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
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Reasons
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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.
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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.
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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
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