Evening Star Trading 431 (Pty) Ltd and Fraser Alexander Holdings (Pty) Ltd (103/LM/Oct05) [2006] ZACT 3 (18 January 2006)

70 Reportability
Competition Law

Brief Summary

Competition — Merger approval — Vertical merger between Evening Star Trading 431 (Pty) Ltd and Fraser Alexander Holdings (Pty) Ltd — Evening Star Trading to acquire Fraser Alexander, a waste management service provider for mining operations — No overlap in activities between merging parties — Transaction enables Fraser Alexander to achieve black ownership status under the Mining Charter — Commission finds no substantial prevention or lessening of competition in relevant markets — Public interest concerns deemed negligible, with no impact on employment or other issues — Merger approved by Competition Tribunal.

COMPETITION TRIBUNAL 
REPUBLIC OF SOUTH AFRICA
       Case no.:  103/LM/Oct05 
In the large merger between: 
Evening Star Trading 431 (Pty) Ltd 
and 
Fraser Alexander Holdings (Pty) Ltd  
________________________________________________________________
Reasons
________________________________________________________________
Introduction
1. On   22   December   2005   the   Competition   Tribunal   approved   the   merger  
between   Evening   Star   Trading   431   (Pty)   Ltd   and   Fraser   Alexander  
Holdings (Pty) Ltd. The reasons are set out below.
The transaction
2. Evening Star Trading 431 (Pty) Ltd (hereinafter referred to as “Bafokeng  
SPV”)   intends   to   acquire   the   entire   issued   share   capital   of   Fraser  
Alexander   Holdings   (Pty)   Ltd   (“Fraser   Alexander”)   a   company   that  
provides waste management services to Royal Bafokeng Nation’s (“RBN”)  
mining operations. This is a vertical transaction.
3. Bafokeng SPV, a subsidiary of Royal Bafokeng Finance (Pty) Ltd, which is  
wholly owned by the RBN, was incorporated for the specific purpose of  
acquiring Fraser Alexander. RBN also controls Royal Bafokeng Resources  
Holdings (Pty) Ltd.
4. The target company, Fraser Alexander has in excess of 30 shareholders  
with   the   largest   shareholder   being   ABSA,   holding   65.58%.   Fraser

Alexander controls the following four subsidiaries:
 Fraser Alexander Bulk Mech (Pty) Ltd
 Fraser Alexander Construction (Pty) Ltd
 Fraser Alexander Tailings (Pty) Ltd
 Fraser Alexander Group Services (Pty) Ltd                  
Rationale for the transaction
5. In   terms   of   the   Mining   Charter,   Fraser   Alexander’s   clients,   which   are  
mostly   mines,   are   required   to   give   historically   disadvantaged   South  
Africans  (“HDSA”)  preferred  supplier  status  within  a  certain  time  frame.  
Fraser Alexander does not currently have HDSA status, but will as a result  
of  this  transaction become  a  black owned company,  thereby complying  
with the Mining Charter. 
Effect on competition
6. Although   both   merging   parties   are   active   in   the   mining   industry   their  
activities do not overlap. 1 There is however, as indicated above, a vertical  
relationship between the parties. 
7. Fraser Alexander, the target company, provides the following services to  
the mining industry:
 Fraser   Alexander   Tailings   (Pty)   Ltd   (“FA   Tailings”)   provides   waste  
management   services   by   providing   their   clients   with   sustainable  
closure solutions in respect of their mining operations. 
 Fraser Alexander Bulk Mech (Pty) Ltd (“FA Bulk Med”) manages the  
handling of dry bulk materials for clients in the mining and ferrochrome  
industry. These services include stockpiling and feeding materials for  
collieries and metals processing plants and disposing of coal discard in  
an environmentally acceptable manner.
 Fraser   Alexander   Construction   (Pty)   Ltd   (“FA   Construction”)  
specialises in the construction of infrastructure related to the activities  
of FA Tailings and FA Bulk Med such as waste, water and material  
containment sites.  
8. Fraser   Alexander   thus   competes   in   three   upstream   product   markets  
1  Although Fraser Alexander does not conduct mining for its own account it does have an indirect interest

of 35% in Chemwes (Pty) Ltd a company involved in gold mining.
2

namely Ferrochrome handling, the tailings services and the civil contracts  
extracts   market.   All   these   services   were   rendered   to   mines   in   which  
Bafokeng Resource holds interests. 
9. The   market   shares   of   the   five   largest   independent   participants   in   the  
upstream market are:
Product market Participants Market Shares
Ferrochrome handling Fraser Alexander 38.1%
Samancor 16.7%
Izinyoni 15.9%
Allemar 11%
African Rainbow  
Minerals
8.2%
Tailings sevices Fraser Alexander 57.18%
ECMP 15%
Roshcon 4.5%
Africa Tailings 0.8%
Tailcon Brollo  
Consulting
0.8%
Civil contracts extracts Fraser Alexander 44.1%
ECMP 26.6%
Roshcon 10.6%
Africa Tailings 2.6%
Tailcon Brollo  
Consulting
2.6%
10. In analysing vertical mergers we focus on foreclose, i.e. what the effect of  
the proposed transaction would be on conditions of access to upstream  
and downstream services. The Commission, in its investigation found that  
although Fraser Alexander is a major player in all three upstream markets  
in   which   it   competes,   mining   companies   do   have   options   in   the  
procurement of these services­ they could be performed in­house or could  
be rendered by third parties. In the unlikely event of RBN deciding to use  
Fraser Alexander exclusively the Commission established that the other  
mining companies would be able to obtain these services from alternative  
market participants.
3

11. Moreover, only 10% of Fraser Alexander’s income is derived from RBN  
mines and it would not be in Fraser Alexander’s best financial interest to  
foreclose   other   mines   from   using   its   services.   Should   RBN   decide   to  
increase the prices that Fraser Alexander charges for services rendered to  
other   mines,   these   mines   could   switch   to   alternative   competitors   or  
provide   the   services   in­house.   Finally,   the   fact   that   RBN   itself   is   not   a  
mining company, it merely holds investments in mining companies, and is  
not   involved   in   the   management   of   any   of   these   mines   lessens   the  
possibility of RBN adopting anti­competitive market strategies as a direct  
result of the transaction.
12. We accordingly agree with the Commission that the transaction is unlikely  
to   substantially   prevent   or   lessen   competition   in   any   of   the   markets   in  
which the parties compete.
Public interest issues
13. The   transaction   will   have   no   effect   on   employment   or   any   other   public  
interest issues.
   
____________ 8 February 2006
N Manoim Date
Concurring:  L Reyburn, M Mokuena
4