Tuskys faces probe over Nakumatt stocking plan

From left, Nakumatt MD Atul Shah, CAK director-general Francis Wang’ombe and Tuskys CEO Dan Githua. PHOTOS | FILE | NMG
From left, Nakumatt MD Atul Shah, CAK director-general Francis Wang’ombe and Tuskys CEO Dan Githua. PHOTOS | FILE | NMG 

The competition watchdog is investigating a deal in which supermarkets chain Tuskys is funding the restocking of troubled rival Nakumatt for possible breach of anti-trust regulations. 

Tuskys on Saturday announced that it had started restocking two of Nakumatt’s prime Nairobi outlets with the intention of including even more stores across the country.

Sources familiar with the matter indicate that the Competition Authority of Kenya (CAK) is investigating the deal between the two rival retailers for what could amount to collusion by competitors. 

CAK director-general Wang’ombe Kariuki has repeatedly said that any merger, buyout or partnership between Nakumatt and Tuskys would require approval by his office.

In an interview yesterday Mr Kariuki said the retailers were yet to file a formal application, but declined to confirm that an investigation was underway. 

“The authority is going to actualise the provisions of the law,” said Mr Kariuki in a brief response.

Distort competition

The law empowers the regulator to carry out investigations into trade practices that might distort competition.

Following investigation, the CAK is also empowered to block and order reversal of any merger or partnership that could result in restrictive trade practices and to impose financial penalties on parties in breach. 

Tuskys’ restocking of Nakumatt stores could amount to a prohibited action under the Competition Act as it suggests that the two companies have started sharing sensitive strategic information and are no longer relating as competitors.

“The moment you start having information regarding your competitor, sharing strategic decisions, and sensitive information you stop being competitors. Competition thrives where you don’t know the strategy of your competitors,” said Mr Kariuki.

Companies involved need to get the approval of the watchdog before entering such agreements. However, Mr Kariuki says that as of yesterday noon the authority had not been informed of any such plans.

Tuskys chief executive Dan Githua in responses to the Business Daily did not directly address the regulatory concerns.

“We are in constant communication with CAK. As soon as we get approvals, the restocking programme will take off fully,” said Mr Githua.

Tuskys had, however, indicated in a Saturday press statement that restocking had already been completed at Nakumatt outlets at the Village Market Mall and Nakumatt Ukay in Nairobi.

A Nakumatt outlet being stocked last weekend following the deal with Tuskys. PHOTO | COURTESY | NAKUMATT HOLDINGS
A Nakumatt outlet being stocked last weekend following the deal with Tuskys. PHOTO | COURTESY | NAKUMATT HOLDINGS

According to the Saturday statement, the restocking will cover seven stores in Nairobi and Mombasa. Mr Githua said that this was expected to be completed in November while phase two of the project will begin in December or in January 2018.

Suppliers on board

The restocking plan is part of the Sh3 billion corporate guarantees that Tuskys has announced it will extend to Nakumatt’s suppliers.

Mr Githua said 78 per cent of suppliers had signed on to the programme as Tuskys gears up to take over a majority stake in the troubled Nakumatt.

The two firms have described the restocking as being “mutually exclusive of the ongoing legal processes” over Nakumatt’s heavy debt. The restocking, they said, is also supposed to keep Nakumatt going pending a corporate merger that is still subject to regulatory approval.

Nakumatt is weighed down by an heavy debt estimated at between Sh30 billion and Sh40 billion.  Despite the promises by Tuskys that it will bail out the retailer, Nakumatt’s creditors were last week calling for liquidation as the only solution to the current crisis.

In a case expected back in court today, the High Court will decide on an insolvency petition in which Nakumatt has sought to have an administrator appointed to run its business until it returns to profitability.

Creditors have rejected this proposal and were last week given four days to respond to Nakumatt’s application to have PKF’s Peter Obondo Kahi appointed as the retail chain’s administrator.

Last week the government said it would join the list of Nakumatt creditors as it claims millions of shillings in unpaid taxes.

Trade and Industry secretary Adan Mohamed said that the State would not push for liquidation but would instead support the proposal to have an administrator appointed.

Nakumatt’s financial troubles have led to the closure of a number of outlets in Kenya, Uganda and Tanzania.