ONE might presume that the latest noises around possible collusion in the fishing industry would immediately be muted if empowerment company Brimstone Investment Corporation sold off its small stake in Oceana Fishing Group.
It would seem the competition authorities - at least according to media reports this week - have got their knickers in a knot around the fact that Brimstone has board representation in two fishing groups - Oceana and Sea Harvest.
Oceana is controlled by Tiger Brands, which recently sold off its controlling stake in Sea Harvest, to Brimstone. Brimstone, in turn, holds a 10% (11.8% if we take into account shares held in treasury) in Oceana.
The inference from competition authorities is that having directors of competing companies serving on the boards of both companies could lead to collusion.
According to Sake24, tribunal chairperson David Lewis expressed serious misgivings about the fact that the directors of Brimstone (Sea Harvest) were still serving on the board of Oceana (Tiger Brands). "It smells of market-sharing; whether this in fact is happening is clearly for the commission's further investigation to determine."
Maybe it's best to step away from the situation for just a moment.
When Brimstone was formed way back in the mid-nineties some of the first investments taken aboard in the fledgling empowerment company were stakes in Oceana and Sea Harvest. Brimstone, which scaled back its investment portfolio after listing in the late nineties, retained its fishing interests as strategic investments.
Oceana is a diversified fishing company covering mackerel to pilchards to lobster to squid, and also holds substantial cold storage interests. Oceana's main brand in SA is Lucky Star canned pilchards.
Sea Harvest is a Saldanha-based hake specialist, producing a range of frozen hake brands. Hake is the one area where Oceana does not have a sizeable position.
How exactly two fishing companies with such different operating profiles could collude around "market sharing" is quite difficult to see. If anything will influence the price of fish in shoppers' baskets it's the scarcity of certain species, and the lengths some fishing companies have to go the secure viable catches when species migrate far away from processing plants.
Having said that, there was talk in 2007 that Oceana and Sea Harvest could merge to form an enlarged fishing and seafood group with Tiger Brands as the anchor shareholder and Brimstone as the main BEE partner.
Those negotiations were unsuccessful, and were never revisited.
This year it seemed Tiger Brands was ready to sacrifice Sea Harvest (by selling its controlling stake to Brimstone) to ensure its aborted bid to AVI Industries - which owns fishing and seafood specialist I&J Holdings - did not rile the competition authorities.
Of course, the presence of Brimstone directors on both boards could also be more mundanely explained. Brimstone is renowned as a hands-on investor - a BEE partner that really tries to add value to its investments. In that light it's hardly surprising for Brimstone to have directors on the boards of companies where it holds substantial investments.
Gut feeling, though, is that Sea Harvest could - under the control of the Brimstone consortium - broaden its sphere of operation, and perhaps compete in segments where Oceana plies its trade.
For that reason one might suspect it's a matter of time (months or even weeks) before Brimstone directors Mustaq Brey and Fred Robertson step down from the Oceana board.
That's the easy bit.
The more difficult bit is how Brimstone can end its relationship with Oceana to allow it to start building on Sea Harvest. There seems every chance that in years to come Oceana and Sea Harvest may well become rivals, especially if further consolidation takes place in the local fishing sector (where Sekunjalo's Premier Fishing and AVI's I&J Holdings are the other two main players).
The general notion is that Brimstone will sell its stake in Oceana sooner rather than later. That should be no problem because Oceana shares have traded robustly following the release of some excellent results to end-September 2008.
The potential hassle in the short term, however, is whether Brimstone will need to offload its Oceana stake to an empowerment partner. One might remember how Real Africa Holdings battled to find a BEE buyer for its stake in Oceana (which was eventually bought by Tiger Brands in late 2006).
Presumably Tiger Brands could buy back Brimstone's stake and warehouse the shares until an appropriate empowerment opportunity comes along.
The overriding point is that ultimately the Oceana/Sea Harvest/Brimstone/Tiger situation is one that market forces will, in the short to medium term, sort out. There's really no need for the competition authorities to get into a tizz...
- Fin24.com