COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 20/LM/Mar01
In the large merger between:
DB Investments SA
and
De Beers Consolidated Mines Ltd & De Beers Centenary AG
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Reasons for the Competition Tribunal’s Decision
_______________________________________________________________________
APPROVAL
On 9 May 2001 the Competition Tribunal issued a merger clearance certificate approving
the merger between DBI Investments SA and the De Beers Group (comprising De Beers
Consolidated Mines Ltd & De Beers Centenary AG) without conditions in terms of
section 16(2)(a). The reasons for the approval of the merger appear below.
BACKGROUND
The parties
Acquiring Firms
1. The primary acquiring firm is DB Investments SA (“DBI ”), a company
incorporated as a société anonyme , under the laws of Luxembourg. DBI is a
specially constituted company (“special purpose vehicle”) being formed
specifically for the purpose of this transaction. DBI therefore conducts no
operational activities in SA. This company will be jointly owned by Anglo
American, CHL and Debswana (the other acquiring firms).
Anglo American plc/Anglo American Corporation of South Africa Limited
(“Anglo”)
2. Anglo American plc is a public company registered in England and Wales, listed
on the London, Johannesburg and Swiss Stock Exchanges. Anglo is a global
leader in specific areas of mining and natural resources. Its worldwide activities,
through its subsidiaries, comprise gold, platinum group metals, coal, base and
ferrous metals, industrial minerals, forestry products, financial services and
industries and diamonds. Its participation in the diamond industry is limited to its
32% equity interest in the De Beers Group. Upon completion of the transaction, it
will, together with its wholly owned subsidiary, Anglo American Corporation of
South Africa Limited, hold a 45% equity interest in DBI.
Central Holdings Limited (“CHL”)
3. CHL is an investment holding company for certain Oppenheimer family interests.
It is incorporated as a private company under the laws of Luxembourg. CHL
presently holds a 2.6% interest in the De Beers Group but will, upon completion
of the transaction, hold an effective 40% interest in the group, via DBI. This latter
interest will be held by CHL via its subsidiary CHLSPV, a separate special
purpose vehicle. 1
CHLSPV
4. CHL and Debswana will hold their shares in DBI via CHLSPV, which will hold a
45% shareholding in DBI directly. This entity is a separate special purpose
vehicle formed for the express purpose of investing in shares in DBI.
Accordingly, CHL will hold 89% of CHLSPV, with Debswana holding 11%. 2
Debswana
5. Debswana, a private company incorporated according to the laws of Botswana, is
jointly owned by the Government of the Republic of Botswana (50%) and by the
De Beers Group (50%). Currently, Debswana holds a 5% interest in the De Beers
group. Posttransaction, Debswana’s effective equity interest in DBI will be
15%.3
Target Firm
6. The primary target firm is De Beers Group, (“De Beers”) comprising De Beers
Consolidated Mines Limited (“DBCM”) and De Beers Centenary AG (“De Beers
1 In terms of the initial offer to shareholders, CHL would have held 45% directly in
DBI, however an
DBI, however an
upward adjustment of DBI’s offer on 30 April, necessitated a change in the shareholding structure.
2 These shareholdings entitle both companies to dividends and voting rights in these proportions.
At the
date of judgement, CHL and Debswana had only concluded a Heads of Agreement in respect of this
vehicle, and had not entered into a formal shareholders agreement.
3 This is because of its 10% direct holding and its 11% indirect holding through CHLSPV, which translates
to a 5% effective holding.
2
AG”). These latter two companies are two separate holding companies
incorporated under the laws of South Africa and the laws of Switzerland,
respectively.
7. De Beers’ principal activities include the production, mining, marketing and
trading of rough diamonds worldwide, as well as the generic advertising of
diamonds and diamond jewellery to consumers.
Existing Corporate Structure of the De Beers Group
8. DBCM and De Beers AG are two separate companies, despite their having
substantially the same shareholders. This arrangement, dating back to 1990, was
concluded to facilitate ownership of De Beers’ foreign business by De Beers AG,
with the South African business being owned by DBCM.
9. An interest in the De Beers Group is represented by a “linked unit”, comprising
one deferred share in DBCM and one depositary receipt issued by Centenary
Depositary AG, a whollyowned subsidiary of De Beers AG. 4 De Beers AG
depositary notes are tradeable only with DBCM deferred shares, in other words,
acquisition of deferred shares in DBCM entail concomittant acquisition of linked
depositary receipts in Centenary Depositary. 5
10. Despite a historically close association between De Beers and Anglo, in terms of
mutually agreed arrangements between the two entities, De Beers has since 1997
been distinguishing itself operationally from Anglo, allowing it to operate as a
separate, free standing and independently managed group. Such restructurings
have facilitated De Beers’ exclusive focus on diamond mining and the marketing
of rough gem diamonds.
11. Presently, the major shareholders in the De Beers Group comprise: 6,
Anglo American plc (and subsidiaries) 32.2%
Standard Bank Nominees (Transvaal (Pty) Ltd 29.6%
First National Nominees (Pty) Ltd 6.7%
Debswana Diamond Company (Pty) Ltd 5%
First National Nominees (Pty) Ltd 6.7%
Debswana Diamond Company (Pty) Ltd 5%
12 The nominee companies are registered unit holders, holding units on behalf of
4 A Centenary depositary receipt represents an interest in a onehundredth share in a De Beers AG unit. A
De Beers AG unit represents one ordinary share in De Beers AG which has, in turn, been twinned with a
participation certificate issue by Centenary Holdingsp494
5 The only unlinked depositary receipts in the Group are the 11% of the depositary receipts issued by De
Beers AG and held by DBCM, without a reciprocal holding in DBCM by De Beers AG. De Beers Form
CC4(2) P494
6 As at 31 December 2000, according to De Beers Form CC4(2) at page 496. These are those shareholders
registered as holding 5% or more of the linked units of the De Beers Group.
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beneficial owners, whom individually do not own in excess of 5% of the issued
linked units of the De Beers Group. 7
The merger transaction
13. The merger is being effected by the formation of DBI, a newly formed entity
(“special purpose vehicle”) constituted specifically for the purpose of this
transaction.
14. Anglo, CHL and Debswana are increasing their existing shareholdings in De
Beers through DBI. In other words, Anglo, CHL and Debswana will each hold
their respective interests in De Beers through DBI, which, in turn, will control
100% of De Beers.
15. The transaction, to be implemented, inter alia, by way of a Scheme of
Arrangement,8 involving the distribution by De Beers of its existing 35% holding
of Anglo shares to all of its shareholders. Simultaneously, the investment
consortium, DBI, is to make a bid to acquire all of the equity of the De Beers
Group, including all the deferred shares in DBCM and all the depositary receipts
in Centenary Depositary, as well as the preference shares not yet held by the
shareholders of DBI.
16. Essentially, this arrangement involves a buyback of DBCM shares and a
cancellation of De Beers linked units, in consideration for which there will be a
distribution of shares in Anglo and cash.
17. Posttransaction, the linked units of the De Beers Group will be delisted and all
the shares in the De Beers Group will be held by DBI. Accordingly, De Beers will
become a wholly owned subsidiary of DBI.
18. Following completion of the transaction, De Beers will be managed by Central
Holdings Limited under a proposed 7 year management contract with DBI. In
terms of this agreement, CHL will be entitled to nominate for appointment
(subject to Anglo’s consent) the chairman of the DBI board and the De Beer’s
Group Board.
19. It is envisaged that the existing De Beers management team will remain the same
19. It is envisaged that the existing De Beers management team will remain the same
7 Record p496
8 Subject to approval by 75% of De Beers Public Unit Holders at the Scheme of Arrangement meeting. The
Scheme has already been approved by the High Court.
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postmerger, with CHL executives being responsible for the formulation and
implementation of the De Beer’s Group strategic policies and operational
activities.9
Rationale for transaction
20. The merging parties cite several procompetitive benefits arising from entering
into this transaction:
a) Removal of crossshareholding
9 The intended board representation on DBI will be CHL as to 4, Anglo as to 4 and Debswana as to
2
directors. The representation on the De Beers Group board will be CHL as to 2 directors, Anglo as to
2 directors, Debswana as to 2 directors with CHL being entitled to nominate 10 nominees, the majority of
whom will be executive directors. Record p3236
Botswana
Government
Public
50%
93% 50%
5% 2%
DebswanaCHL Anglo
11%
(5) 89%
(40)
10%
CHLSPV 45%
DBI 45%
100% Source: Adapted from De
Beers CC4(2) Form
The De Beers Group
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De Beers will distribute the entire shareholding in Anglo to its shareholders,
thereby removing the crossshareholding between Anglo and De Beers, thereby
simplifying the corporate structure.
b) Increasing existing shareholdings
Anglo will now hold 45% in De Beers; CHI will hold 40% and Debswana will
hold 15%, increasing Anglo’s exposure to the diamond business.
c) Increase of Free Float
The free float of Anglo shares available to the public will be increased from 58%
to approximately 93%, improving market liquidity, efficiency and ultimately,
enhancing Anglo’s positioning in the FTSE 100 Index.
d) Maximising value for De Beers Public Linked Unit Holders
The merging parties assert that the transaction will result in full value for the De
Beers diamond business, eliminating other value inhibitors, while providing a
continuing investment in Anglo and therefore, indirectly, in the diamond business.
f) Benefits of DBI ownership
These include the continued leadership and expertise of the Oppenheimer family
and Anglo; developing a closer, strategic relationship with Debswana and the
Botswana Government; continuity for De Beers managers and employees.
g) Inflow of Foreign Funds
The transaction will provide an immediate inflow of foreign funds in the amount
of approximately R23 billion and an additional R5 billion in subsequent years,
represented by the cash portion of the consideration paid by the bidder and
ultimately received by South African shareholders. It is argued this demonstrates
renewed confidence in the country and its economic development.
EVALUATING THE MERGER
The relevant markets
Anglo
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21. The principal activities of Anglo and its subsidiaries include:
Mining activities
Gold
Anglo owns 53.48% of AngloGold, the world’s leading gold producer. Anglogold has
operations as far afield as Africa, North and South America and Australia. In South
Africa, Anglogold has interests in Rand Refinery, (75%) responsible for refining bullion
and byproduct and Oro Group (Pty) Ltd, (25%)a manufacturer and wholesaler of gold
jewellery.
Platinum
Anglo has a 50.2% share in Anglo Platinum, which mines, processes, refines and
markets platinum group metals, gold and base metals. It is the largest primary
platinum producer worldwide.
Diamonds
Anglo’s interest in this sector is confined to its 32% investment in De Beers. Any
income earned from this sector derives from this investment.
Coal
Anglo’s coal interests in South Africa are held through its whollyowned SA
subsidiary, AOL.
Base Metals (copper, zinc, lead, nickel and mineral sands)
Most of Anglo’s operations in this sector are based outside SA.
Industrial Minerals
Anglo produces construction minerals in Europe, Eastern Europe, the Middle East and
the Far East.
Ferrous Metals
In South Africa, Anglo Ferrous metals consist of chrome, manganese, carbon steel,
stainless steel and vanadium. Anglo (Ferrous) has a 76% interest in Highveld Steel, a
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leading world vanadium producer, which also produces carbon steel, ferroalloys,
carbonaceous products, as well as metal containers and enclosures. Anglo Ferrous metals
holds a 40% interest in Samancor, a leading producer of chrome and manganese alloys.
Anglo also has interests in the worlds’ largest single site steel works through Columbus
Steel, a joint venture between the Industrial Development Corporation, Samancor
Limited and Highveld Steel. Similarly, through AOL, it has interests in Africa’s largest
diversified iron, steel and engineering works via Scaw Metals, a division of AOL.
Forest Products
Anglo Forest Products, operating under the Mondi name, is an integrated products and
packaging group, manufacturing pulp, graphic papers, packaging papers, board and
converted packaging. It is also involved in the manufacture of solid wood products,
including sawn timber, mining support timber and wood chips. It has operations in South
Africa, as well as Brazil and Europe.
Other Activities
Anglo Industries
Interests include:
mining services
drilling equipment – BoartLongyear, a division of AOL, is a leading
manufacturer and supplier of tools, equipment and contracting services. One of
the products it supplies is Tungsten Carbide, an important input in the process for
the manufacture of synthetic diamonds.
construction
mining explosives and chemicals
sugar via Tongaat, a 51% subsidiary
aluminium processing.
Financial Services
This is a noncore business area, nevertheless Anglo had minority interests in
several financial services companies, including FirstRand, in which it holds
5.25%.
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CHL
22. CHL’s only operational activities conducted within South Africa are limited to the
provision of support services, namely managerial, secretarial, accounting, treasury
and administrative services to its subsidiaries, members of, and companies related
to the interests of the Oppenheimer family and to the De Beers Group.
Debswana
23. Debswana is active in the diamond mining sector, operating three mines in
Botswana under long leases from the Botswana Government.
The De Beers Group
Diamond Production & Marketing
24. De Beers is the world’s largest producer and marketer of rough diamonds, 10 with
the mines that it owns or has equity in accounting for approximately 45% of
worldwide production. 11 It owns mines in South Africa, Botswana, Tanzania and
Namibia. Management of the latter three mines takes place in partnership with the
governments of those three countries. Its South African mines include Venetia
mine (Northern Province), Finsch mine (Northern Province), Kimberley mines
(Northern Cape), Koffiefontein (Free State), Namaqualand mines (Northern
Cape), Premier mine (Gauteng) and various small mines. De Beers also has
extensive interests in operations relating to exploration, mining, recovery, and
valuation. The Group also manufactures synthetic diamonds.
25. The De Beers Group is active in the downstream market insofar as its sells rough
diamonds to diamond manufacturers and dealers in South Africa through its South
Africabased subsidiaries. This is effected via the Diamond Trading Company
(Pty) Limited (:DTC”), while sales to the secondary market for rough diamonds is
conducted through the Diamond Development Company (Pty) Ltd, (“Diamdel”).
Both companies are wholly owned subsidiaries.p524 De Beers is also involved
downstream through its Polished Division (responsible for polishing, market
downstream through its Polished Division (responsible for polishing, market
testing and selling of its output to wholesalers and jewellery manufacturers);
Oriental Diamonds Inc. (“ODI”) and De Beers Group Industrial Diamonds
(“Debid”) (charged with the production, processing and marketing of natural and
industrial diamonds for industrial purposes). 12
10 Rough diamonds include both industrial and gem quality diamonds.
11 Record p 511
12 It has indirect interests in the downstream markets via its Supplier of Choice
Initiative, involving
interaction with intermediaries and customers to stimulate growth in the retail market. It has recently
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26. De Beers also has a number of purely financial investments in several listed
entities. 13
Impact on competition
27. Anglo has no interests in the diamond business, other than through its existing
32.2% investment in the De Beers Group.
28. The De Beers group neither has any interest in any other mining sector, leaving
aside its existing 35% shareholding in Anglo, nor the natural resources sector.
29. CHL does not have any interests in the mining or natural resources sectors.
Debswana’s interest in mining consists of its diamond mining interests in Botswana.
However, as the parties and the commission contended, Debswana is a minority acquiring
shareholder. Furthermore, its diamond production is fully attributable to the De Beers
Group.
30. The Tribunal therefore agrees with the Commission that there is no product
overlap between the activities of the merging parties.
31. Accordingly, the merger would not result in any substantial lessening of
competition within either the diamond industry or natural resource sectors.
Nature and Extent of Vertical Integration
32. The Commission alluded to a product overlap between the two vertically
integrated companies in respect of tungsten carbide, a key input in the synthetic diamond
manufacturing process. Anglo’s subsidiary, Boart Longyear, manufactures this product,
as does De Beers, albeit for its own inhouse use. After further investigation, the
Commission concluded that De Beers manufactures this product for its own purposes,
and does not supply third parties. Furthermore, the vast array of international suppliers
ensure that customers can multisource their tungsten carbide requirements abroad.
33. Vertical concerns were also alluded to since Boart Longyear purchases industrial
diamonds from De Beers and other suppliers in order to manufacture its
diamonds from De Beers and other suppliers in order to manufacture its
impregnated tools and drill bits. Furthermore, Anglo Technical Division provides
various technical services to the De Beers Group. However technical advice is
also obtained by De Beers and other mining companies from other independent
companies.
entered into a collaboration with European LVMH Moet Hennessy Louis Vuitton to develop the De Beers
group name as a consumer brand.
13 Record p 46.
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34. The Tribunal is satisfied that in respect of all the vertical relationships,
transactions are conducted on an arm’s length basis and in accordance with
normal commercial practice, with no exclusive agreements existing between De
Beers and any Anglo company. Notwithstanding this, there is sufficient
competition with regard to each product and service to counter any possible
vertical effects.
Public Interest Considerations
35. Of the 33 trade unions notified of the transaction, only four contacted the
Commission advising that they wished to participate in the merger proceedings.
NAWUSA, representing employees from the National Amalgamated Workers
Union of South Africa;
NUMSA, representing employees from the National Union of Metalworkers of
SA;
NUM, or the National Union of Mineworkers and
FAWU, or the Food & Allied Workers Union.
36. NUMSA and NUM expressed the concern that the proposed transaction might be
part of a broader restructuring process, entailing job losses. They sought sight of a
list of CHL subsidiaries to determine whether any fact they were active in any
industries affecting the trade union members. They further sought undertakings
from both De Beers and Anglo guaranteeing no future job losses in respect of
their members. NUM also raised the concern that the merger might precipitate an
outflow of funds from the country in the form of dividends and interest. Further,
the fact that DBI would be an unlisted foreign company would raise transparency
and accountability issues, affecting their employees in the longterm.
37. At the hearing, only FAWU appeared to make oral submissions. It represents
members employed by Anglo’s subsidiaries in the sugar and farming industries.
FAWU’s concerns were centred around Anglo’s future restructurings, specifically
FAWU’s concerns were centred around Anglo’s future restructurings, specifically
if Anglo opted out of nonmining industries as it scaled down in favour of its core
operations. They were anxious that this would lead to potential job losses. They
also commented that the transaction would result in increased concentration and
dominance, raising the risk of restrictive business practices arising.
38. The merging parties were prepared to offer an undertaking on behalf of DBI that
the instant transaction would not result to any change in employment conditions
or job losses postmerger in relation to De Beers employees. This undertaking
was accepted by the Attorneys for NUM and NUMSA. However, DBI contended
it could not grant an undertaking in perpetuity, DBI would have to in the normal
course of events, review employment levels from time to time. They pointed out
that in any event, FAWU had no members employed by De Beers. The unions
11
remained adamant that Anglo furnish an undertaking confirming that there would
be no employment implications or changes to employment conditions post
merger.
39. With regard to NUM’s concerns, the parties contended that the Reserve Bank’s
prior approval of the transaction signified that the potential migration of funds
outside the country was not a major concern.
40. The Tribunal accepts the arguments of the merging parties with regard to public
interest issues. There are no employment concerns raised in the transaction under
consideration since it merely entails an increase in shareholding in De Beers,
leaving the actual operational structure unchanged. Consequently no employees in
the De Beers group will be affected. For the unions to expect Anglo to provide
undertakings in respect of employment conditions postmerger is not justifiable,
given that there is no evidence that the merger will have any impact on employees
of the Anglo Group or the structure of the group. It is furthermore illogical and
impractical to expect employers to offer undertakings with regard to maintaining
employment levels into the distant future, especially having regard to the dynamic
and volatile nature of the relevant industries. Furthermore, the Tribunal does not
see how the instant transaction could be impugned merely on the basis of
possible, hypothetical future job losses in unrelated industries. It agrees with the
assertions of the merging parties that any future notified merger transaction that
entailed job losses in these relevant sectors would fall under the scrutiny of the
competition authorities, in accordance with the normal course of events.
41. The merging parties also contended that the effect of the delisting of De Beers on
the South African economy was not a public interest issue as envisaged in section 12A(3)
(a) of the Act. 14 These latter issues fall in any event to be considered by the securities
(a) of the Act. 14 These latter issues fall in any event to be considered by the securities
and sector regulators, who have already approved this transaction. The Tribunal endorses
the view that these considerations do not fall within the purview of the competition
authorities.
Conclusion
The Tribunal therefore endorses the Commission’s view that this merger will not result in
the substantial lessening or prevention of competition in any market.
_____________ 18 May 2001
14 The relevant section, section 12A(3) states that ”When determining whether a merger can or cannot be
justified on public interest grounds, the Competition Commission or the Competition Tribunal must
consider the effect that the merger will have on – (a) a particular industrial sector or region;…”
12
D.H.Lewis Date
Concurring: N. Manoim, M Holden
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