February 12, 2025

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Trouble in the Kingdom, court case reveals uncertainty on whether the process in Co-operative Bank’s acquisition of Kingdom Bank was followed

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After the Ksh1 billion injection, Co-operative Bank, argues that the value of Jamii Bora Bank’s shares have since increased to Ksh5.20 per share as at the end of 2020 from negative 20 cents before the transaction was done.

A court case pitting Co-operative Bank and a little-known investment company highlighted the Herculean task shareholders face during takeovers and a history of differences over valuation.

The story which appeared in the Star and the Daily Nation states that Poinsettial Ltd has gone to court on grounds that the July 2022 Sh1 billion takeover of Jamii Bora Bank, later renamed Kingdom Bank, by the Co-operative Bank was improperly done.

Poinsettial Ltd says in court papers that in July 2020 when shareholders approved the takeover, the board of directors was improperly constituted and thereby was incapable of executing the transaction.

The company adds that there was no valuation done to determine the price at which Co-operative Bank invested in Jamii Bora Bank.

The transaction resulted in Co-operative Bank acquiring 225 million shares or a 90% ownership in Jamii Bora Bank for Sh1 billion, giving the sales price tag at Sh4.46 per share.

All Kingdom Bank Kenya Branches and Contacts

Co-operative Bank on its part argues that the board was properly constituted after shareholders approved resolutions to change the articles of association and went ahead to appoint former Jamii Bora Bank CEO Samuel Kimani to represent their interests.

The bank further argues that Jamii Bora Bank’s balance sheet had deteriorated and was in dire need of capital injection to meet the Central Bank of Kenya’s requirements which was made possible by the Ksh1 billion transaction.

After the Ksh1 billion injection, Co-operative Bank, argues that the value of Jamii Bora Bank’s shares have since increased to Ksh5.20 per share as at the end of 2020 from negative 20 cents before the transaction was done.

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Since the story first appeared shareholders have contacted us and raised several issues.
Private equity firm Catalyst Principal Partners who were represented on the board were able to sell their shares immediately after the transaction unlike other shareholders.

The shares were sold through Kingdom Securities owned by Co-op bank and were bought by a firm associated with one of its directors, which if accurate is a clear case of insider trading.

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Shareholders also told us that Jamii Bora Bank was not a shell due to existing relationships, branches, and other assets that it had implying that it was not a basket case.

While we could not independently verify this, the small shareholders’ troubles mirror a similar case which relates to another Co-operative Bank transaction that is still pending in a legal tussle for over a decade.

In 2011 former directors of defunct stock brokerage Bob Mathews took Co-operative Bank to court over Sh31.8 million which they claimed was the balance from a transaction in which the bank bought a 60 per cent stake in the stockbroker for Sh150 million. 

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Similarly, valuation was the crux of the issue after Bob Mathew shareholders said that Co-operative Bank hired its preferred auditors whose conclusion resulted in a lower valuation, which was against the original agreement where the two would jointly appoint a firm to value to the brokerage.

Co-operative Bank’s 2020 annual report states that the lender has successfully Ksh31.8 million has successfully applied for and obtained a stay of proceedings and referral of the matter to arbitration as per the terms of the Share purchase agreement. The plaintiffs (Bob Mathews) have not been able to agree on an arbitrator.

The case is set to be heard on May 16 2022 where direction is expected to be given.