Johannesburg - Murray & Roberts, a construction firm, responded angrily to suggestions by a government official it was a burden to the state of the economy, saying government should desist from its "trial by media".
These comments come in the wake of fresh allegations by the Competition Commission, a scion of government and aimed at nailing down anti-competitive business behaviour in South Africa, that Murray & Roberts' Cape Town Iron & Steel Works (Cisco) colluded with industry peers on pricing.
The deputy commissioner of the Competition Commission said on a radio business programme on Tuesday that the confessions the commission had so far elicited "... are indicating clearly that once again this [cartel activity] is an industry norm" in the construction industry.
Cisco is one of four producers of long steel products being referred to the Competition Tribunal for prosecution after the Competition Commission said it found activities of collusion.
"The Commission is recommending a fine amounting to 10% of Cisco's 2008 full year turnover, which equates to 16% of Murray & Roberts' 2009 full year headline earnings," the commission said in a statement. Murray's headline earnings were R2.01bn at end-June.
According to the commission, price collusion had denied society "... full, timely and affordable
access to housing and essential infrastructure; all resulting in improper cost inflation such as to burden the state and economy".
Murray & Roberts lodged a complaint with Tsediso Matona, the director-general of the trade and industry department, adding that: "Murray & Roberts categorically denies these allegations and statements of widespread and prevalent collusion".
"We're unhappy with the way in which the competition authorities accused companies in public, leading to a "trial by media"," said Ed Jardim, a spokesperson for Murray & Roberts. "We're not happy that they haven't done their homework properly," he said.
Cisco denied any knowledge of cartel behaviour.
"The forensic investigations undertaken by Murray & Roberts consequent to the so-called "dawn raids" by the Competition Commission, indicate that if anything, Cisco is a victim of predatory pricing by the larger inland steel mills," it said.
The investigation was a result of concerns raised by the trade and industry department, and research conducted by the commission, that suggested the steel mills were charging local steel customers at around import parity price levels since 2002.
Shares under pressure
One consequence of the allegations of collusion was that construction shares had taken a dip.
BoE Private Clients analyst Leith Wimble said: "Sentiment is likely to be negative, in the short-term, and shares will be impacted." A day after the allegations, Murray & Roberts shares lost more than three percent to 5 175c
Another analyst, Marc Ter Mors of Credit Suisse, said construction shares had been weak and multiples "are already low". This indicated market uncertainty over the commission's enquiries, he said.
Construction companies in the market could operationally have to become more competitive if the allegations were true. The increased tendering transparency that would result could lead to lower margins for the industry, Wimble said. This was why shares were heading south.
"In my view, 2008 was the year in which construction companies' margins peaked, and this investigation may support this view. Investors are now re-assessing the outlook for the sector," he said.
Asked if the competition commission had been irresponsible, Wimble said: "No, because they've been given a mandate to go out there and improve the bidding process".
"It's not a question of whether it's fair to name companies under investigation [which ultimately impacts shares]. The process of exposing cartels has to run it's course," added Te Mors.
Murray & Roberts did not deny that in isolated instances collusion may have occured. "Individuals in the group have acted fraudulently in what can be construed as collusive behaviour. This is the independent actions of individuals for personal gain," it said.
"The group has forensically investigated all its operations in the context of Competition Law and where such isolated irregularities have been found, it has engaged with and placed leniency markers with the Competition Commission."
Group Five and Stefanutti Stocks said they had not been approached by investigators but would co-operate with authorities if they were.
- Fin24.com