On 21 May 2020, the Competition and Tariff Commission (CTC), the Zimbabwean competition authority, prohibited the acquisition of a 49% shareholding in Profeeds (Pvt) Limited (Profeeds) by Innscor Africa Limited (IAL). As the transaction had been implemented in May 2015, in addition to ordering the parties to unwind the transaction, the CTC imposed a fine of approx. ZWD 40.5m (approx. USD 1.6m as at 22 June 2020) for the parties’ failure to notify. Despite questions on the CTC’s approach to aspects of the transaction, the matter highlights the material risks of gun-jumping under the merger control regime for those investing and operating in Zimbabwe.
Profeeds is a manufacturer of stock feeds including poultry feed. IAL is a vertically integrated company in the poultry sector whose activities range from the breeding of day old chicks through Irvines Zimbabwe (Pvt) Limited (Irvines) to the manufacture and distribution of stock feeds through National Foods (Pvt) Limited (NFL). IAL’s acquisition of the stake in Profeeds was implemented in May 2015 without the CTC’s approval as the parties had taken the view that the 49% shareholding did not constitute a controlling interest for the purposes of the Zimbabwean merger control regime. After material engagement with the CTC, the parties notified the transaction in February 2019.
In deciding that the transaction was a notifiable merger, the CTC would have no doubt been influenced by the previous enforcement action against IAL. In 2013, the CTC imposed a fine of approx. USD 2.5m on IAL for failing to notify its acquisition of a 49.9% stake in NFL. While the 49% shareholding in Profeeds, as a private company, could have given rise to decisive or material influence, it is not clear whether the CTC made reference to any shareholder agreement or memorandum of incorporation to check if IAL could block decisions on matters of strategic importance.
In addition to determining that the parties had failed to notify the transaction, the CTC ruled that the transaction should be prohibited. Under the Zimbabwean merger control regime, the CTC may prohibit mergers if they are likely to substantially lessen competition or result in a monopoly situation. While the CTC is likely to have considered Profeeds’ vertical and horizontal relationships with entities in the IAL group, it is not clear whether the CTC undertook the necessary economic analysis to substantiate the necessary competitive harm. For example, the CTC would need to prove either that any horizontal concentration in the stock feeds market substantially undermined competition or that Profeeds’ vertical relationship with Irvines could have led to substantial customer or supply foreclosure. Moreover, the CTC would need to show that prohibition was the only means to address the competition concerns.
While the robustness of the CTC’s jurisdictional and substantive approach should be further probed, the matter highlights the material risks of gun-jumping under the Zimbabwean merger control regime. Based on IAL’s financial statements, the fine amounts to between 3 to 6% of IAL’s annual turnover in the last financial years. This level of fine is significant compared to the fining practice of other African competition authorities in dealing with failure to notify as, for example, the South African Competition Commission has until recently sought to impose fines commensurate to the applicable filing fee.
The author would like to thank Michael Balie for his assistance in writing this blog.