Thursday, May 30, 2024

Choppies sets on gaining control of Kamoso Africa

Botswana’s biggest grocer Choppies is strengthening its grip on the retail sector, with plans underway to acquire Kamoso Africa, a company formerly owned by Choppies founders, according to latest regulatory filings. 

The Competition and Consumer Authority (CCA) this week disclosed that the retailer, through its wholly owned subsidiary Choppies Distribution Centre (CDC), intends to acquire a controlling 76 percent shareholding in Kamoso Africa, one of the country’s leading distributor. The CCA is currently assessing the proposed transaction, which is likely to face resistance from Choppies competitors, fearing that Choppies’ stronghold in the retail sector will diminish competition.

Besides being a distributor, Kamoso owns a slew of businesses that include Liquorama, BuildersMart, Mediland, Mont Catering, Lemepe Milling, Real Water and TMB Tissues. 

In 2015, Choppies founders, Ramachandran Ottapathu and Farouk Ismail, sold their majority shareholding in Kamoso, disposing 72 percent to Stanchart PE and Development Capital Partners (DCP). The two international private equity firms paid $43.35 million (P452 million at the time) for the shares. 

Two years later, Stanchart PE and DCP, sold their 72 percent stake in Kamoso to another consortium of investors which included Investec Asset Management Private Equity and Rand Merchant Bank Ventures (RMB). According to Kamoso shareholder records, RMB is the largest shareholder at 45.17 percent, followed by Botswana Development Corporation (BDC) with 24 percent, Ottapathu owns 15.23 percent, while the Investec (now called Ninety One) holds 14.23 percent, and Narayan Ottapath has a 1.36 percent shareholding. 

To gain control of Kamoso, Choppies will acquire shares that are not held by BDC – the government investment arm, which paid P239 million for the 24 percent shares in Kamoso in 2020. It is not clear yet why other investors are exiting. However, sources have indicated that the company has deep financial problems, while also facing numerous lawsuits after it parted with some senior management personnel. 

In June 2021 it was reported that Kamoso CEO Ian Dewar was suspended for allegedly siphoning P25 million of company funds. Furthermore, the sources allege that the company’s financials have been distorted, with the former chief financial officer of the company accused of “cooking books”. Kamoso recorded a loss of about P190 million in 202. The 2022 financial performance is yet to be made public. 

Though some observers are questioning the motives of the proposed transaction between Choppies and Kamoso, the retailer says the possible acquisition is aligned to the strategic intent of Choppies to expand its operations in the jurisdictions in which it currently operates, according to a statement from Choppies board of directors. 

Should the CCA grant permission to Choppies to acquire majority shareholding in Kamoso, it will be the first significant acquisition for the retailer after a disastrous expansion strategy that nearly sank the company. 

Two years ago, Choppies closed its stores in South Africa, Kenya, Tanzania and Mozambique following mounting losses from the operations. The expansion weighed heavily on Choppies and caused a rift between company founders and shareholders who were troubled by the diminishing profits and dividends. 

Matters came to head in 2018 when the retailer got in trouble with regulators for failure to publish audited financial results on time after the company external auditor flagged some processes and transactions that could distort the true picture of the company’s financial health. 

The review of past records uncovered losses and in the ensuing drama, Choppies decided to quit and exit the loss-making markets. The delayed June 2018 financials released in December 2019 stunned shareholders and market observers: a P445 million loss in 2018, and another shocking loss of P170 million for 2017 which was initially reported as a P74.6 million profit.  The losses extended to 2019, with the retailer booking in a P428 million loss, and followed with a loss of P370.6 million for the year ended June 2020.

However, following the restructuring of the business by exiting the under- performing investments, Choppies recorded P60 million profit after tax for the year ended June 2021, and more than doubled the profit to P145 million for the year ended June 2022.

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