COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 72/LM/Jun00
In the large merger between
BP Amoco Plc
and
Burmah Castrol Plc
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Reasons for the Competition Tribunal’s Decision
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Approval
The Competition Tribunal issued a Merger Clearance Certificate on 8 August 2000
approving the merger between BP Amoco Plc and Burmah Castrol Plc without
conditions. The reasons for our decision to approve the merger are set out below.
The Transaction
The proposed transaction is taking place in the UK and entails a full operational merger
of the worldwide businesses of BP Amoco and Burmah Castrol. The conclusion of the
transaction is subject to two preconditions, one of which has already been met, namely
that the Federal Trade Commission in the USA and the EC Competition Commission
approve the transaction and subsequent to this, that all the regulatory authorities in the
various countries in which BP Amoco and Castrol operate, including South Africa, must
approve the transaction.
The primary acquiring firm is BP Amoco, which operates in South Africa through its
subsidiary, BP Southern Africa (Pty) Ltd. The primary target firm is Burmah Castrol,
which operates in South Africa principally through its subsidiary Castrol South Africa
(Pty) Ltd. Because the parties have not agreed on how the South African businesses are to
merge the Tribunal will only consider the agreement between the parent companies and
its affect on competition in the South African market.
The proposed transaction will involve the purchase of all the issued share capital in
Burmah Castrol by way of a public offer to all of the shareholders of Burmah Castrol.
The parties aver that the reason for the transaction is primarily that BP Amoco perceives
the marketing and brand management skills possessed by Burmah Castrol Group as
complementing BP Amoco’s existing lubricant product development and production
capabilities, with a result that the worldwide competitiveness of the BP Amoco Group
will be enhanced.
The relevant market
The relevant product market is defined narrowly as the market for:
• Automotive lubricants used in petrol and diesel engines, gearboxes, axles and
brakes.
• Industrial lubricants such as hydraulic fluids, industrial gear lubricants and
compressor lubricants, etc.
• Marine lubricants used in marine engines.
• Aviation lubricants used in turbofan engines and piston engines.
• Chemical cleaners such as detergents and degreasers.
Lubricants are generally used to lubricate moving parts to reduce friction between them,
thus reducing wear and preventing undesirable heat build up. Lubricants may be sold in
solid, semisolid or fluid form, and depending on the additives added to the base oil,
lubricants are subdivided into the abovementioned product types between which there is
little substitutability.
The impact on competition in the relevant market
The 6 largest producers that are the most prominent in South Africa are:
Producers Automotive
Lubricants
Industrial
Lubricants
Marine
Lubricants
BP 13% 8% 23%
Castrol 16% 18% 4%
Engen 20% 18% 20%
Shell 16% 28% 15%
Total 8% 10%
Caltex 13% 9% 10%
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The market shares are based on sales by volume because the turnover figures of
competitors are not available. There are also approximately 80 small producers that are
active in this industry that are not included in the 1999 Lubrizol Survey from which the
above figures were taken.
Although the post merger market shares are high, 29%, 26% and 28% respectively, the
Tribunal is satisfied that adequate competition exists in the market with major
competitors such as Engen, Caltex, Shell and Total.
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The Competition Commission has indicated that barriers to entry are low and that
competitors, i.e. new blenders that wish to enter the blending market, are free to compete
by using the existing blending facilities of BP, Engen, Total Caltex and Fuchs at “the
Island” near Durban at no disadvantage to them.
Countervailing power for industrial lubricants exist in the form of mining houses,
manufacturing concerns and government bodies, which often seek competitive tenders
for their needs. In the automotive lubricant market retail chains, vehicle manufacturers
and transport conglomerates possess significant countervailing power.
The parties also indicated to the Tribunal that it would continue to sell Castrol through
the retail outlets of its competitors.
Conclusion
In light of the above the Tribunal is satisfied that the merger does not substantially
prevent or lessen competition in the relevant horizontal or vertical markets, nor does it
raise any of the public interest concerns listed in section 16(3) of the Act.
5 September 2000
D. Lewis Date
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Concurring: N.M. Manoim and P.E Maponya
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