Keep your friends close and your enemies closer. It seems the two big players in South Africa’s pharmaceutical cartel ignored this famous piece of advice and now they’re facing the heat.
It’s a classic street story of the double-cross and the snitch told by gangsters the world over.
Except these ain’t no smack deals, they are intravenous drips, and these ain’t no drug-dealing hustlers; they are CEOs and MDs.
Clandestine meetings to divide up the market didn’t go down on street corners; they went down in five-star hotels and conference centres.
But it definitely was a turf war to protect what’s theirs and to keep a watch on young bucks who threatened to move into their ‘hood.
Like New York’s Ghostface Killah said on his 2005 track, Cocaine Trafficking, “these blocks ain’t big enough for all of us to eat”.
The whole scandal revolves around a government tender for intravenous drips and related equipment.
The tender, RT299, was issued annually before 2003 and bi-annually afterwards.
In eight years, between 2000 and 2007, four pharmaceutical companies colluded to rig the tender so that they could split the market between them.
The RT299 tender between 2003 and 2007 was valued at almost R1,1-billion, with the pharmaceutical companies supplying close to 17-million intravenous units a year at prices that were artificially inflated by R4 a unit.
The Competition Commission says the secret meetings and price-fixing go as far back as 1993, but it is not pursuing collusion that took place before 1999.
Its referral affidavit lays out the case against the two large players, Adcock Ingram Critical Care (AICC) and Fresenius Kabi South Africa (FKSA).
AICC is the double-crosser and FKSA the revenge-seeking snitch, which is more than likely going to get off scot-free after being given immunity by the commission.
Two smaller players are also named: Dismed Criticare and Thusanong Health Care are the young bucks whose attempts to move into the intravenous drip market were thwarted for a while before they were subsumed into the cartel.
A litany of meetings are detailed in the affidavit, illustrating that the head honchos of the two main gangs shared information and divided tenders from 2000 to 2007.
Dismed and Thusanong entered the fray in 2002 and 2003 respectively.
The affidavit also states that board members and senior executives at Tiger Brands, the parent company of AICC caught fleecing bread consumers through collusion and price-fixing at the end of last year, became aware of this collusion as early as 2002, but did nothing about it.
Tiger Brands was fined R99-million late last year for its involvement in fixing the bread price and chief executive Nick Dennis took early retirement shortly afterwards.
If AICC is found guilty of collusion by the Competition Tribunal it could face a R288-million fine.
Tiger Brands is already haemorrhaging, having dropped 4,25% on its share price at the close of business on Tuesday. A statement released this week stated that the company was “devastated at allegations of collusion in its healthcare division” and that it had appointed law firm Edward Nathan Sonnenberg to conduct an independent investigation into all its businesses.
The Competition Commission became aware of the tender rigging in 2005 through an informant who spilled the beans, but without hard evidence it was stuck.
Initial investigations led nowhere as the four players closed ranks, but the commission kept sniffing.
The first sign of trouble in the ‘hood appeared in 2005 when AICC double-crossed its fellow colluders and reneged on the agreed market shares, allocated when the players divided up the 2005/07 tender.
As a result AICC won a substantial portion of the deal and FKSA was the biggest loser; so when collusion negotiations began for the 2008/10 tender there was an “atmosphere of mistrust”.
This led to FKSA pulling out of negotiations prior to the close of the tender and its subsequent cooperation with the Competition Commission and application for immunity from prosecution under the commission’s corporate leniency policy.
They named names, places, times and dates and all of a sudden AICC, Dismed, Thusanong and Tiger Brands are facing the music and a Competition Tribunal hearing that is threatening to expose all the dirt.
From the frying pan …
Why would any right-minded South African business leader want the top job in Tiger Brands right now?
Peter Matlare will become the group’s new CEO from April 1, following the unlamented departure of Nick Dennis.
Currently Vodacom’s chief strategy and business development officer, Matlare has previously occupied the SABC hot seat. For many, the national broadcaster would be heat enough, but Matlare is clearly eager to jump into the flaming pit that must be Tiger Brands right now.
He left the SABC in 2005, with a year on his contract still to run. Rumour had it that he had a fall-out with head of news Snuki Zikalala and the board backed Zikalala. Apparently the two disagreed about whether a proposed new current affairs programme should be commissioned from an outside production house, Sapa said, in contravention of SABC policy.
Oh, and we can’t tell you why he wants the job, because Matlare — probably wisely — is not doing interviews. — Jocelyn Newmarch
Da Playaz
Arthur Barnett
(AICC)
Barnett was the first to bite the bullet of the pharmaceutical collusion investigation, after he was suspended this week. AICC’s parent company, Tiger Brands, said the allegations made by the Competition Commission in its referral affidavit were so serious that he was suspended with immediate effect, pending the conclusion of its independent investigation by law firm Edward Nathan Sonnenberg.
The commission’s affidavit alleges that Barnett was central to the collusion, attending numerous meetings between the four pharmaceutical companies between 2000 and 2005.
John Spiers (AICC)
Spiers was another AICC man involved in the collusion meetings. At the time he was marketing and sales director at AICC.
Spiers was involved in two meetings between FKSA and AICC that took place between 2000 and 2002. In February 2002 Spiers decided he could no longer be party to the escalating collusive arrangements and informed Barnett of his decision.
The commission’s affidavit alleges that this came to the attention of Tiger Brands board members Mike Norris and Haydn Franklin and senior Tiger Brands human resources executive at the time, Judy Swanepoel.
The affidavit also states that the issue was later discussed with company secretary Ian Isdale. Spiers admitted knowl-edge of the cartel to the commission.
Mark Norris (Tiger Brands)
Norris was a Tiger Brands board member until March last year. He was informed in 2002 of AICC’s collusive practices, but appears to have done nothing.
Haydn Franklin (Tiger Brands)
Haydn Franklin was a Tiger Brands board member until March last year. He was informed in 2002 of the collusive practices but appears to have done nothing about them.
Ian Isdale (Tiger Brands)
Isdale is Tiger Brands company secretary. He was informed in 2002 of AICC’s collusive practices, but also appears to have done nothing about them.
Karsten Wellner
(FKSA)
At the time of the collusion Wellner was general manger of FKSA. He attended meetings between all four players between 2003 and 2006. Wellner agreed to relinquish his position as CE of FKSA late last year. He told the commission of FKSA’s involvement in collusive tendering and market allocation with AICC.
FKSA has been granted immunity under the corporate leniency programme and Wellner will continue to cooperate with the commission, according to a statement released by FKSA this week.
John Kok (Bodene ‒ FKSA subsidiary)
Kok, who died in December, was MD of Bodene, a FSKA subsidiary. Kok, with Wellner, represented FSKA at the collusion meetings. He attended numerous meetings between all four players between 2000 and 2003. Kok admitted knowledge of the cartel activity to the commission.
Wilna Stapelberg (FKSA)
Stapelberg was the sales and marketing director of FKSA at the time of the collusion and was later appointed general manager of FKSA. He is alleged to have met Wellner and Barnett on August 31 2005 at the Michelangelo Hotel to discuss their RT299 tenders. Stapelberg confessed to the commission that FKSA had been involved in collusive tendering and market allocation with AICC.
Dale Goosen (Thusanong)
At the time of the collusion Goosen was a manager of Thusanong. He had previously worked at both AICC and FKSA. He is alleged to have met Wellner on August 30 2005 to discuss pricing for products from Euromed, which was represented in South Africa by Thusanong. Thusanong was sold to FKSA in 2006. Goosen is understood to be disputing the facts contained in the commission’s affidavit and is seeking legal advice before he makes a statement.
Willie Roets (Dismed)
Roets is the former chief executive of Dismed and is alleged to have met Wellner five times between 2005 and 2006 to discuss their upcoming bids for the RT299 tenders.