cartels, collusion, COMESA, Kenya

Single Brush Stroke Stops Paints Cartel in its Tracks

Three years after an intricate East-African antitrust saga involving global European and Asian paint manufacturers, the industry is in the region’s competition-law news again.

Upon receiving allegations of cartel-like practices between paint makers and undisclosed distributors in 2018, the Competition Authority of Kenya (CAK) launched an investigation into the suspected companies. The investigations later uncovered that four firms, namely: Crown Paints, Basco Products Limited, Kansai Plascon and Galaxy Paints (Companies) were guilty of collusion and price fixing which subjected the purchaser to unreasonably high prices for various paint brands. The CAK has since revealed this to Parliament and handed down its finding on the alleged ant-competitive behavior.

Crown Paints has a flagship brand called DuraCoat, which includes paint products for both interior and exterior finishing (painting and waterproofing). Dura Brands’ exposed collusion with the other three companies sparked fears that consumers have been buying these products at largely inflated prices. This is particularly significant given that Crown Paints is listed on the Nairobi Securities Exchange and is a heavyweight in the local paints market, with subsidiaries in Uganda and Tanzania.

Ruth Mosoti, Primerio Ltd.’s Kenyan competition practitioner, notes that the “CAK ultimately found that all four companies were in direct contravention of section 31 of the Competition Act, which addresses restrictive trade practices that prohibit companies from colluding with one another in order to determine product prices, as well as control when and to whom they will offer pricing discounts. CAK alleges that these are all anti-competitive behaviors that are to the detriment of the consumer as well as other, outside competitors.”

The authority making preliminary findings that the parties were involved in anti-competitive agreements on price fixing, discount structure and transport charges.” – Stated by the CAK in its latest report tabled before parliament.

In line with section 36(c) and (d) of the Act, the CAK is entitled to impose financial penalties “to remedy or reverse the infringement or the effects thereof” which may span “up to ten percent of the immediately preceding year’s gross annual turnover in Kenya of the undertaking or undertakings in question”.

Of the four Companies, Basco Products Limited was the only company that did not challenge the CAK’s preliminary ruling and paid the penalty amount of Sh20.799 million for the infringement. The company further agreed to abstain from committing any similar breach in the future. While the other companies initially appealed the decision handed down by the CAK, AAT staff have now learned that up to 3 of the accused firms have opted to settle, having withdrawn their appeals.

COMESA

It is also pivotal to note that on the 25th of February 2021, the COMESA Competition Commission (Commission) issued a cautionary note specifically pertaining to the consequences of forming barriers to trade.

The Commission made reference to Article 16 of the Regulations which prohibits “all agreements between undertakings, decisions by associations of undertakings and concerted practices which: (a) may affect trade between Member States; and (b) have as their object or effect the prevention, restriction or distortion of competition within the Common Market”.

The abovementioned contravention is evident in the case at hand, with the Commission going on to state that it “…will work closely with the national competition authorities in the Member States to ensure that offenders are detected, investigated and punished”. Furthermore, there is particular focus on “hard enforcement through screening, detection, investigation and punishment of offenders”.

The detrimental consequences arising from the conduct of these firms is not only prejudicial towards the customer due to the fact that price-fixing also excludes rival organizations that do not agree to the collusive setting of prices from competing in the same market. Therefore, the steps taken by the CAK and COMESA are paving the way to a healthy and competitive marketplace.

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AAT exclusive, COMESA, East Africa, Kenya, mergers, new regime, Uganda

Akzo rejects CCC notification request, claims no ‘failure-to-file’ in paint deal

Paint giant goes on offensive against COMESA request for retroactive merger filing

By AAT Editors

As AAT first reported here on Sept. 26, the COMESA Competition Commission has launched its first failure-to-file investigation into an M&A transaction (here, likely, a licensing deal), specifically involving Dutch commercial paint giant AkzoNobel and paint brand “Sadolin“.

sadolin.jpgToday’s news, reported in local Ugandan media, is that AkzoNobel’s Director for Decorative Paints in Sub-Saharan Africa, Johann Smidt, made strong comments at the “relaunch” of Sadolin Uganda, claiming that Akzo’s reassignment of the Sadolin brand name & distribution network to Crown Paints East Africa falls outside the CCC’s purview.”  This sentiment was echoed by Crown’s CEO, Rakesh Rao, saying that “[w]e do not have a merger going on; we are a fully independent plant, so COMESA does not come into the picture at all.

Competition lawyers caution that, on occasion, a business person’s notion of what constitutes a “notifiable transaction” can be at odds with the legal definition thereof, says Andreas Stargard,  an antitrust attorney with Primerio Ltd.

“Whilst they may not be a classic ‘merger’ or ‘acquisition’ in the eyes of the business people, certain types of exclusive licensing agreements or even patent or other IP [intellectual property] assignments may very well fall within the purview of competition regulators, including the COMESA Comp Com.,” said Stargard.

The facts surrounding the transaction itself are by all accounts, fairly confounding.  As best as one can interpret the media reports, the former AkzoNobel license agreement was one with an entity called “Sadolin East Africa” (SEA).  However, upon the purchase of SEA by Japanese company Kansai Plascon (AKA “Plascon Uganda” in the region), Akzo cancelled the agreement and has now entered into a new replacement license with Crown Paints (AKA Regal Paints).  It is the cancellation and reassignment that, according to two letters sent by the CCC on September 19th and 25th, requesting that the companies make retroactive merger-notification filings to bring them into belated compliance with the COMESA merger regime.

For now, we know that Akzo remains defiant (presumably basing its critical position on advice of legal counsel), with its local director stating that “whatever we have done to date has been within the laws of this country and this region”.

While some of Akzo’s statements were presumably vetted by antitrust counsel, others are at odds with a “good” antitrust story and appear to be less-carefully made proclamations: Akzo has said that “we believe that we are going to improve competition because we have a new player who is introducing a new product and an existing player, who is Sadolin and we will continue to be here,” yet its director also noted “that the war of words between Sadolin and Plascon had eaten into their market share and that this had influenced their quick agreement with Crown paints”.

As attorney Stargard observes, “it is usually not considered to be an effective antitrust defence to claim that a competitor has ‘eaten into your market share’, and that your actions that are now under investigation were motivated by said competition…”

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