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.
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.