HARARE – Innscor Africa Limited has been ordered to divest from Profeeds after the Supreme Court ruled that the merger of Profeeds and National Foods created a near monopoly in the stockfeed industry.
Supreme Court judges said “the coming together of two companies which previously were competitors, under Innscor, created a dominant unit which can reasonably become a monopoly.”
Innscor, which owns the country’s number one stock feed manufacturer, National Foods, used its subsidiary Ashram Investments to acquire 59 percent of its main competitor Profeeds in 2013.
In 2014, the Competition Tariff Commission (CTC) examined the transaction and prohibited the merger after ruling that it was contrary to the public interest.
Undeterred, Innscor, through Ashram, decided to form another merger with Profeeds in 2015, this time with a minority 49 percent stake. Whereas the law requires companies to inform the CTC of a merger above US$1.2 million within 30 days, the companies did not do so until 2019, two years after Innscor’s new lawyers advised the company to inform the CTC.
The CTC took a dim view of Innscor’s decision to delay in informing it of the merger. It again prohibited the second transaction and imposed a ZWL$40 million fine on the company.
Innscor challenged the CTC’s decision at the Administrative Court and won, prompting the commission to approach the Supreme Court on appeal.
Justice Tendai Uchena of the Supreme Court, with Justices Nicholas Mathonsi and Felistus Chatukuta agreeing, said in their judgement delivered on October 3 that the Administrative Court erred in finding in Innscor’s favour.
The judges ruled: “The court aquo failed to consider the potential harmful effects of the merger. It therefore did not make its decision in terms of all the applicable factors in assessing a merger…
“Monopolistic tendencies must be carefully assessed because they may initially appear favourable, but in the long run they may – when the monopolists get to a point where the market has no other option but to buy their goods – turn around and control even the economy of a country by producing highly priced goods or substandard goods sold at high prices. They may also destroy small business in the future.”
The judges said the Administrative Court ought to have carefully considered the fact that Innscor retained a controlling interest in both National Foods and Profeeds, companies which specialise in manufacturing and selling stock feeds.
“Innscor also has a controlling interest in Irvines Zimbabwe, a major customer of both Profeeds and National Foods. An analysis of Innscor’s conduct shows that it desires to wholly control the stock feeds market which is not permissible,” the Supreme Court said.
The merger “concentrated industrial power in the two biggest companies in the stock feed industry,” they added.
The fine imposed on Innscor was reasonable, the judges said, given the company’s apparent affinity for anti-competition activities. The Profeeds merger was the third time Innscor had contravened competition laws, the court said.
Following the merger, Profeeds and National Foods now controlled 57 percent of the stock feed market, with the next competitor enjoying just 11 percent market share. Profeeds had also seen its shops grow from 19 to 40.
“It took Innscor more than three years and nine months to notify the CTC of the merger which it had already consummated. This… demonstrates the nature, duration, gravity and extent of the contravention of the law… It is also on record that Innscor has contravened competition laws before. This conviction increases to three Innscor’s contraventions of competition laws. It shows its persistence in disregarding competition laws… It is this court’s view that the monetary penalty (of ZWL$40 million) was justifiable,” the Supreme Court ruled.
