The Walmart-Naivas deal that died in Nakuru High Court

In November 2012, Newton Kagira Mukuha walked into the registry of the High Court in Nakuru and filed an application to freeze the shares of Naivas supermarket.

Newton was Peter Mukuha Kago's firstborn son. His father had gathered the family in 1989 and asked each member to contribute what they could to start a business. Newton had sold 20 sacks of maize to raise his Ksh 20,000. By November 2012, that Ksh 20,000 had grown into 26 stores, a national brand, and a business that now interested the world's largest retailer.

His younger brothers gave the court a different account. Simon Gashwe Mukuha, Naivas's chairman, and David Kimani Mukuha, the director running daily operations, told the court that Naivas did not begin as a family seed fund. They had purchased the Rongai premises from their uncle, Joram Kamau, in 1990 as a direct business transaction between experienced operators and a departing owner, at Ksh 1 million. Newton had worked at the shop briefly as an employee. In October 1999, the family had divided its assets and Peter had given Newton the Rongai branch outright. Newton ran it until it failed. 

Naivas’ lawyers at Coulson Harney LLP said Newton was "a stranger to the retail chain."

The case advanced through the Nakuru succession court until August 2013, when an offer arrived that forced everyone to move faster.

Massmart Holdings Limited, listed on the Johannesburg Stock Exchange and operating 105 stores across 12 African countries, placed a written offer before David and Simon for Ksh 3 billion. The price bought 51% of Naivas and valued the chain at Ksh 5.88 billion. Massmart was 51% owned by Walmart, which had acquired its controlling stake in March 2012 to enter sub-Saharan Africa. 

Massmart's annual revenue that year stood at Ksh 589 billion, making it ten times bigger than Nakumatt, Kenya's largest retailer at the time. That size came with Walmart's global supplier network, which could reduce the cost of every product on every Naivas shelf, and the institutional credibility that had kept Naivas out of prime Nairobi mall locations for a decade. The Mukuhas had spent years building in regional towns where no competitor operated. This deal placed them at the center overnight.

Newton filed again on July 9, 2013. His new Notice of Motion sought essentially the same orders as his November 2012 application. His advocate, Evans Ondieki, argued before the court that Article 27 of Kenya's Constitution, which prohibits direct and indirect discrimination, protected Newton's interests. As the firstborn son of Peter Mukuha Kago, Newton was by Kikuyu custom the custodian of his father's legacy, and the shares could not change hands without his consent. The argument was not a corporate law claim but a cultural one, filed against a family that had used the formal structures of a limited liability company.

Simon Mukuha's affidavit answered with the shareholding register. Simon and his brother David held 25%, their late father's estate held 20%, and the two sisters, Grace and Linet held 15% each. Newton held zero. 

Naivas's lawyers stated that Newton had never been a legal or beneficial owner of the company's shares and could not prevent the company from selling its shares or assets. The rules governing limited liability companies did not adjust for the order in which Peter Mukuha Kago had sired his children.

Massmart did not wait for the courts to settle the question. The company was listed in Johannesburg, partly owned by Walmart, with shareholders in 27 countries and an annual report that required audited disclosure of material legal risks. A family dispute that had already generated one court application in November 2012 and a second in July 2013 was a dispute with no visible endpoint. Every filing Newton submitted appeared in the due diligence report as an unresolved legal contingency in an active transaction. 

For the deal to proceed, Massmart needed to certify to Walmart's shareholders that it was acquiring a clean 51% stake with no outstanding ownership dispute. Newton's applications made that certification impossible. In October 2013, Naivas management stated that they were no longer selling a stake to Massmart.

Massmart's Africa director, Mark Turner, told Reuters the company had failed to clinch acquisitions that would have given it a substantial footprint in East Africa's biggest economy. 

"Going into Africa is not cookie cutter," he said. "If it was more cookie cutter we could roll out a lot quicker, but it's not. It's really getting into those markets and understanding them." 

Massmart turned to opening its Game store at the upcoming Garden City Mall on Thika Superhighway instead.

Seven years later, in April 2020, the Amethis Finance consortium paid Ksh 6 billion for a 31.5% stake in Naivas, valuing the company at Ksh 20 billion. That was nearly four times the valuation Massmart had placed on the company in 2013. 

By June 2023, the IBL Group's transactions implied a company valuation of Ksh 53.5 billion. Newton's Ksh 20,000 seed capital, which the corporate register had never reflected as a share and which the courts had not recognized as one, would have represented roughly Ksh 4 billion in equity at the 2020 Amethis valuation. The High Court in Nakuru dismissed his challenge to Peter's will on October 10, 2016. 

To date, that appeal remains unresolved.

This story first appeared on episode two of Kenyan Founders, The History and Business Strategy of Naivas Supermarket.