Court battle reveals Merali’s Sh75m bailout of Eveready

A closed gate at Eveready East Africa Limited plant in Nakuru. PHOTO | FILE 

By BRIAN WASUNA, bwasuna@ke.nationmedia.com

In Summary

• Eveready was seeking cash to seal a financial hole created by delayed payments from US-based Energizer Holdings.
• Mr Merali injected the Sh75 million into Eveready following assurances that Energizer would renew the exclusive distribution deal between it and the Kenyan battery firm.
• Mr Merali is a director and a major shareholder in Eveready with a 35.12 per cent stake.

Billionaire businessman Naushad Merali pumped Sh75 million into Eveready East Africa to help the struggling battery maker clear its debt portfolio as it prepared to shut down its Nakuru factory, newly released information shows.

Eveready in January last year made a cash call from its principal shareholders to seal a financial hole created by delayed payments from US-based Energizer Holdings on whose behalf it had manufactured batteries since 1967.

Details of the bailout have emerged in a suit Eveready has filed against Energizer, seeking to stop the US-based firm from altering the terms of a distributorship agreement they signed more than three decades ago.

Eveready reckons that Mr Merali injected the Sh75 million into the business following assurances that Energizer would renew the exclusive distribution agreement between it and the Kenyan battery firm.

“Naushad Merali, a director, injected Sh75 million in Eveready East Africa to clear arrears that had accrued with Energizer Middle East and Africa Limited in September 2015,” Eveready says in the suit papers.

“The cash injection was made on the understanding at board level that it would serve to restore and normalise trading relations between the parties but instead, as soon as the cash was received, Energizer Middle East and Africa issued the notice of non-renewal and demanded cash trading terms.”

Energizer is yet to respond to the suit. Eveready has sued both Energizer Holdings Inc based in Missouri, USA and its subsidiary, Energizer Middle East and Africa based in Dubai.

Mr Merali is a director and a major shareholder in Eveready with a 35.12 per cent stake. Energizer is also a shareholder in Eveready, with a 10.5 per cent stake.

Eveready now says shareholders could not have anticipated that one of their very own would have contributed to its downfall.

READ: Eveready terminates Energizer products distribution contract

The Kenyan battery maker says it may face total collapse if Energizer is allowed to either terminate the distribution agreement entirely or to impose the terms subject of the dispute.

The suit has also revealed for the first time that Eveready agreed to close its Nakuru factory on condition that Energizer would retain the Kenyan battery firm as its exclusive distributor in East Africa.

The struggling battery maker says Energizer has proposed a new deal that will allow it to engage other distributors and end the exclusivity Eveready has enjoyed for almost half a century.

Under the proposed terms, Energizer will also dictate minimum purchase requirements to Eveready, bar the Kenyan firm from trading in other products and the contract will only last for a non-renewable one-year term.

Eveready wants the High Court to bar Energizer from engaging other distributors in Kenya, Rwanda and Burundi until the suit has been determined.

Hard times have hit Eveready, forcing it to not only close the Nakuru factory but also shut its warehouse in Uganda where it incurred losses of Sh206 million. Eveready will now peg its Uganda business on other distributors.

The troubled battery firm saw its revenues halve to Sh553.3 million in what is attributed to frequent stock-outs following the distribution spat with Energizer.

Shareholders in October last year resolved to sell off Eveready’s 18.5-acre land in Nakuru. The value of the land, excluding assets, was put at Sh837 million, translating into about Sh40 million per acre.

READ: Eveready closes Uganda warehouse, losses hit Sh206m

Minority shareholders are said to have opposed the sale and suggested that the company move into the lucrative real estate market to revive its finances.

High production costs and influx of cheap imports have hampered a market in which Eveready enjoyed a monopoly for decades.

Energizer has since 1967 accounted for 90 per cent of Eveready’s business.

“Eveready would not have agreed to close the manufacturing plant in Nakuru had it anticipated that Energizer would terminate the agreement and move to compete in the same market. Eveready was willing and ready to continue distributing Energizer’s products in the region in addition to its own brands as required by the Competition Act, 2015,” Eveready adds.

Eveready says Energizer’s new proposal is a veiled refusal to renew the distribution agreement and part of a larger plot to unfairly utilise routes the Kenyan firm has built over 47 years.

The firm holds that it has been forced to issue a cautionary notice to the Capital Markets Authority following Energizer’s offer, which it insists is a raw deal.