COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 32/LM/Apr06
In The Large Merger Between
Samancor Manganese (Pty) Ltd ` Acquiring firm
And
Advalloy (Pty) Ltd Target firm
Reasons for Decision
Approval
1. On 22 June 2006, the Tribunal unconditionally approved the proposed
merger between the abovementioned parties. The reasons for the decision
follow.
Parties
2. The acquiring firm is Samancor Manganese (Pty) Ltd (“Samancor
Manganese”). The shareholders in Samancor Manganese are BHP Bilton
(60%) and Anglo America (40%). Samancor Manganese controls a number
of subsidiaries. 1 The operations of Samancor Manganese are divided into five
divisions namely: Hotazel, Metalloys, MMC, GEMCO, TEMCO.
3. The target firm is Advalloy (Pty) Ltd (Advalloy). The shareholders in
Advalloy are Samancor Manganese (50%) and Mitsui & Co Ltd (“Mitsui”)
(50%). Advalloy does not have any subsidiaries.
Transaction
4. The transaction involves Samancor Manganese acquiring 50% of the
issued share capital in Advalloy from Mitsui. After the merger, Samancor
Manganese will own all the issued shares in Advalloy.
Rationale of the transaction
1 Samancor Manganese subsidiaries are: Danjan (Pty) Ltd, Electronic Metal Corporation (Pty) Ltd,
Manganese Metal Co (Pty) Ltd, Tonmet Ag, Middleplaats (Pty) Ltd, South African Manganese (Pty)
Ltd, FAH Information Services (Pty) Ltd, Terra Nominees (Pty) Ltd, Chemfos (Pty) Ltd, AMM
Holdings Ltd (BVI), Manganore Iron Mining Ltd.
1
5. The merging parties submit that there is a close integration of the activities
of Advalloy and those of the Metalloys division of Samancor Manganese. The
parties further submit that due to the physical proximity of the plants and the
close cooperation between Metalloys and Advalloy, Samancor Manganese
deems it appropriate and preferable to further vertically integrate its
investment in Advalloy rather than to permit the entrance of a new participant
in the share capital of Advalloy.
6. From Mitsui’s perspective, the parties submit that there are two reasons
that explain Mitsui’s willingness to sell its stake in the joint venture. The
unsatisfactory returns from the joint venture is one reason and the other
reason is its acrimonious relation with Samancor.
The parties’ activities
7. The acquiring firm (Samancor Manganese) has two business units in South
Africa, Hotazel Manganese Mines in the Northern Cape Province and
Metalloys, an alloy smelter near Vereeniging in Gauteng Province. At its
Hotazel plant, Samancor Manganese operates two mines namely Mamatwan
and Wessels. Mamatwan is an opencast operation, mining a 20metre thick
body of lowergrade manganese ore overlain by 50 meters of Kalahari sand,
gravels and concrete. At the Wessels plant, underground mining of a
hydrothermally enriched manganese ore of a higher grade occurs at a depth
of 300 meters. The ore produced has low phosphorous content.
8. At the Metalloys plant in Meyerton ferromanganese and silicomanganese
are produced at three electric arc furnaces using the same submerged arc
furnace process. The process consists of the computercontrolled continuous
feeding ores, reductants and fluxes into the furnace where electric smelting
takes place.
9. BHP Billiton is involved in commodity businesses such as aluminium,
energy coal and metallurgical coal, copper, manganese, iron ore, uranium,
energy coal and metallurgical coal, copper, manganese, iron ore, uranium,
nickel, silver and titanium minerals, and has substantial interest in oil, gas,
liquefied natural gas and diamonds.
10. The target firm (Advalloy) has a plant capacity to produce 75 thousand
tonnes of refined manganese alloys at its Meyerton plant. The refined
manganese alloys are mainly exported to Japan.
Relevant Market
11. According to the Commission the proposed transaction is a vertical one, in
which the effects occurs in the upstream markets for the production of
manganese ore and high carbon ferromanganese and the downstream
2
market(s) for the production of medium and low carbon ferromanganese.
12. There are three products and geographic markets relevant in this
transaction:
(i) The upstream market for the mining of manganese ore
(ii) The upstream market for the production of hot high carbon
ferromanganese
(iii) The downstream market for the production of medium and low
carbon ferromanganese
13. The Commission defined the relevant upstream product market as the
mining of manganese ore. However it refrained from defining the product
market for both the upstream market for the production of hot high carbon
ferromanganese and the downstream market for the production of medium
and low carbon ferromanganese, because it found that concluding on whether
medium and low carbon ferromanganese constitute distinct or separate
markets is unnecessary for this transaction.
14. The Commission further defined the geographic market for the mining of
manganese ore as national because its enquiry revealed that the importation
of manganese ore is not commercially viable. Given the minimal effect on the
market structure as a result of the proposed transaction, the Commission
refrained from defining the geographic markets for the downstream market for
the production of medium and low carbon ferromanganese. We agree with the
Commission.
Market Share and Competitive analysis
15. According to the parties the market shares for the relevant markets would
be as follows:
Upstream
15.1 Mining of Manganese ore
3
Global Market National Market
Company
name
Production Estimated
Market
share (%)
Production Estimated
Market
share (%)
Samancor
Manganese
2186 927 7 2186 927 54
Assmang 1 881 621 6 1 881 621 46
Other 25 931 449 86
Total 30 000 000 100 4 068 551 100
Downstream
15.2. Production of medium carbon ferromanganese
2004 2005
Company
name
Production
in Kit
Estimated
market
shares
Production
in Kit
Estimated
market
shares
Advalloy 71 6 65 5
CVRD 46 4 48 4
Eramet 233 21 247 21
Transalloys 30 3 33 3
Ore & Metal 66 6 66 6
Japan 94 8 93 8
China 405 36 440 37
Ukraine 34 3 36 3
Minera
Autlan
37 3 40 3
India 18 2 20 2
South Korea 61 5 64 5
Ferroatlatica 39 3 39 3
Total 1 134 100 1 191 100
4
National market shares are as follows:
2004 2005
Company
name
Production
in Kit
Estimated
market
shares
Production
in Kit
Estimated
market
shares
Advalloy 71 43 65 40
Transalloys 30 18 33 20
Ore & Metal 66 40 66 40
Total 167 100 164 100
16. The Commission investigated two relevant sets of concerns that have
been identified in antitrust analyses of vertical mergers, namely the likelihood
of input foreclosure and the likelihood of coordinated conduct.
Input foreclosure
16.1 The Commission contacted competitors of Advalloy in the downstream
market(s) for the production of medium and low carbon ferromanganese and
they indicated that they have no objections to the proposed deal. The parties
also submitted that Samancor Manganese currently supplies approximately
54% of its production of manganese ore to third parties that are unrelated to
Samancor Manganese. In addition, Ore and Metal, which competes with
Advalloy in the downstream market, is vertically integrated to Assmang.
Further, Transalloys, a competitor of Advalloy procured its Manganese ore
requirements from Samancor Manganese. The relationship between
Samancor Manganese and the producers of medium and low carbon
ferromanganese existed premerger. We therefore agree with the
Commission that input foreclosure, as a result of this transaction is unlikely.
Ability to promote coordinated conduct
16.2 In investigating whether the proposed merger is likely to promote any
coordination, the Commission used the shareholding structure of the merging
parties with respect to the affected subsidiaries as set out below.
BHP Billiton Anglo American plc
60% 40% 80%
5
Samancor Manganess
Division Division 50%(100)2 Division
Hotazel
Mine
Metalloys Advalloy Transalloys
16.3 The Commission found that the proposed merger is unlikely to heighten
any coordination between Transalloys and Advalloy in the downstream market
for the production of medium and low carbon ferromanganese, because the
business relationships and the shareholding structure of the acquiring group
existed premerger . We therefore agree with the Commission that post
merger the proposed merger is unlikely to promote any coordination between
Transalloys and Advalloy in the downstream market for the production of
medium and low carbon ferromanganese.
Public interest
17. No public interests issues arise from the merger.
Conclusion
18. Based on the above the transaction will not result in a substantial
lessening or prevention of competition in the identified markets and is
accordingly approved unconditionally.
_______________ 5 July 2006
D. Lewis Date
Concurring: Mokuena and N Manoim
2 The figure in parentheses reflects the shareholding structure of Samancor Manganese post the
merger.
Highveld Steel
6
For the merging parties: E van Biljon
For the Commission: Hardin Ratshisusu, Mergers and Acquisitions
7