COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 68/LM/Sep02
In the large merger between:
Prochem (Pty) Ltd
and
Duravin Chemicals (Pty) Ltd
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Reasons for Decision
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Approval
On 06 November 2002 The Competition Tribunal approved the merger between Prochem
(Pty) Ltd (“Prochem”) and Duravin Chemicals (Pty) Ltd (“Duravin”) without conditions.
The reasons for the decision follow.
The transaction
This is an acquisition by Prochem of 50% of the shares in Duravin, from the Brimacombe
Family Trust (“The Trust”). Duravin is currently jointly controlled by Prochem and the
Trust. Thus, pursuant to the acquisition, Prochem will have sole control of Duravin.
The Parties
The primary acquiring firm, Prochem, is controlled by Standard Corporate & Merchant
Bank (“SCMB”) and a management consortium. In addition to its interest in Duravin,
Prochem has another subsidiary, Acol Chemical Holdings (Zimbabwe).
The primary target firm is Duravin, which does not have any other business interests.
Rationale for the transaction
The rationale for the transaction is to facilitate Prochem’s growth into areas where it does
not currently enjoy a significant presence, in particular, export opportunities in Africa and
its expansion into the bulk chemical distribution market.
The relevant market
Product market
Prochem has three divisions namely, Chempro, Protea Chemicals and Montan Chemicals.
Chempro is a speciality channel, supplying products for specific applications. Protea
Chemicals is a commodity wholesaler and distributor, warehousing and distributing
chemicals to a wide range of customers. Montan Chemicals supplies chemicals to the
mining and water care industries.
Duravin operates as a bulk commodity chemical channel. It does not warehouse
chemicals and supplies only larger customers within industrial sectors.
The parties’ activities overlap in the distribution of the following chemicals and plastics 1:
Plastics Chemicals
High density polyethylene – HDPE Monothylene glycol – MEG
Low density polyethylene LDPE
Linear low density polyethylene – LLDPE
Polypropylene – PP
Poly vinyl chloride PVC
The Commission identified the relevant product markets as the markets for the supply of
each of the above products .
Geographic market
The parties distribute these products throughout South Africa.
The Commission accepted the relevant markets as the national markets for the supply of
HDPE; LDPE; LLDPE; PP; PVC and MEG.
At the hearing of this matter, we questioned whether there are indeed separate product
markets or a single market for the supply of distribution services in the chemical and
plastic industries.
1 For an explanation of the constitution and use of these products see the following E U Competition
Commission cases: Union Carbide/Enichem IV/M.550; Royal Vopak/ Ellis & Everard COMP/ M.2244 .
2
However, given the parties’ relatively insignificant market shares, the relevant product market does
not require a definitive answer. 2
Effect on competition
According to the market share information submitted, the parties enjoy the following
market shares:
Prochem Duravin
Vertically integrated firms such
as Sasol and Dow are dominant in
these product markets, while the
merging parties’ market shares
are relatively insignificant. As can
be seen from the table above the parties’ post merger
market shares do not exceed 10% in any of these product markets.
Furthermore, the barriers to entry are insignificant. In fact, product knowledge and
expertise are probably the most significant barriers.
In our opinion the transaction does not result in the removal of an effective competitor,
since Prochem has historically held a significant interest in Duravin 3, which has probably
led to the parties differentiating their services and client base.
On the basis of the above the transaction does not give rise to competition concerns.
Public interest Issues
The transaction will not give rise to any loss of employment or other public interest
concerns.
Conclusion
We conclude that the merger will not lead to a substantial lessening of competition and
therefore unconditionally approve the transaction.
2 A similar approach was adopted by the EU in Royal Vopak/ Ellis & Everard COMP/ M.2244 and
Ashland/Superfos COMP/M.1682.
3 At the hearing Mr Brimacombe confirmed that Prochem was one of the founding shareholders of
Duravin, initially holding a 40% interest in Duravin. Approximately three years ago, Prochem acquired a
further 10% hence its current 50% interest.
Product % Market
share
HDPE <1
LDPE 2
LLDPE <3
PP <1
PVC <1
MEG 3
Product % Market
share
HDPE 3
LDPE 2
LLDPE <1
PP <1
PVC <2
MEG 7
3
19 November 2002
N.M. Manoim Date
Concurring: M. Holden, F. Fourie
For the merging parties: Cliffe Dekker Attorneys
For the Commission: J. Mokwana, Legal Services Division, Competition
Commission
4