COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 42/LM/Aug03
In the large merger between:
Heinz Foods South Africa (Pty) Ltd
and
Today Frozen Foods (a business unit of Pioneer Foods (Pty) Ltd) ; John
West (a division of Heinz SA (Pty) Ltd) and Heinz Wellington (Pty) Ltd
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Reasons for Decision
________________________________________________________________
Approval
1. On 1 October 2003 the Competition Tribunal issued a Merger Clearance
Certificate approving the transaction between Heinz Foods South Africa
(Pty) Ltd (“Heinz Foods”) and Today Frozen Foods,a business unit of
Pioneer Foods (Pty) Ltd (“Today’s”); John West, a division of Heinz SA
(Pty) Ltd (“ John West”) and Heinz Wellington (Pty) Ltd (“Heinz
Wellington”).The reasons for this decision follow.
The transaction
2. The transaction entails the establishment of Heinz Foods South Africa
(Pty) Ltd (“Heinz Foods), a joint venture between Heinz South Africa (Pty)
Ltd (“Heinz SA”) and Pioneer Foods (Pty) Ltd (“Pioneer Foods”) and the
transfer of the three target businesses to the joint venture.
3. Heinz SA will hold 50.1% of the issued share capital while Pioneer Foods
will hold the remaining 49.9 %.
The parties
4. The primary acquiring firm is Heinz Foods, a newly established joint
venture company jointly controlled by Heinz SA and Pioneer Foods.
5. Heinz SA is controlled by H.J Heinz Company, (“Heinz USA”), a company
based in the USA.
6. Pioneer Foods is controlled by the Pioneer Food Group Limited.
7. The primary target firms are the following business divisions:
i) Today Frozen Foods, a business unit of the Bokomo Foods
division of Pioneer Foods;
ii) John West Foods, a division of Heinz SA, and
iii) Heinz Wellington, the existing joint venture between Heinz SA and
Pioneer Foods.
Rationale for the transaction
8. The parties cite the international expertise of Heinz on the one hand and
the technology, recipes, marketing and established local infrastructure of
Pioneer Foods as the rationale for the transaction.
9. Furthermore, it appears that discussions relating to the existing joint
venture, Heinz Wellington, revealed that it would require further funding,
technology and additional brands in order to successfully continue. The
parties believe that this transaction offers all of the above.
Evaluating the merger
The relevant market
10. The Commission found the only product overlap in the frozen readytoeat
meals between HEINZ USA and Today’s. However, there is no
geographic overlap, since the geographic market is South Africa and
Heinz USA is not active in the local readytoeat meals market.
11. Heinz Foods will be active in the following products:
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HEINZ FOODS SA (PTY) LTD
TODAYS FROZEN
FOODS
Pastry, ies,
sausage rolls, pizza
bases, frozenready
toeat meals, patties
and burgers
HEINZ WELLINGTON
All branded HEINZ
productstomato
sauce,canned beans,tinned
soups and instant
noodles(not pasta).
All SAFARI &
WELLINGTON brands –
tomato sauce,chutney, chilli
sauce and minced fruit.
JOHN WEST
Imported tinned seafood
(salmon,oysters,shrimps),
tuna, tinned exotic fruits
and bottled spices.
Impact on competition
12. Subsequent to the merger, Pioneer Foods will continue with all its other
business activities as before, while all of Heinz SA’s businesses will be
consolidated into Heinz Foods. Thus the transaction will not impact on the
competitive status of any market.
13. The Commission highlighted the restraint of trade clause contained in the
joint venture agreement as well as the long term supply agreement
between Pioneer Foods and Today’s.
14. In terms of the restraint, the parties essentially undertake not to compete,
directly or indirectly with the joint venture in the manufacture, distribution,
sale or promotion of any of the products that fall within any of the product
categories in which the joint venture trades. The restraint is applicable
only for the duration of the partnership and terminates as soon as one of
the parties is no longer a shareholder in Heinz Foods.
15. The parties submit that these restraints have no impact on competition
and are commercially justifiable as intended to protect their investments
and the motivations of the parent companies. We accept, as we have
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elsewhere, that such a restraint is commercially reasonable for parties
entering into a joint venture. 1
16. The acquisition agreement in respect of Today’s is subject to a suspensive
condition that Heinz Foods and Pioneer Foods enter into supply
agreements in respect of flour and packaging materials.
17. These agreements will not significantly impact on competition as Pioneer
Foods has always supplied its subsidiary, Today’s. Today’s flour
requirements are an insignificant percentage of Pioneer’s total flour
production and Pioneer Foods is not restrained from selling flour to
competitors of Heinz Foods. Furthermore, the supply of packaging does
not form an integral part of Pioneer Foods’ core business.
Public interest
Employment
18. Food and Allied Workers Union (FAWU) filed an intention to participate in
the matter, however no further submissions were made.
19. The parties submit that the transaction will have the following impact on
employment :
i) the total complement of 126 employees at Today’s will be
transferred to Heinz Foods,
ii) John West employs 10 people, 8 in Gauteng, 1 in KZN and 1 in
the Western Cape. It will require 5 people to relocate to the
Western Cape. Affected employees who do not accept the
relocation offer will be given full severance packages;
iii) Heinz Wellington does not employ its own people since its
production, sales and marketing functions are contracted to SAD
(which is now a division of Pioneer Foods). The cancellation of
this contract will result in 19 job losses, however, these
employees are entitled to apply for the 11 positions that will be
available in Heinz Food’s sales and marketing division.
20. At the hearing the parties informed us that recent discussions
with FAWU indicated that the union’s concerns related to
with FAWU indicated that the union’s concerns related to
relocation of Pioneer Foods’ Wellington operation to Worcestor,
and not to the joint venture transaction.
1 See Compagnie Gervais Danone and Clover Beverages / Clover SA (Pty) Ltd and Danone
Clover (Pty) Ltd, Tribunal case no. 04/LM/Jan03.
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Conclusion
21. We conclude that the merger will not lead to a substantial
lessening of competition and there are no significant public
interest concerns. Accordingly, we agree with the
Commission’s recommendation that the transaction be
unconditionally approved.
8 October 2003
N. Manoim Date
Concurring: D. Lewis, M R. Madlanga
For the merging parties: Jan S De Villiers Attorneys
For the Commission: L. Mtanga, Legal Services Division, Competition
Commission
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