Toyota dealer CFAO Motors Kenya is set to buy additional shares worth about Sh1 billion to take control of Thika-based assembler Kenya Vehicle Manufacturers (KVM), signalling its plan to take charge of its production at the facility that has suffered from years of underinvestment.
CFAO, which has been relying on Simba Corp’s Associated Vehicle Assemblers (AVA) plant in Mombasa to produce most of its vehicles, currently owns a 32.5 percent stake in KVM.
A notice by the Competition Authority of Kenya (CAK) states that CFAO’s new investment in KVM will raise its stake to 98 percent, massively diluting the Government of Kenya and CMC Holdings, which currently have stakes of 35 percent and 32.5 percent respectively.
“The proposed transaction involves investment by CFAO Motors in KVM through an equity injection into the target by subscription for additional shares,” the CAK said in the notice approving the transaction.
“This will result in the dilution of other KVM shareholders to ownership of approximately 2 percent. Effectively, CFAO Motors 2 percent. Effectively, CFAO Motors will obtain direct control of the target (98 percent shareholding).”
The competition watchdog did not say how much new capital CFAO is investing in the deal but sources told this publication that the figure is about Sh1 billion.
CFAO’s officials said they will comment on the transaction at a later date.
The CAK says the new investment will help revamp KVM’s assembly line and repair its balance sheet.
“The rationale for the transaction, as provided by the parties, is to enable the target [KVM] to settle its outstanding debts, revamp its operations, including the assembly business,” the regulator said.
CFAO’s move, which is expected to lead to loss of business for AVA, will see it adopt the same strategy as its top rivals Isuzu East Africa and Simba Corp that control their assembly plants, showrooms and service centres directly and through contracted parties.
CFAO, which arose from the merger of the former Toyota Kenya and DT Dobie, has been assembling most of its vehicles at AVA amid limited capacity at KVM.
Among the CFAO units assembled at AVA are Hino trucks, Toyota pick-ups, vans (Hiace) and sports utility vehicles (Fortuner).
CFAO also uses KVM where it assembles Mercedes Benz trucks, Hyundai trucks, Hino trucks and Mercedes buses. Taking control of KVM will give CFAO an opportunity to centralise its production at the plant for which CMC Holdings has no use after quitting the motor vehicle distribution business to focus on sale of agricultural equipment, including tractors.
Isuzu East Africa, in which Japan’s Isuzu Motors has a 57.7 percent stake, assembles its namesake models at its Nairobi plant, which also hosts its head office.
The company sells its namesake vehicles –pick-ups, SUVs and trucks- through a network of contracted sub-dealers such as Central Farmers Garage (CFG) and Kenya Coach Industries (KCI).
Simba Corp on the other hand assembles its models including Mitsubishi trucks at AVA, which it fully acquired in late 2017.
The company paid Sh824 million to buy the 50 percent stake in AVA it did not already own from Marshalls East Africa which went out of business after losing the Tata trucks and Peugeot franchises.
CFAO’s takeover of KVM is expected to result in loss of business for AVA –through expiry or termination of existing contracts— and cause a shakeup in the market share of the country’s vehicle assemblers.
AVA currently assembles the most vehicles, giving it a leading market share of 41.1 percent according to an analysis by CAK.
It is followed by Isuzu with a 40.1 percent market share, KVM (13.5 percent), Trans-Africa Motors (4.1 percent) and Mobius (0.2 percent).
The share of new vehicles assembled locally has grown to more than 70 percent of total sales as dealers seek to take advantage of tax incentives offered by the government.
CFAO’s new capital injection in KVM and the transfer of more assembly business to the Thika-based firm is expected to raise its capacity utilisation and production market share.
“Specifically, the acquirer’s plan to revive the target by injecting capital will, in the long-term, make it profitable and create more employment opportunities,” the CAK said.
The takeover of KVM marks increased consolidation of CFAO’s operations in Kenya, which were previously fragmented across the former Toyota Kenya and DT Dobie.
The creation of CFAO consolidated the diverse motorcycle and vehicle brands –Yamaha, Toyota, Suzuki, Hino, Sinotruk, Volkswagen and Mercedes Benz— under one roof.
The multi-brand operation has seen CFAO amass a 30 percent market share in terms of unit sales, making it the second-largest dealer after Isuzu which has a 44 percent market share, according to CAK’s analysis.
Isuzu, which had relied exclusively on its namesake models, recently became a multi-brand dealer once again after taking up the franchise for UD trucks, formerly known as Nissan Diesel.
