’s exit leaves CMC shareholders with the job of crafting new strategies to improve the company’s performance, regain financiers and suppliers’ confidence to save it from collapse.

Mr Lay’s exit marks the end of an era for one of Kenya’s most combative executives who had a successful 10-year stint at General Motors.

The American expatriate suffered a major credibility blow late last year after parliament released a report accusing him of working in Kenya illegally.

South African forensic auditors Webber Wentzel also put him on the spot over a sales agency contract he signed upon assuming office in June 2011.

The auditors found that Mr Lay irregularly revised a three per cent sales commission rate for Pewin Motors to six per cent on gross vehicle sales rather than net profit.

(Read: Audit turns spotlight on deal that cost CMC Sh11.6m)

CMC’s new shareholder alliance is said to have been precipitated by the company’s dwindling fortunes in the wake of rising dissatisfaction among franchise owners with the handling of their brands.

It is expected to mark the end of wrangles in the company’s boardroom and withdrawal of most of the lawsuits that have beset the auto dealer in the past 18 months.

South Africa-based JLR threw CMC Motors into a crisis on November 26 last year with the announcement of plans to transfer the Land Rover Defender, Jaguar and Range Rover brands to rival RMA Group from February 3 this year.

CMC moved to court on December 7 seeking to stop JLR from severing links with it but JLR told the High Court that it had issued a six-month notice of termination to CMC on August 3 and opened a window for the auto dealer to participate in a competitive tendering process where RMA beat it and several other dealers.

JLR is seeking to overturn the injunction issued on December 10 stopping it from terminating its dealership agreement with CMC and the matter is yet to be decided.

JLR brands account for 30 per cent of CMC's annual unit sales and their loss poses a big threat to the survival of the troubled auto firm whose operating profits have been falling since 2008.

The threat of losing the JLR brands came after CMC lost the exclusive dealership of MAN trucks with the appointment of a second dealer, RT East Africa, to distribute the commercial vehicles.

CMC posted a net profit of Sh105.3 million in the year ended September 2012 compared to a loss of Sh181.1 million the year before as sales stagnated at Sh11.7 billion.

Investors will not get a dividend despite the return to profitability and it remains to be seen whether stability at the company will cause the regulator to lift the ban on the trading of its shares.

The Capital Markets Authority has maintained a freeze on the company’s shares at the Nairobi Securities Exchange since September 2011 when they last traded at Sh13.5.

Aside from Mr Muthoka, CMA forced the exit of former CMC directors Richard Kemoli, Charles Njonjo, and Andrew Hamilton.

They, together with Mr Kiereini, former CEO Martin Forster, and Sobakchand Shah have been barred from joining the boards of any listed company. Mr Joseph Kivai has only been barred from CMC’s board.