The Competition Commission will be arguing against the merger, as the commission feels that it will trim competition in the seaside city.
Massmart is the third-largest distributor of consumer goods in Africa and has a presence in 14 countries in sub-Saharan Africa through four divisions comprising 254 stores, with brand names such as Game, Makro, Jumbo and Builders Warehouse.
Finro is a family grocery wholesaler focused on selling to small independent traders. These traders then resell the edible and nonedible items to customers.
Massmart wants to purchase 75% of Finro through its subsidiary, Masscash. Finro would retain the remaining 25% interest. The commission has recommended that the deal be blocked as it would limit competition in the Port Elizabeth region.
When the recommendation was published, competition commissioner Shan Ramburuth said the merger would remove “an effective competitor in the food sector, a priority sector for the commission”. This was based on surveys with nearly 400 retailers who buy from wholesalers.
“All consumers are suffering under the burden of food inflation, but this merger could have adversely affected the poorest of the poor, who suffer the most,” said Ramburuth.
The commission's recommendation that the merger be prohibited is based on the fact that the two parties are the closest competitors to each other in the region. “This rivalry between the merging parties benefits consumers, particularly those in the lower living standard categories,” said the commission.
It was also concerned the acquisition would allow the merged entity to “significantly raise prices in the affected markets to the detriment of consumers”.
The commission found that there were no public interest gains that would “outweigh the potential anticompetitive effects of the proposed merger”.
Absa Investments analyst Chris Gilmour said he understood the commission's view, given its concern about food prices, but recommending the deal be blocked was a bit harsh. “The merger is pretty small in anyone's book. I would be surprised if it materially affected competition in the region,” he said.
Hearings are due to be held from 19 August to 2 September.
Source: Business Day
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