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How Lancet founder could walk away with Sh1.9b exit package

FINANCIAL STANDARD
By Wainaina Wambu | March 23rd 2021

Dr Ahmed Kalebi Group CEO of Pathologists Lancet Kenya during an interview (PHOTO: Edward Kiplimo)

Ahmed Kalebi had planned on making a quiet exit from the Sh4 billion medical empire he helped build until an encounter with a top lawyer reshaped his exit strategy.  

Dr Kalebi, 45, has for the last 12 years been the face of Pathologists Lancet Kenya (PLK), which he founded with his wife as employee number two on the payroll.

But recently, he dropped the bombshell that he would be retiring from the firm, raising speculation that he’d been edged out by majority shareholders.

Following his decision and just a week to his last board meeting, he chanced upon city lawyer Donald Kipkorir, triggering potentially one of Kenya’s largest executive exit packages.

Kipkorir, popularly known as DBK, had gone for a test at the Lancet offices on Fifth Ngong Avenue and afterwards decided to visit Kalebi at his eighth-floor office.

Kalebi informed Kipkorir he was serving his final month at the company before stepping away to spend more time with his family, pursue a PhD and other personal projects after more than a decade at the helm.

While Kipkorir agreed that it was a good idea to take time off and concentrate on family and other projects, his curiosity was piqued by the timing of Kalebi’s retirement, coming at the height of his powers and against rumours of a possible fallout with other major shareholders.

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What emerged from the briefing with the lawyer is that Kalebi did not expect much from the exit package. All he had hoped for was a small gratuity pay and earnings from unspent leave days.

Besides that, he also expected an annual dividend payout from his watered-down shareholding in the company he helped create. This is if he did not sell off his 10 per cent remaining shareholding.

Kalebi had initially held a 20 per cent stake that has now been watered-down to 10 per cent through capital injection by the main shareholding partner.

Lancet Group of Laboratories acquired Kalebi’s startup as a subsidiary, taking up 80 per cent stake. The startup was registered in Kenya as Pathologist Lancet Kenya (Kenya).

On Kalebi’s watch, PLK has since expanded across East Africa with 88 laboratory branches and service points, including outlets in Kenya (43), Uganda (31), Tanzania (11) and Rwanda (3).

The lawyer in him was also curious about the terms of the exit package, seeing an opportunity to represent him in the negotiations. 

“Are these guys paying you well?” Kalebi recalls Kipkorir asking him.

The shrewd lawyer then dropped the DEMPE thunderbolt, which Kalebi admitted he had no clue about at the time.

DEMPE refers to Development, Enhancement, Maintenance, Protection and Exploitation.

Among other metrics, it prices intangibles such as intellectual property and what it takes to grow a brand.

“I was simply informing him about March being my last full month before retirement only for him to open my eyes to various rights and emoluments that I never knew I was legally entitled to as a founder, chief executive and consultant pathologist under my employment contract and as a shareholder,” Kalebi told Financial Standard.

“That ability is what built Lancet Kenya and must be paid,” Kipkorir told Kalebi.

Following the meeting, the lawyer got down to work and with the help of actuaries and finance experts, a Sh1.9 billion claim was drafted, seeking compensation from the majority shareholders.

The claim, Kalebi said, is now under review, putting him on the cusp of one of the biggest payouts for a company executive in the country.

“I wait to see how this will pan out knowing just a month ago I was on my way out under the planned retirement but completely oblivious of these issues of the golden parachute, goodwill, DEMPE and employment contract compensation until DBK came along,” he said. 

But at just 45 years of age, why is he leaving the company he helped found? And what about the rumours of a fallout with shareholders?

The trained pathologist is quick to dismiss claims of a fallout, saying after 12 years of toil, “the time has come to briefly step away from the microscope and as the chief executive officer of Pathologists Lancet Kenya (PLK).”

He said the demands of the job coupled with his workaholic nature at times saw him clock 120 hours a week and even sleep in the office.

He would then freshen up in the washrooms for early morning meetings.

Kalebi told Financial Standard the long hours in the office had taken a toll on his family whom he described as “deeply traumatised” by his absence and will now be his chief focus as he takes a four-year break.

“There’s no fallout. Lancet is my legacy and baby. I want to see it prosper without me,” explained Kalebi.

“You exit the stage when the applause is loudest.” He said during his self-imposed break, he would do consultancy gigs besides enjoying spending more time with his family.

His journey to founding Lancet Kenya was borne out of frustration in 2008 in his desire to ease access to laboratory services in Kenya. 

Then a government employee, Kalebi came up with a blueprint to revamp the national public health lab but faced a lot of red tape from government agencies.  

Lancet Group of Laboratories in South Africa heard about his idea and invested an initial $2 million, according to public records.

Since then Pathologists Lancet Kenya has grown to be one of the region’s largest independent laboratory service providers with over 35 branches in Kenya, Uganda, Tanzania and Rwanda.

The business was valued at over Sh2 billion in 2018, according to regulatory filings.

In 2018, French firm Cerba Healthcare entered a joint venture with Lancet Laboratories taking control of the Kenyan unit with a 51 per cent stake, leaving Lancet SA with 49 per cent shareholding.

Lancet labs are spread over 11 African countries with a turnover of Sh5.2 billion annually and the East African units, which are under Kalebi, are estimated to contribute half of those revenues.

Kalebi started as a 20 per cent shareholder, but this has been diluted to 10 per cent by supplies and reagents provided over the years.

However, he entered a new agreement that saw no further dilution.

Being from a medical background, Kalebi said he was naive about the business side of things, learning the hard way.

With the benefit of hindsight, he said it can be frustrating learning the ropes, especially when in partnership with professionals familiar with acquisitions and mergers.

He described 2011 as the turning point in his career.

This was on the back of a partnership with Acacia Medical Services, which he said gave him a rude awakening about business because after turning it around, they were booted out.

In the same year, he was nominated for the inaugural Top 40 Under 40 award, making him realise he was gaining recognition in the business realm.

With time he was soon rubbing shoulders with top executives in the country. Raised in poverty in Kibra, Kalebi said his humble background and work ethic at Lancet ensured he was not “carried away” by his new-found success.

He shunned networking events, declined golfing and exclusive club invites, instead choosing to bury his head in his lab work.

With time, however, he started questioning his mission and calling as he became obsessed with chasing the firm’s bottom-line growth.

“Rather than talking about how many patients’ lives we’ve improved and our impact on society, I found myself talking about profits, losses and return on investments,” said Kalebi.

“This started putting me off,” he added.

The executive admitted he was not cut off for business, and his retirement had been a long time coming. 

Kalebi started thinking of retiring in 2014 during Lancet’s fifth anniversary. 

He said he embarked on succession and grooming a successor, but the Covid-19 pandemic disrupted the recruitment process.

Mwende Musunga from Laborex Laboratories was recently announced as the incoming chief executive after headhunting by consultancy firm Deloitte.

Kalebi observed that his claim has caused a bit of a stir internally but insisted it would not destabilise the transition.

After his briefing with Lawyer Kipkorir, it is now clearer about the monetary value attached to his exit plan.

This week is crucial to Kalebi, ahead of a planned board meeting with his French partners set to jet into the country.

And whichever way things turn out, his case sets a precedent and will enlighten many founders and entrepreneurs.

Exit packages to outgoing CEOs often draw big attention. But such a package may be perfectly appropriate as financial acknowledgement that a key executive skillfully led the organisation for many years or grown it to be a big force in the marketplace.

For some CEOs, especially those in not-for-profits, the exit package may serve to make up for years of accepting compensation at less-than-market rates.

So when is an exit agreement, frequently characterized as a "golden parachute," appropriate for a not-for-profit executive? And what type of agreement should be used?

Historically, golden parachute agreements emerged to protect executives after acquisitions and mergers. For example, when Verizon acquired Yahoo in CEO Marissa Mayer took home $23 million (Sh2.5 billion)

According to Nonprofit Quarterly, "too many transitions become strained because of lack of attention to what comprises a good ending for an executive - particularly a founder or long-tenured leader."

In other words, proper planning - well in advance of an executive's potential departure - is in order, and choosing the most appropriate type of agreement is vital.”

Kalebi will also not be part of PLK’s Board but will remain a shareholder. This enables him to completely detach from the business he helped grow. “I will only remain as a shareholder and not having any say in operations of the company,” he said. 

Kalebi, a devout muslim, also said that the break would be for spiritual nourishment.

Records show that he took home a monthly basic salary and transport allowance of Sh1.7 million as CEO with the total employment claims stand at Sh660 million, including annual leave days accrued (Sh16.7 million), family responsibility leave (Sh562,000), over time (Sh473 million), bonus pay (Sh54 million), gratuity pay (Sh14 million) and a golden parachute (Sh100 million).

This is alongside a Sh1.2 billion goodwill claim and Sh24 million in dividends from his shareholding on retained earnings for 2016 to 2020. This brings his total claim to Sh1.9 billion.

He said the claim will set a precedent for upholding the rights of minority shareholders.

“I believe this quest championed by DBK will have great positive implications to the fate of many hitherto outgunned founders or entrepreneurs who are overwhelmed by powerful majority shareholder investors.”

Kalebi, who has four kids with the eldest sibling about to finish university and the youngest about to join high school, said his biggest regret is overworking at the expense of his family.

 This was against the advice of a senior medic who had warned him against becoming an “ATM father” whose job was to “mechanically give money.” 

 “You can work hard to build institutions but it is the time spent with family that matters most,” he said, noting that his family life had almost become a “transactional affair.” 

He said he’s proud to have created 600 direct jobs and pioneered tests on the go which previously took weeks to complete and even getting accredited for anti-doping tests.  

So what next for Kalebi? He still insists he’ll never attempt golf. Instead he will mostly do social projects in Kibra. 

He also wants to be remembered for building something else aside from Lancet Kenya. 

His exit has coincided with the entry of six new executives as the company prepares for life without him.

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