COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 17/LM/Mar02
In the large merger between:
Islandsite Investments 149 (Pty) Ltd
and
Chlorchem, a division of Sentrachem Limited
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Reasons for Decision
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APPROVAL
On 17 April 2002 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between Islandsite Investments 149 (Pty) Ltd and
Chlorchem, a division of Sentrachem Limited, in terms of section 16(2)(a). The
reasons for the approval of the merger appear below.
The parties
1. The acquiring firm, Islandsite Investments 149 (Pty) Ltd. (“Islandsite”), is a
company having been established just for the purposes of this merger and
has yet to commence trading.
2. Islandsite is controlled by Investec Bank Limited (“Investec”), which is in
turn controlled by Investec Group Limited and ultimately controlled by
Investec Holdings Limited. The minority shareholding in Islandsite is to be
held by two individuals with expertise in the chemicals industry, namely
Dave Whelan, Managing Director of Metsep SA (Pty) Ltd and Chris van
Niekerk, CEO of PG Bison.
3. The target firm is Chlorchem, a company engaged in the Chemical
industry, a division of Sentrachem Limited (“Sentrachem”). Sentrachem,
itself a division of Dow Southern Africa Holdings (Pty) Ltd, of which the
ultimate parent company is Dow Chemical Company. (“Dow”) 1
1 Dow entered the South African market in 1997 by the acquisition of Sentrachem.
4. The parties have informed us that Islandsite has no interest in any of the
target firms other than through this transaction.
The merger transaction
5. Islandsite is acquiring the business of Chlorchem as a going concern.
6. The Managing Director and management team of Chlorchem will be
retained postmerger. The proposed ordinary shareholding of Islandsite
postmerger is:
Investec Bank Limited 49.99%
Chris van Niekerk 25.001%
Dave Wheelin 2 25.001%
7. Investec are the holders of all the convertible shares which can be
converted to full voting rights on demand. By virtue of this right of
redemption, should they choose to convert their shares, they would have
an 85% interest in the company, with the minorities and management
having a 15% interest. Generally however, they will not get involved in the
day to day business of Chlorchem.
Rationale for the Transaction
8. Islandsite is the vehicle by means of which Investec is acquiring the
business as an investment opportunity in the chemicals industry. It will on
sell the business in due course. Dow Chemical, most active in the plastics
and agroscience business, seeks to dispose of a business that is noncore
and has no synergies with its other businesses.
The relevant product market
2 Managing Director of Metsep SA (Pty) Ltd, which is also involved in the manufacture
of hydrochloric acid. On further questioning by the panel it appeared that Metsep is not
really a competitor in the industry as its customer base is different. The parties stated that
Metsep’s business is distinguishable, in that it relates to the recovery and regeneration of
hydrochloric acid for essentially the metals beneficiation industry.
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9. Investec is engaged in the banking and financial services sector. It
has at present no interest whatsoever in the chemical industry. The other
two shareholders are ,subject to the qualification mentioned in relation to
Whelan’s interest in Metsep, not owners of any significant stake in the
relevant industry.
10. The business of Chlorchem consists of Chlor Alkali and Walvis Bay Salt
Refiners of Namibia. Basically, Chlorchem manufactures and distributes
chlorine and associated products, such as chlorine, caustic soda and salt.
Walvis Bay Salt Refiners produces chemical grade and food and
agricultural salt.
11. The Commission states that Chlorchem operates in three
areas: Chlor Alkali; water treatment (via Ultrafloc) and salt. The chlor
alkali market can further be broken down into the following markets:
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o Liquid chlorine
Hydrochloric acid
Caustic Soda Lye
o Caustic Soda Flake
o Sodium Hypochlorite
o Chlorinated Paraffin
12. There is no product market overlap because neither Investec nor
any of its associated companies have any interest in the chlorine or salt
markets.
Geographical Market
13. Since there is no product overlap it is not necessary to define the
geographical market.
Vertical Integration
14. The parties advise that because there are at present various vertical
relationships between Chlorchem and other companies within the
Sentrachem group, this merger will be procompetitive, insofar as it will
terminate these relationships. The relationship of Chlorchem with the
Sentrachem group will, postmerger, become an arm’s length one. Post
merger it appears that various companies within the Sentrachem group
will become the largest customers of Chlorchem. We express no opinion
3 Its main competitor in the Chlor Alkali market is Sasol Polymer.
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about the validity of the claimed procompetitive benefits as the merger
raises no vertical concerns.
Conclusion
From the evidence it appears that there are close cooperative relationships
between firms in the chlor alkali market, particularly between Chlorchem and
Sasol Polymer. We were advised at the hearing that these relationships are
longstanding.4 The issue for us however is whether the merger, given this history
in the industry, facilitates a more cooperative, as opposed to rivalrous
relationship between the firms. As it appears that these relationships are struck
at an operational level it appears that the change of ownership will have no
bearing on them.
The Tribunal endorses the Commission’s finding that this transaction will not
substantially lessen or prevent competition in the relevant market and
accordingly approves the transaction unconditionally. There are no public interest
concerns which would alter this conclusion.
_____________ 23 April 2002
N.M. Manoim Date
Concurring: D. Lewis, U. Bhoola
4 Evidence of Dr Barney Steyn.
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