Tuskys Supermarket has begun rebranding outlets owned by rival Ukwala amid an inquiry by the competition watchdog over a deal between the two retail chains.
Tuskys, which has been running three Ukwala stores in Nairobi’s city centre for nearly three months, at the weekend mounted its green and yellow logo besides that of its rival and started using its branded packaging in the outlets.
“Tuskys started its operation in three Ukwala outlets two weeks ago. They absorbed permanent staff and let go of the temporary workers,” said a source at Tuskys on condition of anonymity.
The three Ukwala outlets operated by Tuskys are Ronald Ngala, Jogoo Road and Tom Mboya branches, firming Tuskys’ hold on the central business district where it had nine branches.
The Competition Authority of Kenya (CAK) in October launched investigations into the deal after Tuskys' failed to inform it of the transaction.
“We have now been informed of the transaction between Tuskys and Ukwala,” CAK director-general Kariuki Wang’ombe said Monday.
“We are currently evaluating the deal to see if Tuskys has acquired more than 50 per cent of Ukwala and whether it will gain veto power in the operations of the acquired entity.”
A negative response to the enquiry will see Tuskys escape punishment given that takeovers or purchase of significant shares or a business interest must be approved by the authority.
Sources familiar with the deal say Tuskys informed the watchdog that it was carrying out due diligence when in October it emerged that sales receipts from Ukwala stores in the central business district bore the TML (Tusker Mattresses Limited) logo and phone contacts.
Tuskys is said to been keen on acquiring a few Ukwala Supermarkets outlets. Tuskys has 50 branches in Kenya currently.
Both retailers refused to comment on the issue and Mr Wang’ombe said the competition watchdog will complete its enquiry next week.
The line of enquiry will seek to establish whether Tuskys dealings in Ukwala will change control of the targeted retail chain and whether it will have powers to stop board decisions of the acquired supermarket.
If Tuskys is found liable of acquiring significant stake in Ukwala or gaining veto powers without informing CAK, the competition watchdog has the powers to cancel the transaction, have the directors jailed for five years or order payment of a fine of up to Sh10 million.
The authority can also impose a financial penalty equivalent to 10 per cent of the firm’s sales.
This means that Tuskys could face a penalty of up to Sh2.5 billion given that it generated sales of about Sh25.2 billion last year that made it the second-largest retailer based on sales, behind Nakumatt whose revenues stood at Sh55 billion.
Nakumatt has four branches in the city centre while Uchumi and Naivas have two stores each. Ukwala had three branches and it has trailed rivals in expansion. This has seen its market share shrink and Naivas dislodge it as Kenya’s fourth-largest retailer.
Kenya created an independent watchdog last year to fight price fixing, abuse of market dominance and those in breach of merger rules replacing the Monopolies and Prices Commission.
Previously, market malpractices in Kenya attracted a maximum fine of Sh200, 000 or a jail term of up to three years for offending companies, a light sentence for firm whose annual turnovers are in excess of a billion shillings.
The Ukwala deal, if it comes to pass, will be the first major transaction to involve Tuskys locally.
Players in the market reckon that Tuskys’ moves are informed by the need to consolidate its market share ahead of rivals, especially cash-rich foreign firms that are showing a keen interest in a piece of the Kenyan market.
Citigroup says Kenya is set to witness increased deal-making in coming years given that the dominance of the sector by the top four retailers has acted as barrier for entry of new players.
Nakumatt, which has 44 branches, is planning an equity sale next year.