COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 11/LM/Feb02
In the large merger between:
OTK Agri Products Trading, a division of OTK Limited
and
Farm Feed Services, a division of Afribrand Trading (Pty)
Limited
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Reasons
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Approval
1. We approved without conditions the merger between OTK Agri
Products Trading (OTK Agri) and Farm Feed Services, on 7 March
2002. Below are the reasons for our decision.
The Parties
2. The acquiring firm is OTK Agri, a division of OTK Limited. OTK
Holdings Limited, a JSE listed public company, controls OTK
Limited. OTK’s core business is the provision of the following
services:
• Agri Finance – Providing financial and business solutions to
farmers, traders, processors and users of agricultural products;
• Agri Requisites – Providing agricultural inputs to primary
producers through a network of outlets; and
• Agri Products – Providing quality control, logistics and marketing
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solutions to all participants in the provision of agricultural services
and products. In this regard they have interests in the cotton,
animal feed and broiler sectors.
3. The target firm is Farm Feed Services, a division of Afribrand Trading
(Pty) Limited. Afribrand Trading (Pty) Limited is a subsidiary of
Afribrand Holdings. Farm Feed Services’s business is also in the
broad agricultural sector. According to the Commission Farm Feed
Services trades in about 38 agricultural products. These include
products like soya oilcake, maize, wheat, soya beans, wheat bran,
sorghum, cotton seed and fish meal.
The Transaction
4. The merger was initially notified as an acquisition by OTK Agri of the
whole business of Farm Feed Services. At the hearing we were
notified by the merging parties that the transaction would now involve
the sale of assets only. The reason given for this change in the
structure of the transaction was that the seller of the business had gone
into liquidation and the liquidators had decided that the sale of the
whole business of Farm Feed Services would not be for the benefit of
shareholders. The transaction is now effectively a purchase by OTK
Agri of the debtor’s book of Farm Feed Services.
The Relevant Market
5. According to the parties, the relevant market is the market for the
buying and selling of grain and oilseeds. On this definition OTK Agri
and Farm Feed Services would post merger, have market shares of
15% and 35%, respectively.
6. The Commission, on the other hand, recognises 6 (six) relevant
markets. These are the markets for the buying and selling of cotton
oilcake; soya beans, sorghum; wheat; sunflower seed and maize.
Based on this market definition, the market share of the parties would
be as follows:
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PRODUCTS m OTK
AGRI
FARM FEED
SERVICES
POST
MERGER
MARKET
SHARE
Cotton Oilcake 21% 4,6% 25,6%
Soya Beans 17% 7,5% 24,5%
Sorghum 12,5% 0,6% 13,1%
Wheat 1,25% 9% 10,25%
Sunflower seed 5% 2,4% 7,4%
Maize 19% 0,7% 19,7%
Impact on Competition
7. The Commission found that this merger is unlikely to result in the
prevention or lessening of competition and recommended that it be
approved without conditions. The Commission considers that, on
either of the above market definitions, the post merger market shares
of the parties are moderate and the concentration levels do not
indicate that the merger is likely to raise any competition concerns.
Furthermore, the Commission found that there are no major barriers to
entry into identified markets. As evidence of this it points out that
about 11 competitors have entered the market in the past three years.
The Commission also found that the market consists of a multitude of
suppliers with few purchasers who wield significant countervailing
power. A combination of these factors, according to the Commission,
will ensure that the merger is unlikely to result in the acquisition or
exercise of market power by the merged entity.
8. We agree with the Commission’s finding that the merger is unlikely to
have a negative impact on competition either on the narrow market
definition adopted by it, or the wider market definition proposed by
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the merging parties. We point out, however, that no evidence
whatsoever is presented by the merging parties to support the
assertion that there exists a market for the trading in grains and oil
seeds and why, in the instant matter, this is the relevant market. At the
very least, the merging parties had to show the existence of demand
side and/or supplyside substitutability between the products classified
as grains or oilseeds. A mere assertion is not enough.
9. The shortcomings in the parties submission do not, however, condemn
the merger because, as already stated, no competition concerns arise
even with the narrower market definition adopted by the Commission.
In our view the market identified by the Commission is, for the
purposes of this transaction, the narrowest market classification
possible. Since the merger raises no competition concerns on this
classification, it will obviously not raise any concerns on any (wider)
market definition.
Public Interest Considerations
10.The only public interest issue arising from the merger was its potential
effect on employment. The Commission received no representations
from the employees of the merging parties. In their submissions to the
Commission, the merging parties had anticipated that out of the target
firm’s staff compliment of 21 (twentyone), 7 (seven) whitecollar
employees would lose their jobs directly as a result of the merger. At
the hearing, we were informed that only one of the employees who
had lost his job as a consequence of the merger has not been able to
find employment elsewhere. Since we are now advised that the target
firm is in liquidation, the merger has meant that jobs will be saved and
thus its net effect on employment is positive.
Finding
11.The merger between merger between OTK Agri Products Trading and
Farm Feed Services is not likely to result in the substantial lessening
Farm Feed Services is not likely to result in the substantial lessening
or prevention of competition in any market. There are no significant
public interest concerns resulting from the merger.
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_____________ 10 April 2002
N.M. Manoim Date
Concurring: S. Zilwa; D.H. Lewis
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