Unilever can’t but­ter its bread on both sides

The Com­pe­ti­tion Com­mis­sion is com­ing down hard on Unilever af­ter it and an­other food pro­ducer, Sime Darby, were ac­cused of col­lud­ing in the sale of ed­i­ble oils and mar­garine.

Finweek English Edition - - THE WEEK - By Lloyd Gedye editorial@fin­week.co.za

multi­na­tional con­sumer goods com­pany Unilever is the lat­est busi­ness to be fin­gered for car­tel ac­tiv­i­ties by the Com­pe­ti­tion Com­mis­sion. The com­mis­sion is al­leg­ing that Unilever and Sime Darby col­luded in the mar­ket for the man­u­fac­ture and sup­ply of bak­ing and cook­ing prod­ucts be­tween 2004 and 2013.

Sime Darby has al­ready set­tled with the com­mis­sion, agree­ing upon a fine of R35m and a com­mit­ment to in­vest R135m in pack­ag­ing and ware­hous­ing facilities that would com­pete against Unilever.

It has also agreed to ap­point a black eco­nomic em­pow­er­ment com­pany as dis­trib­u­tor from the pro­posed ware­hous­ing fa­cil­ity. Sime Darby will pay the fine in two por­tions, one within 30 days of the set­tle­ment and an­other within 11 months. It has also agreed to co­op­er­ate with the com­mis­sion in the pros­e­cu­tion of Unilever.

Com­pe­ti­tion Com­mis­sioner Tem­binkosi Bon­akele said food and agro­pro­cess­ing re­main an im­por­tant fo­cus area for the com­mis­sion.

Unilever’s cor­po­rate af­fairs direc­tor Si­bonile Dube told fin­week: “As the mat­ter in ques­tion is sub­ject to lit­i­ga­tion, we will not be com­ment­ing on it.”

Bon­akele said that the com­mis­sion had en­gaged Unilever about set­tling the mat­ter. “I was so sur­prised that they didn’t set­tle,” he said. “It was so un­nec­es­sary.”

The Com­pe­ti­tion Com­mis­sion is seek­ing a fine of 10% of Unilever’s an­nual turnover. Speak­ing to fin­week, Bon­akele said: “I don’t know what to say, the case is pretty straight for­ward.”

The com­mis­sion’s case

On 25 Oc­to­ber 2012, the Com­pe­ti­tion Com­mis­sion re­ceived a third-party com­plaint against Unilever and Sime Darby. The body ar­gues that the agree­ment be­tween the two com­pa­nies to not com­pete has its ori­gins in a sale-of-busi­ness agree­ment con­cluded by the par­ties in 2004, when Unilever sold its re­fin­ery busi­ness to Hud­son and Knight, which later be­came Sime Darby Hud­son and Knight.

In 2005, the com­mis­sion ar­gues, the par­ties amended the agree­ment when Unilever sold its Crispa and Hol­som busi­ness to Sime Darby. The com­mis­sion says a later raw-ma­te­ri­als agree­ment be­tween the par­ties “com­ple­mented and re­in­forced the agree­ment not to com­pete” as well as a co-pack­ag­ing agree­ment, which saw Unilever pack­ag­ing all of Sime Darby’s prod­ucts. Ac­cord­ing to the com­mis­sion, this gave Unilever an opportunity to mon­i­tor and en­force com­pli­ance. The com­mis­sion details a re­la­tion­ship dubbed by the Cor­po­rate af­fairs direc­tor at Unilever com­pa­nies as a “smart part­ner­ship”, which would see them bal­ance com­pet­i­tive­ness and co­op­er­a­tion and sym­bol­ised the “busi­ness syn­ergy” be­tween the two par­ties.

The net ef­fect of these al­leged col­lu­sive agree­ments was that Unilever and Sime Darby are al­leged to have en­tered into an agree­ment not to com­pete on cer­tain packs of mar­garine and ed­i­ble oils.

The com­mis­sion al­leges that they agreed Sime Darby would not sup­ply mar­garine blocks smaller than 15kg and ed­i­ble oils brand Crispa in units of fewer than 25 litres to in­dus­trial cus­tomers. This would pre­vent Sime Darby in tak­ing part in the re­tail mar­ket for mar­garine and ed­i­ble oils, leav­ing it to Unilever. As a quid pro quo, Unilever is al­leged to have agreed not to sup­ply in­dus­trial cus­tomers with its Flora brand of ed­i­ble oils.

The details of these agree­ments are laid out in doc­u­ments that the com­mis­sion at­tached to its re­fer­ral af­fi­davits; these doc­u­ments are ti­tled “non-com­pete ta­bles”. Pre­sum­ably sourced from Sime Darby, who are co­op­er­at­ing with the com­mis­sion.

Unilever staves off takeover

Unilever was the sub­ject of a po­ten­tial takeover last month, when the Kraft Heinz Com­pany’s pro­posed bid of $143bn went public. The deal col­lapsed just two days later. The de­ci­sion to drop what could have been the largest-ever takeover in the food and bev­er­age in­dus­try is re­ported to be a re­ac­tion to Unilever’s neg­a­tive re­sponse to the bid. The deal would have cre­ated a com­pany with com­bined sales of $84.8bn, with brands like Kraft Mac­a­roni & Cheese, Heinz Ketchup, Col­gate, Ben & Jerry’s ice cream and Mar­mite. Glob­ally, it would have been sec­ond be­hind Nestlé in the sec­tor. How­ever, com­pe­ti­tion lawyers have spec­u­lated that the ac­qui­si­tion may have re­sulted in close scru­tiny, as the pro­posed en­tity would have had sig­nif­i­cant mar­ket power. “Kraft Heinz’s in­ter­est was made public at an ex­tremely early stage,” said spokesper­son Michael Mullen. “Our in­ten­tion was to pro­ceed on a friendly ba­sis, but it was made clear Unilever did not wish to pur­sue a trans­ac­tion.” Fol­low­ing the failed trans­ac­tion, there have been calls in the me­dia for Unilever CEO Paul Pol­man to step down. He took the helm in 2009 af­ter pre­vi­ously hav­ing served as the Nestlé chief fi­nan­cial of­fi­cer for three years. He has had a very public spat with Tesco boss Dave Lewis in the UK over Unilever’s at­tempt to hike its prices. Tesco re­turned fire by re­fus­ing to stock the firm’s prod­ucts on its shelves.

Si­bonile Dube

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