The Sunday Mail
Africa Moyo
CASH-THIRSTY local firms are increasingly being swallowed up by foreign firms, with statistics from the Competition and Tariff Commission (CTC) indicating that it approved 13 mergers in the first half of the year. Last year, only eight deals were approved. There are two more proposed mergers that are presently under the microscope, while four deals have not yet been examined. If all the proposed transactions are approved, the number of mergers will ultimately rise to 21.
CTC chairman Mr Dumisani Sibanda told The Sunday Mail Business that there has been a rise in applications for both tariff relief and mergers.
“Local companies have high operating costs, which have made locally produced goods more expensive compared to imports. Our (production) costs are really too high and Government should move with speed to address this.
“Exports from Zimbabwe are less viable and there is need for internal devaluation for local companies to remain competitive,” said Mr Sibanda.
Internal devaluation is an economic and social policy option whose aim is to restore the international competitiveness of companies by either managing labour costs or other costs affecting the employer.
Government is currently making efforts to breathe life into the National Competitiveness Commission by re-modelling the former National Incomes and Pricing Commission (NIPC).
Financial Express analyst Mr Respect Gwenzi said mergers bring with them advantages of scale which help lower costs and sometimes lead to the maximisation of profits through monopolisation of markets.
“In the context of Zimbabwe, mergers may help bolster the concerned entities’ capacity to borrow and, even so, at less punitive rates.
“The proposition derives from the increased asset base and capacity that is resultant in a merger. This is even more so relevant in Zimbabwe because most companies have become highly geared and opting for mergers improves the companies’ capacity to attract capital.
“The most prevalent scenario is however that involving foreign entities directly acquiring local firms of interest. Acquisitions are rife at the moment, mainly because most local firms are struggling to secure capital of a long-term nature to retool antiquated operations.
“This has weighed heavily on most entities which have resorted to short-term money at high rates, leading to losses,” said Mr Gwenzi.
He added that foreign companies bring with them increased capacity to underwrite business as well as finance retooling and working capital needs.
“These companies are by and large usually bigger than the acquired companies by both market share and value and bring technical expertise.
“Zimbabwe has been closed to credit lines and acquiring firms are better positioned to pull financial resources from their countries or beyond,” explained Mr Gwenzi.
The latest merger has been the US$6 million deal between Anchor Yeast and French firm Lasaffre (Societie Lessaffre Industrielle).
Under the scheme, Lesaffre acquired a 60 percent stake in Anchor Yeast which had been struggling in recent years.
Johannesburg Stock Exchange-listed ZAAD Investment Limited’s seed manufacturing subsidiary Klein Karoo Saad Bemarking also acquired 80 percent equity in local seed manufacturer, Agriseeds.
Although the figures involved in the transaction remain a closely guarded secret, Klein Karoo intends to invest US$10 million in the next few years.
Similarly, SR Amando Holdings Limited and Wilmar Investments acquired 50,69 percent in local cooking oil maker Olivine Holdings in a deal valued at US$6,74 million.
Wilmar Investments acquired the stake previously held by the industrial Development Corporation of Zimbabwe (IDC).
The CTC also approved the acquisition of the assets and liabilities of Pannar Seeds by Du Point Pioneer in a deal worth about US$30 million.
The merger transformed the two firms into one operating under Pioneer Hi-Bred (Zimbabwe) (Pvt) Limited.
Pioneer is the world’s leading developer and supplier of advanced plant genetics, providing quality seeds to farmers in over 90 countries.
National Foods Limited’s proposed merger with ProBrands and Pangolin Products is still “under examination”.
National Foods intends to acquire a 50 percent stake in Pangolin Products, which focuses on the production of long-life milk.
Pangolin Products was formed by ProBrands directors Messrs Neil Philp, Calum Philp and Tidings Chimpondah.
Irvines Zimbabwe, an Innscor subsidiary, had earlier attempted to acquire a 59 percent stake in ProBrands but the proposal was rejected by the CTC.
