Innscor faces penalty for not giving notice of NatFoods acquisition

Published: 10 June 2013

Innscor Africa faces a penalty from the Competition and Tariff Commission for not giving notice of its intent to acquire a majority stake in National Foods.

The commission noted during a stakeholders meeting on Friday that Innscor gradually increased its shareholding in NatFoods but failed to notify the relevant authorities in particular CTC of the process. Innscor is said to have only given notification of the acquisition when investigations into the move had already started.

Innscor acquired a 36% stake in NatFoods in 2003 and increased it to 49.9% in 2011 but later sold around 11% in 2012 to Tiger Brands leaving it with 37.82%. CTC only received notification of the transactions in 2012.

CTC chairman Dumisani Sibanda said as there had been no notification of the acquisition, the commission was bound to penalize Innscor.

Innscor, which has stakes in a dozen renowned companies under its ambit, is accused of suffocating many businesses out of the food industry. The CTC probe was triggered by a plethora of complaints lodged by affected companies and observations by the CTC itself.

The probe was instituted in line with Section 28 (2) Chapter 14:28 of the Competition Act, with the corporate behemoth being investigated mainly for two issues, that is, restrictive practices and creating a barrier against other companies.

The move, according to submissions made at the hearing by competing companies had lessened competition as the new Innscor group had strong market power. The new group which also included a stake in Colcom saw Innscor be involved in milling, pork processing, bakery, fast foods and stock feeds.

Representatives from Victoria Foods said the acquisition of NatFoods had created dominance and had given the group power to determine the pricing structure as there was internal price transfer. This, Vic Foods argued was not reflective of the correct production costs thereby dictating the prices for the whole market.

Joel Katsande from Vic Foods said Innscor should have declared upfront its intentions to acquire NatFoods and given peers the opportunity to give representation as was the norm elsewhere.

Vic Foods also said because of the big structure created by Innscor, the company was unable to supply such companies like OK Bakeries as these are run by Bakers Inn. The company said that even at CFI group level, Suncrest cannot supply to its traditional customers as Innscor also owned Irvine's.

It was noted by the hearing that some bakeries had folded as a result yet Innscor was making huge profits as NatFoods' would place priority in supplying flour to the Innscor bakeries. "Sometimes we are bullied into accepting the price, which comes from the company," said some of the bakeries.

The Consumer Council of Zimbabwe said the acquisition and the dominance of the Innscor group as a whole had affected freedom of choice as most Spar Stores under Innscor only carry Bakers Inn bread.

CTC vice chairperson Varaidzo Zifudzi clarified to the companies that being a dominant player was not unlawful but what was not permissible according to the Act was the abuse of that dominance through price manipulation.

A representative from the Industry Ministry said though overall government encouraged innovativeness and investment, the acquisition of NatFoods by Innscor resulted in restrictive practices, which could result in the closure of the smaller players. "Government encourages competition and consumers overall should have a wide range of goods and services to choose from."

However Innscor represented by lawyer Andrew Magandiwa from Wintertons Legal Practitioners advised by Alwyn Pichanick said they were not in a position to respond as submissions made related to restrictive practices and not on the acquisition as earlier been planned. Magandiwa also noted that none of the group's units Natfoods, Bakers Inn etc were there to make their defence submissions.

Sibanda postponed the hearing saying it would be made after 21-days to allow Innscor to prepare their submissions.
- finx