17 Jun 2015 Nkunzi deal approval lets Clover in at Woolies

Nkunzi Milkyway is a Pretoria-based Ayrshire milk processor that sources and packages Ayrshire milk products for Woolworths, supplying some 60% of the retailer’s Ayshire milk products in the province, as well as its in-house brand, Nkunzi Milkyway.

Clover will now manufacture and pack fresh milk and cream in addition to other dairy products for up-market retailer Woolworths at the acquired Nkunzi facility as well as its Clayville plant in Midrand, Gauteng.

Though this is not a major deal, it’s important for Clover as the industry begins to consolidate, and because the authorities were wary earlier of the negative impact the deal could have on competition and small players.

The competition commission rejected the proposed merger in December 2014, saying it raised both competition and public interest concerns. The concerns included the impact the transaction could have on small farmers, and the possibility of job losses.

After the involvement of the competition tribunal, the parties agreed on the conditions for the deal to go through.

These include an undertaking by Clover not to retrench any employees as a result of the transaction. In addition, Clover will invest in production capacity and facility upgrades, which will in part be driven by Woolworths’ 2020 growth strategy.

Clover will take over existing Nkunzi supply agreements with producers on the same terms and conditions, or renegotiate supply agreements with producers on an individual basis.

Clover CEO Johann Vorster said Ayrshire’s name in the dairy sector has become well known over the past two decades thanks to substantial investment by Woolworths. “Ayrshire’s strong brand is aligned closely with Clover’s, as it is synonymous with quality dairy products,” he said.

Vorster believes the local dairy industry is too fragmented and needs to consolidate to grow, but says it would take a merger of big players to achieve significant economies of scale. This may be the beginning, reports the Financial Mail.

Rival listed player Rhodes Food Group is Woolworths’ exclusive provider of Ayrshire milk and cream in the Western and Eastern Cape.

Source: Financial Mail; FB Reporter