BY FIDELITY MHLANGA
REGULATORS have approved proposals by dairy products processing giant, Dairibord Holdings Limited (DZL) to merge with Tavistock Estates, Standardbusiness can report.
The deal is expected to give the Zimbabwe Stock Exchange listed giant access to more fresh milk volumes from the farming operation near Harare.
The transaction said through an examination of the Competition and Tariff Commission (CTC) last week, after it was satisfied that it will not create a monopoly in the dairy sector.
The approval came a few weeks after DZL disclosed that an earlier plan to merge with Kwekwe based competitor, Dendairy had flopped following over a year of negotiations.
But DZL chief executive officer Anthony Mandiwanza, two weeks ago said the hunt for mergers would continue after the setback, as the firm seeks to unlock shareholder value and build Zimbabwe’s dairy sector.
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The CTC received notification of the deal in March.
Part of the proposal said Travistock Estates was keen to enter a strategic alliance that will see DZL supporting its growth by facilitating funding in exchange for guaranteed milk supply.
In its verdict seen by Standardbusiness, the CTC explained how it came up with the decision.
“Foreclosure refers to an instance where actual or potential rivals’ access’ to supplies or markets is hampered or eliminated as a result of the merger, thereby reducing these companies’ ability and or incentive to compete,” the CTC said.
“Input and customer foreclosure theories arise from the fact that vertical transactions can create opportunities and incentive for firms to handicap rivals and such actions can harm competition if they weaken the constraint that rivals impose on the merged firm’s market power….the commission examined whether the merged entity would have the ability to foreclose,.
“In the downstream market, DZL is among the dominant players in an oligopolistic market.
“It, therefore, follows that DZL is an important customer to upstream firms such that if that market is foreclosed to competition… there may be competitive harm in the upstream market.”
However, the commission noted that local milk production remained far below national consumption, which has seen Zimbabwe spending millions of dollars importing approximately 60% of its milk requirements.
It said this meant that customer foreclosure would be unlikely, at least for the duration of the agreement, as the country is making efforts to ramp up milk production.
“It was concluded that the merged entity has and will have market power in the downstream market to engage in customer foreclosure and the agreement is exclusionary in nature giving rise to input foreclosure,” CTC.
“However, having the ability to foreclosure on its own does not render a merger anti – competitive.
“It is imperative to note that the merged entity has the ability to engage in customer foreclosure, it has no incentive to do so as it will not be profitable given the current milk shortages in Zimbabwe.”