Competition Authority director-general Adv. Michal Cohen has imposed financial penalties on food company Strauss Group (TASE: STRS) and tofu products company Wyler Farm and on officers of the two companies because of an unlawful merger between them. Strauss Group will be obliged to pay NIS 111 million, an unprecedented penalty for breaches of this kind, and Wyler Farm will be obliged to pay NIS 1 million.
In addition, three senior Strauss Group managers have been fined NIS 600,000 each: former Strauss Group CEO Giora Bardea; former Strauss Israel CEO Eyal Dror; and former Strauss Israel CFO Gur Zamir. Fines have also been imposed on three company officers of Wyler Farm, of between NIS 119,000 and NIS 154,000.
The Competition Authority found that Strauss Group and Wyler Farm carried out a merger without reporting it to the Competition Authority director-general and without her consent. Under the Economic Competition Law, companies wishing to merge are required to apply to the director-general of the Competition Authority and to obtain her consent before proceeding with the merger. The law forbids carrying out a merger, full or partial, before the director-general’s decision.
The affair began in July 2021, when Strauss Group announced its intention of merging with Wyler Farm. For Strauss, milk alternatives are a strategic segment, and it is working to expand its activity in it considerably, in cooperation with international food company Danone, under the Alpro brand.
The Competition Authority did not approve the deal between Strauss Group and Wyler Farm, because of the fear of harm to competition, and in the course of its examination it claimed that Strauss group had begun the merger process before receiving approval from the director-general.
In the merger negotiations, Strauss Group insisted that, after the merger, Wyler Farm should focus exclusively on tofu products. Wyler Farm expressed a desire to continue to deal in milk alternatives after the merger, but Strauss demanded that Wyler Farm should not be active in that field, as it intended to deal in it itself outside the framework of the merged company.
In the end, the companies agreed that, after the merger, Wyler Farm would not deal in that field.
After the merger agreement was signed, Wyler Farm acted in accordance with that understanding, and sought to divert financing that it had received from the Israel Innovation Authority for developing production processes for plant-based beverages and cheeses to development of tofu products.
In February 2022, the director-general of the Coopetition Auhtority expressed opposition to the merger, among other things because of the fear of harm to competition in fresh plant-based beverages (soy milk, almond milk, and so on), in which Tnuva is the dominant player, and which Strauss Group and Wyler Frams sought to break into.
Strauss Group and Wyler Farm did not appeal against the decision, and the merger was cancelled. In the course of its examination, however, the Competition Authority found that, even before the companies applied for approval of the merger, which in the end was not forthcoming, they had agreed that Wyler Farm would not deal in milk alternatives without prior approval in writing from Strauss Group. The Competition Authority director-general found that Strauss Group and Wyler Farm had thus breached the Economic Competition Law.
Concentrated market
The plant-based beverages market is a concentrated market dominated by Tnuva, and it was found that Strauss and Wyler Farm were the only companies working on entering that market in the foreseeable future. Both companies considered a quick entry into the market to be important. The merger agreements immediately halted all of Wyler Farm’s activity in the field, while Strauss Group continued to make progress. The breach not only held back Wyler Farm’s advent as a competitor in the fresh plant-based beverages market, but also diminished its incentive and ability to compete in that market in the future.
The NIS 111 million fine on Strauss Group was the highest provided for in the law at the time that the Competition Authority director-general announced her intention of imposing penalties.
The Competition Authority said that the director-general had taken into account the special circumstances in which Wyler Farm found itself because of the war, and had reduced the penalties on the company and its officers.
Maximum penalty
Fines of this order have never been imposed before for similar infringements. The highest fine up to now was of NIS 39 million, imposed in 2019 on the Central Bottling Company (Coca Cola Israel) for abuses of its monopoly status and breach of the conditions for a merger.
The size of penalties is a function of the sales turnover of the companies concerned, but the law set a ceiling (since revised) of NIS 100 million. By imposing the huge fine on Strauss Group and on company officers, the Competition Authority has made clear the severity of the infringement and its impact on competition.
Strauss Group: We’ll appeal
As soon as the Competition Authority announced its intention of imposing penalties, Strauss Group denied the claim that it had tried to prevent Wyler Farm from entering the milk alternatives market, and said that the dialogue between the companies had been about production and development of tofu products, and not about milk alternatives. Strauss Group also says that the size of the penalty is disproportionate to the value of the deal, which was NIS 20 million.
Competition Authority director-general Cohen said, "The fresh plant-based beverages market is a concentrated market that is growing and is highly important to consumers. We found that the breach had the potential of considerable harm to competition, in that it was liable to prevent the entry of a competing player that could have had an impact on the range of products in this area and their prices. The Competition Authority will continue with uncompromising enforcement in the case of any attempt to harm competition and the consumer."
Strauss said in a statement: "This is a strange and populistic decision, both in its reasoning and in the disproportionate size of the fine, and the company strongly rejects the Competition Authority’s decision. The company and the senior managers mentioned in the decision behaved as expected from officers of a leading public company and in accordance with proper corporate governance and on legal advice. The company is convinced that its conduct was flawless. The company will file an appeal, and we have no doubt that the company’s position will be accepted in the courts."
Published by Globes, Israel business news - en.globes.co.il - on October 30, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.