Kellogg delays Pioneer's cereal merger

Image source: FutureLife.co.za

The deal will be put on ice until the Competition Tribunal makes a decision on the matter. The Competition Commission had initially recommended that the deal be approved without conditions, but Kellogg objected and aired its grievances before the Competition Tribunal in Pretoria, where an all-day hearing was held on Monday.

Future Life is the dominant player in the functional foods market and was founded by Paul Saad, brother of Stephen Saad, who founded multinational generic drug maker Aspen.

The Competition Tribunal adjourned the hearing and requested more documents from the disputing parties.

Pioneer Foods, the maker of the Bokomo brands of cereals including Weetbix, in April announced its intention to acquire a 50% stake in Future Life for an undisclosed amount. Pioneer said the transaction would complement its existing product line as Future Life owned SA's fastest-growing health brands in the functional foods space, where it had a limited presence.

The popularity of this type of food product has experienced rapid global growth, which has coincided with a rise in health-conscious consumption patterns.

Last year the market was valued at $4.8bn, and is projected to reach $9.07bn by 2020, according to a recent study.

But Kellogg has argued that Pioneer Foods' ProNutro and Future Life are already close competitors and merging the two entities would reduce competition between the two brands.

Kellogg estimated that the combined entry of the brands would control half of the market share of the ready-to-eat cereals segment under the broad definition that include all ready-to-eat cereals. Under a more narrow definition - which includes ready-to-eat porridges - the merged entity would control 80% of market share.

Legal counsel for Kellogg, Anthony Norton on Monday quoted Pioneer Foods CEO Phil Roux as having said that the JSE-listed food manufacturer did see Future Life as a threat. But Mr Norton argued that Pioneer's attempt to buy Future Life constituted an effort to eliminate the competitive threat Future Life posed.

Legal counsel for Pioneer and Future Life, Cliffe Dekker Hofmeyr, said Kellogg's opposition to the proposed merger was not based on any factual testimony or internal documents but rather it was premised on selective and inaccurate readings of the merging parties' documents and submissions made by third parties.

Jerome Wilson, of Cliffe Dekker Hofmeyr, also dismissed Kellogg's claim that a narrow porridge market, which Kellogg said excluded oats, existed.

The Competition Commission had earlier found that ProNutro and Future Life did not operate in the same market.