Huge blow for Innscor
….as Supreme Court revokes merger deal
LIVINGSTONE MARUFU
The Supreme Court’s decision to revoke Innscor Africa Limited’s merger deal with Profeeds, citing concerns that it would breach competition laws and create a monopoly in the stockfeed industry, has dealt a severe blow to the publicly traded conglomerate.
The diversified group has since been ordered to sell off its 49% stake in Profeeds and pay a ZWG40.6m penalty, representing a portion of the company’s turnover.
In 2013, Innscor, used its subsidiary Ashram Investments, to acquire a 59% stake in its main competitor, Profeeds, a move which was prohibited by the Competions and Tariff Commission (CTC).
But, in 2015 Innscor, snapped up a 49% in Profeeds where it failed to inform the CTC within the required 30-day period.
In its ruling, Supreme Court has set the precedent that a penalty of a little over 6% of annual earnings is legally sound, and that will be another warning signal but Innscor challenged the CTC’s decision at the Administrative Court and won, prompting the Commission to approach the Supreme Court on appeal where the court advised the diversified conglomerate to pay the required amount in Zimbabwe Gold (ZiG) currency.
“It also advised the respondents that it intended to impose a penalty of ZWG40 591 483.40 on Innscor through whose annual returns Profeed’s returns were being declared. The respondents, through their lawyers, made detailed submissions against the proposed decision to the appellant.
On considering the belated notification together with the respondent’s submissions, the appellant held that the merger was not in the public interest and was likely to create a monopoly by the respondents in the stock feeds industry. It prohibited the merger and ordered Ashram to divest its interest in Profeeds and imposed a monetary penalty in the sum of ZWG40 591 483-40 on Innscor,” Supreme Court said in its October 3 ruling.
The court said Innscor averred that CTC erred in finding that the transactions between them constituted a notifiable merger as defined in terms of s2 of the Act.
It further argued that the Commission erred in finding that the transaction was contrary to the public interest.
Innscor argued that the transaction was not contrary to the public interest as it boosted 4 Judgment No. SC 91/24 Civil Appeal No. SC 569/23 the economic fabric of the nation.
It further stated that the imposition of a monetary penalty was inappropriate in the circumstances of their case.
Despite Innscor’s defence, the Supreme Court ruled that the penalty was appropriate and should be paid.
“The court aquo failed to consider the potential harmful effects of the merger. It therefore did not make its decision in terms of all the applicable factors in assessing a merger…
Monopolistic tendencies must be carefully assessed because they may initially appear favourable, but in the long run they may – when the monopolists get to a point where the market has no other option but to buy their goods – turn around and control even the economy of a country by producing highly priced goods or substandard goods sold at high prices. They may also destroy small businesses in the future,” the Supreme Court said.
According to the Supreme Court judgement it found that there was a notifiable merger between the Innscor companies as defined under s2 of the Act.
“It found that after the merger, Profeed’s shops increased from 19 to 40 because of Innscor’s influence in its business, which enabled it to access loans and other services at concessional rates.
The court ruled that after the merger in 2015, Ashram owned 49% shares in Profeeds and 49% shares in Produtrade. It found that Ashram acquired direct interest in the businesses of Profeeds and Produtrade while Innscor acquired indirect interest and influence in Profeeds through its 100% ownership of Ashram. It further noted that when the respondents notified the appellant of their merger in 2019, Profeeds was operating profitably.
It ruled that Ashram acquired a controlling interest in Profeeds and Produtrade. The court a quo found that when the appellant made its decision, it did not invite the respondents to make representations,” reads part of the judgement.
The Supreme Court also found that the evidence on record, established that there were at least 20 other players in the stock-feeds market whereas previously only Profeeds and National Foods were the dominant ones.
“It found that the merger had a 5 Judgment No. SC 91/24 Civil Appeal No. SC 569/23 pro-competitive effect which is in the public interest as opposed to the appellant’s finding that the merger is against the public interest. Regarding the issue of imposing a monetary penalty, the court a quo ruled that the respondents contravened s 34 (A) (3) (a) of the Act.
The court found that a penalty of a caution and discharge was appropriate. It held that competition law exists to promote the welfare of the citizens. The court a quo therefore allowed the appeal in part thereby allowing the respondent’s merger and cautioning and discharging the respondents,” the Supreme Court said.
The court said the Administrative Court ought to have carefully considered the fact that Innscor retained a controlling interest in both National Foods and Profeeds, companies which specialise in manufacturing and selling stock feeds.
Innscor also has a controlling interest in Irvines Zimbabwe, a major customer of both Profeeds and National Foods.
An analysis of Innscor’s conduct shows that it desires to wholly control the stock feeds market which is not permissible, the Supreme Court said, adding that the merger “concentrated industrial power in the two biggest companies in the stock feed industry.
The Court noted that it was the third time Innscor had contravened competition laws.
Following the merger, Profeeds and National Foods controlled 57% of the stock feed market, with the next competitor enjoying just 11% market share.
