COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 31/LM/May02
In the large merger between:
Crown Gold Recoveries (Pty) Ltd
and
Industrial Development Corporation of South Africa Limited
and
Khumo Bathong Holdings (Pty) Ltd
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Reasons for Decision
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Approval
On 29 May 2002, the Competition Tribunal approved:
(a) the transaction in terms of which the Industrial Development Corporation of
South Africa Limited acquires control of Crown Gold Recoveries (Pty) Ltd; and
subsequently
(b) the transaction in terms of which Khumo Bathong Holdings (Pty) Ltd acquires
control of Crown Gold Recoveries (Pty) Ltd from the Industrial Development
Corporation of South Africa Limited.
The reasons for the Competition Tribunal’s decision follow.
The parties
The primary acquiring firm is Khumo Bathong Holdings (Pty) Ltd (“KBH”). KBH has
the following interests in the mining industry: a 30% shareholding in East Rand
Proprietary Gold Mines Limited (ERPM) and a 25% shareholding in Open Solutions
(Pty) Ltd which has a 10% participation right in the Elandskraal mine of the Harmony
Gold Mining Company Limited. KBH is controlled by two trusts, namely the Ncholo and
Baird family trusts. Both trusts, we are advised, have historically disadvantaged persons
as their beneficiaries.
The other acquiring firm is the Industrial Development Corporation of South Africa
Limited (IDC), a selffinancing stateowned development finance institution. The IDC
provides finance to entrepreneurs in competitive industries through loans and other
financial instruments including equity.
The primary target firm is Crown Gold Recoveries (Pty) Ltd (“CGR”), a wholly owned
subsidiary of Crown Consolidated Gold Recoveries Limited (“CCGR”). CCGR in turn is
a wholly owned subsidiary of Durban Roodepoort Deep Limited which controls a number
of firms, mostly in the gold mining industry, both in South Africa and abroad.
CGR is a gold reclamation business which processes old dumps and slime dams to
recover gold and silver.
The transaction
According to the parties, the transaction seeks to transfer control of CGR from a larger
player in the market to a smaller empowerment firm thereby enabling the latter to have a
meaningful stake in gold mining. In terms of the share purchase agreement, the IDC will
purchase 57% of the issued share capital of, and take cession of 57% of the claims of
CCGR against CGR; and KBH will purchase 3% of the issued share capital of, and take
cession of 3% of the claims of CCGR against CGR. The transaction is funded by the
IDC.
The IDC’s will warehouse its acquired portion for sixty months during which time CGR
will pay the IDC the outstanding claims it acquired from CCGR. Upon payment, the
shares held by the IDC in CGR will be transferred to KBH. The IDC will therefore
effectively hold shares in CGR as security for the repayment of the claims amount. The
IDC’s involvement in the transaction is in keeping with its mandate as a development
finance institution. The IDC does not have any interests in the gold mining industry.
The transaction will eventually result in KBH acquiring 60% of the claims and issued
The transaction will eventually result in KBH acquiring 60% of the claims and issued
share capital of CGR with the remaining 40% held by CCGR.
Evaluation of the merger
We agree with the Commission that the relevant market for this transaction is the
international market for the production and supply of gold. Both the target firm, CGR,
and the acquiring firm, KBH through its shareholding in ERPM and Open Solutions,
operate in the gold mining industry.
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The instant transaction involves two stages in which the IDC will first acquire a 57%
control in CGR and subsequently, after a period of 60 months, KBH will assume a 60%
controlling shareholding. Even though the Commission’s recommendation to approve the
transaction was based on a competition evaluation of both legs of the transaction, the
Commission argued that the merging parties were obliged, in terms of the Act, to notify
the second leg of the transaction and that we should confine our approval to the first leg
viz. the IDC leg. The Commission argued that an evaluation of the relevant market 60
months hence may result in different conclusions about the transaction if market
conditions were to significantly change.
The parties’ view was that, considering that the IDC’s involvement in the transaction was
purely financial and in the ordinary course of its business as a development finance
institution, the transaction should be assessed in its entirety and that a second notification
was not necessary. The parties also pointed out that the Competition Act does not specify
a time lag between the notification of a merger and its implementation.
The Commission’s observation that market conditions are not static and that a market
may look very different between the date of the approval of a merger and its
implementation is a truism. That however does not justify from a policy point of view
utilising merger control in an unnecessary burdensome or bureaucratic fashion. On the
facts of this case the second leg is the rationale for the merger and but for it the first leg
would never take place. The first leg is merely to facilitate the possibility for the second
to happen. Legally and factually the two legs constitute parts of a single transaction. As
long as the Commission can evaluate both changes of control contemplated in this merger
and come to a conclusion that neither gives rise to concern, which is precisely what they
and come to a conclusion that neither gives rise to concern, which is precisely what they
have done, there is no reason to require two separate notifications. Such an arrangement
would unduly burden merging parties. Perhaps the group most affected by such an
inflexible policy would be empowerment firms, since they often cannot finance a
transaction from their own resources and may need to acquire control in stages, these are
precisely the kinds of firms the Act is intended to assist in becoming competitive. 1
Furthemore, we are satisfied that, given the peculiar nature of the industry in which
Khumo Bathong participates, it is highly improbable that market conditions will change
to the extent that the second phase of transaction will impact negatively on competition.
The Commission conceded this point at the hearing.
Gold is produced by a large number of producers around the world. All gold produced in
South Africa is converted to bullion at the Rand Refinery in Germiston and sold on the
international bullion market. Gold producers are “pricetakers” with the price determined
by reference to the London daily price fixings of the London Bullion Association. No
single producer therefore has the ability to influence the gold price.
1 Section 12 A(3)(c).
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Both stages of this transaction will therefore not impact on the level of concentration in
the relevant market and, given the peculiarities of the international gold market, the
transaction viewed in its entirety is unlikely to substantially prevent or lessen competition
in the relevant market.
Public interest issues
We agree with the Competition Commission that the transaction does not raise any public
interest concerns. Indeed, the transaction will advance black economic empowerment as
KBH is controlled by two family trusts, the Ncholo Trust (60%) and the Baird Trust
(40%), whose beneficiaries are historically disadvantaged individuals.
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N. Manoim Date: 4 June 2002
Concurring: D.H.Lewis, P. Maponya
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