PHILLIMON MHLANGA
The Competitions and Tariffs Commission (CTC) has dealt a setback to listed agro-processing giant National Foods Holdings’ (Natfoods) plan to merge with stock feeds producer, Profeeds, saying the proposed move would have created a monopoly in the stock feed industry.
CTC is a body mandated to adjudicate competitions matters in Zimbabwe.
The deal, which would have created a combined feed manufacturing company called African Feed Mills (Private) Limited, was tabled a few years ago. The new entity would have operated as a separate unit with Natfoods, a behemoth which is doing well compared to peers in the agro-industrial sector taking a 40 percent stake in the company while Profeeds, one of the leading manufacturers and distributors of stock feeds in the country, take the remainder.
Although the proposed transaction, whose value was estimated to be about $10 million presented exciting opportunities for the two companies, CTC which has rejected the proposal believed allowing the proposed hostile deal to go through would ultimately lead to a cartel, something which is against public interest. CTC said it has since registered its decision with the High Court of Zimbabwe.
Analysts told Business Times this week that the bid, which would have been one of the biggest deals in recent years in Zimbabwe, reflected consolidation desires by manufacturing companies which are searching for ways to increase profitability as conditions for the industry become tougher. The risk, however, analysts indicated would have been that a combined entity, African Feed Mills, would have a huge brand footprint and control such a wide product line in the industry, a situation that would allow it to flex bargain muscles, in terms of price increases even more.
“The transaction involved the proposed amalgamation of the stock feed manufacturing business of National Foods Limited and Profeeds (Private) Limited,” CTC said.
“The transaction was classified as a horizontal merger. The transaction was prohibited as it was likely to substantially prevent or lessen competition or create a monopoly situation that may be contrary to public interest in the production and distribution of stock feed market,” CTC added.
The two stock feed companies are owned by Innscor Africa, which controls about 37 percent shareholding in Natfoods and a 49 percent stake in Profeeds. It is understood that under the proposed deal, Natfoods and Profeeds, would have sold their respective stock feed manufacturing assets and lease immovable property to African Feed Mills (Private) Limited, which was expected to improve efficiencies and cost structures.
The transaction was expected to ensure the two firms—Natfood and Profeeds—utilise their capacity to the fullest while boosting their strengths against competition from major competitors, Agrifoods and Blue Ribbon Industries.
However, what was unique about this deal was that Natfoods and Profeeds would have remained separate and effectively competing in the market, meaning the two companies would have maintained their line of business other than stock feed. The shareholding in each business would have also remained the same.
