COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 32/LM/Jun01
In the large merger between:
BHP Steel Southern Africa (Pty) Ltd
BHP Minerals International Exploration Inc.
BHP World Exploration Inc.
and
Billiton SA Limited and Mine & Smelter Investments (Pty) Ltd
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Reasons for the Competition Tribunal’s Decision
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APPROVAL
On 28 June 2001 the Competition Tribunal issued a merger clearance certificate
approving the merger between BHP Steel Southern Africa (Pty) Ltd, BHP Minerals
International Exploration Inc. and BHP World Exploration Inc (BHP SA) and Billiton SA
Limited and Mine & Smelter Investments (Pty) Ltd (the Billiton Group) without
conditions in terms of section 16(2)(a). The reasons for the approval of the merger appear
below.
BACKGROUND
Acquiring Firms
1. The acquiring firms 1 are BHP Steel Southern Africa (Pty) Ltd, BHP Minerals
International Exploration Inc., BHP Worldwide Exploration Inc, (“BHP SA”). 2
They are ultimately controlled by BHP Limited, (the Broken Hill Proprietary
Company Limited (“BHP Limited”)). BHP Limited is an Australian company
with a primary listing on the Australian Stock Exchange. It is a global natural
1 For the purposes of the merger notification, and since no assets or shares are being
transferred, no firm is technically acquiring the other, therefore the Billiton Group was
arbitrarily designated by the parties as the target firm and BHP Group as the acquiring
firm.
2 Eloff Mining Company (Pty) Ltd and Phoenix Mining Finance Company (Pty ) Ltd are also part of the
BHP stable in South Africa, however are, or are about to be dormant companies.
resource company, whose principal areas of business include minerals
(exploration, production, processing of coal, copper, iron ore, diamonds, silver,
lead and zinc), petroleum (exploration and production) and steel production . It
is headquartered in Melbourne and has a presence in over 30 countries.
Target Firms
2. The primary target firms are Billiton SA and Mine & Smelter Investments (Pty)
Ltd. They are ultimately controlled by Billiton Plc, a global metals and mining
company with a primary listing on the London Stock Exchange. 3 It has
operations in Australia, Brazil, Canada, Colombia, Mozambique, South Africa
and Suriname. The two primary target companies have sixty subsidiary
companies in South Africa. The main subsidiaries conduct Billiton’s business
activities in South Africa and include Ingwe Collieries Limited, Billiton
Aluminium SA Ltd, Samancor Ltd and Pering Mine (Pty) Ltd. (“the Billiton
Group”).
The merger transaction
3. This transaction is in pursuance of a merger transaction between the parent
companies of the Billiton Group in the UK and those of the BHP Group of
Australia, in terms of which the two parent companies are being combined into a
single economic entity. The merger will not involve the sale or transfer of any
shares or assets. 4
4. This arrangement is being effected by way of a dual listed companies structure
(“DLC”).5 On completion of the transaction both companies will continue as
separate publicly listed entities, retaining their existing stock exchange listings
and index participations, though having identical Boards of Directors and being
managed by a uniform team of management. Shareholders in Billiton and BHP
will effectively hold shares in a single company, having equivalent economic and
voting rights in the combined group.
voting rights in the combined group.
Rationale for transaction
5. The merging parties assert that the merger will “ bring together a portfolio of
3 The merger filing pertains to the South African activities of both BHP and Billiton and does not contain
details of all foreign companies owned by Billiton Plc.
4 This merger has to date been conditionally approved by the ACCC, and unconditionally approved by the
European Commission.
5 This the parties define as the arrangement whereby BHP and Billiton have a unified management
structure and the businesses of both BHP and Billiton are managed on a unified basis in accordance with
the provisions of a Structure Sharing Agreement.
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global resources with outstanding breadth and diversity .” 6 BHP and Billiton
will, through the combined entity, reduce their risk exposure, both to political and
commodity fluctuations within their various markets by expanding their
geographic presence and commodity portfolio. They further argue that they will
enjoy greater access to trading liquidity and indexation across major stock
exchanges and international capital markets, significantly enhancing their
international competitiveness.
EVALUATING THE MERGER
The relevant markets
BHP
6. Within South Africa, BHP conducts its activities via divisions, subsidiaries,
external companies and agencies. 7
Steel
BHP is active in South Africa in the sale of flat steel products via its wholly
owned subsidiary, BHP Steel (Southern Africa) (Pty) Ltd. These comprise carbon
and coated steel products. BHP Limited produces hot and cold rolled metallic
coated and electrical steel sheet and coil, supplied to the vehicle manufacturing
industries. Metallic coated and prepainted steels are supplied to the building and
construction, white goods, office and general manufacturing industries. BHP
Steel SA does not produce any steel locally, instead it imports BHP’s products
and markets them locally.
Coal
BHP Limited produces steam/thermal coal but sells no thermal coal to South
Africa.8 High quality metallurgical or “coking” coal represents the majority of
BHP Limited’s production. 9 It is used in the steel industry to reduce iron ore to
molten ore in steel. (a “reductant’ in the manufacture of steel.) Coking coal is a
hard coal and it is purchased principally by the steel industry. BHP imports
“coking” coal to Iscor Steelworks in South Africa.
6 Record, page 325
7 Once again, only those South African activities are alluded to here, there are in fact many more carried
out across their overseas operations.
8 More detail about this type of coal is described under Billiton’s coal activities.
9 The parties define coking coal as coal whose carbonization properties dictates its use in the steelmaking
process. Metallurgical coal is a broader term which includes all coals used in steelmaking. (BHP Annual
Report p 260)
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Exploration
BHP Minerals International Exploration Inc. is registered as an external company
in South Africa while BHP World Exploration Inc is in the process of doing so.
Both companies are purely exploration companies and sell no products within
South Africa.
Billiton
7. Billiton Plc conducts its activities through its worldwide subsidiaries. In South
Africa, it directly controls two companies, Billiton SA and Mine & Smelter,
which together have over 60 subsidiary companies within South Africa. It is
through these subsidiaries that the principal business activities of the parent
company are transacted.
The principal activities of Billiton and its subsidiaries within South Africa
include:
Aluminium
Billiton SA is an upstream aluminum producer, producing a variety of aluminium
products. It’s subsidiary, Billiton Aluminium SA Limited, owns two smelters at
Richards Bay.
Base metals
Billiton SA is involved in zinc mining within RSA through its wholly owned
subsidiary, Pering Mine (Pty) Ltd. This mine is also responsible for Billiton SA’s
lead production, retrieving lead as a byproduct of zinc.
Coal
Billiton SA’s coal operation is centred around “steam” (or thermal) coal, a type of
hard coal. 10 Hard coal comprises anthracite and bituminous coals. The largest
users of steam coal are electricity and heat producers since they require coal
capable of raising steam.
Ingwe Collieries Limited is the operating company for Billiton SA’s coal
10 This has the properties of containing little volatile matter and having a high fixed carbon content.
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business. It operates eight mines in South Africa in the Mpumalanga and
KwaZuluNatal provinces.
Steel and ferro alloys
Billiton SA’s interest in this sector is held through a 60% interest in Samancor 11, its
operating company and holding company for certain joint venture companies. 12
Samancor’s three main divisions are stainless steel, manganese and chrome.
Stainless Steel
Through its joint venture partnership in Columbus Steel, Billiton produces
stainless steel products.
Manganese
Billiton SA’s interest is also held via its 60% stake in Samancor. Billiton SA
mines ore which it sells on the open market to alloy producers. It also converts ore
into ferro or manganese alloys which it sells to the steel industry. 13
Chrome
Billiton produces a range of chrome products, specifically ferrochrome. Chrome
is used as a raw material in stainless steel production.
Ferrosilicon
This material is used in the physical process employed to separate valuable
minerals from the aggregate in which it is mined (“Dense Media Separation”).
Billiton manufactures this product via Samancor.
Titanium
This is an element formed in chemical combination with oxygen and iron. It is
predominantly used in the pigment manufacturing industry, with marginal use for
the manufacture of titanium metal, welding rod coatings and chemicals.
11 Samancor is the world’s largest integrated producer of chrome and manganese ores and ferroalloys with
mines and plants located in South Africa. Billiton’s partner is AngloAmerican, which holds 40%.
12 Samancor holds 33% (joint control) in the Columbus Stainless Steel joint venture in Middleburg, giving
Billiton an effective 20% interest. ( Record p497) Its equal partners are Anglo American and the IDC.
13 Manganese metal is alloyed with many other metals. Manganese alloys are an input into steel.
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Titanium Feedstock
Billiton’s involvement here is limited to its interest in Mine & Smelter, which has
a 50% interest in Richards Bay Minerals (RBM) 14. Mine & Smelter is not active
in the downstream market of pigment production. The final output produced by
RBM (“slag”) is sold to customers using the chloride process in pigment
production.
High purity pig iron/ductile iron
This is a byproduct of the production of titania slag. It is the preferred raw
material input used by foundries for the production of ductile iron castings.
Ductile iron is predominantly sold to the automotive industry, since its primary
use is for the production of safetycritical automotive parts, such as brake calipers
and steering knuckles of vehicles.
Impact on competition
8. Although both companies are involved in the steel and coal industries, there is no
product overlap between the materials produced by or the activities of the affected
companies within these areas. Moreover, BHP does not have any coal or steel
production facilities within South Africa.
9. Within South Africa, BHP SA is involved in the sale of flat steel products for the
automotive industry whilst the Billiton Group manufactures and sells stainless
steel, which the parties maintain are distinctly distinguishable products.
10. With respect to coal, although both companies do produce different types of hard
coal, these coal products differ according to use, customers and markets and there
is accordingly no overlap in this regard.
11. The Tribunal therefore agrees with the Commission that there is no product
overlap between the activities of the merging parties.
12. Accordingly, the merger would not result in a substantial lessening of competition
within the relevant mining or metals sectors within South Africa.
Public Interest Considerations
Public Interest Considerations
13. Only NUMSA initially filed to participate in these merger proceedings. They
however subsequently withdrew their opposition to the proposed transaction after
being assured that no job losses in the affected industries would result.
14 This is principally a titanium facility, with high purity pig iron being produced as a byproduct.
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14. The parties assured the Tribunal that there would be no effect on Billiton
employees at the operational level. 15 This includes unskilled, semiskilled,
skilled employees and management at various sites, mines and smelters. They
stated that the only potential impact on employment could arise at Billiton’s head
office in Johannesburg, currently exercising central support functions on behalf of
the worldwide Billiton Group. Such changes could result in pursuance of a
reorganization of central support functions between the principal offices of the
combined group. The exact nature of such reorganisation is as yet unknown.
However the parties submitted that employment losses would be confined to
highly skilled professional personnel with ample employment opportunities
elsewhere.
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.
_____________ 4 July 2001
D.H.Lewis Date
Concurring: M. Holden, U. Bhoola
15 BHP only have seven employees in South Africa.
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