Wednesday, June 12, 2024

Choppies wants the whole of Kamoso Africa 

Botswana’s largest retailer, Choppies, says negotiations are ongoing to acquire Kamoso Africa, and in the latest announcement, it appears Choppies now wants absolute control of the company.

On Wednesday, the Botswana Stock Exchange listed retailer said that are still locked in negotiations over the potential acquisition of Kamoso, with the proposed sale also being assessed by Competition and Consumer Authority (CCA). The deal was first made public in January, with Choppies proposing to acquire 76 percent of Kamoso. But in the latest cautionary note, Choppies says it wants to acquire 100 percent, which will include the 24 percent shares that are held by Botswana Development Corporation (BDC).

In 2020, BDC paid P239 million for the shares in Kamoso. . It is not clear yet why the existing shareholders are disposing their shares. However, sources have indicated that the company has deep financial problems. 

Kamoso is one of Botswana’s leading fast moving consumer goods distributor. In addition to distribution, 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. 

Kamoso recorded a loss of about P190 million in 2021. 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 two months ago. 

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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