COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 10/LM/Feb00
In the large merger between
Fraser Fyfe (Pty) Ltd
and
Anglo Operations Ltd
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Reasons for Competition Tribunal’s Decision
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Approval
1. The Competition Tribunal issued a Merger Clearance Certificate on 23
February 2000 approving without conditions the merger between Fraser
Fyfe (Pty) Ltd and Anglo Operations Ltd relating to Fraser Fyfe’s acquisition
of the Vitro Pipe Division of Anglo Operations Ltd. The reasons for our
decision to approve the merger are set out below.
The Merger Transaction
2. The primary acquiring firm is Fraser Fyfe (Pty) Ltd, a subsidiary of Fraser
Alexander Ltd.
3. The target firm is the Vitro Clay Pipe Division of the Verref Division of Anglo
American Ltd.
4. On 1 November 1998 the primary acquiring firm purchased the Vitro Clay
Pipe Division of Anglo American Ltd.
Evaluating the Merger
5. In assessing a merger in terms of section 16 of the Competition Act, the
Tribunal must consider –
(a) whether or not the merger is likely to substantially prevent or
lessen competition; and
(b) whether the merger can or cannot be justified on substantial
public interest grounds by considering the effect of the
merger on each of the following: a particular industrial sector
or region; employment; the ability of small businesses or
firms controlled by historically disadvantaged persons, to
become competitive; and the ability of national industries to
compete in international markets.
6. To answer the question whether the merger is likely to substantially prevent
or lessen competition, the Tribunal must, in terms of Section 16(2), assess
the strength of competition in the relevant market and the probability that
the firms in the market after the merger will behave competitively or co
operatively.
The Relevant Market
7. There is no direct product overlap between the acquiring and target firms.
The acquiring firm manufactures concrete pipes while the target firm
manufactures clay pipes. The two firms would therefore be competing in the
same relevant market only if there is a significant degree of substitutability
between the two products.
8. According to the acquiring firm’s submissions, the target firm produces clay
pipes of a variety of sizes. These pipes are used for two different
applications – approximately 82% for house hold drains and the remaining
18% for mainline sewers. Although clay pipes are substitutes for and
compete with plastic, asbestos and cement pipes to a certain extent in
respect of both applications, they constitute a very small proportion of the
pipes used in these applications – the acquiring firm estimates that clay
pipes make up only 15% of pipes used for house drains and less than 1% of
pipes used for mainline sewers. Moreover, clay pipes are predominantly
used for specialised purposes. For example, they are used in mainline
sewers only if the relevant consulting engineer prescribes clay pipes in
order to combat a particular chemical composition of the sewerage
concerned. Two customers interviewed by the Commission confirmed that
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pipes made of other materials were not considered to be substitutes for clay
pipes in the event that the architect on a particular project specified clay
pipes.
9 We therefore accept the Commission’s recommendation that the indirect
product overlap between the products of the two firms due to product
substitutability is limited, and accordingly that the two firms essentially
operate in two separate product markets.
Impact on competition
10. Given our conclusion that there is very little overlap between the acquiring
and target firms’ products, it is unlikely that the merger will have a
substantial adverse effect on competition.
Public interest considerations
11. None of the public interest considerations listed in section 16(3) appear to
be relevant to this merger.
22 March 2000
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D.H. Lewis Date
Presiding Member
Concurring: N.M. Manoim and U. Bhoola
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