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JSE heavyweight gets caned

14 November 2007Gareth Stokes

The Competition Commission has fined Tiger Brands (TBS) R98.8 million for its role in a price fixing cartel. The fine amounts to 5.7% of Tiger’s national bakery (bread) turnover in the 2006 financial year. It is half the maximum penalty the Commission could have applied. The settlement agreement reached at the Competition Commission must now be forwarded to the Competition Tribunal for completion. As part of the agreement, Tiger Brands will implement in-house compliance programmes to counteract and eradicate any anti-competitive practices in the organisation.

Tiger Brands is not the first JSE listed heavyweight to fall foul of competition legislation. In 2005 South African Airways (SAA) was fined R100 million following a complaint brought to the Commission by Comair. And in September 2007 the tribunal handed Mittal a whopping R691.8 million fine for charging excessive prices for its flat steel products. SAA paid the last of its fine in June this year. Mittal is busy weighing its options; but is likely to appeal the decision.

Let’s take a closer look at what got Tiger Brands into all this trouble.

Price collusion must be stamped out

Tiger Brands operates the Albany bakery which was part of a cartel responsible for manipulating bread prices in the Western Cape. Albany conspired with Sasko and Dues Bakeries which are both owned by unlisted Pioneer Foods. The result of their activities meant independent distributors operating in the Western Cape were paying between 30 and 35 cents per loaf too much for bread in December 2006. Both Tiger Brands and Premier foods cooperated with the Competition Commission investigation and will assist the Commission in bringing other members of the cartel to justice.

A quick look at the latest news surrounding the event reveals this bizarre statement. Tiger Brand’s spokesperson Jimmy Manyi told Sapa: “The Company [Tiger Brands] did not benefit from the price-fixing. I don’t know who did, but we did not.” In case you were wondering, Manyi has repeatedly denied South Africa’s skills shortage in his role as Chairman of the Commission for Employment Equity. Manyi also chairs the Black Management Forum. On the balance of information available we suggest that Tiger Brands benefited by between 30c and 35c per loaf sold through Albany Bakeries in the Western Cape. That’s why they went before the Commission and agreed to the administrative penalty imposed.

If Manyi’s comment is indicative of the company’s official line, the Commission should reconsider the penalty levied on Tiger Brands. The group is obviously unaffected by the near R100 million fine and fails to appreciate the nature of its transgression.

Hardly a ripple on the company bottom line

While a fine of this magnitude would probably bankrupt any number of smaller businesses operating in South Africa today, the majority of large cap shares on the JSE simply shrug their shoulders at such an amount.

With just more than 158 million shares in issue, we calculated the fine would amount to 63 cents per share. That’s 63 cents off the headline earnings per share (HEPS) in the 2007 financial year. What will the impact be? A quick look at the group’s latest full year results (to September 2006) reveals that Tiger Brands posted a R1.7 billion profit in the year. This equated to HEPS of 1 207 cents.

Shortly after receiving news of the massive administrative penalty, Tiger Brands issued a trading update. They say they achieve an improvement of between 5% and 7% in HEPS despite the fine. So investors can expect the group to declare HEPS of between 1267c and 1291c in 2007. Not bad after suffering a R98.8 million surcharge.

Regulators active in many areas

Participants in the financial services industry will be pleased to note that they are not the only industry in the crosshairs of regulators. The Competition Commission (and Competition Tribunal) is out their fighting for consumers too. What FAnews Online found interesting when scanning through a list of recent cases posted on the Tribunal websitewas the number of large corporations instituting actions.

In the competitions environment big corporations bring complaints against other big corporations. Where financial services regulators are concerned it seems individuals, brokers and smaller financial service providers are almost always in the line of fire.

Editor’s thoughts:

The R98.8m fine levied against Tiger Brands is effectively paid out of shareholders profits. Management who condoned and implemented the anti-competitive pricing structure appear to escape without further censure. What does this case say about the management accountability at large corporations? Follow this link to add your comment – or email your response to gareth@fanews.co.za

Comments

Added by Eph, 17 Jun 2013
The price of bread at gauteng pls help us to fix the mess at price of wheat bread is R10,50 pls help.
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Added by Joe, 18 Nov 2007
Three questions to please ask Tiger - when did they first become aware of the size of the fine and did they immediately disclose it due to it potentially affecting share price - ethically required by senior executives - this was not the responsibility of those rogue employees who they claim have been doing the collusion since 1994 without their knowledge - have they any knowledge of any further collusion being investigated as further collusion may point to more senior involvement and widespread unethical / illegal behaviour within the company . Such information could have major implication on prices - what share options were sold during the course of competition commission investigations
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Added by John, 14 Nov 2007
I have no doubt managers who make decisions supporting collusion s/be held responsible for their actions and suffer the consequences both financial and legal. Incidentally spokespeople who follow up with ridiulous comments should be fined for believing we are as stupid!!!
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Added by Shane Thom, 14 Nov 2007
So what is anti-competitive behavior? "Practices are business or government practices that prevent and/or reduce competition in a market or as i like to view it as a form of protectionism, Tariffs and Quotas which give firms insulation from competitive forces . It is usually difficult to practice anti-competitive practices unless the parties involved have significant market power or government backing. Although anti-competitive practices often enrich those who practice them, they are generally believed to have a negative effect on the economy as a whole, and to disadvantage competing firms and consumers who are not able to avoid their effects, generating a significant social cost. " ... Wikipedia So what is the Life Offices Association (LOA). "The LOA is an association of registered long-term insurance companies conducting business in South Africa. The LOA is a forum where member offices can interact to promote their interests and the interests of current and future stakeholders. The LOA recognises that these interests will be served best by a soundly managed economy with the benefits of economic growth being shared by an increasing proportion of our population." ... About LOA (www.loa.co.za Interesting!!
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Added by Keith, 14 Nov 2007
Should he ever loose his job, there will always be a job for Manyi in Zimbabwe. They need a new spin doctor. Shareholder value has been deminished by the fine and reputational damage. Shareholders, don't hold back, sue the board. They won't have to pay the money once again, there is a directors and officers liability insurance policy just waiting to pay out for this kind of thing. Go on, ..Have a crack.!!!! At least you'll get your money back.
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