COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 07/LM/Feb03
In the large merger between:
Chemical Services Limited
and
Senmin and Alkylates business of the Karbochem Division of Sentrachem
Limited
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Reasons for Decision
_______________________________________________________________
Approval
1. On 30 April 2003 the Tribunal conditionally approved the merger between
Chemical Services Limited and Sentrachem Limited in respect of the Senmin
and Alkylates business of Sentrachem Limited’s Karbochem Division. The
reasons for this decision follow.
The transaction
2. This transaction entails an acquisition by Chemical Services Limited (“CSL”) of
certain businesses from Sentrachem Limited (“Sentrachem”). CSL will acquire
the Senmin and Alkylates businesses of the Karbochem division as going
concerns. The sale constitutes one indivisible transaction.
3. The primary acquiring firm is CSL, a listed subsidiary of AECI.
4. The primary target firm is the Karbochem Division of Sentrachem, which
consists of the Senmin business and the Alkylates business. Sentrachem is a
subsidiary of the Dow Chemical Company.
The rationale
5. Sentrachem is disposing of all its noncore businesses, hence this
transaction.
Evaluating the merger
The Senmin business
6. Senmin manufactures xanthate collectors, senkol collectors and frothers,
which are used extensively in the mining industry. As the only producer of the
complete range of froth flotation reagents in Africa, Senmin enjoys market
power.
7. CSL manufactures depressants and is an agent for Ciba, an international
producer of chemicals. CSL does not produce any of the chemicals produced
by the Senmin business. There is no product overlap or interchangeability.
8. Although there are no horizontal competition concerns, the Commission further
investigated the vertical integration concerns that may arise as a result of this
part of the merger.
Vertical integration
9. The Commission considered the potential impact of vertical integration between
CSL and the Senmin business in respect of the following:
i) CSL’s joint venture, Crest Chemicals sells potassium hydroxide to
Senmin. Since this market is a global one, and potassium hydroxide
can be imported, it is unlikely that the merged entity will act anti
competitively.
ii) Sentrachem’s subsidiary Orchem (Pty) Ltd supplies herbifume to
CSL’s subsidiary, Plaaskem. Since, Plaaskem is the only customer of
herbifume, foreclosure is therefore not a possibility.
iii) Crest Chemicals also distributes sodium hydroxide, which the
Senmin business uses in the production of xanthates. However,
Senmin currently procures sodium hydroxide from NCP. Sasol
Polymers is also active in this market. This together with Crests’
insignificant market share indicates that potential vertical integration
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in terms of this input is unlikely to raise competition concerns.
iv) CSL’s subsidiary, Pelichem distributes imported flocculants, which
are in some instances complementary to the collectors and frothers
manufactured by Senmin. The Commission established that only
between 510% of Pelichems’ customers use collectors and frothers
from Senmin.
v) Chemical Initiatives (“CI”), another subsidiary of CSL, imports
sulphur. Although Senmin uses molten sulphur as an input, it would
be too costly for it to convert sulphur from CI into molten sulphur.
Vertical integration in respect of this product would therefore not be
feasible.
10. We accept the Commission’s findings that foreclosure arising from vertical
integration in respect of any of the above products would not be a viable
option for the merged entity. It is unlikely that the vertical integration outlined
above will lead to a substantial lessening of competition.
The Alkylates business
11. The Alkylates business (“Alkylates”) produces linear alkyl benzene (LAB) used
in the production of detergents. Alkylates competes with Shell SA Energy
(Pty) Ltd in this market. Sasol has also recently entered this market through
its acquisition of Condea. Although the detergents made from LAB are well
established in the market, environmentally friendlier products are replacing
them.
12. CSL is not involved in this market hence there is no product overlap. This part of
the transaction, too, does not raise horizontal competition concerns.
Vertical integration
13. The Commissions investigation reflects that Akulu Marchon, a subsidiary of CSL, is
the second largest customer of the Alkylates business. The largest customer is
Lever Ponds.
14. Akulu uses LAB in the production of sulphonic acid. Akulu’s Kwazulu plant
purchases its LAB from Shell while its Gauteng plant purchases LAB from
purchases its LAB from Shell while its Gauteng plant purchases LAB from
Alkylates. The Commission investigated the potential input and customer
foreclosure that may arise as a result of this vertical relationship.
15. The Commission found that as the largest customer for LAB, Lever Ponds has
significant countervailing power, the threat of imports and the recent entry by Sasol
in the LAB market, would curtail the merged entity from adopting an input
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foreclosure strategy.
16. With respect to customer foreclosure, the Commission concluded that since Shell
relies heavily on Lever Ponds as its largest customer, it would not exit the market
even if Akulu withdrew its business from Shell post –merger.
17. Some of Akulu’s competitors raised concerns that the merged entity would engage
in price discrimination. In response to these concerns, CSL provided “comfort”
undertakings that aim at preventing potential anticompetitive behaviour. 1
Essentially these undertakings impart that CSL will deal with Akulu and its
competitors on a nondiscriminatory basis and also allow for the appointment of
auditors to verify compliance with these undertakings.
Impact on competition
18. Since there is no product overlap between the target businesses and the acquirer,
there are no horizontal concerns. The transaction will not alter the existing
structure of the market. Despite this we are of the view that the price discrimination
concerns noted by Akulu’s competitors are not unfounded. This vertical
relationship may give rise to anticompetitive pricing behaviour.
19. We are of the view that the merger will not lead to a substantial lessening of
competition on a horizontal basis. In respect of the vertical concerns regarding the
relationship between Akulu and the Alkylates business we are satisfied that the
undertakings provided by CSL to Akulu’s competitors, incorporated as a condition
to the merger, will circumvent the potential anticompetitive behaviour.
Public interest concerns
20. The parties submit that the transaction will not impact negatively on employment.
Initially, CEPPAWU filed a notice of intention to participate. The Commission’s
report indicates that CEPPAWU subsequently met with the merging parties but did
not provide further comment.
Conclusion
not provide further comment.
Conclusion
21. The transaction is therefore approved subject to the condition that Chemical
Services Limited abides by the undertakings provided to the competitors of Akulu
Marchon. These undertakings are set out in letters given to Akulu’s competitors,
annexures A and B hereto. 2
1 These undertakings were provided in letters to two of Akulu’s competitors, dated 27
December 2002 and 18 March 2003, respectively.
2 The merging parties claimed confidentiality over the contents of these letters, they are
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22. There are no public interest concerns, which warrant a different conclusion.
10 June 2003
N. Manoim Date
Concurring: D Lewis, L Reyburn
For the merging parties: Bell Dewar & Hall Inc.
For the Commission: M. Simelane, Legal Services Division, Competition
Commission
therefore not attached to the public version of this decision.
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