Dairibord and Dendairy have notified the competition regulator of merger talks, but are yet to submit an agreement on a deal that would integrate the country’s two largest dairy companies.
The Competition and Tariff Commission (CTC), which regulates competition in Zimbabwe, says it will decide on the transaction once the two companies submit their merger agreement for assessment.
“The two parties (Dairibord Holdings Limited and Dendairy Pvt Ltd) approached the Commission to discuss their intention to merge operations last year during the lockdown,” the CTC says.
“However, parties highlighted to the Commission that they will notify the transaction once the Merger Agreement has been finalised. The Commission is therefore waiting for the parties to formally submit their notification of the proposed merger once the Merger Agreement has been concluded.”
Under competition regulations, companies engaged in merger and acquisition talks notify the CTC when they start negotiations. They must inform the commission within 30 days of reaching an agreement.
ZSE-listed Dairibord is currently trading under a cautionary announcement, first released last July.
In the second half of 2020, the CTC handled a total of 13 mergers and acquisitions. Six decisions were made, while seven were carried over into 2021. The Dairibord-Dendairy merger will only be considered once the two companies submit their merger agreement.
Last May, the CTC reversed a deal by Natfoods, the country’s biggest stock feed producer, to buy 49% of Profeeds, another dominant player. The CTC said “the transaction has substantially lessened competition in the market by removing Profeeds, an efficient competitor”.
But Dendairy and Dairibord see the merger as central to the growth of the industry, and of both firms.
Mid-last year, Dairibord accounted for 38% of the national milk intake. A merger with Dendairy would dwarf number three rival Prodairy, which takes in 20% of the country’s milk. In the six months to June 2020, Dairibord’s sales volumes were 27.3 million litres. Raw milk intake for the period was 13 million litres.
Dendairy, Dairibord strategy
Dairibord sees Dendairy – with its network of farmers, processing potential and central location – as key to growth. Since privatisation in 1997, Dairibord’s merger and acquisition activity has met with mixed results.
Dairibord’s takeover of Lyons Zimbabwe in 2001 worked, as the company managed to grow Lyons’ already strong brands. In 2002, Dairibord bought 40% of confectioner Charhons, but sold the stake to Cairns in 2012. Dairibord unsuccessfully bid to takeover Cairns in 2015.
The company in 2019 sold its underperforming Malawi business, Dairibord Malawi, which it had bought in 1998.
Kwekwe-based Dendairy, formed in 2004, is owned by the Coetzee family. Scandinavian private equity firm Spear Capital bought 27% of Dendairy in 2015.
In 2018, Dendairy started a project to expand operations at its Kwekwe plant, adding three new packaging lines. These would double production from 4.6 million litres per month to eight million litres. The project was, however, delayed by funding and later by COVID-19, which disrupted procurement.
Dendairy owners are pushing for a deal that allows them to expand the plant.
“There are discussions (with Dairibord) regarding a possible merger…but these will only result in a deal if the Kwekwe operations are greatly expanded and we are actively involved in any future entity,” Dendairy MD Daryl Archibald said in a recent note to associates.
Dendairy has been looking beyond processing to invest more in raw milk production by investing directly in dairy farming. Part of this plan includes the controversial project to grow the drought-resistant Lucerne grass in Chilonga, Chiredzi.