COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No.: 46/LM/Jun02
In the large merger between:
Anglo American Holdings Ltd
and
Kumba Resources Ltd
with the Industrial Development Corporation intervening
______________________________________________________________
Decision and Reasons [ NonConfidential Version ]
______________________________________________________________
Introduction
1. In this case we have to decide whether a series of transactions by
Anglo American Holdings Ltd (from now on ‘Anglo’) in which they have
purchased up to 34,9% of Kumba Resources Ltd (from now on
‘Kumba’):
1) Amount to an acquisition of control by it of Kumba, in which case
it is a notifiable merger in terms of the Act; and then, if so,
2) Whether the merger should be approved, conditionally approved
or prohibited in terms of the criteria set out in section 12A of the
Competition Act. In so doing we will have to consider the
competition issues raised by the merger in several implicated
markets, any efficiency gains it might bring about and the impact
on the public interest. All three of these issues are pertinently
raised in this case.
Background
2. From the outset this merger proceeding has been dogged by
controversy. Perhaps, this is because the prize, control of the country’s
largest iron ore mining company, has been the dream of many suitors.
1
Perhaps, because government at the highest level has been drawn in
as the confidante of the players involved, and finally, perhaps, because
the prospect of a battle for corporate supremacy, particularly when it is
waged in the name of conflicting notions of the national interest, always
invites titillation and speculation.
3. A brief description of the merger and the events that precipitated it are
worth mentioning, not because a long decision requires an overture
before it starts, but because some scene setting is necessary in order
to appreciate why it is that we have to decide certain issues and why
they have taken a particular form.
4. Up until March 2001 the firm that is now Kumba Ltd was a division of
Iscor1. The integrated firm combined the mining of iron ore with steel
making. This arrangement was dictated not by efficiencies, but by
political considerations. The economically isolated apartheid
government needed to ensure its selfsufficiency in manufacturing by
having a domestic steel company. In turn the same logic dictated that
the steel company was itself selfsufficient in terms of its supply of iron
ore. Hence the integrated Iscor was an industrial giant combining it
appears, unusually, both iron ore extraction and steel manufacture.
5. At the same time Iscor was a parastatal and it was not until 1989 that it
was privatised under the previous dispensation.
6. After the political changes of 1994, the selfsufficiencyinspired
imperatives that drove the old integrated Iscor no longer prevailed.
Investors downgraded the value of the firm’s stock it was neither fish
nor fowl, neither wholly miner nor steel maker. Enter the Industrial
Development Corporation (from now on, ‘the IDC’) as a key
stakeholder. It began, partly due to a massive exposure it had incurred
stakeholder. It began, partly due to a massive exposure it had incurred
in Saldanha Steel, a greenfields steel mill that it owned jointly at that
time with Iscor, to advocate the break up of Iscor into separate stand
alone mining and steel companies respectively. The idea was that the
parts were greater in value than the whole. Whilst this episode was
being debated, those who saw which way the wind was blowing began
to buy up positions in Iscor. Amongst the firms stalking were Avmin
and, so it was rumoured at the time, Anglo. It was Avmin who were
most public in their intentions and according to reports at the time,
wished, in partnership with the IDC, to procure the separation of the
firms and then take control of the mining interests. Avmin was half
owner of Assmang, which, amongst other assets, owned an iron ore
mine and deposits in the Northern Cape, both adjacent to those of
Kumba. The word synergies between these assets started to gain
currency.
1 On 26 November 2001, Kumba was listed on the JSE.
2
7. The Avmin coup did not happen but the break up of the two companies
did. The steel making plants remained in Iscor and through a swap with
the IDC, Iscor acquired the whole of Saldanha Steel. The IDC was left
with sizable stakes in both the new Iscor (holding 8.8% of the shares)
and the mining company to be known as Kumba (holding 14% of the
shares). The markets loved the divorce and the value of both shares
increased dramatically. As in all friendly divorces the parting spouses,
whilst still on civilised terms, negotiated a sophisticated access
agreement. As the price for the break up, Iscor negotiated with its
erstwhile mining division a complex set of supply agreements from
Kumba’s two iron ore mines, Thabazimbi and Sishen. The aim of the
agreements was to ensure that Iscor enjoyed as favourable a supply
situation post breakup as it had before. Whether it has succeeded in
doing so is one of the issues in dispute in this hearing.
8. Meanwhile Avmin, concerned over its high gearing, abandoned its
ambitious plan for control of the iron ore industry and sold its, not
insignificant, stake in Kumba to a foreign owned company known as
Stimela.2
9. Stimela and the IDC entered into a cooperation agreement in
November 2001 in respect of their stakes in Kumba. Whilst the details
are confidential it could be characterised as a joint intent with regard to
strategic objectives in Kumba. Included was a clause granting the IDC
first option to buy Stimela’s Kumba stake, if it ever sold it.
10. So the stage was set at the beginning of 2002 for the IDC and its
partner, Stimela, to take control of Kumba. At that stage their combined
holdings would have been 24,5%.
11. But it was not to be. In a corporate announcement on 12 March 2002
Anglo American plc announced two significant acquisitions. In the one
Anglo American plc announced two significant acquisitions. In the one
it had acquired, from Arctic Resources Limited, a 34,9% shareholding
in Avmin. In the other, it acquired a significant stake in Kumba by
acquiring all the shares in Stimela BVI, which is the ultimate beneficial
holder of 10.5% of shares in Kumba, thereby raising its total
shareholding in Kumba to 20.1%. 3 It was, it said, the start of a move to
consolidate the Northern Cape iron ore assets of Kumba and
Assmang.
12. The Anglo blitzkrieg had caught the IDC offguard and certainly
surprised the market. An acrimonious dispute broke out between Anglo
2 See Financial Mail dated November 9, 2001 article entitled “Menell keeps options open.” The
ultimate shareholder in Stimela was Israeli businessman Bennie Steinmetz also a key investor in Arctic
Resources, whose shares in Avmin were later purchased by Anglo when it bought Stimela.
3 Prior to this Anglo had held a 9,6% stake in Kumba.
3
and the IDC over the Stimela shares. The IDC suggested that they had
been sold to Anglo in breach of their option. Anglo and Stimela’s
erstwhile shareholder Murex Holdings S.A, assert that what has been
sold is ownership of Stimela not the shares subject to the option. The
rights and wrongs of this commercial dispute are not relevant for
purposes of our jurisdiction. However it does explain two aspects why
the IDC and Anglo came to have such an acrimonious relationship, and
secondly, how the IDC came to feel so strongly that its empowerment
ambitions for Kumba, developed over time, had been frustrated. Which
of the two set of frustrations to its ambitions more greatly animates the
IDC is hard to know, but that these events would make Anglo its’ bete
noir is hardly surprising.
13. Anglo on 18 June 2002 duly notified two mergers with the Commission,
the Avmin and Kumba deals. Although separate transactions, the
Commission investigated them jointly and duly made its
recommendation to the Tribunal that both mergers be approved without
conditions.
14. At the first prehearing in respect of the mergers held on the 20 th of
September 2002, the IDC applied to intervene in the proceedings.
Anglo opposed this application vigorously, and ultimately,
unsuccessfully. This saga is more fully detailed in other decisions, 4
suffice to say that several Tribunal hearings and two Competition
Appeal Court decisions later, the IDC were granted leave to intervene
on stipulated grounds. This litigation lasted from September 2002 till 28
March 2003 when the CAC gave its final ruling. 5
15. Whilst this battle between Anglo and the IDC was continuing in the
Tribunal and the CAC there was another twist to the tale. The
government and Anglo American announced that they had signed a
government and Anglo American announced that they had signed a
Memorandum of Understanding in respect of the Northern Cape iron
ore fields. Although all parties to this agreement claimed that it is
confidential, a public statement indicates common objectives in respect
of investment, development of the Sishen – Saldanha railway line, use
of another railway line from the Northern Cape to Coega and the
advancement of empowerment. Signatories to the agreement from
government included three national departments. The IDC, although
mentioned in the agreement, is not a party.
16. A second prehearing was held on the 23 April 2003 and the hearing
4 The two decisions by the Tribunal are: Case No: 45/LM/Jun02 // 46/LM/Jun02 dated 23 October
2003, Tribunal Case No:45/LM/Jun02 // 46/LM/Jun02 dated December 2002 and the two decisions by
the Competition Appeal Court are: Case No:24/CAC/Oct02//25/CAC/Oct02 and CAC Case
No:26/CAC/Deco2.
5 The Competition Commission had initially also opposed the IDC’s application to intervene but
abandoned this stance after the first CAC hearing.
4
was set down for 26 to 30 May 2003. 6 On the 5 th of May 2003 came a
dramatic development. Anglo announced that it was selling its Avmin
stake to a consortium comprising Harmony Gold Mining Company
Limited and Armgold, citing in its press statement interalia as a
rationale, the competition concerns that had arisen because of its
Kumba acquisition. 7 The sale of the Avmin stake reduced the extent of
overlaps that would be created by the two mergers originally notified,
most notably in ironore.
17. When we commenced our hearings on 26 May 2003 we were thus
asked to consider only the Anglo/ Kumba notification as the Anglo/
Avmin notification had been withdrawn.
18. The late development meant that most of the filings, including the
reports of the economic experts of the IDC and the merging parties
were outdated in many respects as much of the consideration given in
them was the significance of overlaps added by the Avmin leg.
Nevertheless we are of the view that this deficiency in the record has
been rectified by the oral evidence of the witnesses which addressed
the Kumba transaction pertinently and from the point of view of fairness
by the ample opportunity we have given the IDC to make further filings
of expert reports. Since Anglo opposed this latter issue we have had to
rule on the admissibility of the late filings and it is to this issue that we
turn next.
Late filings
19. After the merging parties and the IDC had concluded with their oral
evidence and immediately prior to us hearing the closing arguments of
the various participants, the IDC filed various additional expert reports
which were, we were told, a response to various questions put to their
expert economist in crossexamination and to which he had not been
given an adequate opportunity to deal. Anglo, for its part, although it
given an adequate opportunity to deal. Anglo, for its part, although it
had filed further documents in response, objected to the late filings, as
the documents were not available at the time neither for comment by
its own experts nor for crossexamination.
20. The presiding member indicated that the Tribunal would rule on the
admissibility of these documents at the time we gave our decision. We
have decided to accept this documentation as part of the record.
Anglo’s belated announcement that it would be selling its Avmin stake
6 As it happened this time was insufficient and the hearing continued on 15,17 and 19 June while
closing argument was heard on 6 and 7 August.
7 In its press statement dated 2 nd May Anglo states: “ Subsequently it became apparent to Anglo
American that there were concerns about it owning an effective interest in both Assmang and Kumba
iron ore assets and combining the iron ore assets in the Northern Cape.”
5
had a profound effect on the emphasis of the record up until that date
in respect of the competition issues. The IDC had focussed its
opposition to the merger up until then on the creation of what it termed
as a local monopoly in iron ore and the merging parties had in turn
focussed on the efficiency gains from consolidation in the Northern
Cape iron ore industry.
21. The announcement thus meant a change in focus by all participants
and it was therefore in our view legitimate for the IDC to argue that it
required an additional opportunity to address certain of the economic
issues. We have decided to admit these additional documents
including those filed in response by Anglo to the record.
22. That being said we have approached the additional documents with
caution, bearing in mind that they were not the subject of testimony
during the proceeding and accordingly must be accorded less weight
than those documents that were.
23. Finally, we have also admitted, and therefore considered, proposals
that the IDC made in respect of conditions to be attached to the
approval of the merger despite the fact that these proposals were not
made during the course of the proceedings. Although the specific
conditions were not canvassed, the issues to which they relate were,
and for that reason they would have been matters that we, in any
event, considered in evaluating the merger.
Approaches adopted by the participants
24. The merging parties were separately represented during the course of
our proceedings. The acquiring firm, Anglo, argued that the
transactions amounted to a merger and that the merger should be
approved unconditionally. Kumba, which is the target firm, was
represented but did not participate in the proceedings in any
represented but did not participate in the proceedings in any
meaningful manner. Kumba’s legal representative put the issue quite
frankly when at the end of proceedings he stated that his client was
reluctant to involve itself in a dispute among its shareholders.
25. The Commission had initially, when both the Kumba and Avmin
transactions had been notified, recommended their approval without
conditions. It maintained this position throughout the proceedings and
largely made the same case that Anglo did, although the Commission
did not call any of its own witnesses. The Commission was also in
agreement with Anglo that the series of transactions amounted to a
merger.
6
26. The IDC having been given leave to participate in the proceedings,
opposed the merger from the outset. This stance did not alter despite
the withdrawal of the Avmin leg of the transaction. The IDC was initially
of the view that the transactions did not give rise to a merger as there
was no evidence that there had been an acquisition of control in the
record. It later, after the evidence given during the hearing, altered its
position to argue that the ‘notification’ of the merger was defective.
27. In the alternative it argued that if the transactions gave rise to a merger
this merger should be prohibited on both competition and public
interest grounds. Later, as we have already mentioned, the IDC
proposed that if we were inclined to approve the merger it should be
subject to various conditions, which it suggested.
28. Although we have not found for the IDC in this decision, we benefited
from its participation as an intervenor given the economic and social
significance of this transaction. Our deliberations were enhanced by
the fact that information placed before us was subject to vigorous
scrutiny and critique, by a party with an adverse interest.
Jurisdiction
29. The IDC initially raised a jurisdictional challenge premised on the basis
that the transaction contemplated by Anglo did not amount to a merger
in as much as the shareholding contemplated did not give rise to a
change of control. Later, apparently after hearing the evidence of
Anglo’s chief executive officer Mr. Trahar who testified as to the fact
that Anglo currently held equity and options amounting to 34,3% of
Kumba and that it intended to acquire up to 49%, this attack shifted to
the adequacy of the manner in which the transaction was notified and it
is this issue which we will now consider. 8
is this issue which we will now consider. 8
30. When merging parties notify a merger the rules of the Competition
Commission require them to do so in accordance with a prescribed
form. The form in question, CC 4(2) requires the merging party to
provide details concerning the transaction. Question 11 asks for the
following information:
Describe the merger, including: the parties to the transaction;
the assets, shares, or other interests being acquired; whether
the assets, shares, or other interests are being purchased,
leased, combined or otherwise transferred; the consideration,
8 Although Kumba is a new company the evidence concerning the shareholder meetings it has held
thus far, suggests that a shareholder with 34,3% equity would command a majority vote at a general
meeting. The same would have been true of previous meetings in Iscor in the last few years prior to the
unbundling of Kumba.
7
the contemplated timing for any major events required to bring
about the completion of the transaction; and the intended
structure of ownership and control of the completion of the
merger.
31. In answer to this question Anglo provided the following information:
1) On 8 March 2002 AAH (Anglo American Holdings) concluded an
option agreement with Murex (attached as Annex C) in terms of
which AAH acquired a call option to purchase, and Murex
acquired a reciprocal put option to sell, either:
2) the shares that Murex holds in Stimela BVI, which is the ultimate
beneficial holder of 10.5% of the shares in Kumba); or
3) the shares of Stimela SA, provided that Murex ensured that the
shareholding in Kumba by Stimela BVI was transferred to
Stimela SA; or
4) the underlying assets of Stimela BVI, being the shareholder in
Kumba;
5) in each case, subject to the suspensive condition that the
necessary competition approvals were obtained prior to the
shares being transferred.
6) In terms of a letter dated 10 April 2002, AAH exercised the call
option to purchase the Stimela BVI shares. A copy of the letter
exercising the call option is attached marked Annexure G….
7) AAH has been advised by Stimela BVI that it has concluded a
cooperation agreement with the IDC, (the other major
shareholder in Kumba, whose current shareholding in Kumba is
14%), in terms of which Stimela BVI and the IDC have agreed to
cooperate in respect of certain specific issues with respect to
then iron ore assets of Kumba. The parties to the agreement
have undertaken to keep the agreement confidential.
8) In addition to the Stimela BVI shares, Anglo American has
concluded a further option with a third party, in terms of which it
has the option to acquire up to an additional 3.8% shareholding
in Kumba.
9) Anglo American (through ASAC) already holds 9.6% of the
in Kumba.
9) Anglo American (through ASAC) already holds 9.6% of the
equity in Kumba, which it acquired through open market
8
purchases. Furthermore, Anglo American intends to acquire
further shares in Kumba as and when opportunities arise. (Our
emphasis)
10)In summary, when Anglo American has exercised all the
relevant options and acquired the relevant shareholdings
pursuant to such options, it will hold at least 23.9% in Kumba.
11)Anglo American has appointed Mr Cedric Savage to Kumba’s
board of directors.
12) Accordingly, in the circumstances, Anglo American’s
aggregated shareholding together with its board representation
would afford it the ability to materially influence the policy of
Kumba for the purposes of section 12(2)(g) of the Competition
Act as a result of the transaction. (Our emphasis) 9
32. The IDC argues that this information was incomplete at the time and
that, as a result, the notification is a nullity. It argues that information
subsequently provided, namely the extent of Anglo’s ambitions about
acquiring an interest in Kumba, was not disclosed in the form. Since
the information disclosed on the form became the basis on which trade
unions and the Minister were notified, they were obliged to respond to
incomplete information. In turn, since their responses form part of the
Commission’s investigation and subsequent recommendation to the
Tribunal, the whole process is tainted by this want of proper
compliance.
33. In our view there is no substance to this objection. The CC4(2) makes
it perfectly clear that Anglo already owns shares of 9.6%,has acquired
options of a further 10.5% and 3.8% respectively, and will be
continuing to purchase further equity in the target company. Anyone
reading this form would clearly have understood that Anglo was
intending to enlarge its existing stake and that its end was to control
the company in the manner contemplated in section 12(2)(g). Anglo
the company in the manner contemplated in section 12(2)(g). Anglo
argues that a more precise description at the time of how much it was
still purchasing, and from whom, would have been impossible given
that this was equity to be purchased on an open market in a public
company from possibly numerous sellers. This explanation for the
deficiency at the time is perfectly reasonable.
9 Suitably paraphrased section 12(2)(g) states that a firm controls another firm if it has the ability to
materially influence the policy of a firm in a manner comparable to a person who controls a company
either by virtue of owning the majority of its shares or controlling appointment of the majority of the
board.
9
34. Whilst one could not expect firms to notify a merger where their ability
to acquire control was at that stage still academic it is not necessary for
them to have completed the process of acquisition as a jurisdictional
prerequisite to notification. To do so would create burdens on merging
firms who would then be faced with the Scylla of not implementing a
merger prior to approval, and the Charybdus of not adequately
completing a transaction prior to notification. In our view, unless
information not notified, materially affects the evaluation of the merger,
failure to detail the final series of transactions is not fatal. It might well
be that the extent of an acquiring firm’s interest in the target may affect
the competition analysis, but that is an issue that may form part of the
analysis and does not detract from the adequacy of the initial filing. 10
35. The answer to the question must also be read with the competitiveness
report where again a description of the transaction and Anglo’s
intentions are set out. Included as part of its filing was an executive
summary served on both the Minister and the unions which contained
the following:
“Anglo American also has prospective interests in other shares in
Kumba, which may be acquired in due course… (and later on).. .For
the purpose of competitive analysis, as the largest single
shareholder, Anglo American will be able to exercise material
influence over Avmin and Kumba, and those companies in
which they have a significant stake (such as Assmang).” 11
36. We may assume that the diligent reader of the notification will read all
the information filed. That reader could have no doubt that Anglo
intended through a variety of transactions, some of which had already
taken place, to acquire control of Kumba. Granted, Anglo did not
taken place, to acquire control of Kumba. Granted, Anglo did not
disclose how large a stake in Kumba it intended to acquire and that this
fact only emerged during the hearing in the evidence of Mr. Trahar, its
chief executive officer, but once it had disclosed in the notification its
intention to acquire sole control by virtue of some stake in excess of
23.9%, the remaining issues were matters for evaluation of the merger,
not to found jurisdiction.
37. Thus by way of example, a firm may indicate in its filing that at that
stage it has 20% of a company but will have control by virtue of section
12(2)(g). It may be that if the acquirer’s stake did not exceed this figure
its incentives would be different than if it owned 100% of the target. 12
10 For instance a firm’s incentives may differ depending on whether it holds 20% or 100% of a
company post merger.
11 See Record page 32.
12 For instance the target may be a supplier of the acquirer and the acquirer might have an incentive to
use its control of the target to squeeze its margins in favour of itself.
10
This however is a substantive not a jurisdictional issue. If the
transaction might give rise to competition concerns only if the firm
owned a controlling stake of more than X% of the equity, then the way
to cure that problem, might be to either (i) prohibit the merger, on the
assumption that the problem may occur later or (ii) to conditionally
approve the merger, either by prohibiting the acquiring firm from
acquiring a stake above X% or to require it to notify again if it went
above X%. In other words, the inherent uncertainty as to the extent of
ownership in a notified transaction need not be cured by deciding that
the merger is inadequately notified, but rather by the Tribunal
appropriately utilising the substantive powers that it has in terms of
section 16.
38. In this merger, whilst the threshold for Anglo’s ambitions in respect of
Kumba is not known with any certainty, 13 we have approached the
evaluation by not merely evaluating its incentives in respect of its
present holding of 34,9% or its proposed holding of 49% but also if it
went past that threshold and acquired the remaining equity. Had we felt
that the size of the holding would have altered its incentives or
behaviour other than as a profit maximising shareholder in Kumba, we
would have imposed conditions to this effect. However, we see no
reason to do so.
39. Whilst there may have been an element of opaqueness in Anglo’s
approach to the notification, and even some inconsistency during this
process about when control is reached, we are by no means certain
that there was information that it did know at the time and that it failed
to disclose in order to present the proposal in a more palatable form at
the time of filing, lest it stir controversy. 14
the time of filing, lest it stir controversy. 14
40. We find that the merger has been adequately notified, constitutes an
acquisition of control, and that the Commission and the Tribunal have
jurisdiction over the transaction in terms of the Act. We need not decide
various arguments made by Anglo as to whether proper notification is a
13 Mr. Trahar’s conversation with Minister Erwin notwithstanding there is nothing to bind Anglo
legally to this level of shareholding.
14 On the inconsistency front the IDC makes much of the fact that Anglo had seemingly relied on its
existing stake plus the Stimela option and another to reach control yet had a few months later
implemented the Stimela option after having obtained a favourable opinion from the Commission that
this did not amount to implementation as it did not amount to a change of control. On the lack of
adequate disclosure the IDC suggested that an option Anglo had obtained in respect of Deutsche
Securities (Proprietary) Limited holdings in Kumba and which was only announced on 22 November
2002, in an announcement by Kumba after the Commission had filed its recommendation, was in
existence at the time of the filing of the CC(4) and should have been mentioned then. There is no
evidence that this is in fact so and the IDC seem to be relying for this on a remark made by Anglo’s
counsel in response to a question from the Tribunal about what Anglo’s holding was at the time of
filing. Perhaps the real reason for Anglo’s apparent cloak and dagger behaviour is not an ulterior anti
competitive motive that it wished to conceal from scrutiny during the regulatory process, but a desire to
quietly build its stake in Kumba without attracting the attention of rival suitors.
11
peremptory requirement in terms of a proper reading of the Act and
rules. For the purpose of this decision we have assumed it is, but that it
is a requirement that has been met.
Competition Analysis
41. Anglo and Kumba’s products overlap in four areas (1) coal (2) mineral
sands (3) zinc and (4) iron ore.
42. The IDC’s competition concerns related to the latter two markets only,
and for this reason although we examine all four, we devote more time
to the analysis of the effects of the merger on zinc and iron ore.
Coal
43. Both Anglo and Kumba, through Anglo Coal and Kumba Coal
respectively, produce coal. Anglo Coal’s operations in South Africa
include eight wholly owned collieries located mainly on the Witbank
coalfields.15 Kumba’s operations include three wholly owned collieries,
Leeuwpan, Grootgeluk and Tshikondeni.
44. Coal is a differentiated product that is categorised according to the
degree of transformation of the original plant material to carbon. The
ranks of coal from lowest to highest are lignite, subbituminous,
bituminous and anthracite. Bituminous and anthracite are the only two
ranks mined in South Africa, with bituminous accounting for most of the
sales.
45. Within bituminous coal a distinction is made between thermal coal, also
referred to as “steam coal” that is used for power generation and
metallurgical coal, referred to as “coking coal, which is used in the
production of steel.
46. Yet even within metallurgical coal the product is differentiated,
depending on the amount of coke.
Thermal coal
47. The four largest producers of thermal coal, excluding Sasol and
Eskom’s suppliers,16 are: BHP Billiton with a market share of 27%,
Kumba with a market share of 18%, Duiker (Xstrata) with 11% and
Kumba with a market share of 18%, Duiker (Xstrata) with 11% and
15 Anglo operates the following coal mines: Bank, Greenside, Goedehoop, Kleinkopje, Landau,
Kriel, New Denmark and New Vaal.
16 Sasol is excluded because it consumes its entire thermal coal production internally and suppliers to
Eskom are excluded because they are locked into longterm contracts.
12
Anglo Coal with 9%. Post merger the market share of the merged entity
will be 27%.
48. Approximately 70% of South Africa’s thermal coal is used to generate
electricity or produce synthetic fuels. The two largest consumers of
thermal coal in South Africa are Sasol and Eskom and they account for
more than 90% of the coal used. Eskom consumes 56% of thermal
coal produced in South Africa and Sasol 35%, while Highveld Steel,
Iscor and municipal power stations use the remaining 9%.
49. Anglo mainly supplies thermal coal, inter alia, to customers such as
Eskom, Scaw Metals, Highveld Steel and certain municipal power
stations. Kumba supplies customers such as Eskom, PPC and certain
municipal power stations.
50. It is unlikely that the merger will give rise to a substantial lessening of
competition in the thermal coal market. Coal supplies to Eskom are
covered by longterm contracts, the prices of which are fixed and
indexed to adjust for inflation or costplus. Sasol supplies its own coal
with BHP Billiton being the only external contractor to also supply
Sasol.17 Smaller players can source their coal from a number of
alternative players such as BHP Billiton, Duiker, Eyesiswe and Kangra.
Metallurgical coal
51. Metallurgical coal accounts for less than 3% of coal used in South
Africa. Of this percentage 40% is imported.
52. Firms that use metallurgical coal in their production process, design
their operations in a way that requires metallurgical coal with very
particular specifications, for instance, Iscor requires and also imports
metallurgical coal that has a high measure of “coke strength after
reaction”.
53. Nearly all of the metallurgical coal sold in South Africa by Kumba is
hard coking coal sold to Iscor under longterm contracts. Anglo Coal
hard coking coal sold to Iscor under longterm contracts. Anglo Coal
does not have such reserves and sells 60% of its production to its own
related entities. The rest is sold to Siltech and CMI (known as Xstrata
Lydenburg).
54. Because of the differentiated use of metallurgical coal there is no direct
overlap in this product segment between Anglo and Kumba and they
are not regarded as competitors in this product market.
17 Subsequent to the filing of this merger Sasol Mining and Anglo Operations, through its coal
division, concluded a merger transaction through which Anglo will supply Sasol with Coal from its
Kriel opencast Colliery, see Tribunal Case No: 26/LM/May03.
13
Mineral Sands
55. In South Africa three companies produce products from mineral sand
mining, namely, Anglo, which owns Namakwa Sands on the west coast
of South Africa, Kumba, which owns Ticor SA 18 on the east coast and
Richards Bay Minerals, which is also on the east coast. BHP Billiton
and Rio Tinto jointly own Richards Bay Minerals. 19
56. The principal products obtained from mining and processing mineral
sands are titanium dioxide feedstock, high purity pig iron and zircon.
We deal with each one separately.
Titanium Dioxide Feedstock
57. The three firms mentioned earlier are the only local producers of
titanium dioxide. Their market shares are:
Richards Bay Minerals 80%
Namakwa Sands 15%
Ticor 5%
58. Both Richards Bay Minerals and Ticor are situated on the east coast of
South Africa, while Namakwa Sands is situated on the west coast.
59. The largest domestic customer for this feedstock is Huntsman Tioxide,
which consumes around 97% of domestic production that it sources
largely from RBM, as it is also located on the east coast.
60. According to Anglo its’ Namakwa Sands plant has a locational
disadvantage in respect of domestic customers, as it is located on the
west coast whilst the major domestic customers like Huntsman, and to
a lesser extent Chiesa, are located on the east coast. Presently the
only customer domestically that would now find that its choice of
suppliers had reduced from 3 to 2 is Afrox, but they do not constitute a
major source of consumption, accounting for sales of only R 6 million.
61. Whilst the merger will lead to the number of producers declining from
three to two this is unlikely to reduce competition substantially given
that:
18 Ticor SA is a new company that began its operations in 2001. The ownership of Ticor SA is split
60:40 between Kumba and Ticor, an Australian mining company. Kumba’s effective interest in Ticor
SA, however, is significantly greater than 60% because Kumba also owns 46.5% of Ticor.
19 A fourth player is currently entering the South African market, namely Mineral Commodities, a
company from Australia, which will be situated on the east coast.
14
• Huntsman accounts for 97% of the consumption and appears
from a location point of view committed to RBM as its supplier;
• The location of Namakwa Sands suggests it is not a viable
competitor for RBM and Ticor.
Zircon
62. In South Africa, where Zircon has a limited application, it is used mainly
in ceramic applications as a glazer. It is also used in foundries,
refractories and TV glass.
63. South Africa exports 98% of its Zircon production. In South Africa,
Richards Bay Minerals enjoys a market share of 62%, Namakwa
Sands 33% and Ticor 5%.
64. Post the merger Anglo will have a market share of 38%. However, the
merger would have little effect because Richards Bay Minerals will still
be the largest producer in the country. Anglo has argued that there is
again here limited competition between Namakwa and Ticor not only
because location is relevant in respect of this product but also because
there are distinctions in the types of zircon produced by the firms
making the one firm’s products not suitable as substitutes for the
products of the other. 20
High purity pig iron
65. High purity pig iron is an output product from the ilmenite smelting
process. Currently only Richards Bay Minerals and Namakwa Sands
produce high purity pig iron since Ticor does not have a smelter yet.
66. Richards Bay Minerals’ market share is 86% and Namakwa Sands
14%. The price of pig iron in South Africa is at export parity and there
are no capacity constraints that limit the ability of South African
producers to increase exports. South Africa exports 94% of its high
purity pig iron.
67. In summary, we agree with the Commission that there would not be a
substantial lessening of competition in the various mineral sands
product markets as a result of the merger.
Zinc
product markets as a result of the merger.
Zinc
68. The dispute between Anglo and the IDC on the competition issues
20 Mention is made of Foskor, which requires the particular Zircon produced by Namakwa Sands.
15
associated with this merger starts with zinc.
69. The zinc industry is for our purposes composed of an upstream and
downstream market. The upstream market is for the production of what
is know as zinc concentrate. This entails the mining and some
preliminary beneficiation of the ore to produce zinc concentrate. The
mining and beneficiation is typically an integrated operation and for our
purposes, we can speak of the production of zinc concentrate as a
relevant market.
70. Zinc concentrate however is an intermediary product. It needs to be
further processed into zinc metal the final product, which is then sold in
the market. The process of transformation is achieved through the
refining and smelting of the concentrate into metal, which is then sold
to customers in various industries. 21
71. The process of refining is not an integrated operation in South Africa
and is performed by a single refiner, Zincor. We will for this reason
refer to the zinc metal market as a separate downstream market.
72. It is common cause between Anglo and the IDC that the merger leads
to overlaps between Anglo and Kumba in the zinc concentrate market.
It is also common cause that Kumba is, because of its ownership of
Zincor, in the downstream market. What is not common cause is
whether Anglo is a potential entrant into the downstream market and
that whether its choice to enter that market by acquisition rather than
independent entry will lead to an increase in the price of zinc metal in
South Africa.
73. Anglo American operates a zinc/lead mine in the Northern Cape
Province, called Black Mountain. It also owns the undeveloped
Gamsberg ore reserves. 22 Anglo is also in the process of constructing
a zinc refinery in Namibia, called the Skorpion project, as part of an
Export Processing Zone. However, this development will not have an
Export Processing Zone. However, this development will not have an
effect on South Africa because, according to Anglo, sales to SADC
members are prohibited.
74. Zincor, a wholly owned subsidiary of Kumba, is the only zinc refiner in
South Africa. Zinc is supplied to Zincor by all the South African
producers. Kumba also operates the Rosh Pinah lead/zinc mine in
21 Zinc metal used mainly to galvanize steel products. In the chemical industry its compounds are
used as filters in rubber and paints. South Africa is ranked fifth in terms of global zinc reserves,
however we are a relatively small producer and exporter of zinc by world standards, ranked only 18 th.
China, Australia and Canada are the largest producers of zinc metal. Canada is also the leading
exporter.
22 The Gamsberg project has been postponed indefinitely because of the depressed zinc market, which
is at a 20 year low.
16
Namibia.
75. In the upstream market Anglo has a market share of 28% (it owns the
Black Mountain mine), Kumba 36% (it owns the Rosh Pinah mine),
BHP Billiton 11% (it owns the Pering mine), Metorex 12% (it owns the
Maranda mine) and imports 17%. Post the merger Anglo will have a
market share of 64% in the upstream zinc market. However, both the
Pering and the Maranda mine will stop producing by 2004. Black
Mountain is expected to close in 2013 and Rosh Pinah has 8 years of
production left.
76. Zinc concentrate is not traded on the London Metal Exchange (“LME”)
because all of the zinc concentrate produced in South Africa is
supplied to Zincor. It is sold by way of longterm contracts between the
mine and smelter. 23 The price is, however, tied to the LME benchmark
price for Special High Grade zinc (“SHG”). The lack of exports of zinc
concentrate from Southern Africa is an indication that the prices paid
by Zincor for zinc concentrate have been sufficiently high to make it
more economic for independent producers of zinc concentrate to
supply Zincor than to sell their product on the export market. We
therefore regard the geographic market as international.
77. In the downstream market the zinc refinery, in this case Zincor,
receives concentrated ore from the various mines and refines it into
one of the primary grades of zinc metal. 24
78. The local input of zinc concentrate is insufficient to meet Zincor’s
demand. Zincor, therefore, imports 4% of its concentrate requirements.
It receives 24% of its zinc concentrate from Rosh Pinah, 36% from
Black Mountain, 12% from Maranda and 20% from Pering.
79. Nearly all of the output of the Zincor refinery, 87%, is used within South
Africa and 13% is exported. The majority of its output, around 24%, is
Africa and 13% is exported. The majority of its output, around 24%, is
sold to Iscor, its largest customer, and 63% to other domestic
customers. Its zinc customers are all located within a 100km radius of
its plant, located near Johannesburg. Approximately 10% of domestic
consumption is imported, mostly by customers located close to the
coast in Cape Town.
23 For historical reasons mines are paid for only 85% of the zinc in concentrate. This has persisted
even though smelters now recover 95% of the zinc in the concentrate. The difference between the 85%
paid for and the 95% recovered is referred to as “free zinc”. The zinc that is paid for is called “payable
zinc”. The mine pays the smelter a fee known as the treatment charge to transform the concentrate into
saleable zinc metal. The treatment charge is set in annual negotiations with reference to a base price,
normally an expected SHG price. The treatment charge is typically about 40% of the actual SHG price.
24 Zincor is regarded as the 3 rd lowest cost producer of zinc metal in the western world, according to
international benchmarking by Brook Hunt 2000.
17
80. Zinc metal is an internationally traded commodity and is traded on the
LME. The price paid for zinc metal in South Africa equals the LME
price plus a premium that is individually negotiated between buyers
and sellers to reflect the quality of the zinc purchased and logistical
issues.25 It is priced at near import parity. 26 We thus regard the
geographical market as international.
81. According to the IDC the transaction will have a horizontal effect on the
zinc market leading to the diminishing or prevention of future
competition in the zinc market.
82. Zincor, operated by Kumba, is the only zinc refinery that is operating in
the downstream market. According to the IDC there are, from an anti
trust perspective, two possible future entrants that could come into the
market and compete with Zincor. The first is Anglo’s Gamsberg project,
not yet established, but which in terms of its proposal would have
included a refinery, and the second, the Skorpion refinery in Namibia,
also being developed by Anglo.
83. The Gamsberg project was, according to Mr Trahar, mothballed
indefinitely in 2001 because of a depressed zinc market and the
Skorpion refinery in Namibia is prohibited from selling into the Customs
Union Area because it is part of an Export Processing Zone. Anglo,
therefore, argues that these two refineries could not be regarded as
potential entrants.
84. However, should the Gamsberg project be reactivated it would,
according to Anglo, not affect prices in the zinc market.
85. The IDC argues that the coincidence between the decision to mothball
the Gamsberg project and the date at which Anglo must have
considered acquiring its interest in Kumba could lead one to draw the
inference that the only reason the project was abandoned was because
inference that the only reason the project was abandoned was because
with the merger, Anglo had no need to own its own refinery. The
explanation that Anglo would never have entered because of the
present state of the market is not credible, according to the IDC.
86. Anglo vehemently deny this and state that the Gamsberg project
would not have happened in the present state of the zinc market even
absent the merger. 27 Whilst we are in no position to resolve this
dispute of fact we need not do so. The evidence turns on whether, if
25 Transport only represents 2% of total cost. Thus if the local price is raised by 5%, customers will
turn to imports.
26 Dr Hilmar Rode of Anglo, told the Tribunal that Zincor indicates on its website that it purchased
zinc concentrate on international terms, see transcript p. 297.
27 Given its location in the Western Cape, well away from the bulk of the domestic customer base for
zinc metal which is inland, the project needed to be largely dependent on exports to be viable.
18
Gamsberg had come on line as a refinery, it would have led to a
substantial reduction of zinc metal prices for domestic consumers.
87. The zinc metal pricing is pinned somewhere between export and import
parity. According to Anglo the Johannesburg PWV area is the largest
zinc metal market and the difference between import and export parity
pricing is of the order of 23%. In terms of the two import satellite
markets being Cape Town and Durban, the difference in export and
import parity pricing is 1% and less. These percentages will thus be the
maximum potential reduction in pricing, should Gamsberg enter the
market. Firms involved in galvanising, who are the most important
downstream consumers of zinc metal, indicated to Anglo that zinc
represents 20% of their costs. Thus the reduction of 23% of a 20%
cost input is very small and will thus not have a substantial effect on
competition.
88. The evidence of Anglo,s Dr Rode, who was the only witness on this
point which was not disputed by the IDC, was that the price reduction if
Gamsberg had been on line would have been felt in Gauteng only, but
that nevertheless even this fact was uncertain as Gamsberg, given its
location, is not favourably situated to supply Gauteng. 28
89. Thus, we find that in light of the relative small affect that a potential
entrant would have on prices in the local zinc market, that zinc
concentrate can easily be imported 29 and that prices are capped by
import parity for zinc concentrate lying between import parity and
export parity for zinc metal, competition will not be substantially
lessened or prevented in the zinc market.
90. If the market is viewed as an international one, then post merger, Anglo
would have 3,7% of the zinc concentrate and 2,2% of the zinc metal
would have 3,7% of the zinc concentrate and 2,2% of the zinc metal
market, figures of no significance from a competition perspective. 30
Iron ore
91. Iron ore is used to make iron and steel. 31 Steel can be manufactured in
an integrated steel mill by using iron ore as an input, or alternatively in
an electric arc furnace using recycled scrap steel or direct reduced iron
ore.
28 Transport cost from a South African port to Johannesburg by truck represents approximately 2% of
the zinc price.
29 The evidence of Dr Rode was that in relation to the value of the product, transport costs were about
3%.
30 By way of comparison with its international competitors in zinc concentrate this is small. Pasminco
has 11% and Glencore 12,5%.
31 98% of iron ore is used to manufacture steel.
19
92. Iron ore is found in a variety of physical forms:
1) Fines, which are “sintered” to form sintered fines of 1718mm
average diameter,
2) Pellets, which are pelletised, to form pellets of 5 10 mm in
diameter, or
3) Lump, which has a width greater than 76mm.
93. Lump ore and pellets can be charged directly to an integrated steel
mill’s blast furnace, but fines must be sintered first. The majority of
South Africa’s production consists of lump ore and fines.
94. The world’s three largest producers of iron ore, BHP Billiton in
Australia, CVRD and Rio Tinto in Australia account for approximately
59% of the world production. These three firms in turn supply 71% of
the export market. Together Kumba and Assmang, by comparison,
supply only 5% the export market.
95. In South Africa, Kumba and Assmang produce iron ore for sale to steel
producers. The other significant player is Anglo American that owns the
Mapochs mine, referred to in par. 99 below. 32
96. Kumba is the largest iron ore mining entity in South Africa. Kumba
owns three mines, the Sishen mine in Northern Cape Province and the
Thabazimbi mine in the Limpopo Province. The third mine is the Sishen
South Mine that is expected to start production in 2004. 33
97. The Sishen mine accounts for 90% of Kumba’s production of iron ore
and is the 3 rd largest open pit iron ore mine in the world. Most of the
output of the Sishen mine, 75%, is exported via Saldanha Bay. The
remaining 25% is sold to Iscor 34 and Saldanha steel. The volume
exported through Saldanha is limited by the capacity of the Orex
railway line that connects Sishen with Saldanha. 35
98. Thabazimbi sells all of its output to Iscor’s Vanderbijlpark and
Newcastle mills and is thus a ‘captive’ mine. The Thabazimbi mine is
near the end of its life and the estimated remaining mine life is eight
near the end of its life and the estimated remaining mine life is eight
32 Foskor Limited, which is a wholly owned subsidiary of the IDC, produces limited amounts of iron
ore as a byproduct in the mining of phosphate rock, its primary business. Foskor states that, at present,
it is stockpiling the iron ore that it produces for possible future sales.
33 Kumba also owns the Hope Downs iron ore mine project in Australia.
34 Iscor has an undivided share in Sishen mineral rights, which entitles it to 6.25 metric tonnes of iron
ore per annum.
35 Orex is owned and managed by Spoornet, a division of Transnet. The Orex railway allows for the
shipment of 28 million tonnes of iron ore per annum. Kumba has been allocated capacity rights of 23
million tonnes per annum and Assmang 5 million tonnes.
20
years.
99. Currently Anglo American has no direct link to the iron ore mining
industry other than its interest in Highveld Steel, which obtains its
feedstock ore from its whollyowned Mapochs Mine. The Mapochs
Mine is a vertically integrated operation that produces vanadium rich
iron ore, which is consumed entirely by Highveld Steel.
100.Post the merger Anglo will have a market share of 78.8%, based on
production of iron ore. Assmang will have a market share of 13.6% and
Highveld 7.6%.
101.Assmang’s iron ore mine is located at Beeshoek in the Northern Cape
Province, adjacent to Kumba’s undeveloped Sishen South mine.
Assmang exports its iron ore and also sells to Scaw Metals, a
subsidiary of Anglo, and to Davsteel an independent steel producer in
Gauteng province.
102.Iscor is the largest consumer of iron ore in South Africa, accounting
for 72% of South African steel production in 2001. Highveld Steel and
Scaw Metals, both subsidiaries of Anglo, are the next largest steel
producers, accounting for approximately 20% of production. The only
other steel producer in South Africa that uses iron ore as feedstock is
Davsteel, which accounts for 4% of production. The remaining 2% of
production is accounted for by small firms that use scrap metal rather
than iron ore as an input to their steel making processes.
103.There are no imports of iron ore into South Africa. The price paid for
iron ore in South Africa is approximately 30% less than the import
parity level. However, Iscor is protected by two longterm contracts with
Kumba, one in respect of Thabazimbi and the other in respect of
Sishen. Although the contracts differ, the material term, which is a
guarantee that Iscor is supplied iron ore at cost plus 3% is the same for
both.
The issues
guarantee that Iscor is supplied iron ore at cost plus 3% is the same for
both.
The issues
104.The merger raises potential competition issues in the iron ore market
because Anglo controls two steel factories, Highveld and Scaw, which
compete not only with Iscor, Kumba’s largest customer, but also with
any potential entrants into the steel market.
105.This became the major focus of disagreement between Anglo and the
IDC in these proceedings. Both parties relied on expert evidence.
Anglo called Dr Robert Stillman, an economist from Lexecon, an
international consultancy and Dr Sigurd Mareels an expert in the steel
21
industry, who consults with the firm McKinsey, while the IDC called Dr
Timothy Daniel, an economist from another international consulting
firm, NERA.
106.Dr Daniel identified the following competition concerns with the
merger:
At a horizontal level he said that the merger would lead to a
reduction in competition as the market presently had three
players and that post merger there would be only two.
Secondly, the merger raised what can be categorised as vertical
issues. One species of vertical concerns was that the merger
would enable Anglo to raise the costs of its existing and
potential rivals in the steel market. The second was that the
merger could be used to facilitate collusion between Anglo’s
steel companies and Iscor.
107.We will examine these issues separately.
Horizontal issues.
108.Dr Daniel examines both the premerger and post–merger
concentrations in the iron ore market and comes to the conclusion that
the markets are highly concentrated premerger and even more so
postmerger.36
109.This evidence about the concentration level in the industry is common
cause. What is novel about his evidence is his theory that Anglo is
presently engaged in the iron ore production market through Mapochs
and that this has served as a constraint on Kumba. He argued that
presently Kumba is constrained from increasing its price to Iscor and
others. If prices in steel become uncompetitive and customers switch to
Highveld this will decrease iron ore sales domestically for Kumba. Post
the merger, however, Kumba will have no such constraint as it will be
controlled by Anglo who have the incentive to bring about such an
outcome. He further argues that new entrants to the steel market will
now be faced with the choice of two iron ore suppliers instead of three.
now be faced with the choice of two iron ore suppliers instead of three.
36 See p 499 of the Exhibits file where Daniel analyses the HHI results as follows:
• The iron ore market in SA is highly concentrated
1,800 vs 9,232 in sales
1,800 vs 7,650 in production
• The HHI increment is very significant
50 vs 3,150 in sales
50 vs 1.198 in production
22
110.Anglo had little difficulty in disposing of this theory, which much like
the rest of Dr Daniels evidence, was theoretically sound but lacked any
application to the empirical data of the case. The reason that Mapochs
is not a competitor to Kumba and Assmang is technical. Its iron ore is
not substitutable for that of other iron ore as it has a low content of iron
ore and a high presence of other ingredients, which have to be
eliminated in the production process of steel. This means that a steel
plant using Mapochs iron ore has to be designed to achieve this at
great cost. Highveld is the only steel plant in the country at the moment
configured to make use of this iron ore. For a new entrant wishing to
enter into steel manufacture there is a choice of spending $400m to
$500m for a mini mill or $750m for a DRI mini mill, as opposed to one
billion dollars for a mill that could use Mapochs ore.
111.It appears from the evidence of Dr Mareels that it would only be viable
to use Mapochs iron ore if one was to enter the market primarily using
vanadium as the core product and steel as a secondary byproduct, as
Highveld do. In addition it appears that the Mapochs mine ore will last
for another 40 years at the current rate of production. If that rate were
to be increased to supply another firm this would greatly reduce the life
of the mine.
112.A new entrant is not faced with a diminished choice in supply. Prior to
the merger the entrant would have to choose between a factory
designed for Mapochs iron ore, in which case it would be faced by a
monopoly supplier or the more conventional plant, in which case it
would face a duopoly in Kumba and Assmang. The situation is no
different post merger and the fact that Anglo controls Kumba would not
alter the equation.
113.In our view Mapochs does not compete with Kumba or Assmang
113.In our view Mapochs does not compete with Kumba or Assmang
because of these technical difficulties, and accordingly the IDC’s
objection fails at the first hurdle and we need not examine the issue of
incentives here. Incentives are examined later in the section dealing
with vertical issues.
Vertical Issues
114.Dr Daniels on behalf of the IDC raised two vertical competition issues
– one, foreclosure in the downstream steel market where Anglo also
competes through Highveld and Scaw Metals and the other a
horizontal issue, collusion, between Iscor, Highveld and Scaw Metals.
115.We will firstly consider the foreclosure or raising rivals’ costs theory. It
will be recalled that earlier, we stated that post the unbundling of
23
Kumba, Iscor had secured its supply position by entering into long term
supply agreements with Kumba for supply from Sishen and
Thabazimbi. These contracts are highly favourable to Iscor as they
ensure that Iscor is supplied on a cost plus 3% formula. Dr Daniels
argues that notwithstanding the existence of these contracts, they allow
an Anglocontrolled Kumba enough “wiggle room” to interpret them in a
manner that would permit them to raise the level of costs so as to raise
the costs of steel production for Iscor. 37
116.There was much dispute as to whether the contracts properly
interpreted allowed for this flexibility. We need not involve ourselves in
this interpretative exercise, as Dr Daniel’s case is dependent on
whether Anglo has, in addition to the contractual wiggle room, an
incentive to behave in this manner.
117.Kumba as we have noted produces iron ore from two mines, Sishen
and Thabazimbi. As about 75% of Kumba’s total output is destined for
the international market, and as the Thabazimbi mine is contracted to
sell 100% of its output to Iscor, these exports originate entirely from the
Sishen mine and require the incentive structure in both mines to be
analysed separately.
118.The cost of iron ore to Iscor is calculated on the basis of a cost plus
3% management fee. Dr Daniel is of the view that Anglo indeed has
the incentive to raise costs of Iscor by artificially or actually increasing
mining costs at both Sishen and Thabazimbi. This increase in cost to
Iscor will then compel Iscor to raise the price of steel and hence benefit
Highveld and Scaw, either by having consumers switch to their
products or enable them to raise their domestic price without losing
business to Iscor. Dr Daniel recognizes that if Anglo were to increase
the costs incurred at Sishen this would impact adversely on exports
the costs incurred at Sishen this would impact adversely on exports
that have to be sold at world prices or export parity. However, he was
37 When the Commission did its initial investigation of the merger it met with Mr Van Niekerk, the
chief executive officer of Iscor, who according to the Commission’s counsel expressed no concerns
about the merger and gave as the reason the fact that Iscor was protected by its contracts with Kumba.
This meeting took place in June or July 2002 . On 14 May 2003,approximately one week before the
merger hearing commenced, Mr Van Niekerk wrote to the Tribunal to state that Iscor had serious
concerns about the merger. Concerns were that under Anglo, Kumba might not invest sufficiently in
iron ore expansion at Sishen South and might favour investment in Australia instead. Secondly, he
raised concerns that Iscor’s strategic information might become available to its competitors in the
Anglo stable. He did not however offer to testify at the hearing nor ask for Iscor to intervene. Iscor was
represented throughout the proceedings by its attorneys who had a watching brief. What accounts for
the Iscor volte face is difficult to discern all of these issues would have been known to Iscor when it
met with the Commission in 2002. Anglo suggest, cynically, that the change is explicable by the
change in dynamics on the Iscor board LNM is now the dominant shareholder and Mr Ngqula, the
IDC’s chief executive officer, is now Iscor’s chairperson. We are not in a position to comment on this
but were Iscor as concerned about the merger as the tone of the letter suggests, we have no doubt that it
would have been more robust in communicating this point of view to us. Given that we find that Anglo
has no incentive to raise Iscor’s costs, we need not probe this further.
24
also of the view that the benefits would arise from an increase in profits
from higher prices or volumes in the downstream market for Highveld
and Scaw and that these benefits would outweigh the costs.
119.Anglo’s expert, Dr Stillman, in response to this theory then performed
a calculation based on figures that they had to test Dr Daniel’s central
proposition. Upon calculating the impact of a hypothetical 10%
increase in iron ore costs by Kumba on the upstream export market
and the downstream steel market it was shown by Dr Stillman that the
costs vastly outweighed the benefits to Anglo of pursuing this particular
strategy of raising rivals’ costs. Even though the calculation assumed
Highveld would be able to pass on the full cost increase into domestic
prices, the loss of sales and profits incurred by Kumba on the export
market dwarf the increase in Highveld’s sales into the domestic market.
Therefore we can conclude that the costs far exceed the benefits of
this strategy to Anglo. The IDC failed to contradict the data presented
and therefore we can comfortably dismiss the likelihood of this scenario
occurring at the Sishen mine.
120.With regard to the Thabazimbi mine on the other hand, the incentive
to raise costs to Iscor does not appear to exist. The contract between
the mine and Iscor rather provides a strong incentive to reduce costs.
Under the contract, if costs are reduced, Kumba gets to keep
[confidential information ] of the cost reduction. Once again a
numerical example demonstrates that under the most stringent
assumptions, the incentive to reduce costs outweighs any benefit to
Anglo at Highveld of allowing costs to be increased at Thabazimbi.
121.Even if Anglo were to operate in such an irrational manner and allow
costs to rise at Thabazimbi, given that only a small amount of iron ore
is sourced from the mine, the calculations show that a 10% increase in
is sourced from the mine, the calculations show that a 10% increase in
the cost of iron ore sourced from the Thabazimbi mine would only
increase total steel making costs at Iscor by 0.3%.
122.Finally, given the agreement between the expert witnesses that the
marginal cost of steel production in South Africa is determined by
export parity, higher iron ore costs would fail to impact on domestic
prices charged by Iscor for steel. Therefore, in conclusion, on the basis
of evidence before the Tribunal there is little support for the contention
that Anglo would follow a strategy of raising rivals’ costs in steel
making at either of the two mines.
123.The foreclosure argument is a variant of the above argument for
raising rivals’ costs. The argument made was that Anglo would raise
costs to Iscor in order to benefit Anglo’s Highveld steel operation. This
would be achieved by raising costs to other existing steel
25
manufacturers such as Davsteel. 38 Anglo would also raise the costs of
new entry in order to either foreclose such entry or reduce the
profitability of such entry.
124.Dr Daniel suggested that while complete foreclosure may not be
profitable to Anglo, partial foreclosure would be if Anglo were
maximizing profits. Unfortunately once the calculations of the benefits
and costs of raising costs are done, given the importance of exports in
the Kumba portfolio, there is no possibility of even partial foreclosure
being profitable. 39 Interestingly these calculations suggested that given
the global focus in Kumba’s business the major disciplining factor in the
iron ore market is the pressure in world markets to keep costs down in
order to be competitive.
125.The second theory raised by the IDC, that we need to consider, is the
horizontal issue and the question being asked is whether the merger
will facilitate collusion between Anglo’s downstream steel interests,
Highveld and Scaw Metals and Iscor, currently Kumba’s largest
customer.
126.Dr Daniel suggests that the possibilities for collusion are enhanced by
the possibilities for information sharing that the Iscor /Kumba supply
contracts provide and secondly, that the ability to raise Iscor’ s price via
Kumba, gives a postmerger Anglo a weapon for enforcing the cartel if
Iscor cheated, a weapon it lacks premerger.
127.Both experts are at least in agreement that three elements are
required for a stable collusive agreement. Firstly, the ability of the
parties to reach agreement to collude; secondly, the parties need to
monitor compliance of the agreement by the members because of the
incentive to cheat and; thirdly, there needs to be an ability to enforce
the collusive agreement so that if cheating takes place the members
would be able to discipline that member.
would be able to discipline that member.
128.Dr Stillman in his analysis, focussed only on the possibility of collusion
whereby the members of the cartel agree to restrict output in order to
have higher prices in the steel industry for the benefit of the members.
129.In order for such an arrangement to succeed, Anglo will have to know
how much steel Iscor plans to sell in the local market because exports
would be excluded in this scenario. Dr Stillman doesn’t doubt that
38 According to Dr Stillman, Davsteel accounts for less than 10% of local steel sales. It currently buys
ironore from Assmang, however, 85% of its feedstock comes from scrap metal. The ironore portion
of Davsteel’s total cost is less than 1%. (See page 59 of the transcript.)
39 Various theoretical models of partial foreclosure were proposed during the hearing, but once these
models were calibrated to the actual data, the model proposed by Dr Daniel became an empirical
impossibility. (See page 551 and 552 of the Exhibits file.)
26
Anglo could learn from its control of Kumba about Iscor’s expansion
plans by knowing the amount of ironore that it was going to need in
future. However, says Dr Stillman, this kind of information would not
assist Anglo in trying to solidify collusion in the steel industry because
Anglo would still not know how much of this expanded production Iscor
plans to sell domestically and how much is intended for the export
market.40
130.Moreover, Iscor, according to its annual report, prices its steel at
import parity, which means that domestic prices are as high as they
can go. There is thus no advantage in colluding to raise prices because
it will only attract imports. 41 Collusion to raise prices could, therefore,
not succeed in the South African market.
131.In our view, the only horizontal concern that remains and which, is not
addressed by the merging parties, is the possibility of collusion by
dividing the steel market between Highveld, Scaw Metals and Iscor.
132.The evidence of Dr Mareels is that there is presently very little
competition between Iscor, Highveld and Scaw:
“Most of the steel products that Iscor makes, they have a de
facto monopoly. Anything that is colder (sic) rolled or galvanised,
basically is not produced by Highveld or Scaw. In fact the
overlap is minimal. So in fact products…. I would argue that
there is a 90 % virtual monopoly , if you want , from Iscor”. 42
133.This evidence suggests that it is possible that the steel firms already
have some understanding to ‘avoid’ one another in relation to the
products that they produce we can put it no higher than that on this
record. Nevertheless the merger might offer an opportunity for Iscor’s
managers and Anglo’s steel managers, if they were placed into Kumba,
to legitimately meet to discuss production issues and thus if a cartel
to legitimately meet to discuss production issues and thus if a cartel
does exist, to disguise its meetings through a legitimised forum. It
might also offer the opportunity for Anglo’s steel and iron ore directors
to crosspollinate information learned on one board to the other. 43
134.At our request Anglo proposed a condition to address our concerns on
40 Dr Stillman testified that Iscor in any event regularly publishes information about its production
levels and it supplies to the domestic and export markets. There is an abundance of information
available on the steel markets, which is followed closely by analysts. (See page 32 of the transcript)
41 This assumption by Stillman accords with the evidence given to the Tribunal in the Iscor/Saldanha
merger, Case No: 67/LM/Dec01, para 64, where it was stated that Iscor prices at import parity.
42 See Transcript page 217.
43 Recall that this is because of the kinds of meetings that the Iscor / Kumba contracts provide for
between the respective firms’ managements,
27
information sharing to facilitate collusion. We consider that this
proposal is adequate, but we have included Scaw Metals in the
undertaking, since it too, is controlled by Anglo. It now reads as follows:
Anglo American will undertake to use such votes as it may have
as a shareholder of Kumba Resources Limited (“Kumba”),
Highveld Steel & Vanadium Corporation Limited (“Highveld”)
and Scaw Metals Limited (“Scaw Metals”), to ensure that no
person will simultaneously hold office as a director of both
Kumba and Highveld or of both Kumba and Scaw Metals. 44
135.By including this condition we endeavour to set up a Chinese wall
between directors of Highveld and Scaw in the downstream steel
market and directors of Kumba in the upstream ironore market, to
prevent the flow of information between competitors of Iscor.
136.Since we are satisfied that the condition proposed will address this
concern adequately, we have decided to include it as part of our order.
Public interest
137.Although we have found that the merger will not lead to a substantial
prevention or lessening of competition we must nevertheless evaluate
whether it can be prohibited on public interest grounds.
138.As the IDC has contended, and in our view correctly, the use of the
word “otherwise” in section 12A(1)(b) means that the public interest
evaluation must still be undertaken by the Tribunal, regardless of the
outcome of the section 12A(2) ‘competition’ analysis. As we have
previously stated the public interest can operate either to sanitise an
anticompetitive merger or to impugn a merger found not be
anticompetitive.45
139.In this case, since we have found that the merger raises no
competition concerns, we need only evaluate whether the merger is not
in the public interest.
competition concerns, we need only evaluate whether the merger is not
in the public interest.
140.Both the IDC and Anglo have invoked the public interest in their
favour. We have previously held that where the public interest is
44 Scaw Metals Limited is wholly owned by Anglo.
45 See the large merger between Distillers Corporation (SA) Limited and Stelenbosch Farmers Winery
Group Ltd, Tribunal Case No: 08/LM/Feb02, para 210.
28
invoked to give rise to different conclusions we must first perform a
balancing of the conflicting interests claimed to come to a net
conclusion on whether there is a substantial public interest implicated
by the merger. 46
141.Anglo alleges that if it controls Kumba it will invest heavily in the
company. Part of this investment will be in the Northern Cape and will
not only create more jobs in a depressed area but also through growth,
have a secondary knockon effect on the local economy. It also claims
that it will help invest in the Oryx railway line and in the proposed
railway line through Postmasberg to the new port of Coega, which the
government is anxious to develop.
142.There is no certainty that Anglo will do all or indeed any of these
things. The only document, which comes close to imposing any binding
legal obligation on it is the memorandum of understanding it has with
the government, which we referred to in the background section, but
the nature of that document is such that its status as a source of legal
obligation is doubtful.
143.Nor do the probabilities suggest that Anglo is likely to increase
investment in the Northern Cape when it might also see virtue in using
that investment on the Hope Downs project in Australia if that proves to
offer a better return on capital. Were the public interest issues Anglo
raises determinative of the merger in its favour, we would have
required undertakings to that effect.
144.Public interest gains from the merger, whilst possible, are still
insufficiently certain to warrant recognition absent, the imposition of
conditions to ensure their implementation.
145.We now turn to the various arguments raised by the IDC as to why the
merger should be prohibited on public interest grounds. Here the IDC
merger should be prohibited on public interest grounds. Here the IDC
focuses its sights on section 12A(3)(c) and more particularly the
consequences of the merger on the ability of firms controlled by
historically disadvantaged persons (‘H.D.P.’s’) to become
competitive.47
46 See Distillers Corporation decision referred to above.
47 Note that the term historically disadvantaged person is defined in section 3(2) of the Act as:
“For all purposes of this Act, a person is a historically disadvantaged person if that person –
a) is one of a category of individuals who, before the Constitution of the Republic of South
Africa, 1993 (Act No. 200 of 1993), came into operation, were disadvantaged by unfair
discrimination on the basis of race;
b) is an association, a majority of whose members are individuals referred to in paragraph (a);
c) is a juristic person other than an association, and individuals referred to in paragraph (a)
own and control a majority of its issued share capital or members’ interest and are able to
control a majority of its votes; or
is a juristic person or association, and persons referred to in paragraph (a), (b) or (c) own and
29
146.This section states:
“12A(3) When determining whether a merger can or cannot be
justified on public interest grounds, the Competition Commission
or the Tribunal must consider the effect that the merger will
have on
(a)…
(b)…
…..
(c) the ability of small businesses, or firms
controlled or owned by historically
disadvantaged persons, to become competitive;
…”
147.The IDC asks us to give this provision a purposive interpretation and
not to confine ourselves to the literal wording of the subparagraph as
Anglo suggests we do.
148.The basis for this broad sweep approach, argues the IDC, is to be
found in language that permeates from the preamble of the Act into the
”Purposes of the Act” section. Thus they draw to our attention that in
the preamble there is reference to the historical legacy of apartheid on
the economy in these terms:
“The people of South Africa recognise:
That apartheid and other discriminatory laws and practices of
the past resulted in excessive concentrations of ownership and
control within the national economy , inadequate restraints
against anticompetitive trade practices, and unjust restrictions
on full and free participation in the economy by all South
Africans.
That the economy must be open to greater ownership by a
greater number of South Africans.
(Our emphasis)
149.In the “Purpose of the Act” section this theme, it argues, finds further
development in subsection 2(f), which states:
“The purpose of the Act is to promote and maintain competition
control a majority of its issued share capital or members’ interest and are able to control a majority of
its votes.”
30
in the Republic on order –
…
(f) to promote a greater spread of ownership, in particular
to increase the ownership stakes of historically
disadvantaged persons.
150.If this is the policy of the Act, the IDC argues, then the only way to
give it proper effect is to interpret section 12A(3)(c) in a manner that
respects the objects of promoting a greater spread of ownership and in
particular to increase the stakes of HDP’s. Why would the Act have this
objective if it could not be applied to give it effect, the IDC ask?
151.The IDC suggest that the answer is that section 12A(3)(c) must be
interpreted in a manner consonant with section 2(f) notwithstanding the
difference in language used.
152.Applying this approach to the facts of this case the IDC argue that
Kumba is a strategic asset. It is the dominant iron ore mining company
in the Republic. Iron ore is the key input into steel and steel in turn is a
vital input into numerous manufacturing processes in our economy.
Few assets of this strategic significance become available for HDP’s to
assume control over. The restructuring of Iscor that gave rise to Kumba
has created an ideal moment to further the goal of empowerment in a
vital industry an opportunity that may not arise again.
153.On the other hand, it argues that were Kumba to fall under the sway of
Anglo, one would not only not be promoting a greater spread of
ownership but doing the exact opposite of what the preamble has
intended the Act to do – increasing the ownership of a firm that already
has a lion’s share of the economy. The IDC claimed that there were
empowerment firms who it was willing to assist, who were ready and
willing to take a significant stake in Kumba, and who in conjunction with
the IDC would be either in a position to control Kumba or to share
control with Anglo. The clearest exposition of its scenario, were
control with Anglo. The clearest exposition of its scenario, were
suggestions contained in a letter to the Tribunal after the end of the
hearings, in which the IDC suggest that if the merger were approved
the following conditions should be imposed:
That Kumba must be jointly controlled by a South African
grouping of Historically Disadvantaged Persons (“empowerment
shareholders”) and Anglo…..It is suggested that the
empowerment shareholders will hold a minimum of 26% of
Kumba, IDC 14% and that Anglo’s ownership of Kumba and
Kumba’s iron ore assets be restricted to 34%. 48
48 The IDC’s position on this issue until that letter, was not entirely clear. In his affidavit in the
31
154.Various unflattering remarks were also made about Anglo’s history
and doubts were cast on its right to any longer claim a South African
pedigree. These arguments it seems, whilst creating atmosphere did
not seem necessary to support its central proposition, which is that the
merger would lead to the increase of ownership of the advantaged at
the expense of the disadvantaged.
155.Thus reading 12A(3)(c) through the lens of the preamble, and section
2(f), the IDC argues that the merger should, on public interest grounds
alone, be prohibited.
156.Anglo for its part has approached the issue very differently both on the
law and on the facts. Anglo argues that there is no warrant for
embarking on a broader interpretation of section 12A(3)(c). To follow
the approach of the IDC would be to interpret the Act not only in a
manner contrary to its ordinary language, but also in a manner with
dangerous policy consequences. Such an interpretation would
transform the Competition Act from an antitrust statute, albeit with a
public interest aspect, into an unchecked vehicle for redistribution. The
legislature could not have intended to invest such an ambitious object
in an unelected body without clear language in its operational
provisions to that effect. The preamble and section 2(f), Anglo argues,
speak broadly of the overall impact of the legislation on society,
including the indirect benefits that the legislation may bring, they are
not meant to be given effect to in interpreting an operational section
such as 12A(3)(c), which has language carefully chosen for a limited
purpose which, cannot be read away.
157.Anglo then turns to the facts adopting a sword and shield approach.
Using the shield it defends its history and asserts that on the contrary it
has sold key assets it owned in this country to HDP firms and points to
has sold key assets it owned in this country to HDP firms and points to
its sale of its Free State goldfields, and some of its platinum and coal
interests as examples. It further argues that it has complied with recent
government initiatives in respect to empowerment. In particular it is a
signatory to the recent Mining Charter and it will give effect to this
charter in controlling Kumba. The Charter, Anglo argues, must be seen
application to intervene the IDC’s Head of legal services, Mr Tshivhase stated that, in relation to both
Assmang and Kumba, “it is envisaged that 26% of each of such companies would be owned by
companies controlled by historically disadvantaged individuals.” (See the Founding affidavit in the
IDC’S application to amend its original intervention application, brought by Mr Tshivhase, dated 25
November 2002 paragraph 9.16, page 14.) However in her testimony, given during the hearing, the
IDC’s executive vicepresident, Ms Morathi, testifying about what was wrong with the Anglo proposal
had this to say: “And for that to be meaningful we do not see the 26% or a lower percentage that was
alluded to in the Anglo American evidence as being meaningful. We believe that meaningful
participation would include control at a later stage or even at the beginning of the involvement of the
BEE parties.” See transcript page 621.
32
as the key government initiative in respect of this industry and its
primacy in this area must be respected.
158.Anglo questions why the Tribunal should be asked to impose on its
merger, obligations that go further than the executive, the guardian of
the public interest, presently requires. Post merger then, Anglo will take
measures to increase empowerment in Kumba, but it should not be
forced to take measures that go beyond the terms of the Charter. 49
Whilst we do not understand Anglo to be saying that it will confine its
empowerment endeavours to meeting the demands of the Charter, we
do understand it to be saying that it does not want to have imposed on
it conditions that may make the investment unattractive. For instance
Mr Trahar stated in his evidence that:
“ At a shareholding of 20 or 35%, you are neither fish now fowl. And I
don’t think it would be appropriate to have a full commitment to Kumba in
those circumstances. I don’t think that would be appropriate.” 50
159.As a part of its sword approach Anglo suggests that the IDC has not
put an alternative scenario on the table that is credible. The IDC has
not yet organised a credible consortium that are willing and able to
invest nor has it got the balance sheet to make the expenditure
available to such a consortium that could enable it to buy such a large
stake in Kumba.
Analysis of the public interest
160.The only witness for the IDC in respect of the empowerment issue
was its Executive Vice President of the Industrial Sectors Division of
the IDC, Ms Raisibe Morathi. Her evidence was that although the IDC
was in the process of assembling an empowerment consortium to
purchase a stake in Kumba this had not yet been finalised. Names of
some individuals were given on a confidential basis but it was
conceded by her that the process was still in its infancy. Its tentative
conceded by her that the process was still in its infancy. Its tentative
nature is illustrated by this exchange between her and Anglo’s counsel
during crossexamination.
Ms Morathi : Well this transaction is still being negotiated. It is
49 Anglo does say that it sees the best opportunities for empowerment occurring in participation in
both equity and control in the underlying assets in Kumba. This is because empowerment here will be
less expensive than in a widely held company. Recall that on Anglo’s version it would prefer not to
keep Kumba as a listed entity but that after discussions with government it will keep the firm’s listing.
Kumba as a listed entity offers less opportunities for empowerment at holding level for this reason than
it does in its subsidiaries.
50 See transcript page 539.
33
not completed yet as yet. It is not a transaction that has been
approved as yet and as a result the details of the transactions
have not been completed.
Adv Unterhalter : Let’s understand that answer. You say that it
hasn’t been approved by who?
Ms Morathi : By the Board of the IDC.
and further on,
Adv Unterhalter : Do you support it?
Ms Morathi : What I know of the concept of the proposed
transaction, yes I support the idea, but the transaction will be
properly submitted in due time when the due diligence and
everything has been completed, and obviously I will have to
take a view on the basis of what is being presented.
161.We thus cannot conclude that there is presently some alternative bid
to Anglo’s, for control of Kumba. Nor even if the IDC was able over
time to compose such a group, does one know if it could command the
resources to buy a stake that is large enough to secure control, even
with the IDC, nor, most importantly, given that this is a widely held
public company, that there are significant shareholders willing to sell, or
agree to a dilution. 51
162.Thus to prohibit the merger on the assumption that a certain state of
affairs will occur thereafter, a state of affairs more consonant with the
goals of section 2(f), is wholly speculative. Indeed the probabilities are
that forming such a consortium if it has thus far not yet occurred, is not
as easy as it seems given that the Iscor /Kumba umbilical cord was
severed over two and a half years ago.
163.The other scenario suggested by the IDC as an alternative is no more
feasible. In its letter dated 11 August 2003, the IDC suggested that the
merger, as an alternative, should be approved subject to the following
conditions:
1) Kumba must be jointly controlled by a South African grouping of
51 Ms Morathi indicated, on page 741 of the transcript, that she could not give evidence on the
financial viability of the IDC’s counter proposal but that Mr Kriek, the IDC’s Executive Official in
charge of Projects, could. Although the IDC did indicate that Mr Kriek would be called as a witness, he
was never called.
34
Historically Disadvantaged Persons (“empowerment shareholders”)
and Anglo. The precise mechanism for achieving this objective is to
be negotiated between the parties and the IDC. It is suggested that
the empowerment shareholders will hold a minimum of 26% of
Kumba, IDC 14% and that Anglo’s ownership of Kumba and
Kumba’s iron ore assets be restricted to 34%.
2) The company through which Kumba’s iron ore assets are directly
owned and controlled is to remain a South African public company
that is listed on the JSE Securities Exchange SA (JSE) and
complies with JSE listing requirements.
3) The participation of Historically Disadvantaged Persons must be
broad based and not merely limited to participation in the
ownership/control of Kumba. Such participation must also take
place at the operation, management and procurement levels.
4) The participation of the empowerment shareholders is to be
secured up front and prior to the restructuring and expansion of
Kumba’s business and that of the broader South African iron ore
Industry. Domestic requirements for iron ore are to carry priority
over the export of iron ore and the investment in downstream
beneficiation of iron ore is to be encouraged. Sufficient iron ore, at
a competitive price, should be made available to current and future
domestic users of this natural resource, in order to promote the
expansion of existing iron ore beneficiation and the introduction of
new beneficiation capacity in South Africa.
5) Anglo and Kumba are to commit to the expansion of the Northern
Cape iron ore resources in preference to the expansion of any of
Kumba’s foreign iron ore resources.
6) Anglo and Kumba are to commit to unlocking synergies between all
operators/owners of mine resources in the Northern Cape,
operators/owners of mine resources in the Northern Cape,
including the optimisation, development and implementation of the
transport infrastructure, both through the Orex and Saldanha
transport infrastructure and proposed Coega rail and port transport
infrastructure.
7) Anglo and Kumba are to commit to the ongoing operation of the
Thabazimbi iron ore and Tshikondeni coal mine on terms
acceptable to Iscor Limited.
8) Anglo must implement acceptable protections to protect against
competition concerns raised by Anglo’s vertical integration in the
iron ore and steel industry, particularly it’s ownership and control of
35
Highveld Steel and Vanadium Corporation Limited and Scaw
Metals (Pty) Ltd.
164.There are a number of problems with these conditions. In the first
place they were proposed after the conclusion of the hearing, at a time
when neither Anglo, nor Kumba, nor the Commission had an
opportunity to respond to them.
165.The primary condition suggested, namely the proposed demographics
for the new shareholding in Kumba post merger, presupposes that
current shareholders would support the condition by offering their
equity for sale. This view, as we suggest earlier, has no basis in reality.
Had Anglo or Kumba’s view on the practicality of such a scheme been
canvassed it might have been a different matter but there is no
evidence to suggest it would be practical and for all intents and
purposes must be regarded as the equivalent of blocking the merger.
166.The remaining suggestions appear to deal either with the competition
issues or are a stratagem to impose the IDC’s own industrial policy
objectives on Kumba by way of merger conditions. No basis for such
an approach is advanced and, given our evaluation of the merger, it is
certainly not justified.
Conclusion on public interest
167.In our view, even on the IDC ‘s own interpretation of the correct
approach to empowerment issues in the statute, there is insufficient
evidence to suggest that if the merger is implemented it would close
the door on increasing the ownership of HDP’s in Kumba. In their
heads of argument the IDC’s counsel claim that the merger if approved
will have “an irreversible impact on the ability of historically
disadvantaged persons to acquire a meaningful stake in Kumba.” 52
Regardless of the legal validity of such an assertion, as a basis for
Regardless of the legal validity of such an assertion, as a basis for
prohibiting a merger, the record of the proceedings does not support it.
168.The evidence of Mr. Trahar is that at minimum, Anglo would ensure
that Kumba comply with the Charter and that, at any rate, would lead to
an increase in the ownership of HDP's from what they are in the
present Kumba. Recall that Anglo has said that it views Kumba’s
underlying subsidiaries as the most fruitful avenue for extending
empowerment and that it intends, if the merger is approved, to pursue
this. This is not the same vision for empowerment as the IDC’s, but it is
still one that suggests that the doors to further empowerment remain
52 See IDC’s heads of argument paragraph 12.44.
36
open under an Anglo controlled Kumba. The fact that Anglo has also
signed the MOU with the government, which has empowerment as one
of its key objectives, strengthens this likelihood, as, in addition to its
Charter obligations, it is susceptible to external political pressures to
ensure that it delivers meaningfully on empowerment.
169.The public interest objection to the merger also fails.
170.It is important to note that in adopting the IDC’s approach in
interpreting the legislation we have done no more than to evaluate
whether, if that approach was found to be the correct one, there is
evidence on the record to support prohibiting the merger on the basis
that on a preponderance of probabilities it would frustrate the objects of
the Competition Act the IDC seeks to invoke. We have found that the
evidence does not establish this. This does not mean that we endorse
this approach as the correct interpretation of the Act or that we have
departed from our earlier decisions on the application of the public
interest. 53 We deem it imprudent to make a decision on so difficult an
issue when the outcome of such a debate would be academic given
our conclusions on the evidence.
OVERALL CONCLUSION
171.We have found that, provided we include the condition proposed in
relation to one of the horizontal issues in the iron ore markets, the
merger between Anglo and Kumba raises no concerns that it will lead
to a substantial lessening or prevention of competition. For this reason
it is not necessary for us to consider whether the merger will bring
about any efficiency gains.
172.We have also concluded that the merger is not against the public
interest.
173.Accordingly we approve the merger subject to the condition set out in
the attached order.
4 September 2003
N. Manoim Date
the attached order.
4 September 2003
N. Manoim Date
53 See the following Tribunal merger decisions: Unilever/Robertson Case No: 55/LM/Sep01,
Shell/Tepco Case No: 66/LM/Oct01and Distell Group/Stellenbosch Farmers Winery Case
No:08/LM/Feb02.
37
Concurring: M.T.K. Moerane and M. Holden
38