Companies

Ex-Lancet CEO demands Sh3.5bn amid board row

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Former Lancet Kenya CEO Ahmed Kalebi. PHOTO | DIANA NGILA | NMG

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Summary

  • Dr Kalebi, who helped found the firm in 2009, has sued the Kenyan firm and shareholders, French firm Cebra Healthcare and Lancet Service Company of South Africa, setting the stage for one of Kenya’s largest executive payouts.
  • The shareholder fallout followed his retirement in April last year over shares and his payout as a founder of the Kenyan wing of the laboratory firm, which returned a profit of Sh306 million in 2020 on sales of Sh1.6 billion.

Former Lancet Kenya CEO Ahmed Kalebi is seeking Sh3.6 billion from the laboratory services firm in the wake of a shareholder fallout with his French and South African partners.

Dr Kalebi, who helped found the firm in 2009, has sued the Kenyan firm and shareholders, French firm Cebra Healthcare and Lancet Service Company of South Africa, setting the stage for one of Kenya’s largest executive payouts.

The shareholder fallout followed his retirement in April last year over shares and his payout as a founder of the Kenyan wing of the laboratory firm, which returned a profit of Sh306 million in 2020 on sales of Sh1.6 billion.

He reckons that the majority shareholders sidelined him from Lancet operations, including the hiring of executives while diluting his ownership from 20 percent to 10 percent.

“I have been on record since 2010 and over the years to date demanding my sweat equity to be compensated, but the board of directors under the majority shareholder have been blatantly ignoring the matter all these 10-12 years, and ultimately rejected the claim for sweat compensation upon my exit in April 2021 from the directorship and management of the company,” Dr Kalebi says in court papers, through his lawyer Donald Kipkorir.

“The plaintiff’s claim against the defendants jointly and or severally is for liquidated claim of Kshs3,587,641,559 plus general damages.”

Sweat equity is a non-monetary benefit that a company’s stakeholders give in labour and time, rather than a monetary contribution that benefits the company.

It is rewarded in the form of sweat equity shares. For this, Dr Kalebi is demanding Sh1.16 billion for having built the firm and the brand. Dr Kalebi, a pathologist, set up Lancet Kenya in 2009 as an offshoot of its parent company in South Africa.

It is operated under Pathologist Lancet Kenya (PLK) and Lancet Services Company (LSC).

In 2019, France-based multinational Cerba Healthcare bought shares in South Africa’s Lancet Laboratories for an undisclosed amount in a deal that saw it take control of the East African unit headed by Dr Kalebi.

Lancet SA holds a 49 percent stake in the joint venture while Cerba Healthcare has 51 percent. The joint venture, however, did not include operations in South Africa.

Cerba became the majority shareholder of Lancet Kenya while Dr Kalebi remained a minority shareholder with an estimated 20 percent stake.

The court battle promises to offer Kenyans a rare peek into the operations of Lancet Kenya and their financial dealings amid accusations of wrongly paying less taxes due to their cross-border financial arrangements, technically referred to as transfer pricing

Transfer pricing refers to the amount charged when goods or services are sold between two companies of the same group located in different countries.

This can allow companies to legally minimise their profits and tax obligations, for example by undervaluing or overvaluing transactions or allocating profits to low-tax jurisdictions.

Dr Kalebi says the Kenyan unit’s dealings with its foreign shareholders diminished its profits and valuation through overpriced supplies and inflated management fees.

These accusations look set to attract the attention of the Kenya Revenue Authority (KRA) amid a crackdown on tax avoidance.

Dr Kalebi is demanding dividends of Sh100 million, share valuation of Sh919.7 million, pay in lieu of annual leave of Sh19.2 million, unpaid overtime (Sh643 million), leave allowance (Sh19.2 million), unpaid bonus (Sh54.8) and unpaid gratuity (Sh14.5 million).

He is also claiming exit compensation or golden parachute of Sh567 million. He says he has based the amount on global practice in the UK, the US, Europe and South Africa.

These types of leaving bonuses have been given the name “golden parachute” to reflect the large payouts executives are given when a company is taken over and the executives are replaced.

Dr Kalebi often recounts his journey from growing up poor in Kibera to owning the modern pathology centre, which he and his wife, Kamari Makka, helped to grow.

He accuses the South African and French partners of keeping him in the dark over operations at the Kenyan firm despite his rights to information based on his 20 percent ownership.

“Under the direction of the South African and French partners, the local company has refused to share with him information on the financial performance, from the time he left on mutual agreement despite being a local minority shareholder of the local companies and entitled to the information,” he says.

Since he left, Dr Kalebi says the partners have entered into transactions and continued to levy costs incurred by the parent companies without informing him yet he remains the local minority shareholder.

“These transactions and actions are being done to the continued detriment of the plaintiff as the minority shareholder impacting negatively on the plaintiff’s dividend claim from the 4th defendant [PLK] and also impacting negatively on the plaintiff’s liquidated share value in the 4th defendant,” he says.

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