The Sunday News
Dumisani Nsingo Senior Business Reporter
THE Competitions Tariff Commission (CTC) has received eight merger notifications since the beginning of the year as a number of companies turn to amalgamating their entities as a panacea to survive the turbulent economic conditions prevailing in the country. CTC board chairman Mr Dumisani Sibanda said most companies were faced with working capital deficiency and riddled with debts and as such were resorting to mergers to steer away from challenges in pursuit of improving productivity and viability of their firms.
“The majority of companies in Zimbabwe are in dire financial stress, saddled with huge debts and therefore need capital injection. Concurrently, the economy is characterised by high cost of finance, low demand due to low disposable incomes, liquidity crunch coupled with smothering import competition and hence companies are turning to mergers as a panacea for survival,” said Mr Sibanda.
He said since the beginning of this year, the CTC has received eight merger notifications of which three have been concluded and the rest are still under consideration. Last year a total of 24 mergers were received with 16 being finalised in the same year while eight were carried over to this year with four already having been approved, namely Project Berry Actis 4 PCC and Food Lovers Market Holdings, National Foods and Breathway Snacks, National Foods and Pure Oil Industries and Takura Capital II, Cairns and AGRICOM. Two mergers were withdrawn by the merging parties while the other two remain outstanding.
“Overall, mergers are important to industries. Some lead to recapitalisation of the firms, some relieve their debts and some expand operations to the extent that they are able to withstand import competition. They are important to individual companies, industries and the economy at large by making struggling companies survive, maintaining employment and in some instances creating some employment.
“To the economy, mergers maintain local production, contribute to the minimisation of finished products imports and somehow reducing the country’s trade deficit. Examples are the cooking oil industry where after the merger of Surface Investments with Wilmar in 2011, two years later the nation witnessed an increased availability of the local product in the market and the subsequent elimination of cooking oil imports,” said Mr Sibanda.
He also said mergers by large retail chains like Pick ‘n’ Pay, Choppies and Food Lovers Market were used as entry strategies and have brought a lot of development in the FMCG industry.
“The quality and standards of retailing have significantly improved. There has been significant expansion of the local suppliers market and consumers are exposed to a variety of products. More so, there has been a noticeable drop in the prices of some commodities,” Mr Sibanda said.
Takura Capital acquisition of Lobels and Cairns, Anchor Yeast take over by Lasafrre are some mergers that served the companies from the verge of collapse. Mr Sibanda said CTC embarks on merger examination process as a way of proactively preventing mergers that would result in substantial lessening of competition and or creation of a monopoly situation contrary to public interest.
“Due to its economic growth facilitatory role, the commission in its merger examination process does not endeavour to prevent or prohibit any merger. Rather, it tries to facilitate the entry of new players, the expansion and growth of the existing ones. The Commission either approves the mergers without any conditions.
“In cases of some competition concerns arising out of the merger, the Commission approves with conditions to ensure post-merger effective competition exists in the given sector. In the extreme cases of anti-competitive mergers, then the Commission can reject the transaction,” he said.
Bulawayo based economist Dr Bongani Ngwenya said it was important for struggling local companies to consider merging to pull resources together for the purposes of enhancing sustainable competitive advantages.
“In an economy like ours, I do believe it makes a lot of business and economic sense for most of our companies to go the direction of mergers. Mergers are also a risk hedging strategy particularly in an economy like Zimbabwe. There is liquidity shortage in the economy, companies are not able to get enough capital funding, particularly from borrowing. It makes sense for merging options, to pull resources together,” said Dr Ngwenya.
