PIONEER Food Group yesterday agreed on an R855,7m bill with the Competition Commission, in a landmark settlement that is likely to shape the future of antitrust penalties in SA.
The deal announced yesterday allows Pioneer to clean the slate, and brings an end to all outstanding allegations of collusion and price-fixing against it.
Pioneer's tab - consisting of a R250m fine, a R250m contribution to a newly created incubator fund for small agrobusinesses, and an agreement to reduce its gross profit margin on flour and bread products to the tune of R160m - comes on top of a R195,7m fine imposed by the Competition Tribunal in February.
To underline the importance with which the government regards the settlement, Economic Development Minister Ebrahim Patel outlined the details in a speech to Parliament, and said Pioneer's enforced subsidy of bread prices would be audited to ensure compliance.
Competition commissioner Shan Ramburuth said the agreement sets a model for future antitrust settlement agreements.
"This agreement has gone beyond just a penalty and includes price adjustment for the benefit of consumers and a fund to promote competition in the agroprocessing industry," he said.
In a carefully choreographed presentation at the commission's Pretoria office yesterday, Pioneer chairman Zitulele "KK" Combi said the settlement will end all charges of anticompetitive behaviour against Pioneer, which have ranged from bread and milling to poultry and egg supply chains and "exclusionary conduct" against small rival bakeries.
"This settlement agreement draws to a close an unfortunate chapter in the otherwise proud history of Pioneer Foods. We have faced our responsibilities as we turn the page and look towards the future," Mr Combi said.
As part of the settlement - which the company has two years to pay and can do so as its cash- flow position allows - Pioneer has also undertaken to increase its capital expenditure by R150m above its planned budget.
The company has undertaken to co-operate fully with, and give information to, the commission as it investigates outstanding cases that involved the company.
Pioneer shares, which have risen 45% over the past 12 months, closed up 1% at R50 yesterday.
"There's an enormous amount of relief this is behind us," Investec analyst Anthony Geard said.
The penalty was bigger than the conjectured R500m-R600m figure triggered by Pioneer's September statement that it would have to pay more than the R350m it had set aside, but it was not too bad, Mr Geard said.
"Pioneer's big enough to manage the cash-flow implications and balance-sheet implications of the settlement," he said.
Pioneer said as a result of the settlement, headline earnings per share for the year to September would be between 80% and 95% below the figure for the year earlier. Excluding the settlement, headline earnings per share for the period would be between 35% and 50% higher, it said. It will not pay a final dividend.
Pioneer MD André Hanekom said it is hard to say how much bread prices will come down as a result of the R160m subsidy. "All we know is that the cost base of bread is going up significantly ," he said. "We're in the process of implementing a price increase. We will try to postpone these increases over time. The money is quite significant. It should play a role in helping the consumer for quite some time."
Cutting prices may also help Pioneer win market share, a company spokesman said.
Details about the planned Agroprocessing Competitiveness Fund, into which Pioneer will pay an initial R250m, were not forthcoming yesterday.
"We're at a very preliminary phase," said Meryl Mamathuba, head of the risk capital facility of the Industrial Development Corporation, which will oversee the fund.
Further details, such as a planned size for the fund, will be made public only early in the new year, another official said.
Mr Ramburuth said the commission was not over- reaching its mandate by stipulating Pioneer's investment levels.
"Our intention wasn't to squeeze the company out of the most money (we could). We were interested in the sustainability of this company as well, in terms of the jobs it creates.
"This particular commitment was one volunteered by Pioneer and we've included it in the agreement on that basis."
Pioneer, which said last week that it was in talks to buy wine and spirits maker KWV, would be able to make a firm bid only once it knew how much it would have to pay to settle with the commission, Pioneer and KWV board member Jannie Mouton said this week. Mr Combi would not say yesterday when any formal bid was likely.