Innscor ordered to divest from Prodairy
The Competition and Tariff Commission (CTC) has ordered Innscor to divests from the Prodairy/Kershelmer merger while the separate entities were fined a combined US$343,000.
The ruling comes as Prodairy (which is partly owned by Innscor) acquired 50 percent of the s
hareholding in Kershelmar a rival company in the processing of dairy and dairyrelated products.
The deal also included Mafuro Farming which supplies raw milk two both Prodairy and Kershelmar.
The CTC classified the transaction as a horizontal merger with vertical elements, as both Prodairy and Kershelmar compete in the dairy processing market while Mafuro, a subsidiary of Innscor and Progroup Holdings, supplies raw milk to milk processors.
The CTC noted that the transaction was implemented without its approval, hence the merging parties violated notification provisions of the Act and therefore liable to a penalty.
In light of the above, it was recommended that the CTC approves the Prodairy/Kershelmar merger on condition that either Innscor or ProGroup divests from the merged entity while Prodairy and Kershelmar will have to pay a penalty of US$284,246.15 and US$59,179.55 respectively for consummating the merger without the CTC’s approval.
In granting the conditional approval, the CTC noted that the horizontal component of the merger revealed that the Probrands/Kershelmer merger did not result in unilateral effects as the relevant market has Dairiboard Zimbabwe Limited (DZL) which is an equally strong rival.
“There is existence of countervailing buyer power, and the merger does not enhance existing barriers to entry.
“Notwithstanding that the transaction strengthens the oligopolistic nature of the dairy processing market, the merger reduced the wider market share gap that existed between DZL and its rivalsushering effective competition to DZL once a dominant player,” reads the CTC’s analysis in part.
The CTC also believes that the vertical element of the merger indicated that although Prodairy/Kershelmer had ability to engage in customer foreclosure, it had no incentive to do so as it would not be profitable given current local raw milk shortages in Zimbabwe.
However, the Commission noted serious competition concerns emanating from Innscor’s and Progroups’s presence in the upstream markets of the dairy value chain, particularly the feed market.
Through subsidiaries, Innscor and ProGroup Holdings supply stock feed which accounts for between 60 percent – 70 percent of the cost of producing raw milk in Zimbabwe.
Innscor and ProGroup, through National Foods Limited and Profeeds, controls the supply of stock feeds in Zimbabwe, commanding 57 percent market share which can therefore afford to give Mafuro and other contracted dairy farmers large discounts on stock feed, with the same not being extended to dairy farmers supplying Prodairy/Kershelmar’s rivals.
The CTC thus ordered either Innscor or ProGroup to divests from the merged entity.-eBusiness Weekly
