Nkunzi Milkway and Clover merger prohibited by Competition Commission

In December 2014, the Competition Commission prohibited Clover S.A. (Pty) Ltd from merging with Nkunzi Milkway (Pty) Ltd. Clover is a branded consumer goods company that sells a range of dairy and non-dairy products in South Africa and certain other African countries. Nkunzi primarily manufactures fresh dairy products including Ayrshire, organic and lactose-free items and derives most of its revenue from the sale of fresh dairy products to Woolworths. Post-merger, Clover would have sole control of Nkunzi.

One of the concerns raised about the potential merger was that there was the possibility that Clover would increase the number of products it supplies to Woolworths which would compromise the businesses of smaller suppliers/processors of dairy products because of Clover’s relative position in the market. Competitors submitted that there is a shortage of Ayrshire milk in the country and it was likely that Clover would offer the competitors’ independent suppliers of Ayrshire milk a better price in order for Clover to increase its own supply to Woolworths. This would result in the competitors not being in a position to supply Woolworths and they may lose Woolworths as a customer.

There was also the concern that Clover may not pay farmers the correct value for the Ayrshire milk that makes it sustainable and profitable for producers to continue to breed Ayrshire cows. This would be anti-competitive and lead to more farmers exiting the market. The Competition Commission therefore prohibited the merger, as it was likely to lead to a substantial prevention or lessening of competition in the market for the manufacturing and supply of dairy products and raise public interest concerns in the market for the procurement of milk.