COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 40/LM/Mar00
In the large merger between:
Anglo American plc, Billiton plc, Pechiney Electromettallurgie (France)
and
Silicon Smelters (Pty) Ltd and Samancor Ltd
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Reasons for Competition Tribunal’s Decision
Approval
The Competition Tribunal issued a Merger Clearance Certificate on 5 April
2000 approving the merger which, following a series of intermediate
transactions, has resulted in Invensil acquiring Silicon Smelters (Pty) Ltd from
Samancor Limited, without conditions. Invensil is a French incorporated joint
venture whose ultimate shareholders are Anglo American plc, Billiton plc, and
Pechiney Electromettallurgie (France) (Pem). The reasons for our decision to
approve the merger are set out below.
The merger transaction
Samancor sold its silicon metal business, Silicon Smelters, to a joint venture
incorporated by Billiton and Anglo American in France (Samsil). Billiton holds
60% of the entire issued share capital of Samsil and Anglo American holds
the remaining 40%. Accordingly Billiton controls Samsil.
Having acquired the entire issued share capital of Silicon Smelters, Samsil
contributed Silicon Smelters to Invensil, a French incorporated partnership
between Samsil and Pem Silicium, in consideration for a 23,2% stake in
Invensil. Pem holds the balance of 76,8% via its vehicle Pem Silicium, which
contributed some of its silicon manufacturing capability to the joint venture.
The agreement between Samancor and Pem Silicium was signed on 8
December 1998. [1] Silicon Smelters is now wholly owned and controlled by
Invensil. The business of the joint venture is described as the activity of
developing, producing, manufacturing, marketing, selling and servicing
throughout the world silicon metal and derivative products such as silica fume.
throughout the world silicon metal and derivative products such as silica fume.
The Tribunal was informed that Pem would not have complete control of the
joint venture but that there would be a supervisory board comprising four
members three appointed by Pem and one appointed by Samsil. Samsil
retains a measure of influence in Invensil by virtue of a veto right they enjoy in
relation to certain decisions specified in the agreement.
Background
Silicon Smelters was a subsidiary of Samancor and is the sole producer of
silicon metal in South Africa. Billiton and Anglo respectively own 60% and
40% of the shares in Samancor.
The business of Silicon Smelters (Pty) Ltd is mining ore, smelting thereof and
selling the silicon metal to the aluminium and silicon industry. The silicon
industry produces silicon rubber, gaskets and sealants as well as silicon used
in medical applications. Silicon Smelters has no competitors in South Africa.
The main customers of Silicon Smelters are Allusaf (a Billiton subsidiary) and
Middelburg Ferrochrome (one of the business units within Samancor’s
chrome division). However the business has not been successful and
Samancor had contemplated closing it unless it could find a new partner.
Pechiney with its international experience in this industry and vast resources
fitted the bill.
Hence the sale by Samancor of its shares in Silicon Smelters was, according
to them, simply a divestment of an ailing noncore business. Furthermore,
Pechiney will introduce new international technology, experience, capital, and
research to the silicon business in South Africa resulting in the improved
economic viability of an unsuccessful business.
Evaluating the merger
The Tribunal agrees with the Competition Commission that the transaction
raises no competition concerns in the South African market for silicon. It
entails a change of ownership of a monopoly supplier from a domestic
company to an offshore company whose major shareholder has had no
previous involvement in the South African market.
With regard to the public interest issues it appears that jobs will be preserved
because of the merger and that the industry will become more efficient
because of the injection of foreign expertise.
The plant is located in the Northern Province and should the plant be closed
300 people will lose their jobs including people in supporting industries such
as forestry and those manufacturing charcoal. The company is heavily
dependant on its forestry operation that provides timber for woodchips, which
is an essential raw material in the production process of silicon metal. The
company employs 57 people in the forestry operations. The production of
charcoal used in the silicon industry has also created jobs for a further
charcoal used in the silicon industry has also created jobs for a further
150200 people which would also loose their jobs.
Although the Silicon Smelters merger does not have an effect on competition
in the South African silicon market, we are concerned that this joint venture
between Billiton, which controls the Alusaf, and Pechiney, may affect
competition in other markets. It is common knowledge that in recent years
there has been a spate of attempted international mergers in the aluminium
industry, one of them being the recent attempted merger between Alcan and
Pechiney, which had been withdrawn by the parties to avoid the prospect of
the EU blocking the transaction. The other is the Alcoa/Reynolds merger that
was conditionally approved by the USA and EU competition authorities.
While the present transaction takes place in the silicon market, we note that it
is a joint venture between two of the world’s largest aluminium producers.
While this does not appear to impact directly on the South African market for
aluminium it may impact negatively on other larger markets. The transaction
involves several European companies and Pechiney is one of the three
largest producers of aluminium in the EU. Accordingly the Tribunal brings this
aspect of the transaction to the attention of the Commission who should in
turn inform the EU competition authorities of our concerns in this regard.
D. H. Lewis
16 May 2000
Concurring: N.M.Manoim and S. Zilwa
[1] The agreements in our possession reflect Samancor as the joint venture
partner with Pechiney but we were informed by the companies attorneys that
the deal had been restructured to substitute Billiton and Anglo for Samancor
to meet Reserve Bank approval.