Competition Commission authorises acquisition of BP, Game stores

COMPETITION & CONSUMER PROTECTION COMMISSION

PRESS RELEASE

26th JANUARY, 2011

 

CCPC DISPOSES SEVERAL COMPETITION CASES

For Immediate Release

The Board of Commissioners of the Competition & Consumer Protection Commission (CCPC) has at its 22nd extraordinary meeting held on 26th January, 2011 disposed of several key competition and fair trading cases that were brought to the attention of the Commission.

Acquisition of 75% Shareholding in BP Zambia by Puma Energy Holdings

The Competition and Consumer Protection Commission (CCPC) has granted final conditional authorisation for the acquisition of BP Africa’s 75% issued share capital shareholding in BP Zambia Plc by Puma Energy Holdings Limited of Ireland. However, the Commission in granting the authorisation noted that the proposed transaction raised competition issues in the relevant market for wholesale fuel and aviation sectors but would not likely lessen competition in the retail fuel and lubrication sectors in Zambia.

At an extraordinary Board of Commissioners meeting held at the Commission offices on 26th January 2011, the Board noted that the conditional authorisation was on the basis that BP Zambia was dominant in the wholesale and aviation sectors in the petroleum industry in Zambia. Specifically, the Commission authorised the transaction on the following conditions, that the Castrol distributorship agreement involving Dana Oil Corporation Limited should remain in force as previously authorised by the Commission, that the authorisation should not include the Lusaka International Jet Fuel Aviation facility as this matter is in Court, that Puma Energy shall take reasonable steps to ensure that its takeover does not result in high unemployment for a substantial number of workers currently employed by BP Zambia and that the authorisation by the Commission does not preclude Puma Energy from meeting any outstanding regulatory obligations under any other law such as the Energy Regulation Act.

In terms of Public Interest considerations, the Board expressed happiness that BP Zambia Plc will continue the employment of their current employees unless one decides to leave BP Zambia on their own volition, retire voluntarily or reach normal retirement age, the fixed term or temporary contract expires or BP Zambia is entitled to end employment for gross misconduct/gross underperformance for the first year post merger.

The Board welcomed the entry of Puma Energy Holdings in the petroleum sector in Zambia and hoped that the company would enhance service provision to the Zambian consumers that include the corporate and individual customers.

Puma Energy is a global vertically integrated midstream and downstream oil company active in Africa, Latin America, the Caribbean, North East Europe, the Middle East and Asia. Puma Energy does not have any physical presence in Zambia.  

 Puma Energy Holdings is a wholly owned subsidiary of Trafigura Beheer B.V, which was established in 1993. Trafigura and its subsidiaries conduct commodity-trading activities throughout the world purchasing, transporting and delivering commodities and on-selling these to industrial customers. On a global basis, it is one of the large independent traders of oil and also of non-ferrous metals.

Acquisition of 51% issues Share Capital of Massmart (Including Game Stores Zambia) by Wal-Mart of United States of America

The Board of Commissioners also granted final conditional authorization for the acquisition of 51% share capital of Massmart Holdings Limited of South Africa, including its subsidiary Game Stores Zambia by Wal-Mart Stores Inc., of the United States of America because it does not raise competition concerns in the relevant market of fast moving consumer goods and general merchandise.

 

Wal-Mart Stores Inc., operates retail stores formats in various countries globally and is reported to be organised into three divisions: Wal-Mart Stores United States of America; Sam’s Club and Wal-Mart International. Mainly Wal-Mart conducts business in nine different retail formats, namely supercenters, food and drugs, general merchandise stores, small markets, cash and carry stores, membership warehouse clubs, apparel stores, soft discount stores, and restaurants.

 

While Massmart is reported to have four divisions trading as companies and legal entities namely Massdiscounters, Masswarehouse, Massbuild and Masscash divisions. Massmart’s presence in Zambia is through its Game Stores in Lusaka which is held and operated by Massmart’s subsidiary in Zambia,  Massdiscounters Zambia trading as Game Stores Zambia Limited.

 The Board granted final conditional authorisation based on the desire to safeguard competition process and public interest though the transaction would not in the short run raise serious concerns that may lead to substantial lessening of competition, abuse of dominant position of market power. The final condition authorisation granted was on the basis that Wal-Mart Stores Inc., should undertake to honour existing supply arrangements already in place between Game Stores Zambia and its customers and take reasonable steps to ensure that its takeover does not result in high unemployment for a substantial number of workers currently employed by Game Stores Zambia Limited.

 The Board further noted that there was no market overlap between Wal-Mart Stores Inc., and Massmart Holdings Limited since the acquiring firm Wal-Mart Stores Inc., had no presence in Zambia. The Board generally considered the transaction as a foreign direct investment with no likely adverse effects in the relevant market where Game Stores Zambia is currently active. The Board also observed that import competition in the relevant market appears to exist and a substantial number of items supplied by the parties are imported hence it was unlikely that Game Stores could abuse its market position.  

Acquisition of Assets belonging to ETC Bio-Energy Limited by Zambeef

Products Limited

 The Board also authorised the acquisition of three farmers namely Chambatata Farm No. 4450,

Kampemba Farm No. 5388, Nampamba Farm No.4451 all located in the Copperbelt Province  

belonging to ETC Bio-Energy Limited. ETC Bio-Energy Limited is involved in the business of production of wheat, maize, soya beans, jatropha, barley, dry beans and paddy rice and submitted that it is a willing seller of the three farmers. Both Zambeef Products Plc and ETC Bio-Energy Limited submitted that in their opinion the acquisition of the ETC Bio-Energy Limited Farm assets does not and will not duly restrain competition nor have adverse effect on trade or the economy in general.

 Zambeef Product Plc submitted that it is a Zambian company listed on the Lusaka Stock Exchange (LuSE) Market with a broad shareholding basis from hundreds of Zambian individuals to Zambian institutions such as National Pensions Schemes Authority (NAPSA), Zambia State Insurance Corporation (ZISC), AfLife, Bank of Zambia Pension Fund, Professional Insurance, Madison Insurance, Barclays Pension Fund among others. The company is reported to be involved in the business of production, processing, distribution and retailing of beef, chickens, pork, milk, eggs, dairy products, edible oils, bread, flour, stockfeed; cropping/farming operations; and leather and shoes production.

 

The Commission undertook a comprehensive competition and public interest assessments and also consulted other stakeholders regarding the transaction in order to arrive at an informed decision. The Board therefore determined that it was necessary to mitigate the potential abuse of market position of Zambeef Product Plc and safeguard public interest even though the post merger market concentration ratio would not significantly change in all the three relevant product markets namely wheat, soya beans and maize and the market structure would remain the same because the transaction involves transfer of asset ownership which has very little impact on the composition of market players.

 The Board noted that it would appear there are low barriers in the relevant product markets as the sector continue to enjoy notable incentives and also prevailing excellent soils, water availability, land, climate, among others. It is the Commission is considered view that through Zambeef Products Plc’s reported rapid growth capabilities and increasing economies of scope and scale endowment the company would be able to fully utilise the farms in terms of cultivation in all the three relevant products namely wheat, maize and soya beans and the produce could sufficiently supply the grain to the company’s subsidiaries or division for onward value addition. Zambeef Products Plc, post merger, would not qualify to be a dominant or monopoly as defined under Section 15(a) of the Competition and Consumer Protection Act, No. 24 of 2010 that states that ‘‘a dominant position exists in relation to the supply of goods or services in Zambia, if thirty (30) per cent or more of those goods or services are supplied or acquired by one enterprise’’. Zambeef currently holds less than 30% in all the three relevant product markets pf wheat, maize and soya beans.

 

 In granting a final authorisation the Board gave condition that Zambeef Products Plc should: undertake to honour existing supply arrangements already in place between ETC Bio-Energy Limited and its customers; ensure reasonable access thereafter to the agriculture products by other downstream market players such as millers, bakeries and other food processors; and take reasonable steps to ensure that its takeover does not result in high unemployment for a substantial number of workers currently employed on the three (3) farms being acquired from ET Bio-Energy Limited.

Takeover of assets of Great Lakes Cotton Company (Zambia) Limited by Dunavant Zambia Limited

In a similar transaction, the Board conditionally authorised the takeover of assets of Great Lakes Cotton Company Zambia Limited currently under receivership by Dunavant Zambia Limited. The two companies are both involved in the business of cotton production and ginning in Zambia. The parties to the transaction submitted that the purchase of the assets belonging to Great Lakes Cotton Company Zambia Limited and will not have any changes in the organisation structure of the target firm currently under receivership.

The Board based on the findings and analysis determined that the relevant market was highly concentrated and in as far as market structural-conduct paradigm of competition and economics is concerned such a market is prone to collusive tendencies and hence likely inimical to the objectives of the Competition and Consumer Protection Act, No. 24 of 2010 of the Laws of Zambia. Dunavant Zambia was found to hold 43% of the market share based on production levels. Further, the Board noted that there are potential barriers in the relevant market that could emanate such as foreclosure of the market due to restrictive business contracts with outgrowers’ schemes which become vertically integrated with the ginning companies. In addition, the threat of exclusive arrangements in the relevant market could potentially weaken the outgrowers’ ability to negotiate for a best price and also influence the payment terms and conditions.

In granting final authorisation the Board determined that the transaction would not likely raise serious competition concerns that may lead to substantial lessening of competition, abuse of dominant position of market power but in order to remedy potential threats of market foreclosure it gave a condition that Dunavant Zambia Limited should undertake not engage in trading contracts that disadvantages the upstream cotton outgrower farmers particularly on pricing terms and duration of payments.  

SALE OF 60% SHAREHOLDING OF Mtawila Financial Services Limited (now called metropolitan Finance Corporation Limited) to Messrs Clement Mugala and Allington Morton Bota

 

The Board noted and granted unconditional final authorisation to a transaction involving the sale of 60 per cent shareholding in Metropolitan Finance Corporation Limited to Messrs Clement Mugala and Allington Morton Bota. Metropolitan Finance Corporation Limited (formerly Mtawila Financial Services Limited) is incorporated in Zambia and is involved in the business of micro-financing, and is licensed under the Banking and Financial Services Act, Chapter 387 in Zambia.

The Board determined that the transaction was not likely to substantially lessen competition because the market structure would not change in the post merger and that currently Metropolitan Finance falls short of being a vigorous competitor due to its weak balance sheet of which it anticipate to strengthen through this transaction. Furthermore, because of the meager market share of Metropolitan Finance in the relevant market, the Commission has reached to the conclusion that the consumers have a buyer-power and that the company is not likely to independently conduct itself in a manner that could adversely affect its customers.

In granting final unconditional authorisation to the parties the Board welcomed the transaction because there would appear to be no competition concerns likely to arise from this transaction in the relevant product market of salary based Microfinance loans in Lusaka, or the economy in general.

Brian M. Lingela

Director- Consumer & Public Relations

Competition & Consumer Protection Commission

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