COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 56/LM/Aug 02
In the large merger between:
Foodcorp (Pty) Ltd
and
Boksburg Oil Mill an asset of Unilever South Africa
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Reasons
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Approval
The Competition Tribunal issued a Merger Clearance Certificate on 28 August 2002
approving the merger without conditions. The reasons for our decision are set out below.
The merger
The transaction
Unilever South Africa (Pty) Ltd is selling an asset, its Boksburg oil mill, to Foodcorp
(Pty) Ltd (“Foodcorp”). Unilever’s refinery operation is not being sold to Foodcorp.
Foodcorp and Unilever, furthermore, have agreed on a toll crush agreement in terms of
which Foodcorp will, in future, crush certain quantities 1 of sunflower seed at the
Boksburg Mill on behalf of Unilever and supply it with edible crude sunflower oil.
The parties to the transaction
The acquiring firm is Foodcorp, a wholly owned subsidiary of Foodcorp Holdings, which
is ultimately controlled by ABN Amro Bank N.V. The Foodcorp Group operates in South
Africa, Chile and the United Kingdom. The South African business of the Foodcorp
Group can be divided into a grain & edible oils division, a fish and processed meat
division and a protein division. Only the grain and edible oils division is relevant to this
transaction.
1 This amount will account for approximately 60% of the crushing capacity at the Boksburg oil mill.
The Boksburg oil mill is operated by Unifoods, an operating division of Unilever South
Africa (Pty) Ltd (“Unilever”).
Rationale for the transaction
Unilever has refocused its local and global business strategy on branded food products.
As a result of this strategy it has classified its oil milling activities as a noncore activity.
Unilever is of a view that Foodcorp could run the mill more economically and efficiently
because the processing of edible crude oil is part of Foodcorp’s core business.
Evaluating the merger
The relevant market
Both Foodcorp and the Boksburg oil mill crush sunflower seed 2 to obtain two
intermediate products, edible crude oil , which needs to be refined before it can be used
to produce oilbased products such as bottled oil, margarine, mayonnaise and salad
dressing, and protein meal , which is used in the production of animal feed for the South
African market. 3
Whether we define the market broadly to include edible crude oil and protein meal
derived from all the different seed types or narrowly, to include edible crude oil and
protein meal derived from sunflower seed only is, for purposes of this evaluation not
important since, as we show below, competition will not be substantially prevented or
lessened based on either definition of the market.
Market shares
Post the merger the main suppliers of edible crude sunflower oil are Willowton, with a
market share of 24.8%, the merged entity with a market share of 24% and EPKO with a
market share of 9% . Imports constitute 23.8% of the market.
With regard to sunflower protein meal the merged parties will have a combined market
share, post merger, of 27.5%, Willowton/Continental/Epic, a market share of 28.4%,
EPKO, a market share of 10.3%, with imports constituting12.8%.
Effect on competition
Most manufacturers of edible crude oil are, according to the Commission, vertically
2 According to the parties it is also possible to substitute sunflower with soyabean, maize, canola and
cotton seed to obtain edible crude oil.
3 The parties do not own any raw material themselves and therefore source it from farmers, coops and
SAFEX, the South African Futures Exchange.
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integrated, including Foodcorp and Unilever. 4
Foodcorp, through its Nola business division, which is based at its oil mill and refinery in
Randfontein, utilizes the sunflower protein meal in the production of dog food and the
refined edible crude oil in the production of salad dressings and bottled oil. The branded
products that it manufactures include Nola mayonnaise and salad dressing, Yum Yum
peanut butter, Ouma rusks, Bobtail dog food and Nola cooking oil.
Unilever uses most of its refined crude oil in the production of Flora, Marvello, Stork
and Rama margarine. Any excess crude oil is sold in bulk to professional service outlets
such as catering services. It does not use the sunflower protein meal, but sells it to
producers of animal feed. After the merger it will, in terms of the toll agreement with
Foodcorp, continue selling protein meal to its current customers.
The local supply of edible crude oil is insufficient for the country’s requirements due to
the lack of local seed production. Edible crude oil and protein meal must, therefore, be
imported in order to meet demand 5. The price of local crude edible sunflower oil and
meal is determined by import parity.
Prior to the merger Unilver used to provide crushing services to other firms that compete
in the same market as Foodcorp. However we were informed that these firms are, already
existing customers of Foodcorp as well and it is therefore unlikely that the merger would
lead to foreclosure in respect of these firms.
There are no regulatory requirements to enter the markets. Although barriers to entry are
relatively low there have not been any new entrants to this market, for the past 3 years.
This can, however be attributed to the fact that the local supply of crop is inadequate and
strong import competition.
In light of the excess milling capacity, strong import competition and the toll agreement
concluded between the parties we agree with the Commission that the transaction will not
concluded between the parties we agree with the Commission that the transaction will not
prevent or substantially lessen competition in the relevant market.
Public interest
The merger does not give rise to any public interest issues.
4 Although, for purposes of this transaction, the end products manufactured by Foodcorp and Unilever are
not relevant, we do refer to it for the sake of completeness. Moreover, although both parties are vertically
integrated they do not compete in the same end product markets.
5 According to the parties Shoprite Checkers has also, on occasion, imported prepacked sunflower
cooking oil from Argentina.
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5 September 2002
D. Lewis Date
Concurring: M. Moerane, N. Manoim
For the merging parties: Webber Wentzel Bowens
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