COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 96/LM/Nov00
In the large merger between
Sasol Chemical Industries Ltd
and
Fedmis Joint Venture Ltd
REASONS FOR THE TRIBUNAL’S DECISION
Approval
The Competition Tribunal issued a Merger Clearance Certificate on 13 December 2000
approving the merger between Sasol Chemical Industries and Fedmis Joint Venture 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 AECI
Limited’s shareholding (50%) in Fedmis Joint Venture, which it jointly controls with
AECI.
According to the parties AECI has decided to exit the phosphoric acid business since it is
not willing to invest capital in the expansion of Fedmis’ business. This has placed
limitations on the expansion of Fedmis’ business. SCI’s acquisition of AECI’s interest
will improve Fedmis’ ability to compete internationally as SCI will make capital
available to automate the Fedmis plant which will result in an additional 30 000 tons of
phosphoric acid per annum being produced to export to India. SCI intends to add value to
its merchant grade phosphoric acid by upgrading it to “food grade level” and eventually
to convert the latter into phosphate salts.
We were informed that AECI offered its share in Fedmis to the open market, but received
no firm offers.
Evaluating the merger
Background
Fedmis produces phosphoric acid, which is principally used in the fertilizer and animal
feed industries in South Africa. Fedmis obtains its major raw materials from Foskor, a
limited quantity from Sasol group of companies whilst it imports the other raw materials
used in the production process.
According to the parties the rationale for operating Fedmis was to supply SCI and AECI
with sufficient phosphoric acid for their businesses, Sasol Fertilizer, Kynoch Feeds
(AECI) and Polyfos (Sasol). Fedmis also sells phosphoric acid to other local customers
such as SA Feed Phosphates after having met SCI’s and AECI’s requirements. It also
exports any surplus to India, Asia and Europe.
The relevant market
The relevant product market is defined as the manufacturing and supply of phosphoric
acid to the fertilizer, animal feeds and other industrial industries. According to the parties
DAP (Di Ammonium Phosphate) competes directly with chemically produced fertilizers
and Indian Ocean Fertilizer Company (Pty) Ltd) (IOF) is the sole producer of the
product in South Africa.
Neither SCI nor Sasol manufactures or supply phosphoric acid. It is however not
necessary to decide whether the market is national or international since there is no
product overlap between the merging parties.
Effect on competition
Because this is a vertical merger Fedmis’s market share will not be altered by the merger
and will remain at 35% with IOF as its largest competitor with 40% of the market.
Previously, due to the Fedmis joint venture Kynoch Feeds (Pty) Ltd, as a wholly owned
subsidiary of AECI, obtained its requirement of phosphoric acid exclusively from
Fedmis. However, the parties aver that Kynoch is under no legal obligation to source
from Fedmis and will now be in a position to source its phosphoric acid requirements
from any of the local or foreign producers. None of Fedmis’ customers have expressed
any objection to the merger.
any objection to the merger.
The only change the transaction brings about is that SCI previously a joint controlling
shareholder becomes a sole shareholder. For this reason we need not consider the
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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 considerations
The transaction will have no effect on employment, nor on any of the other public interest
concerns raised in section 16(3) of the Act.
21 December 2000
N.M. Manoim
Concurring: D.H. Lewis and D.R. Terblanche
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