Botswana retailer Choppies Enterprises’ bid to acquire Ukwala Supermarkets received a major boost following the withdrawal of a High Court case that had put the Sh1 billion plan on ice.
Ukwala and the Kenya Revenue Authority (KRA) on Thursday withdrew the suit in which the taxman is seeking Sh946 million in unpaid levies between 2011 and 2014.
The two have now opted to settle the dispute out of court.
The move has given a new lease of life to Choppies’ bid. The Botswana retail chain had announced a Sh1 billion Ukwala takeover bid, but the High Court stopped the two firms from completing the transaction pending the completion of the KRA suit.
Ukwala had admitted to owing the taxman Sh101 million, but is appealing the additional Sh845 million that KRA is demanding.
Under the out-of-court deal, Ukwala will pay Sh59.7 million to the taxman within 30 days, and apply for a waiver of Sh42 million it had racked up in interest and penalties. The disputed Sh845 million will be settled by the KRA’s tax appeals tribunal.
“Out of the total Sh101 million demanded by the KRA, Ukwala agrees to pay Sh59.7 million being the principal amount of taxes admitted. In the event that Ukwala’s request for waiver is not granted or partially granted, Ukwala undertakes to remit so much of the taxes that will not have been paid,” the consent reads.
Justice George Odunga on Thursday adopted the out-of-court settlement as a court order. He had last month prohibited Ukwala from disposing of its stores unless it deposited Sh946 million as security in the event that the KRA won the case.
The withdrawal of the case means that Ukwala and Choppies can rekindle the takeover negotiations. Choppies in June announced it had reached a deal to buy 10 Ukwala stores, five of which are located in Kisumu, three in Nairobi and one in Nakuru and Bugoma.
The Botswana chain in November got the Competition Authority of Kenya’s (CAK) blessings to go ahead with its takeover of Ukwala.
The retailer, listed on both the Botswana and Johannesburg stock exchanges, will become the first foreign supermarket to successfully enter Kenya through an acquisition if the deal with Ukwala is successful.
The KRA had initially demanded Sh1,012,664,667 but later reduced the amount after further inspection of the supermarket’s books of accounts.
It raised concerns that recovery of the allegedly owed taxes may be impossible if Ukwala is allowed to complete the Choppies sale.
The KRA last year sent agency notices to Equity Bank, KCB and Diamond Trust Bank seeking to compel them to deduct the Sh101 million admitted tax from Ukwala’s accounts. The banks, however, stated in response that they held no funds on behalf of Ukwala.
Ukwala was forced to fight the agency notices before the KRA tax appeals tribunal, where it has challenged the Sh845 million claim.
The retailer has been keen to offload its business for the last three years and only managed to sell three of its outlets to rival Tuskys Supermarket in 2014.
Tuskys’ planned bid to purchase all of Ukwala’s stores was stopped by the CAK, which eventually allowed the two retailers to complete the sale of three stores.