A Green Cross store at Greenacres Shopping Centre in Port Elizabeth. File photo: ANGUS NEL
A Green Cross store at Greenacres Shopping Centre in Port Elizabeth. File photo: ANGUS NEL

The SA Clothing and Textile Workers’ Union (Sactwu) wants competition authorities to revoke the 2012 merger between consumer goods company AVI and shoemaker Green Cross for alleged breach of job commitments. 

Sactwu also wants AVI to be blacklisted from acquiring and “damaging” other non-fast-moving consumer goods (FMCG) manufacturers in future.

Green Cross became a subsidiary of AVI when it bought the company in 2012 for R382.5m. AVI owns consumer brands such as Willards, Five Roses and frozen foods business I&J, as well as upmarket shoe retailer Spitz.

Last month AVI shut down the Green Cross factory and retrenched 320 footwear workers.  Green Cross continues to operate but sells only imported footwear.

Sactwu said that job commitments made in 2012 were offered as guarantees for the merger and the decision to approve it was dependent on these.  The union believes that these commitments were not time-bound.

The retrenched employees were each paid a severance package of two weeks per year of service. These retrenchments will not prejudice the union’s rights to contest the job losses through the Competition Commission.

Sactwu believes that the retrenchments are a direct consequence of the 2012 merger and that since then  there has been a rapid degeneration of the more than 40-year-old footwear company.

In a letter to the competition authorities, the union contends that “job losses and factory closure are a direct outcome of the merger”. The union said that this was either the unintentional outcome of AVI’s lack of capacity and expertise in the manufacturing of non-FMCG or was  an intentional strategy over time by AVI.

Sactwu told the Competition Commission and the Competition Tribunal that the jobs commitments by the parties are not defined by a time period but by a relationship of causality to the merger. “In other words, so long as a relationship of causality exists and can be proved (which we believe it can), this commitment must hold indefinitely, and certainly over the mere seven years …since the merger.”

The commission’s spokesperson, Sipho Ngwema, confirmed that he had received the union’s complaint. “We are investigating the complaint and unfortunately cannot elaborate further.”

When AVI bought Green Cross in 2012 Sactwu took the matter to the Competition Tribunal. In its judgment of July 2012 the tribunal said: “Sactwu was concerned that AVI lacked commitment regarding local manufacturing in SA and focused more on brand development. The union was concerned that for this reason the manufacturing business of Green Cross would be curtailed and would be substituted by imports, which they alleged would affect the employment conditions and stability in Green Cross.” 

AVI, at the time, denied that it would retrench employees as a result of the merger, and the tribunal  “found no evidence from the filings which contain AVI’s business plans for Green Cross that it will”.

The tribunal said then that AVI believed the transaction would create value for the respective shareholders and that it would be able to expand the Green Cross brand. Unconditional permission was given to AVI for the merger.

AVI has blamed its decision to close down the factory on poor performance. It also says it didn’t forsee current financial circumstances. AVI results for the six months ended December 31 2018 recorded that Green Cross revenue decreased by 20.4%, largely due to lower sales volumes. Green Cross recorded an operating loss of R18.8m  compared with a profit of R4.4m the previous year.

Green Cross MD Roger Coppin said last year that when AVI acquired the company performance was encouraging but that despite substantial investment in the company it has performed poorly over the past five years.

Business Day requested comment from AVI, and in response received a statement from  Green Cross. The company said  that after a detailed review of options available to restore the business to sustainable profitability it concluded that “it is not possible for Green Cross to successfully compete and grow in the highly competitive comfort footwear market continuing with the current operating model that relies on a significant volume of local manufacture”.

Green Cross said it trades in a highly competitive segment of the footwear market that “is supplied mostly by imported product, and management believe that it is necessary to migrate to a full import operating model to protect the wholesale and retail businesses”.

Sactwu’s Simon Eppel said that since the merger, the market has been relatively stable compared with the pre-merger period.

“How did a previously successful and robust SA footwear company, which was backed by a listed conglomerate, falter so dramatically in such conditions? There has only been one major change in Green Cross and its context from the pre-merger to the post-merger period: AVI,” Eppel said. 

Over the years Green Cross has received department of trade & industry grants and loans through the Industrial Development Corporation (IDC) to improve its competitiveness.

The IDC’s divisional executive for corporate affairs, Zama Luthuli, confirmed that R19.4m was disbursed to the company. The IDC was not informed of AVI’s plans to close the factory prior to the decision being made, but Luthuli said that the IDC is engaging Green Cross regarding the status of assets and machinery procured through the clothing and textiles competitiveness programme. “Discussions are ongoing between the two parties,” said Luthuli.