COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 22/LM/May03
In the large merger between:
Main Street 112 (Pty) Ltd
and
Harvey Fibreglass Holdings (Pty) Ltd
Reasons for Decision
APPROVAL
1. On 2 July 2003 the Competition Tribunal issued a merger clearance certificate
approving the merger between Main Street 112 (Pty) Ltd and Harvey Fibreglass
Holdings (Pty) Ltd. The reasons for the decision are set out below.
FACTUAL BACKGROUND
2. On 30 April 2003 a merger notification was filed with the Competition
Commission (“the Commission”) with respect to the proposed merger between
Main Street 112 (Pty) Limited (“Main Street”), a whollyowned subsidiary of Cray
Valley Resins South Africa (Pty) Limited (“Cray Valley”), and Harvey Fibreglass
Holdings (Pty) Limited (“Harvey”).
3. On 8 May 2003, the Commission issued a notice of incomplete filing (notice
CC13(2)) to the effect that the merger did not meet applicable criteria as set out
in the Rules for the Conduct of Proceedings in the Competition Commission (“the
Competition Commission Rules”). The merging parties thereafter filed an appeal
application for an order setting aside the notice CC13(2). However, the appeal
was subsequently withdrawn after the Commission proceeded, despite its notice
CC13(2), to approve the merger unconditionally. The Tribunal accepted the
withdrawal, and there was no order as to costs.
4. After examination of the notification, the Commission concluded that the
notified merger does not prevent or lessen competition in either the upstream
market (the market for the manufacturing of resins products) or the downstream
market (the market for the distribution of resins products).
The parties and the transaction
5. This vertical merger entails an acquisition of Harvey’s business by Main Street,
a wholly owned subsidiary of Cray Valley.
6. Main Street, the primary acquiring firm, is a newly formed company and a
specialpurpose vehicle for the purposes of this transaction. It does not conduct
any business activity at the moment. It is the only subsidiary of Cray Valley.
Main Street does not have any subsidiary.
7. However, Cray Valley is wholly owned by Total Chimie, a company
incorporated in terms of the company laws of France. Total Chimie is in turn a
whollyowned subsidiary of TotalFinaElf, also a Frenchincorporated company.
TotalFinaElf has 16 subsidiaries in South Africa, which need not be identified for
the purposes of this decision.
8. Harvey, the primary target firm incorporated under the company laws of the
Republic of South Africa, has eight subsidiaries.
9. Cray Valley, unlike Harvey, manufactures hightechnology resins and
additives, both locally and internationally. These products are used as inputs in
the manufacture of various products in the adhesives, composites, and coating
industries. Harvey is not involved in the manufacture of those products. It merely
distributes resins, reinforcements, catalysts, fibreglass raw materials, and
accessories in retail and wholesale trade. It is the exclusive distributor of Cray
Valley’s range of unsaturated polyester resins that are used as inputs in the
adhesives, composites, and coating industries.
10. TotalFinaElf is an international company active in the oil, gas, and chemical
industries. In South Africa it is active in the distribution and supply of petroleum
products as well as other ancillary products such as liquid petroleum gas. Its
resins business, which constitutes a part of its specialities business, is held by
Cray Valley.
11. As a consequence of the sale agreement, Main Street will purchase Harvey’s
Cray Valley.
11. As a consequence of the sale agreement, Main Street will purchase Harvey’s
business as a going concern. On completion of the transaction Main Street will
control the supply and distribution business of Harvey.
12. The rationale for this transaction, as submitted by the merging firms, is that
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the manufacturers in this industry are vertically integrated into distribution, with
the manufacturer/distributors operating competitively. This merger will, it is said,
increase the efficiency and effectiveness of the merged entity and permit the
integration of margins and the development of Harvey’s distribution business
through Cray Valley’s financial resources and support.
The relevant markets
13. Main Street and Harvey are in a vertical manufacturer/distributor relationship.
The two relevant product markets with which we are concerned in this merger
are the manufacture of resins and other resinderived products in South Africa
(“the upstream market”), and the distribution of resins and complementary
products in South Africa (“the downstream market”). The Commission and the
merging firms agree that the relevant geographic market is South Africa.
The upstream market
14. Cray Valley manufactures structural resins that are used in the composites
industry. Structural resins mainly comprise polyester resins and gelcoats, which
are used in conjunction with catalysts in the production of composite products
such as fibreglass pools, boat building or vehicle canopies.
15. Cray Valley also manufactures other resinderived products such as gelcoats,
polycol pigment pastes, and flocoats. This resins and resinderived market thus
consists of polyester resins, gelcoats, polycol pigment pastes, and flocoats.
16. Polyester resins, also called unsaturated polyester resins, are used most
widely in the automotive, construction, industrial, marine, and leisure segments of
the composites industry.
17. Gelcoats are used generally as a finishing or topcoat in the product being
manufactured to improve surface appearance and protect the laminate from the
environment. They are derived from isophthalic polyester resins. Flocoats are
also derived from isophthalic polyester resins and are used for the same purpose
as gelcoats.
also derived from isophthalic polyester resins and are used for the same purpose
as gelcoats.
18. Polycol pigment pastes, a product group that contains a concentrated
pigment and resins mixture, are added to flocoats or gelcoats to impart specific
colours.
19. All these products are classified as resinderived products in that they are
manufactured from the same raw materials, using different formulations and
process variables.
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The downstream market
20. Harvey exclusively distributes Cray Valley’s resins and resinderived
products. It also distributes reinforcements, vinyl resins, catalysts, and a range of
accessories sourced from a variety of manufacturers.
21. Cray Valley does not manufacture or sell reinforcements and catalysts.
However, all Cray Valley’s competitors sell and distribute reinforcements and
catalysts as complementary products that are used with resins in the composites
industry.
22. The Commission recommended the unconditional approval of the merger.
Nature of exclusive relationship between Cray Valley and Harvey
23. Cray Valley and Harvey are parties to an agreement which sets out the
principles by which they trade in relation to products for sale to Harvey’s
customers. Cray Valley sells the products in question only to Harvey, and Harvey
purchases its supplies of such products only from Cray Valley. There is thus
bilateral exclusivity. Exceptions are made if Cray Valley is unable to supply
products needed by Harvey. This arrangement has been in force for a
considerable number of years.
Structure of the relevant markets
24. The markets in which Cray Valley and Harvey operate are structured as
follows:
The upstream market:
Company Estimated market share (%)
NCS Resins 52
Cray Valley 32
Scott Bader 9
KZN Resins 3
Importers 4
Total 100
The downstream market:
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Company Estimated market share (%)
NCS Resins 52
Harvey 20
Scott Bader 9
KZN Resins 3
Others 16
Total 100
IMPACT OF THE MERGER ON COMPETITION
25. On the face of it, the relevant markets are already highly concentrated, and
the removal of any participant from either market would be undesirable from the
competition viewpoint.
26. However, this fact is mitigated by a number of considerations.
27. First, there is no overlap in the activities of the merging parties, and it
appears likely from the parties’ assurances in their papers and at the hearing that
the business now undertaken by Harvey will continue to be operated separately
from Cray Valley’s existing operations. On this basis Harvey’s withdrawal will
have only a nominal effect on the competitive process.
28. However, vertical mergers require special consideration, as this Tribunal has
pointed out previously. 1 The issues of this kind, which the proposed merger
raises, must now be addressed.
29. When considering the possibility of foreclosure, the Commission concluded
that product inputs to the downstream market would not be adversely affected
because the business of Harvey would continue unchanged in the hands of Cray
Valley. To the extent that products not manufactured by Cray Valley are in future
needed by customers of the distributing entity, these products will be purchased
from independent sources by Cray Valley’s distribution arm in the same way as
Harvey is currently purchasing them. These products include reinforcements
obtained from Owen Corning SA and catalysts from Peroxide Chemicals (Pty)
Ltd. Customers of Harvey told the Commission that even if these products
became unavailable to them from Cray Valley’s distribution arm, they would be
1 See the Tribunal’s decision in Mondi Ltd and Kohler Cores and Tubes, a division of Kohler Packaging
Ltd (06/LM/Jan02), where the criteria applicable to vertical mergers are set out.
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able to source them directly from the manufacturers. Thus no input foreclosure in
the downstream market is expected.
30. Equally, rivals of Cray Valley in its capacity as a manufacturer will not be
deprived of a customer since they already largely have vertically integrated
distribution arms, and in any case do not sell at present to Harvey because of the
exclusive nature of its relationship with Cray Valley. So customer foreclosure in
the upstream market will not occur.
31. The Commission satisfied itself that Cray Valley’s competitors were not
perturbed by the merger proposal, and this confirms the conclusion on questions
of foreclosure that the merger is not likely to drive up the costs of the parties’
competitors.
32. Because of the vertically integrated nature of the relevant markets, Harvey is
unlikely to possess confidential information about Cray Valley’s competitors that
would be damaging to competition if it were shared with Cray Valley. Thus
another of the potential concerns raised by a vertical merger is allayed.
33. Finally, no question arises of the possible evasion of price regulation as a
result of the merger.
34. It is therefore our finding that the transaction will not substantially prevent or
lessen competition.
PUBLIC INTEREST CONSIDERATIONS
35. The parties were emphatic in their papers and at the hearing that the merger
will not result in retrenchments. They assert that the business of Harvey is
entrepreneurial in nature and calls for different skills from those of the personnel
of Cray Valley. Accordingly, we conclude that the merger does not bring
employment into question.
36. The transaction does not raise any concerns on other public interest grounds.
CONCLUSION
37. The Tribunal endorses the Commission’s findings about the nature and effect
of this transaction, and accordingly approves the transaction without conditions.
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______________ 09 July 2003
P. Maponya DATE
Concurring: U. Bhoola, L. Reyburn
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