COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 34/LM/Jun01
In the large merger between:
Standard Corporate and Merchant Bank
a division of the Standard Bank of South Africa Limited
and
PROCHEM (Pty) Ltd
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Reasons for the Competition Tribunal’s Decision
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Approval
1. On 26 July 2001 we approved the merger between Standard
Corporate and Merchant Bank (SCMB), a division of the Standard
Bank of South Africa Limited, and PROCHEM (Pty) Limited
(Prochem). Our reasons for approving the merger appear below.
The Parties
2. SCMB is a division of the Standard Bank SA, a JSElisted public
company whose major shareholders are Old Mutual (21%), Sanlam
Group (6,6%) and the Transnet Pension Fund (4,5%). Standard
Bank is a major player in financial services particularly in personal
and corporate banking. SCMB is its merchant banking division.
3. Prochem is a South African private company carrying on business
as stockist, distributor and supplier of commodity, fine,
pharmaceutical and specialty chemicals, and in plastic and rubber
polymers. It also acts as agent for various local and overseas
principals through its subsidiaries and agencies. BOE Bank
Limited (BOE) owns 80% of the shares in Prochem with the
current management of the firm holding the remaining 20%.
The Transaction
4. This is a leveraged buyout with SCMB buying from BOE all the
issued share capital and assets of Prochem, including all
subsidiaries1. A special purpose vehicle, Clidet No.345 (Clidet),
has been created to act on behalf of SCMB in this transaction.
Clidet will acquire 100% ownership of all the assets and shares of
Prochem. In addition to taking ownership of all the wholly owned
subsidiaries of Prochem, Clidet will also acquire Prochem’s 50%
share in Duravin Chemicals (Pty) Limited and Protea Chemicals
UK Limited’s 50% shareholding in a Zimbabwean chemical
distribution company, Acol Chemicals (Pty) Limited.
5. Upon completion of the transaction the shares in Clidet will be held
as follows: 65% will be held by SCMB and 35% by current
Prochem management. In terms of an arrangement between SCMB
and the current management of Prochem, managements’
shareholding in Clidet could gradually increase to 50% if certain
performance based targets are met, thus giving them joint control
of Clidet.
Effect on Competition
6. The essence of this transaction is that BOE is disposing of its
controlling stake in Prochem and SCMB, through Clidet, is
replacing BOE as the controlling shareholder in Prochem. The only
issue therefore is whether SCMB has any significant interests in
the market for the manufacture or distribution of chemicals in
South Africa. Since Prochem is a significant player in the
distribution market any interest held by SCMB in that market
would raise serious horizontal competition concerns. Similarly,
serious vertical competition concerns would result if SCMB had
serious vertical competition concerns would result if SCMB had
significant interests in the chemical manufacture market.
1 The subsidiaries of Prochem are Protea Chemicals (Pty) Ltd; Protea Industrial Chemicals (Pty) Ltd;
Chempro Commodities (Pty) Ltd; Chempro (Pty) Ltd; Montan Chemicals (Pty) Ltd; Products for
Industrial Manufacturing (Pty) Ltd; El Rogoff Chemicals (Pty) Ltd; Protea Namibia (Pty) Ltd and
Protea Chemicals (UK) (Pty) Ltd.
7. We were assured by the legal representatives of SCMB that it has
no interest in any company that engages in the manufacture or
distribution of chemicals in South Africa. Based on this
information we find that this merger does not raise any competition
concerns.
8. SCMB is in the investment business and, through Clidet, is making
this acquisition with the intention of disposing of the acquired
controlling interest in Prochem at some future date to realize its
investment. When SCMB decides to sell its stake in Clidet the
resulting change of control in Clidet would trigger a notification to
the Commission in terms of the Act. For competition purposes, the
crtitical issue in the analysis of such a transaction would be
whether the firm acquiring from SCMB the controlling
shareholding in Clidet has any interest in the manufacture or
distribution of chemicals in South Africa. Whoever assumes a
controlling interest in Clidet also assumes control over a significant
part of the South African chemical distribution market. It is in our
opinion very important therefore that in the analysis of the sale by
SCMB of its stake in Clidet due consideration be paid to potential
horizontal and vertical competition concerns that may arise from
the acquiring firm having other interests in the chemical
manufacture or distribution market.
9. We considered making our approval of this merger conditional
upon SCMB giving notice to the Commission prior to disposing of
its stake in Clidet. However we decided that this was unnecessary
since such a transaction would in any event result in a change of
control in Clidet and trigger a notification to the Commission.
Public Interest Concerns
10.According to the merging parties this transaction will not result in
any change in the operation of the business and will therefore have
any change in the operation of the business and will therefore have
no effect on employment. They have given assurances to the
employee representatives, the Chemical, Paper, Printing, Wood and
Allied Workers Union that no job losses would result from the
merger. We are therefore of the view that the merger raises no
public interest issues.
______________ 30 July
2001
NM Manoim Date
Concurring: D Terblanche; U Bhoola