THE Competition and Tariff Commission (CTC) has approved the acquisition of Metro Peech & Browne Wholesalers by Heartgroove Investments without conditions, indicating that the merged entity will resuscitate a potential competitor in the market.
In November 2023, the commission received notification of the acquisition of the entire shareholding in Metro Peech by Heartgroove.
Heartgroove is a Zimbabwean investment company, fully owned by Sub-Sahara Capital Group (SSCG), which indirectly owns Gain Cash and Carry. Metro Peech is owned by Midosa Investments, Spear Africa Holdings and Andrew Baker.
Heartgroove, through Gain, and Metro Peech are private companies involved in wholesaling and distribution of fast-moving consumer goods (FMCG) in Zimbabwe.
“After analysis, the commission approved the merger without conditions as the merged entity will not harm competition or create a monopoly situation against the public interest,” CTC said in its latest report.
In coming up with this decision, the commission focused on the market for FMCG wholesaling and distribution in Zimbabwe.
Considering that both companies are in the same business, the mergers were identified as a horizontal merger because the parties have a competitor relationship.
Analysis considered market shares, concentration levels and the substantial lessening competition test.
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Market shares and concentration levels provide useful first indications of the market structure and of the competitive importance of both the merging parties and their competitors.
Market concentration measures the extent or degree to which a relatively small number of firms account for a relatively large percentage of the market.
Pre-merger, the wholesaling of FMCG market was unconcentrated, implying that the market is less likely to have any serious competition concerns.
It said post-merger; the market remains unconcentrated as there was a small increase in concentration, making it less likely to have serious competition issues.
Metro Peech was put under corporate rescue on August 31, 2023 as it was a financially distressed company unable to service creditors and loan obligations.
The commission established that in 2022, Metro Peach made a US$5,09 million loss and in the six months to June 2023, it lost a further US$2,97 million.
Furthermore, as of June 30, 2023, the company’s net current liabilities exceeded its current assets.
In addition, its inventory holding was valued lower than its creditors and loan obligations.
Its net assets as of June 2023 were negative US$6,4 million. The company tried employing strategies meant to cut its perpetual losses.
“However, all these efforts did not bear fruit, which subsequently led to the closure of its remaining operational branches in November 2023.
"Thus, this merger is likely to be pro-competitive as it aims to rescue a failing firm,” it said.
The commission noted the market was highly competitive as imports and the informal sector growth exerts significant competition pressure in the relevant market.
Consumers can also import FMCG under the recent SI 80 of 2023.
Also, the FMCG product homogeneity and availability of numerous alternative suppliers accords consumers reasonable countervailing power in this relevant market, it noted.
On whether the merger will result in the removal of efficient competition, CTC said Metro Peech was once an efficient competitor in this market before the corporate rescue placement.
Due to challenges that negatively impacted its performance resulting in the company being placed under corporate rescue, the wholesaler ceased to be an efficient competitor in this relevant market.
“It is thus regarded as a failing firm and not an efficient competitor. Without the merger, Metro Peech will still exit this market given its financial challenges,” it noted.
