COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 91/LM/Oct00
In the large merger between
Sasol Chemical Industries Ltd
and
Polyfos (Pty) Ltd
Reasons for the Competition Tribunal’s Decision
Approval
The Competition Tribunal issued a Merger Clearance Certificate on 13 December 2000
approving the merger between Sasol Chemical Industries Ltd and Polyfos (Pty) Ltd
without conditions. The reasons for approving the merger are set out below.
The merger transaction
This is a vertical merger in which Sasol Chemical Industries Ltd (SCI) is buying
Samancor Limited’s shareholding (50%) in Polyfos (Pty) Ltd (Polyfos), which it jointly
controls with Samancor.
The parties aver that Samancor is not actively involved as a shareholder in Polyfos
because Polyfos does not form part of its core business. In order to survive Polyfos is
considering diversifying by producing higher value added food grade phosphates used in
the food industry such as in baking powder. It will also attempt to increase exports after
these changes have been implemented. However, this diversification will require plant
modifications and capital expenditure which SCI is prepared to incur but Samancor not.
Evaluating the merger
Background
Samancor, a subsidiary of Billiton SA, and SCI, a subsidiary of Sasol Limited, jointly
control Polyfos (Pty) Ltd, each holding 50% of the issued share capital.
Polyfos manufactures powdered sodium tripolyphosphate (STPP), which is one of the
main ingredients used in the detergent washing powder industry in South Africa. Polyfos
is the only producer of STPP in South Africa and buys most of the raw materials used to
produce STPP from Sasol Group companies namely Sasol Polymers, Fedmis Joint
Venture (which is currently being sold to Sasol) and Gascor.
Polyfos sells 91% of its production to Lever Pond’s (Pty) Ltd and exports 2% to African
countries. The rest of its production is sold to smaller customers who resell the product to
small detergent manufacturers as well as manufacturers of other cleaning products.
The relevant market
STPP is the main ingredient in many detergents. It acts to both soften the water and keep
dirt in suspension so that it does not settle back on the clothes that are being washed.
Zeolites formulation are the closest substitute for STPP, but allegedly not as effective as
STPP. Zeolites formulations are mainly used in the production of micro detergent
washing powders in certain parts of Europe and America. Detergent grade Zeolites are
not produced in South Africa and none of the major manufacturers are currently using it.
The parties informed the Tribunal that PQ Chemicals and Procter & Gamble in America
currently manufacture Zeolites formulation.
In order to use Zeolytes manufacturers would have to change their production plants to
accommodate the different Zeolyte formulations, which could run into millions of Rands.
According to Lever Ponds this is presently not feasible.
The product market is therefore defined as powdered sodium tripolyphosphate (STPP).
Polyfos supplies STPP on a national basis. STPP is also imported by many manufacturers
such as Colgate and Protea Industrial Chemicals at extremely competitive prices. We do
not need to decide whether the market for STPP is an international market or a national
market with import competition as in this case nothing turns on the distinction.
market with import competition as in this case nothing turns on the distinction.
Effect on competition
Polyfos has a market share of 83% and the balance of 17% is imported. Although Polyfos
is the sole producer of STPP in South Africa the merger will not alter the competitive
situation in the market. The only consequence of the merger is that a joint controlling
shareholder is now the sole shareholder. Imports remain unaffected 1 and customers have
1 The parties allege that they are facing fierce competition from imports because
there is an excess supply of STPP in the international market resulting in a decrease
in Polyfos’ sales since 1996/1997. (The present duty on STPP is 10% of its FOB
value.) Accordingly Polyfos has been operating at a loss because it is forced to sell to
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expressed no objections according to the Commission. 2
We need not consider the efficiency arguments that the parties have raised because we
find that the merger will not substantially prevent or lessen competition in the relevant
market.
Public interest consideration
The terms and conditions of employment, according to the parties, will be unaffected by
the transaction. The merger, furthermore, does not raise any other public interest
concerns raised in section 16(3) of the Act.
20 December 2000
N.M. Manoim
Concurring: D.H. Lewis and D.R. Terblanche
Lever Pond’s at a price lower than its total production cost in order to retain Lever
Pond’s business. Polyfos also lost its third largest customer (Colgate) in February
2000 to imports from China.
2 Strong countervailing power is also present in this product market through Lever
Pond’s, which purchases all of its local demand from Polyfos. As mentioned above
Polyfos has already lost one of its main customers through import competition. Lever
Pond’s has also indicated to the Commission that it is not concerned about the
merger.
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