Mergers rescue companies from collapse

Dumisani Nsingo, Senior Business Reporter
MERGERS have played an integral role in ensuring growth strategies and consolidation of operations of a number of companies since the dollarisation of the country’s economy in 2009.

Competition and Tariff Commission (CTC) acting director Ms Ellen Ruparanganda said the performance of the merged entities can be monitored through impact assessment studies using the industrial organisation approach that focuses on financial and economic performance variables of merged entities pre and post the amalgamation.

“The general observation and feedback from merged entities shows that the majority of the merged companies survived challenges that beleaguered local industry. Merging was a survival and growth strategy as it allowed companies to access working capital and retooling,” she said.

Ms Ruparanganda said some of the companies that were at the verge of collapsing such as Blue Ribbon, Surface Investments, Beitbridge Juicing, Lobels, Anchor Yeast, United Refineries, Carswell and Montana, Agri-seeds, among others were revived through mergers handled by the Commission.
“Generally, mergers also contributed to product availability, improved quality and notable positive results can be observed in some sectors including cooking oil sector, agriculture inputs sector (seed), beef sector, beverages sector and milling sector.

“These improvements culminated in employment preservation and creation, increased capacity utilisation, enhanced product innovation and possibly exports resumption. There were, however, some few companies that merged but still collapsed,” she said.

Ms Ruparanganda acknowledged that the Government’s import management policies and industry support measures have led to increased investment and production.

“It is critical, however, to highlight that the success of these firms cannot be purely attributed to mergers as this was supported by other Government regulations and support measures such as SI (Statutory Instrument) 64/122 which significantly influenced the outcome of the merged entities.

“SI 64 introduced in 2016, merged firms which were about to fail due to import competition, got relief and managed to retool as a result of this import management policy for selected products. The SI promoted the growth in throughput as it encouraged consumption of goods produced by the local industry,” she said.

The Commission has received a number of mergers since its inception, with the trend oscillating depending on the obtaining macro-economic environment in the country.

CTC has approved 94 merger transactions since the dollarisation of the country’s economy in 2009 to last year as companies continue to consolidate their operations through seeking new partners.

“The number of mergers concluded by CTC fluctuated on a yearly basis albeit on an upward trend for the period 2009 to 2017. Between 2009-2010, the period the economy emerged from the 2007-2008 economic downturn, transactions increased from five to 11 per annum, as firms viewed merging as a mechanism to retool and secure working capital,” said Ms Ruparanganda.

However, the period 2010-2011 witnessed a decline in the number of transactions concluded, attributable to economic stability as firms explored alternative growth strategies other than mergers.

“CTC approved 10 mergers in 2013, a decline from 11 mergers approved in 2012. With rising confidence in the growth potential of the economy, 2014-2015 witnessed an increase from eight mergers to 13 mergers respectively, followed by a spike in 2016, where 20 mergers were approved by CTC, and marginally declining to 17 mergers in 2017. The transactions were largely approved with or without conditions and only one merger was prohibited as parties withdrew the merger during the course of examination, during the period 2009 to 2017,” said Ms Ruparanganda.

In addition to the mergers notified locally, the Commission also assess mergers notified under the Common Market for East and Southern Africa (Comesa) and then gives its determination on the effect of the merger in the Zimbabwean market.

The Commission’s contributions are considered when Comesa makes its final decision. The Comesa Competition Commission started operations in 2013.

The number of mergers notified under Comesa that were considered by the Commission has been increasing over the years since 2014.

Ms Ruparanganda said the performance of the merged entities can be monitored through impact assessments studies using the industrial organisation approach that focuses on financial and economic performance variables of merged entities pre and post the amalgamation.