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CTC sets tough conditions for Capri deal

Competition and Tariff Commission (CTC)

THE Competition and Tariff Commission (CTC) has directed Zimbabwe Stock Exchange-listed conglomerate, Innscor Africa Limited, to divest from Capri within six months for its deal with Annunaki Investments to be approved.

“The commission reviewed its decision subject to the condition of divesture. Considering this, the final decision of the commission was that: The acquisition by Annunaki Investments (Pvt) Ltd of an indirect interest in Capri be approved on condition that Innscor Africa Limited completely divests from Capri within six months of receiving the commission’s decision; the penalty paid of $848 464,48 for consummating the merger without approval of the commission, be maintained,” CTC said in its latest newsletter.

In February 2020, CTC received a notification of a merger involving Annunaki Investments and Innscor’s appliance manufacturing unit, Capri.

The merger was an acquisition of a 25% stake in Capri by Annunaki. Annunaki is an investment vehicle, wholly-owned by SSCG Africa Holdings. It controls Deilennar Investment, a commercial refrigeration leasing company; Mafuro Farming, a dairy farming business; and Aqua Aura, an agriculture centre-pivot distribution business.

SSCG is incorporated in Mauritius and Zimbabwe.

It has investments in fast-moving consumer goods, tourism, human resources recruitment, agriculture, mining, packaging, financial services, equipment leasing, restaurants and clothing industries in Zimbabwe.

Capri manufactures household refrigerators and is a distributor of electrical appliances.

CTC said the proposed transaction was classified as of a conglomerate in nature. Conglomerate mergers, by definition, do not pose serious competition concerns, however, in this instance competition concerns were in the indirect market of fund management because the merger had the effect of neutralising competition between two major competitors through indirectly uniting them.

CTC said given that household refrigeration market conditions are associated with high barriers to entry and that there is protection of the industry from import competition, predation was likely.

Furthermore, Capri, a dominant player on the market, is owned by Innscor Africa Limited, a deep-pocketed conglomerate.

CTC said acquisition of Capri by Annunaki gave another deep-pocketed company, SSCG control over Capri, which would further enhance Capri’s financial position. Capri could use this financial strength to sustain predation in restricting entry of new players on the market.

With regards to concerns of the merging parties, CTC noted that the merger was not necessary since Innscor was financially sound to meet the needs of Capri. The firm did not have any financial challenges which required funding support from SSCG.

This transaction intended to unite two competitors, Innscor and SSCG and since merger assessment was forward looking, any anticipated competition concerns had to be dealt with before they had actually taken place.

After analysing the transactions, the commission recommended that the merger be prohibited. It further imposed a penalty on the merged entity amounting to $848 464,48 for consummating the merger without its approval.

However, the merging parties were aggrieved by the commission’s decision to prohibit the merger and appealed to the Administrative Court. It was during the court proceedings that the merging parties sought for an out-of-court settlement to the matter. The merging parties then came up with proposals to finalise the matter and in the proposals, they managed to address the competition concerns raised by CTC.

The commission’s competition analysis established that although the merger was unlikely to change the structure of the relevant market, the merger would harm the competition landscape in the event of a new entrant trying to enter the market given that the two fund managers were deep pocketed.

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