Introduction
As a young lawyer, like many others in this time, I got into the business because of the popular TV series “Suits”. The excitement of the corporate fiasco, the confidence of the litigants in arms, the heroes that saved the day and most importantly, the suits! I made contact with one of these heroes in the making in court one day. We exchanged pleasantries and as heroes in training often do, I asked him what his superpower was. He answered proudly, “transactions,” to which I queried which ones? The confidence left his eye and I realised that sometimes, as heroes we don’t always have the necessary information in our arsenal. This series of articles will equip our would-be hero through an exploration of the complex world of mergers and acquisitions.
Overview
“Would you like to work on a transaction?” These are the words a would-be hero dreams to hear during the course of their career. But what exactly does working on a transaction mean? And why is it one of the most exciting instructions a lawyer can potentially get in their career? After all, it is just a contract at the end of the day, isn’t it? The answer is not that simple. Transactions require a level of expertise and a skill set that often comes with the heavy price of responsibility. The attention to detail and the stakes are often higher than the average case, as the repercussions of failure to execute are often felt most keenly by the companies who intend to expand with an expectation to do so smoothly. The expert lawyer is often equipped with the rationale behind the regulations (and there are many!) of these transactions as they understand the system. The Competition Act [Chapter 14:28], that governs the fate of these companies aims to curtail any restrictive practices to ensure the competition in our economy flows smoothly and in a fashion that aims to protect the consumer.
In Zimbabwe, the body responsible for the regulation of Competition is the Competition and Tariff Commission. Their mandate? “To promote and maintain competition and fair trade in all sectors of the economy of Zimbabwe”. Their Vision? “A Zimbabwe with Fair Markets, Vibrant Industry and Enhanced Consumer Welfare by 2030”. As we unwrap the complexities of each fundamental provision involving Mergers & Acquisition (M&A), we shall explore the ways the Commission has improved the well-being of consumers and conversely, how they have fallen short of this duty.
Understanding the Competition Act’s motivations, is the logical way to identify the attempts in which the consumer can seek respite from aggressive corporate practices. The act details three main transactions, horizontal, vertical and conglomerate. In Innscor Africa Limited & Anor Vs Competition and Tariff Commission SC 52/2018, the court confirmed this position by stating-: “There are three types of mergers recognised under competition law – vertical, horizontal and conglomerate:
i. Horizontal
Horizontal mergers are those that take place between companies that are in direct competition with each other. An example of a horizontal merger includes the merger of TM Supermarkets by Pick n Pay. And example of a horizontal acquisition includes the acquisition of Makro Zimbabwe by OK Zimbabwe.
ii. Vertical
Vertical mergers are those mergers that take place between two related companies as in the case of a customer merging with its supplier. An example of vertical transactions are noted incorporates like Innscor, which acquired profeeds, and Irvines as stakeholders in the value chain for Chicken Inn.
iii. Conglomerate
Conglomerate mergers are those between two or more firms that engage in unrelated business activities with different customer bases. Such entities are not competitors and do not have a customer and supplier relationship. The merger between Kingdom Financial Holdings and Meikles Africa Limited is one example of such a merger.
Importance of Mergers & Acquisitions
The would-be hero is aware that in order to grow, a company must meet the demand of the market it serves and compete for the attention of consumers. Depending on the nature of the good, the lower the cost of the good, the more attractive it becomes for consumers. There are other factors that impact the attractiveness of the goods to the consumer such as the reliability of the brand and the quality of the product, however generally speaking, companies compete to ensure the cost of their good is competitive. A company must utilise strategies that aid in the development of more competitive products and the reduction of cost to the consumer, one strategy being M&As. When companies merge, they may enjoy the advantage of economies of scale. Economies of scale are financial benefits businesses receive as the production process becomes more efficient due to expenses being divided over greater quantities of goods. However, the position of control a single company could have within a market may create tyrannical behaviour within the market and discourage quality performances from our corporates, destabilising the market and increasing the cost of goods for a consumer in both choice and money. In addition, the possibility of increased unemployment is high as some aggressive M&A remove all “unwanted” assets after the transaction, leading to loss of employment. The hero understands that regulation must strike a balance between empowering competition and protection of the consumer, potential villains exist in both extremes. The Art of M&A seems to lie in understanding the hero’s journey itself. One must sometimes conquer to save the day. A key objective of the transaction is growth by absorbing non-competitive firms without causing inefficiencies in the market.If the would-be hero decides to take on this battle, these are some of the advantages that he may possibly encounter through M&A.
Conclusion
Considering that “Competition” in Zimbabwe is regulated by the Competition and Tariff Commission, this series of articles will focus on some of the Transactions that have been approved by the Commission in order to understand the world of M&A in Zimbabwe. Mergers and Acquisitions play a pivotal role in shaping the business landscape, providing opportunities for growth, efficiency, and strategic realignment. Success hinges on thorough due diligence, effective integration strategies, and a keen understanding of market dynamics, ensuring a synergistic outcome for all parties involved. Does our hero have what it takes to complete a successful transaction?
Kudzai Banganwa (BA Law, LLB University of Pretoria)
Gugulethu Mpofu (LLB International and European Law University of Groningen)