Case No.:LM163Feb25
In the matter between:
Hudaco Trading (Pty) Ltd Primary Acquiring Firm
And
The entire businesses of Insulation Advanced
Technology Proprietary Limited, Isomec Proprietary
Limited, Isotec Balancing Proprietary Limited and
Moholi Supplies Proprietary Limited as a going
concern
Primary Target Firm
T Vilakazi (Presiding Member)Panel:
A Ndoni (Tribunal Member)
G Budlender (Tribunal Member)
Heard on: 16 April 2025
Last submission on:24 April 2025
Decided on:
Reasons issued on:
29 April 2025
28 May 2025
REASONS FOR DECISION
Introduction
[1] On 29 April 2025, the Competition Tribunal (“Tribunal”) conditionally approved a
large merger in which Hudaco Trading Proprietary Limited (“Hudaco Trading”)
intends to acquire, as a going concern, the entire businesses of Insulation
Advanced Technology Proprietary Limited (the “IAT Business”), Isomec
Proprietary Limited (the “Isomec Business”), Isotec Balancing Proprietary
Limited (the “Isotec Balancing Business”) and Moholi Supplies Proprietary
Limited (the “Moholi Supplies Business”) (collectively referred to as the “Target
COMPETITIONTRIBUNAL
REPUBLICOFSOUTHAFRICA
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Businesses”). Post-merger Hudaco Trading will exercise sole control over the
Target Businesses.
Parties to the transaction and their activities
Primary acquiring firm
[2] The primary acquiring firm is Hudaco Trading, a private company incorporated
in South Africa. Hudaco Trading is controlled as to 85% shareholding by Hudaco
Industries Limited (“Hudaco”), a public company listed on the Johannesburg
Stock Exchange. The remaining 15% shareholding in Hudaco Trading is held by
two empowerment trusts: Hudaco Trading Empowerment Trust Number 1 and
the Hudaco Broad-Based Black Economic Trading Empowerment Trust Number
2. Hudaco Trading, together with all firms directly or indirectly controlled by it
and Hudaco, are collectively referred to as the “Hudaco Group”.
[3] The Hudaco Group has a significant presence in the importation and distribution
of branded industrial, automotive, and electronic consumable products. These
activities are conducted through various operating divisions, some of which are
also involved in manufacturing the products they distribute.
[4] Of relevance to this transaction are Hudaco Trading’s divisions, Bearings
International and Hudaco Power Transmissions (“HPT”). Bearings International
distributes bearings, chains, seals, electric motors, transmissions, and allied
products. HPT distributes and repairs geared and electric motors, industrial
bevel helical transmissions, and drive solutions; it imports and assembles
various motors and gearboxes and provides repair and servicing of gearboxes.
Primary target firms
[5] The Target Businesses are owned by Anthony Schimper
(“Schimper” / “the Seller”).
The Target Businesses are owned by Anthony Schimper
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[6] The Target Businesses specialise in the manufacturing and distribution of
specialised thermal and electrical insulation materials. These products serve
various industries, including manufacturing, mining, railway, energy generation,
and switchgear.
[7] Each of the Target Businesses performs distinct but related functions:
7.1.The IAT Business sources and distributes a wide variety of thermal and
electrical insulation materials;
7.2.The Isomec Business manufactures and distributes electrical insulation
materials and offers aluminium casting, machining, and manufacture of
transformer accessory components;
7.3.The Isotec Balancing Business provides insulation balancing services and
supplies balancing rotating machinery components to reduce vibrations and
imbalances; and
7.4.The Moholi Supplies Business supplies mining and industrial products,
including electrical insulation materials, pumps, valves, pipes, seals, tools,
expansion joints, and lifting equipment.
Proposed transaction and rationale
Transaction
[8] Hudaco Trading intends to acquire, as a going concern, the entire businesses
of the Target Businesses from Schimper. The acquisition is structured as an
indivisible transaction.
Rationale
[9] From the acquiring group’s perspective, Hudaco’s mandate as a listed company
is to grow both organically and through acquisitions to diversify its portfolio and
avoid dependency on any single market sector. The Target Businesses are seen
as a strategic fit to enhance Hudaco’s product offering and diversify its business
activities within the industrial sector.
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[10] From the target firms’ perspective, the Seller, Mr Schimper, the founder,
managing director, and shareholder of the Target Businesses,
.
Competition assessment
[11] The Competition Commission (“Commission”) considered the activities of the
merger parties and found that the proposed transaction does not result in
horizontal overlaps between the merging parties as Hudaco Trading does not
supply products or services that compete with the Target Businesses’ activities
in South Africa or elsewhere.
[12] However, a vertical relationship exists between the parties in that –
12.1. HPT procures enamel copper glass (a thin insulated copper wire), silicone
sleeving, silicone cable, spool plastic, and Xylene from IAT, amounting to a
negligible share of IAT’s total sales; and
12.2. IAT procured deep groove ball bearings from Bearings International on an
ad hoc basis, comprising a negligible share of Bearings International’s total
sales in FY22.
Input foreclosure
[13] The Commission concluded that there was no commercial incentive for either
party to withhold supply to others post-merger due to the de minimis value of the
transactions between the merging parties. The IAT Business, with a % market
share in the manufacture and distribution of specialized thermal and electrical
insulation materials, faces competition from other suppliers such as Makarenge
Electrical Industries (Wilec), Overseas Development Corporation Limited,
Consolidated Component Insulation (Pty) Ltd, and DC Wort Composites CC.
[14] Similarly, Bearings International’s % market share in the supply of bearings is
a comparatively limited share of the market, and the firm is subject to competition
managing director, and shareholder of the Target Businesses, managing director, and shareholder of the Target Businesses,
.
transactions between the merging parties. The IAT Business, with a % market
Similarly, Bearings International’s % market share in the supply of bearings is
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from Bearing Man Group, Bearing Corporation CC, B2K, Bearing Specialist
Association, Zhous Enterprise, and ACE Bearings.
[15] Based on the above, we conclude that the merged entity is unlikely to have the
ability or incentive to implement an input foreclosure strategy.
Customer foreclosure
[16] The Commission found that pre-merger, HPT procured products from other
suppliers and that they would continue to do so post-merger. Wilec and other
suppliers expressed no concerns regarding the merger. IAT also procured
products from on an ad hoc basis and will continue to do so post-
merger.
[17] Based on the above, we conclude that the proposed transaction is unlikely to
result in customer foreclosure.
Restraint of trade
[18] The Sale of Business Agreement between the merging parties contains a
restraint of trade clause preventing the sellers, including Schimper and
operational management, from competing with the Target Businesses for 5
years after their employment ends. This restraint covers South Africa and
neighbouring countries where the Target Businesses operate.
[19] The Commission proposed a reduction of the restraint period from 5 years to 3
years. The merging parties argued the 5-year restraint was necessary due to
.
They contended that barriers to entry are low but that a longer restraint period is
justified to protect Hudaco’s investment.
from on an ad hoc basis and will continue to do so post-
.
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[20] The Commission, however, distinguished this case from precedents involving
longer restraints, which were justified by the long-term nature of projects or new
entrant status of the acquirer. The Commission submitted that Hudaco is a well-
established group and not a new entrant. The Commission further submitted that
the restraint should only commence after the earnout period ends, not during,
and that commercial considerations should not unduly override competition
concerns.
[21] The Commission recommended imposing a 3-year restraint instead of 5 years
and attached this as a condition for approval. The merging parties accepted the
proposal subject to certain amendments.
[22] Having considered the correspondence and arguments advanced by the
merging parties and the Commission, we were satisfied that the conditions
agreed to by the merger parties balanced the stated commercial considerations
with the need to enable future competition in the market. Specifically, a 3-year
restraint of trade provision as well as a further 2-year non-solicitation provision
(relating to solicitation of customers and/or employees) applies following the
termination of the initial restraint, as set out in the conditions at Annexure A
attached to our order dated 29 April 2025.
Public interest assessment
Effect on employment
[23] The merging parties provided an unequivocal undertaking that the Proposed
Transaction will not have any negative impact on employment and will not result
in any retrenchments.
[24] The Commission contacted the employee representatives of the merging parties
and obtained confirmation that no employment concerns were raised in relation
to the proposed transaction.
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[25] In light of the above, we conclude that the proposed merger is unlikely to raise
any employment concerns.
Promotion of a greater spread of ownership
[26] The merging parties submitted that the proposed merger would result in a
promotion of a greater spread of ownership by historically disadvantaged
persons ("HDPs"). Currently, the Hudaco Group has 30.45% HDP ownership,
while the Target Businesses have HDP ownership. Post-merger, the level of
HDP ownership in the Target Businesses will increase from % to 30.45%.
[27] Additionally, qualifying HDP employees of the Target Businesses will participate
in Hudaco Trading’s Empowerment Trusts, which hold 15% of Hudaco Trading’s
issued share capital. These trusts are exclusively for the benefit of Hudaco
Trading’s black South African employees, who will be eligible for dividends
declared annually.
[28] In light of the above, we are of the view that the proposed transaction promotes
ownership by HDPs and workers in the economy.
Other public interest considerations
[29] The proposed transaction does not raise any other public interest issues.
Third parties’ views
[30] No third parties raised any concerns regarding the proposed transaction.
Conclusion
[31] For the reasons set out above, we are satisfied that the proposed transaction is
unlikely to substantially prevent or lessen competition in any relevant market.
Furthermore, the proposed merger does not raise any public interest concerns.
while the Target Businesses have HDP ownership. Post-merger, the level of
HDP ownership in the Target Businesses will increase from % to 30.45%.
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[32] Accordingly, we approved the proposed transaction subject to the conditions
contained in Annexure A attached to our order dated 29 April 2025.
28 May 2025
Presiding Member
Prof. Thando Vilakazi
Date
Concurring: Ms Andiswa Ndoni and Adv. Geoff Budlender SC
Signed by:Prof. Thando Vilakazi
Signed at:2025-05-28 12:26:54 +02:00
Reason:Witnessing Prof. Thando Vilakazi