Commission sees Massmart plan for a fund to take out rivals as 'sinister'
Dec 14 2009
Retail Wrap >>

This month the Competition Tribunal described remarks made by Massmart chairman Mark Lamberti’s as "sinister". The remarks were contained in minutes of board meetings that were part of the evidence considered by the competition authorities in its probe into the proposed acquisition of Port Elizabeth-based wholesaler Finro by Massmart subsidiary Masscash. He had recommended the Massmart board consider establishing a "fighting fund" to "take out competitors". Lamberti stated in relation to a Massmart rival: "We have to force them into a position where they make no money. We cannot allow our competitors to flourish. Our margins may have to drop to fend off competitors." 

The commission had recommended the tribunal ban the transaction, but last month it said it was approving the deal. This week it released its reasons for granting the approval.

Andre Wessels, the recently appointed tribunal member, said in his reasons there was insufficient economic or other evidence that the deal would result in higher prices, or other adverse affects, to the spaza shops, small superettes and independent convenience stores in the Port Elizabeth (PE) area.

Wessels dismissed the possibility that Massmart might use the Finro acquisition to promote a predatory strategy that would raise barriers to entry in the PE market, stating there was no evidence that Massmart had such a strategy in PE.

However, Wessels did raise concerns about the "sinister" tone of Lamberti's boardroom comments. In his lengthy account of the reasons for allowing the merger, Wessels refers to Masscash's strategic vision, to be the preferred supplier to its customers in each regional market in which it trades.

Wessels notes that Massmart's stated strategy of striving for dominance in these markets "cannot be faulted from a competition law perspective", but adds "when it is read in context with other statements in the board minutes the ambition to achieve dominance acquires a much more sinister hue".

When combined with Lamberti's suggestion that the group establish a fighting fund, Wessels said Massmart's dominance strategy "clearly goes far beyond bullish commercial talk of fierce rivalry and healthy competition practices".

Wessels said that while the tribunal approved the merger, its members were "dismayed" at the "lack of full and timely disclosure of relevant documents by Massmart".

In its reasons for approving the merger, the tribunal also criticised the Competition Commission's use of survey and statistical evidence in its investigation of the likely effect of the transaction and was critical of input from Nielsen's.

Massmart chief executive Grant Pattison said he was "happy with the material findings of the report".

Adapted from Source: www.busrep.co.za, 3 December 2009