Innscor faces penalty

Innscor increased its shareholding in National Foods from 36 percent to 49,9 percent between 2003 and 2011, but subsequently reduced it to 37 percent after the group disposed of 11 percent -worth US$11,7 million – to Tiger Brands of South Africa, also a major investor in Natfoods, in October 2011.

CTC chairman Mr Dumisani Sibanda said if imposed the penalty would be a figure not exceeding 10 percent of either merging party’s annual turnover.
CTC had opened preliminary investigations over alleged restrictive measures created by Innscor’s backward integration in June 2011. Backward integration involves the purchase of a supplier, usually done to reduce supplier power and cut input costs.

During a public hearing in Harare last week, CTC claimed that Innscor had not followed the proper regulatory procedures in acquiring their shares in National Foods, as the commission had not been notified of the change in the shareholding structure.

“Innscor was supposed to have notified CTC about the merger but they only did this when we had raised questions on the deal after stakeholders lodged their complaints that the merger created a strong market share for the two big companies, thus reducing competition,” said Mr Sibanda.

In terms of the Competition Act, if a company does not notify the regulator of a merger or the acquisition of a controlling within 30 days, it could be penalised.
But CTC separated the hearing into two parts, concentrating on Innscor’s failure to notify the commission about the merger, while shelving issues to do with restrictive practices that arose from the merger. Mr Sibanda said those could be dealt with at a later date.

Representing Innscor, Mr Andrew Mugandiwa of Wintertons Legal Practitioners, urged the commission to deal with both cases as they could not be separated.
“The approach of separating the two issues will not work because they are interlinked,” he said.

“We cannot deal with the issue of the merger before the issue of alleged restrictive practices has been dealt with.” Mr Sibanda said Innscor would be given 21 days in which to make their representations on the changes in their shareholding in National Foods from 2003 to date, the reasons why they did not make the necessary notifications regarding the merger and also answering to issues that had been raised by stakeholders during the hearing.

“The commission will then make a decision on the nature of the penalty within a week of Innscor making their representations in writing,” he said.
Other stakeholders present at the hearing noted that the merger between Innscor and National Foods had contributed to pushing competitors out of business.

Managing Director of Victoria Foods, Mrs Priscah Mupfumira said monopoly of the market created by the coming together of the two companies had affected them and might have contributed to the closure of other companies.

“Before Innscor came on the scene, we could supply flour to OK bakeries, but because the bakeries are being run by Innscor, we can no longer supply OK because they now source their flour from National Foods,” she said.

She said the merger had also increased the chances of price transfer where National Foods supplied Innscor with flour at a lower price than what was being offered by competitors.

A representative from the Consumer Council of Zimbabwe noted that a survey they had carried out had shown that consumers were also feeling the effects of these practices as they were left with very little choice in OK supermarkets which stocked more bread from Innscor bakeries than from other bakeries.

Innscor has in the past few years made several acquisitions under its strategy of backward integration within the fast-moving consumer goods supply chain. The group purchased a 49 percent stake in July 2009 of Irvine’’s Zimbabwe, a major producer of chicken and table eggs.

The group also shored up its interest in Colcom Holdings Limited, the country’’s single largest pork producer and has a controlling interest in biscuit maker, Iris and Breathway, commonly called Zap-snacks.

It also runs a vibrant retail division which consists of the Spar Corporate Store retail operations and the fast foods operations that include Chicken Inn, Bakers Inn, Creamy Inn and the local Nandos franchise.

Innscor has grown from a small private Zimbabwean business to one of the top public companies in less than 20 years.

Since its listing in 1998, the group has continually diversified into businesses which were able to fuel its growth in an economy which suffered from the effects of massive hyperinflation, resulting in the group having a significant number of diverse businesses in its portfolio not notify the regulator of a merger or the acquisition of a controlling within 30 days, it could be penalised.

But CTC separated the hearing into two parts, concentrating on Innscor’s failure to notify the commission about the merger, while shelving issues to do with restrictive practices that arose from the merger. Mr Sibanda said those could be dealt with at a later date.

Representing Innscor, Mr Andrew Mugandiwa of Wintertons Legal Practitioners, urged the commission to deal with both cases as they could not be separated.
“The approach of separating the two issues will not work because they are interlinked,” he said.

“We cannot deal with the issue of the merger before the issue of alleged restrictive practices has been dealt with.” Mr Sibanda said Innscor would be given 21 days in which to make their representations on the changes in their shareholding in National Foods from 2003 to date, the reasons why they did not make the necessary notifications regarding the merger and also answering to issues that had been raised by stakeholders during the hearing.

“The commission will then make a decision on the nature of the penalty within a week of Innscor making their representations in writing,” he said.
Other stakeholders present at the hearing noted that the merger between Innscor and National Foods had contributed to pushing competitors out of business.

Managing director of Victoria Foods Mrs Priscah Mupfumira said the monopoly in the market created by the coming together of the two companies had affected them and might have contributed to the closure of other companies.

“Before Innscor came on the scene, we could supply flour to OK bakeries, but because the bakeries are being run by Innscor, we can no longer supply OK because they now source their flour from National Foods,” she said.

She said the merger had also increased the chances of price transfer where National Foods supplied Innscor with flour at a lower price than that offered by competitors.
A representative from the Consumer Council of Zimbabwe noted that a survey they had carried out had shown that consumers were also feeling the effects of these practices as they were left with very little choice in OK supermarkets which stocked more bread from Innscor bakeries than from other bakeries.

Innscor has in the past few years made several acquisitions under its strategy of backward integration within the fast-moving consumer goods supply chain. The group purchased a 49 percent stake in July 2009 of Irvine’s Zimbabwe, a major producer of chicken and table eggs.

The group also shored up its interest in Colcom Holdings Limited, the country’s single largest pork producer and has a controlling interest in biscuit maker Iris and Breathway, commonly called Zap-snacks. It also runs a vibrant retail division which consists of the Spar Corporate Store retail operations and the fast foods operations that include Chicken Inn, Baker’s Inn, Creamy Inn and the local Nando’s franchise.

Innscor has grown from a small private Zimbabwean business to one of the top public companies in less than 20 years. Since its listing in 1998, the group has continually diversified into businesses which were able to fuel its growth in an economy which suffered from the effects of massive hyperinflation, resulting in the group having a significant number of diverse businesses in its portfolio.