By Ross Dempsey, reporter
Cape Town -- South African foamers and Steinhoff International Holdings subsidiaries, Vitafoam (Pty) Ltd and Loungefoam (Pty) Ltd, along with Kap International subsidiary Feltex, are in trouble with the local Competition Commission.
South Africa's Competition Commission alleges that Loungefoam, Vitafoam (and/or Gommagomma) and Feltex are "engaged in prohibited practices in contravention of sections 4(1)(b)(I) and (II) of the Competition Act 89 of 1998."
Vitafoam is a division of Gommagomma (Pty) Ltd, which was acquired by furniture group Steinhoff in 1999.
A hearing was scheduled for 26 Nov 2009, but a dispute between the Commission and respondents over witness statements has led to a postponement until the parties are ready to present their case, a statement from the competition tribunal said.
The Commission alleges that Loungefoam and Vitafoam used a Foam Forum set up by Steinhoff in June 2004 to agree to fix selling prices of their foam products. The Commission said the companies agreed in Foam Forum meetings and correspondence not to compete with each other for certain customers, which they would otherwise compete for, in the bedding and furniture industry.
In relation to Feltex, the Commission said that in 1999 Loungefoam and Feltex reached an agreement in which Loungefoam acquired the furniture and bedding units of Feltex while Feltex kept its automotive business - the agreement apparently included a clause preventing Feltex from competing with Loungefoam in South Africa for a period of five years.
The effect of this agreement, the Commission said, was that Feltex would primarily focus on supplying polyurethane foam to the automotive industry while Loungefoam would focus on supplying PU foam to the furniture and bedding industry.
That agreement was due to end in 2004, but the Commission said its investigation revealed the companies "continue to conduct themselves as though the 1999 agreement remains in force and binds them."
Although Vitafoam was not part of the original agreement, the Commission said there was "an understanding" on its part not to compete with Feltex in supplying PU foam to the automotive industry.
"As far as we are concerned there is no issue," Feltex ceo Paul Schouten told Urethanes Technology International 3 Dec. "Our group company Feltex has for the last ten years concentrated on foam for automotive, that's our area of expertise. So we don't compete where Steinhoff compete," the ceo continued. "We exited the rest of the business because it was not profitable, Feltex only supplies automotive and that's what we intend to continue in the future," he added.
Loungefoam and Vitafoam argue that the agreement was made prior to the implementation of the Competition Act and had approval from the former Competition Board. The companies also argue that both the companies should be considered as a single economic entity for the hearing, thereby not contravening the act, although the Competition Tribunal said that, on the evidence available, the Commission concluded that "the claim is at the very least contentious and not as clear cut as the parties claim."
Vitafoam ceo Ugo Rigerio said as it is an ongoing legal case he could not comment.
The Commission has asked the tribunal to impose an administrative penalty on all three companies equal to 10 percent of annual turnover to stop any prohibited practices.
The Commission said it does not seek any penalty against Steinhoff or Kap and only cites the companies for the interest they might have in the outcome of the Complaint Referral.