Archives 2023

Zimbabwe records 50% increase in merger transactions

ZIMBABWE has recorded a 50% increase in merger transactions since January this year as companies expand their portfolios in response to the Second Republic’s pro-business policies.

The Competition and Tariff Commission (CTC) has revealed that the manufacturing industry is dominating the approved 12 transactions followed by the financial and insurance sector as well as agriculture, forestry and fishing.

The Commission reveals that 75% of the transactions involved Zimbabwean firms and the remaining 25% involved South African companies acquiring local entities.

CTC spokesperson Mr Tatenda Zengeni highlighted that the increase in merger transactions is driven by investors’ desire to grow businesses.

“Seven merger transactions were approved without conditions and three were approved with conditions while one transaction was prohibited and one transaction awaiting representations. There was a 50% increase in merger decisions rendered in the first half of 2023 compared to the first half of 2022. The merger disapproved had negative ramifications in the FMCG market,” said Mr Zengeni.

“Post-merger, the merged entity would acquire market power to the detriment of competitors and consumers. In cases approved with conditions, companies in upstream markets were ordered to continue providing downstream firms at nondiscriminatory terms and conditions to address issues of input foreclosure after a merger has been consummated, then in other cases approved with conditions, companies were ordered to divest as a remedy to address anti-competitive concerns such as using market power to prevent competitors from entering or expanding in a market,” he added.

Some of the transactions concluded in the first half of the year include the acquisition of Marsh Holdings by Old Mutual Zimbabwe Limited, Zimco Group Proprietary by Autox Proprietary, the purchase of Fertiva Proprietary by Kali Union as well as a joint venture involving Horncul Investments and Blackhide Investments.

There is also the purchase of majority shareholding in Danny’s Auto by a South African Company, a merger involving Almin Metal Industries and City Glass and Paint, the acquisition of a 50% stake in Shanksville Farming by Annunaki Investments and the acquisition of a 100% shareholding of Davis Granite by Takura Capital Partners, among others. – ZBC

TIED OR CONDITIONAL SELLING

What is Tied or Conditional Selling?

Tied or conditional selling occurs when a supplier makes the sale of one product or service (the tying product) conditional on the purchase of another product or service (the tied product), and thus the tying product is not sold separately. An example is a situation where a supplier of medical devices to hospitals and clinics stipulates in its sales contracts that the consumable medical products used with the devices must be purchased exclusively from it. Such requirements significantly limit the customer base available to competing manufacturers of consumables. If the medical devices supplier has a substantial market power in the relevant medical devices market, the arrangement may amount to a restrictive practice.

Prohibition of Tied or Conditional Selling

Section 2 of the Competition Act [Chapter 14:28] (the Act) defines tied or conditional selling as “any situation where the sale of one commodity or service is conditional on the purchase of another commodity or service.”

The Act prohibits tied or conditional selling as a restrictive practice. A restrictive practice is defined in relation to tied and conditional selling as any agreement, arrangement or understanding, whether enforceable or not, between two or more persons, any business practice or method of trading, any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person or any situation arising out of the activities of any person or class of persons, which restricts competition directly or indirectly to a material degree, in that it has or is likely to have the effect of limiting the commodity or service available due to tied or conditional selling.

Anticompetitive effects of tied or conditional selling

Tied or conditional business practices are exploitative and exclusionary in nature and may act as a barrier to entry by new market players. Even in scenarios where there are no exclusionary effects, tying may have direct exploitative effects, for instance when used by suppliers with substantial market power to price discriminate, which is another anti-competitive practice. Anti-competitive effects of tied or conditional selling are as follows: –

To The Customer

• it has exploitative effects on consumers through forcing them to buy an undesired product (the tied product) in order to purchase the product, they want (the tying product)

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Zimbabwe Competition Law: Restrictive Practices

The Competition and Tariff Commission (“Commission”) is a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”) to implement and enforce Zimbabwe’s Competition Policy and Law. The Act provides for, as one of the Commission’s functions, the investigation, prevention and discouraging of restrictive practices which are contrary to public interest.

What are Restrictive Practices?

These are practices, agreements, understandings, or arrangements between independent companies that significantly lessen competition or limit market access. These practices reduce the degree of contestability of a market, such as cartels or other forms of horizontal or vertical market restraints, abuse of dominant market position, monopolization, price discrimination, and the like. They are employed mainly by dominant firms which have market power, preventing other firms from competing fairly in the marketplace, and often result in the exploitation of consumers by denying them choice and quality. 

According to section 2 of the Act, restrictive practice” means—

(a) any agreement, arrangement or understanding, whether enforceable or not,

between two or more persons; or

(b) any business practice or method of trading; or

(c) any deliberate act or omission on the part of any person, whether acting

independently or in concert with any other person; or

(d) any situation arising out of the activities of any person or class of persons;

which restricts competition, directly or indirectly, to a material degree.

Consequences of restrictive practices

Restrictive practices can: –

• undermine the efficiency and fairness of markets resulting in higher prices, poorer service delivery and stifling of innovation
• prevent or restrict entry into any market of new players producing or distributing any commodity or service
• result in the creation of monopolies situations which are contrary to public interest

Powers of the Commission to Investigate Restrictive Practices

Section 28 of the Act empowers the Commission to make such investigation as it considers necessary into any restrictive practice which it believe exists or may come into existence. 

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THE ADMINISTRATIVE PENALTY FOR NON-NOTIFICATION OF MERGERS  

All mergers which meet notification thresholds must be notified to the Competition and Tariff Commission (‘the Commission’) – a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”), mandated to promote and maintain fair competition in all sectors of the economy of Zimbabwe through regulation of mergers, amongst other areas. This article provides a general overview of the administrative penalty for non-notification of mergers as provided for in the Act.

What are the Timelines for Merger Notification?

Section 34A (1) of the Act, provides that a party to a notifiable merger is required to notify the Commission in writing of a proposed merger within thirty days of the i) conclusion of the merger agreement between the merging parties; and/or ii acquisition by one of the parties to that merger of a controlling interest in another.

What Happens if Parties Fail To Notify Within Stipulated Timelines?

If the merging parties fail to fulfil the above requirement and proceed to consummate a merger without the Commission’s approval, the Commission is empowered to impose a penalty as provided for in terms of section 34A (3) of the Act. The Commission may impose a penalty if the parties to a merger i) fail to give notice of the merger as required; and ii)proceed to implement the merger without the approval of the Commission.

What is the Level of Penalty Imposed by the Commission?

Section 34(4) of the Act provides a penalty imposed in terms of subsection (3) may not exceed ten per centum of either or both merging parties’ annual turnover in Zimbabwe, as reflected in the accounts of any party concerned for the preceding financial year. The penalty imposed by the Commission serves as a deterrent against non-notification of mergers and promotes compliance by merging parties. The applicable penalty is calculated as a proportion of merging parties’ turnover on a scale from zero percent (0%) to 10 percent (10%).

What are the Factors Considered by the Commission in Calculating the Penalty?

The penalty level is based on an analysis of factors listed in section 34A (5) of the Act. In determining whether the proportion of the penalty will be at the higher or lower end of the scale (i.e. 0% to 10%), the Commission will be guided by the extent of violation of the following factors:-

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Old Mutual takes over Marsh Insurance

THE Competition and Tariff Commission (CTC) has approved without conditions Old Mutual Zimbabwe (OMZ)’s acquisition of Marsh Zimbabwe (Marsh), an insurance and reinsurance broker business.

marsh has an insurance and reinsurance broker business in Zimbabwe, and also offers pension administration services.

Old Mutual is a Zimbabwean-registered company with various subsidiaries operating in the financial services sector and related markets.

Its operations involve short-term and life insurance, asset management, stock broking, funeral, and banking services.

In its latest newsletter, CTC indicated that it was notified of the acquisition in October last year.

In 2017, CTC launched its competition policy whose goal is to address challenges related to the control of mergers and acquisitions, anti-competitive agreements, cartels, and misuse of market power in key sectors.

“The commission classified the transaction as a vertical merger because there is a customer-supplier relationship between Old Mutual and marsh,” said CTC.

“The commission defined the relevant markets as the provision of short-term and life insurance and insurance broking services to the whole of Zimbabwe.

“Though both merging parties offer pension administration service, their contribution to the total fund administration services offered in the market is less than six percent and its contribution towards the business revenue and activities is insignificant.”

In considering the acquisition, the commission noted that it looked at the theories of harm that affect vertical mergers namely input and customer foreclosure.

Foreclosure, in this case, was analysed in line with the insurance broking and short-term insurance services only, said CTC.

Input foreclosure arises when the merges entity restricts access to the products or services that it would have supplied if the merger had not taken place.

CTC said the risk for competition relates to the effects from increases in input costs for rivals on the downstream market, especially if the merging firm has market power in the upstream market.

CTC receives five requests for mergers

The Competition and Tariff Commission (CTC) received five requests for merger approval in the first quarter of this year, Business Times can report.

The proposed mergers, which are contained in the latest CTC report, include a proposal by Sovereign Wealth Fund to acquire Dayriver Corporation Limited and the acquisition of Industrial Commodities  Holdings by Kali Union Verwal Tunsgesilischaft.

The Commission also received a request from Shepco  Industrial Supplies Private Limited to acquire Haggie Rand Zimbabwe while Investors in Africa-Takura  made an application to acquire Davis Granite Private.  Aluminium Metal Industries also requested to  acquire RD Architectural Aluminium.

Meanwhile CTC approved the acquisition of Shanksville Farming (Pvt) Ltd by Annunaki

Investments as well as the acquisition of Marsh Zimbabwe Holdings by  the country’s largest financial services group,  Old Mutual Limited.

“Given the analysis and the consideration that the merged entities will continue to operate separately; and that the merger was not substantially lessening competition, the Commission approved the merger without conditions,” CTC said in a first quarter bulletin.

The Commission said though both merging parties offer pension administration service, their contribution to the total fund administration services offered in the market is less than 6% and its contribution towards the business revenue and activities is insignificant.

CTC classified the transaction as a vertical merger because there is a customer-supplier relationship between Old Mutual and Marsh.

“Competition analysis considered theories of harm that affect vertical mergers namely input and customer foreclosure. Foreclosure in this case was analysed in line with the insurance broking and short-term insurance services only,” CTC said.

“Input foreclosure arises when the merged entity restricts access to the products or services that it would have otherwise supplied if the merger had not taken place.  The risk for competition relates to the effects from increases in input costs for rivals on the downstream market, especially if the merging firm has market power on the upstream market.”

https://www.businesstimes.co.zw/ctc-receives-five-requests-for-mergers

Buy local, competition regulator tells OK as condition for Food Lover’s takeover

OK Zimbabwe must buy 85% of its produce from local farmers under conditions set by the competition regulator for its takeover of three franchises of fruit and vegetable retailer Food Lovers Market.

The company, one of the country’s big two retailers, announced a deal in December to run three Food Lovers outlets; Bulawayo, Avondale and Borrowdale. The deal does not include the Food Lovers outlet at Honeydew in Greendale, which remains independent.

The Competition and tariff Commission (CTC) approved the transaction, but said the supermarket chain must keep current agreements with suppliers in place and make sure that most of the produce on the shelves of Food Lovers is locally sourced.

According to CTC, OK must “maintain or improve the existing trading agreement conditions with wholesalers and farmers that include inter-alia delivery and payment terms; procure at least 85% of its fruits & vegetable requirements from local farmers.”

The company must also “maintain or improve the existing employment contracts of (Food Lovers Market) employees at least for two years”.

OK is buying the fresh produce retailer as part of an attempt to step up its presence in what it called the “premium” retail market.

Its CEO Max Karombo said: “The group also welcomes access to promising supply chain synergies within the Food Lovers Market ecosystem and the rest of the OK Zimbabwe Limited Group. Our expectation is to build economies of scale in supporting local farmers and food processors to serve a wider range of stores.”

According to the CTC, the transaction does not bring a significant shift in market share between the merged entity and OK’s biggest rival, Pick n Pay.

However, CTC says it is important to avoid “monopsony”, where a market is dominated by one buyer.

Says CTC: “Monopsony power exists when a single buyer, OKZL in this instance, can dictate prices paid to suppliers, or control other aspects of the relationship that exists between themselves and their suppliers. It is therefore important to consider the possibilities of the merged entity engaging in such practices.”

OK Zim’s Food Lovers ordered to buy local

Ok Zimbabwe will have to procure the bulk of its vegetables from local farmers as part of conditions for its approved acquisition of Food Lovers Market.

Early this year, OK Zimbabwe announced its acquisition of Food Lovers Market Zimbabwe (Food Lovers) in Harare’s Borrowdale and Avondale as well as Bradfield, Bulawayo.

The transaction excludes the Greendale Store, which remains independently owned. According to Margaret Munyuru, OK Zimbabwe’s Company Secretary, in an announcement in mid-January, the transaction includes the grant of a Territorial License Agreement, which endows OK Zimbabwe Limited with territorial exclusivity for the expansion of the Food Lovers Market Brand within the Zimbabwean market.

OK Zimbabwe management believes that “with this acquisition, OK Zimbabwe Limited will enhance its participation in the premium retaining of gourmet food as well as fruit and vegetables categories.

“The group also welcomes access to promising supply chain synergies within the Food Lovers Market ecosystem and the rest of the OK Zimbabwe Limited Group.

“Our expectation is to build economies of scale in supporting local farmers and food processors to serve a wider range of stores,” said OK Zimbabwe chief executive officer Max Karombo.

Buying from local suppliers is one of the conditions set by the Competition and Tariff Commission (CTC) before the deal was allowed to sail through, Business Weekly can reveal.

As one of its conditions set by CTC, OK Zimbabwe will have to procure at least 85 percent of its fruits and vegetable requirements from local farmers.

Concerns also arise on the possibility by OK Zimbabwe to terminate employment contracts once the merger is consummated.

According to CTC, in its Q4 2022 Newsletter, termination of employment was unlikely given that OK Zimbabwe submitted that most Food Lovers employees will be offered employment contracts by OK Zimbabwe.

The Commission’s view is that there is need for a smooth transition of the taking over of the business of Food Lovers by OK Zimbabwe such that employment contracts are not abruptly changed.

Notice of an investigation into alleged restrictive practices in the medical sector by CIMAS Medical Aid Society in Zimbabwe

IT is hereby notified in terms of section 28 of the Competition Act [Chapter 14:28] that the Competition and Tariff Commission (hereinafter called the “Commission”) has commenced an investigation into an alleged restrictive practice, as defined in terms of section 2 of the Act, by Cimas Medical Aid Society. Section 28 of the Act empowers the Commission to undertake an investigation into any restrictive practice which the Commission has reason to believe exists or may come into existence.

It is alleged that Cimas Medical Aid Society (“Cimas”) deregistered Family Medical Clinic from the New Health 263 direct payment system. It is further alleged that, apart from the deregistration of Family Medical Clinic from the New Health 263 direct payment system, Cimas is neither reimbursing its members nor honouring claims for treatment of its members at Family Medical Clinic. Deregistration of Family Medical Clinic from New Health 263 direct payment system resulted in Cimas members having to pay cash for treatment at Family Medical Clinic. The Commission established that Cimas is a medical aid society which also operates a clinic in Masvingo, Cimas Clinic. Cimas is alleged to be indirectly referring its members to its own facility, Cimas Clinic.

The Commission has preliminary concerns that the alleged practice may result in members’ choice of healthcare being limited to Cimas Clinic and other healthcare providers preferred by Cimas where their medical aid cards are accepted. The practice may also create barriers into entry and expansion of Family Medical Clinic and other deregistered healthcare providers who may not compete fairly with healthcare providers that are paid by Cimas in real time using the New Health 263 direct payment system. The alleged practice may prima facie constitute a restrictive practice as defined in terms of section 2 of the Act.

It should be noted that the commencement of an investigation neither pre-supposed that the conduct being investigated is anti-competitive not that Cimas has violated the provisions of the Act. The Commission will, in accordance with the provisions of section 28 of the Act conduct an investigation in the medical sector focusing on the provision of medical aid services to determine whether the alleged practices directly or indirectly restrict competition.

Any interested person may submit written representations to the Commission stating how they have been affected by the issues under investigation, not later than 14 days from the date of publication of this Notice. Emails may be sent to director@competition.co.zw and/or enquiries@competition.co.zw or hard copies submitted to the Director, Competition and Tariff Commission, 23 Broadlands Road, Emerald Hill, Harare, Zimbabwe.

Any further enquires or clarification on any aspect of the Commission’s investigation may be directed to Mr. T. Mawundike, on Tel (+263) 773385035 or (+263) 853127-32, or email: tmawundike@competition.co.zw

CTC receives 7 merger applications… sets tough conditions for Bikita Minerals, Sinomine deal

THE Competition and Tariff Commission (CTC) received seven merger applications for approval during the third quarter of last year from the manufacturing, finance, insurance, agriculture and mining sectors.

These transactions, contained in the latest CTC report, include Lafarge Cement Zimbabwe’s purchase by Fossil Mines, the acquisition of Ndoro Microbank Bank by InnBucks, the purchase of Fifty-Four Plymouth Road by Surjay, and the purchase of Macro Enterprises by Crail Enterprises.

The commission also received merger applications involving the purchase of Charles Stewart Day Old Chicks by Shanksville Farming, the purchase of Annunaki Investments by Shanksville Farming and the purchase of Bilboes Gold by Caledonia Mining Corporation.

The acquisition of Bikita Minerals by Sinomine (Hong Kong) Rare Metals Resources Co, and the indirect acquisition of Zuva Petroleum by Tristar Transport LLC were also completed during the period under review.

The commission granted conditional approval for Sinomine (Hong Kong) Rare Metals Resources Co to acquire Bikita Minerals during the quarter. The commission was informed in February 2022 that Africa Minerals (Afmin) and Amzim Minerals Limited (Amzim) would be fully acquired.

Afmin and Amzim control 70,3% and 29,7%, respectively, of the issued share capital of Zimbabwe-based lithium mining business Bikita Minerals (Bikita Minerals). Sinomine is a wholly owned subsidiary of Sinomine Resources Group Co (Sinomine Group), a Chinese provider of mining services.

Through its subsidiaries, it engages in geotechnical services, the development of mineral properties, and the exploitation of rare light mineral resources (lithium, cesium and rubidium).

The CTC set various requirements before approving the US$180 million transaction between Bikita Minerals and Sinomine (Hong Kong) Rare Metals Resources Co.

It mandated that, if it is economically feasible, Bikita Minerals, its subsidiaries, affiliates, and successors-in-title sell lithium concentrates to any user who may be available in Zimbabwe on non-discriminatory terms and conditions.

Additionally, the company was instructed to commit to producing high-purity lithium from lithium concentrates within five years of obtaining the commission’s ruling.

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https://www.newsday.co.zw/business/article/200005965/ctc-receives-7-merger-applications-sets-tough-conditions-for-bikita-minerals-sinomine-deal