CMC takeover hits bump in the road as workers move to court

By Kenneth Kwama

Kenya: Dubai-based conglomerate Al-Futtaim’s quest to buy CMC Motors could hit turbulence after the car dealer’s employees moved to court to stop the process.

Business Beat has obtained documents showing that the employees, acting through Nairobi law firm Gathenji and Company Advocates, have filed a motion seeking to stop the process.

The employees contend that they stand to lose their retirement benefits should the takeover bid sail through.

In the affidavit that names CMC Holdings Ltd as the first respondent and Al-Futtaim Motor and Machinery Company Ltd as second respondent in the case at the Industrial Court, the employees say CMC did not disclose a deficit of close to Sh50 million when the prospective buyers were conducting due diligence.

They say this may see them sent home without their retirement benefits should they be retrenched.

But according to court documents, CMC paid out Sh12.7 million on October 7 last year to the pensions account after due diligence had been performed, leaving a deficit of Sh33.8 million.

The workers have annexed a report by AON Hewitt Consultants showing the deficit, which they insist should have been disclosed, existed. 

A similar move by employees of KenolKobil stopped an advanced bid by Puma Energy of Switzerland to acquire the oil giant two years ago in what would have passed as the biggest corporate acquisition in the country’s history.

The KenolKobil deal was reportedly worth Sh42 billion — which is nearly six times the Sh7.5 billion being offered for CMC — but it fizzled out after the Industrial Court decided issues that had been raised by employees formed sufficient grounds to stop the bid.

Acquisition threshold

The court action by 86 CMC employees occurred as it emerged that the company could have technically changed hands after Al-Futtaim bypassed the 75 per cent threshold it needed to force through a compulsory acquisition by mopping up 91 per cent of the shares that were on offer.

Top executives from the Dubai-based conglomerate are expected to jet into the country this week to conclude the deal.

Al-Futtaim has not yet responded to the workers’ concerns, and correspondence obtained by Business Beat shows the management of CMC has played down the issue, insisting there is no need for the employees to worry about their employment status or pension.

But the employees want their concerns over job security and employee benefits addressed before the takeover is finalised.

Just like in the current situation where Al-Futtaim has already struck a deal with major shareholders at CMC Holdings, Puma Energy had also struck an agreement with major shareholders at KenolKobil. It was preparing an offer for minority shareholders when a misunderstanding with the oil marketer’s workers halted progress.

The question now is whether the objection raised by CMC workers is weighty enough to take the parties concerned back to the negotiation table.

In KenolKobil’s case, the massive cash required by employees to conclude the deal was the biggest set back. To proceed, the two parties had only one choice: to change the terms of the tentative deal to accommodate the workers’ demands.

Many analysts had considered the KenolKobil takeover a done deal as all major issues appeared to have been resolved.

The CMC employees have cited similar takeovers in which new owners went ahead to lay off employees, saying they do not expect their case to be any different.

kkwama@standardmedia.co.ke