COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 22/LM/Mar05
In the large merger between:
Kermas South Africa (Pty) Ltd
and
Samancor Ltd
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Reasons
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Introduction
1. On 26 May 2005 the Competition Tribunal approved the merger between
Kermas South Africa (Pty) Ltd and Samancor Ltd. The reasons are set out
below.
The transaction
2. Kermas South Africa (Pty) Ltd (“Kermas SA”) entered into a Sale of
Shares agreement for the acquisition of the chrome operations of
Samancor Ltd.
3. Kermas SA is a company established for purposes of the present
transaction. It is 100% owned by Kermas Ltd, a public company
incorporated under the laws of the British Virgin Islands. Mrs Danica
Zagmester owns 82% of the total issued shares in Kermas Ltd. The
Kermas Group mines chromium ore in Russia and Turkey, produces
ferrochrome in Russia and Germany and distributes it to various territories
in the world, excluding South Africa.
4. Samancor Chrome is a business unit of Samancor Ltd, a wholly owned
subsidiary of Samancor Holdings (Pty) Ltd (“Samancor Holdings”).
Samancor Holdings is a joint venture between BHP Billiton plc and Anglo
American plc. BHP Billiton plc, through African Metals Ltd, controls
Samancor Holdings, holding 60% of the shares, with Anglo American plc
holding the remaining 40%.
5. Kermas will also acquire Samancor Ltd’s 50% share in the Ferroveld joint
venture, which Samancor owns with Highveld.
Rationale for the transaction
6. Samancor Holdings wishes to dispose of its chrome division, which it has
identified as a noncore asset.
Effect on competition
7. Samancor is vertically integrated into the mining of chrome ore and the
production of ferrochrome. 1 It owns chromium ore mines and has mining
and production facilities in Mpumalanga, Limpopo and North West
Province. It also produces electrode paste through its Ferroveld joint
venture.2
8. Although Kermas SA has never traded in South Africa its holding
company, Kermas Ltd, owns two ferrochrome production facilities:
1) Serov Ferroalloys Plant (“Serov”) a Russian company active in the
production of chrome ore and the production of ferrochrome in
Russia, and
2) Elektrowerk Weisweiler GmbH, a German company that produces
ferrochrome and which also owns three chromium ore mines in
Turkey.
9. The transaction has horizontal as well as vertical competitive effects. The
horizontal effects are as a result of the activities of the merging parties
overlapping in the production of chrome ore and ferrochrome and the
vertical as a result of the Ferroveld joint venture’s production of electrode
paste, an electrode used in the production of ferrochrome. Both parties
are also vertically integrated in the upstream chrome ore and downstream
1 More than 85% of chromium ore is converted into ferrochrome for metallurgical purposes and used as a
feedstock in the production of stainless steel. The remainder is used for refractory, foundry and chemical
industries. There is no substitute for chrome in the production of ferrochrome.
2 Electrode paste is used as an electrode in energy intensive furnaces in the aluminium industry, the
ferroalloy industry and the calcium carbide industry.
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ferrochrome markets.
10. Three product markets are relevant in this transaction:
1) The market for the production of chrome ore
2) The market for the production and supply of ferrochrome
3) The market for the production of electrode paste
11. The Commission defined the geographic market for the production and
supply of ferrochrome as international. However it refrained from defining
the geographic markets for both the production of chrome ore and the
production of electrode paste because it found that, for purposes of this
investigation, the transaction would not have any effect on competition
whether the geographic markets are defined narrowly as national markets
or whether they are defined broadly as global markets. We accept this
argument.
The production of chrome ore
12. The major international producers of chrome ore are: South Africa,
producing 45% of world production, Kazakhstan 17%, India 14% and
Zimbabwe 6%.
13. Kermas’ market share in the international market is 0.03% and Samancor
21%. The combined market share of the merged entity will be 21%. We
were not supplied with market shares of competitors. Although we agree
with the Commission that the increase in market share is negligible we
found the information on market shares insufficient.
14. Samancor Chrome estimates that it holds approximately 50% of the
chrome resources in South Africa. Assmang holds 26% and Xstrata 13%.
We also requested the parties to provide estimates of global chromium ore
resources and were provided with very old data, 1982 estimates of global
resources provided by the US Bureau of Mines. Based on this information,
which dates back 23 years, Kermas holds approximately 0,03% of the
total global chrome resources and South Africa 62%.
15. As mentioned above the merging parties are vertically integrated
15. As mentioned above the merging parties are vertically integrated
ferrochrome producers, which could result in possible customer
foreclosure. However, we found that customer foreclosure is highly
unlikely since South African ferrochrome producers will, post the
transaction, be able to source chrome ore from other local suppliers.
Although Xstrata SA, Hernic Ferrochrome and Assmang produce their
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own chrome ore requirements inhouse, Xstrata, Lanxess and Rustenburg
Minerals also supply local customers.
Production and distribution of Ferrochrome
16. South Africa accounts for close to 60% of the world’s ferrochrome
production and exports more than 90% of its ferrochrome, local
companies consume approximately 10% of the total production.
17. The global market shares for the production of ferrochrome are:
Company/Country Estimated global market share %
Samancor Chrome 20
Kermas (Serov/EWW) 1
Xstrata (South Africa) 20
Other South African producers such as
Hernic and Asea SA Metals 6
Kazchrome (Kazakhstan) 13
Zimbabwe producers such as Zimasco
and Zimalloys
4
Chelyabinsk (Russia) 1
Vargön (Sweden) 1
Others 34
Total 100
18. The combined global market share of the merged entity will be 21%. Its
main South African competitor is Xstrata with a market share of 20%.
19. Local companies can also source ferrochrome from other producers such
as Zimasco, Zimalloys, Hernic Ferrochrome and Xstrata. The proposed
transaction is thus unlikely to substantially prevent or lessen competition in
this market.
Supply of electrode paste to ferrochrome producers
20. There are no substitute products for electrode paste. Ferrochrome
producers view electrode paste as a crucial raw material input in the
production of ferrochrome.
21. Although this transaction does not cause a competitor to exit the market,
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since one shareholder is merely replaced by another, the Commission did
investigate the likelihood that customer foreclosure would take place.
Ferrochrome producers in South Africa indicated to the Commission that
they have alternative suppliers, other than the Ferroveld joint venture,
from whom they could source electrode paste. Chartech, the largest
supplier, with a market share of 44% and Rand Carbide with a market
share of 18% do currently supply approximately 45% of their production to
external customers. The Ferroveld joint venture has a market share of
42%.
22. Input foreclosure, as a result of this transaction, is thus highly unlikely.
Conclusion
23. Based on the above we are of the view that the proposed transaction is
unlikely to substantially prevent or lessen competition in any of the
relevant product markets nor would the transaction lead to input or
customer foreclosure in the chrome ore and the electrode paste markets.
Public Interest issues
24. The transaction will not have an adverse impact on any public interest
issues.
____________ 14 June 2005
D Lewis Date
Concurring: N Manoim, M Moerane
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