Blow for billionaire Motsepe’s company in South Africa

 ·15 Jan 2025

An investment firm controlled by billionaire Patrice Motsepe may have to sell one of its fresh produce companies following an investigation into the market.

The Competition Commission published its Fresh Produce Market Inquiry (FPMI), which looked at the cross-shareholdings in market agencies.

The FPMI found that the African Rainbow Capital (ARC), founded and chaired by Motsepe, owns more than 50% of the RSA Group, which sells fresh fruit and vegetables.

Following a share restructuring, African Rainbow Capital (ARC) now owns over 30% of shares in both the RSA Group and Subtropico, which also sells fresh produce.

The FPMI said that, based on its evidence, ARC owns and controls the RSA Group, and may also control Subtropico.

“The FPMI is concerned about the alignment of economic interest between competitors with a common shareholder, particularly in a highly concentrated market.

“The reduced incentive to compete and seize market share from each other is what raises competition concerns.”

“In essence, this is because there is no benefit or incentive for the RSA Group to take market shares away from Subtropico (and vice versa) if margins and quantities remain the same, since
this will not change African Rainbow Capital’s overall investment returns from this market.”

The FPMI said that the weakening of competitive intensity occurs when some elements of the competitive framework result in less aggressive rivalry than would otherwise be expected, which could result in less focus on price competition.

“Furthermore, weaker competitive intensity between two firms can result in greater profits for those two firms.”

“Weaker competitive intensity that arises from avoidable features of market structure, such as common ownership, is consequently construed as distorting competition.

In its provisional findings, the FPMI said that a potential remedy would see ARC divest its shareholding in either Subtropico or the RSA Group.

However, ARC disagreed with the provisional finding, arguing that while a theoretical concern on
the potential competitive risks that could emanate from cross-shareholdings, any such
potential concerns only occur under a particular circumstances.

This requires an investigation into the role of the common shareholder in governing pricing decisions, and competitive dynamics.

Nevertheless, FPMI notes that ARC has significant knowledge and potential for influence at both the RSA Group and Subtropico, which extends beyond a normal passive investor.

“The FPMI is confident that even without an involvement in day-to-day decision-making, African Rainbow Capital has substantial influence over key actions of the company.

“In particular, one of the key actions of a company is to decide whether to compete ‘aggressively’ or ‘weakly’ against particular companies, or in general. These general decisions can influence market outcomes.”

It argued that a joint shareholder of two large players in an industry may focus on profits instead of attempting to capture market share from competitors it owns.

Influencing strategic behaviour at only one of two companies has the potential to change competitive dynamics in an industry and reduce competitive intensity.

The FPMI thus remained of the view that a combination of a highly concentrated market structure and the existence of large cross-shareholdings adversely affects the competing firm’s incentives to compete, leading to a distortion within the market.

Thus, the FPMI recommended to the Competition Tribunal that ARC must divest its shareholding in either Subtropico or the RSA Group.

The buyer must also be a firm wholly owned and/or controlled by a historically disadvantaged person.

The recommendation was suspended for six months, to allow ARC an opportunity to voluntarily comply with this remedial action.


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