COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 88/LM/Oct06
In the matter between:
Imperial Holdings Ltd Acquiring Firm
And
Terex Africa (Pty) Ltd Target Firm
______________________________________________________________
Panel : DH Lewis (Tribunal Member) N Manoim (Tribunal
Member), and M Mokuena (Tribunal Member)
Heard on : 20 December 2006
Decided on : 20 December 2006
Reasons Issued: 09 January 2007
REASONS FOR DECISION
Approval
[1] On 20 December 2006, the Tribunal issued a merger clearance
certificate unconditionally approving the merger between the abovementioned
parties. The reasons for the decision follow.
Parties
[2] The primary acquiring firm is Imperial Holdings Ltd (“Imperial”). 1
Imperial has a significant number of subsidiaries or business interest
internationally including in South Africa. 2 The primary target firm is Terex
Africa (Pty) Ltd (“Terex Africa”). Terex Africa is a wholly owned subsidiary of
Terex Corporation, incorporated under the laws of the State of Delaware in
the United States of America. 3
1The shareholders who beneficially hold more than 5% of the issued share capital of Imperial
are: Public Investment Corporation 18.21%; Old Mutual 11.23%; Ukhamba 10.1%; Sanlam
8.4% and Lereko Mobility 7.25%.
2 For the purpose of the present transaction the only subsidiaries of Imperial which are relevant are:
MCC Contracts (Pty) Ltd (“MCC Contracts”) and Mutual Construction Company (Tvl) (Pty) Ltd
trading as MCC Plant Hire (“MCC Plant Hire”)
3 The only subsidiary of Terex Corporation, relevant for the purposes of the present transaction is
Terex Africa. Terex Africa does not control any subsidiaries.
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Transaction
[3] In terms of a sale of shares agreement concluded between Imperial
and Terex Corporation, Imperial intends to acquire the entire issued share
capital of Terex Africa, as well as the agencies to distribute Terex Corporation
products in a number of countries in SubSaharan Africa. Postmerger
Imperial will have sole control over Terex Africa.
Rationale of the Transaction
[4] From Imperial’s perspective, it is seeking to expand its business into
other areas of the broad heavy earthmoving equipment market, as well as
broadening its product range in order to compete effectively in the identified
market. Terex Corporation wishes to distribute a broad range of products
through one dealer in the Southern Africa region and would prefer this activity
to be outsourced to an outside entity rather than distributing through a local
subsidiary.
Parties’ Activities
[5] Imperial has activities in the wider transportation and mobility markets
in Southern Africa, Europe and the United Kingdom. Its activities cover a wide
range including integrated logistics solutions; fleet management; vehicle and
forklift leasing; aviation operations; sale and leasing; car rental and tourism;
motor vehicle importation; sales and after sales services and related financial
services businesses.
[6] Terex Corporation is a diversified global manufacturer operating five
business segments. 4 It manufactures a broad range of equipment for use in
various industries, including the construction, infrastructure, quarrying,
recycling, surface mining, shipping, transportation, refining, utility and
maintenance industries. Terex Africa operates through the materials
processing and mining segment of Terex Corporation, supplying surface
mining equipment and mobile cranes, predominantly to the mining industry.
The Relevant Market
[7] The Commission’s investigation revealed that there is no overlap in
The Relevant Market
[7] The Commission’s investigation revealed that there is no overlap in
the activities of the merging firms, as Imperial is not involved in the distribution
of earthmoving equipment. According to the Commission there is, however,
vertical integration between the activities and the markets where the merging
4 The five business segments are: Terex Construction; Terex Cranes; Terex Aerial Work Platforms;
Terex Materials Processing and Mining and Terex Road Building and Utilities.
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firms are involved. The vertical integration occurs in that firstly, Terex Africa
sells mining equipment to extract minerals on behalf of mining companies.
Secondly, Terex Africa sells construction equipment and MCC Plant Hire
procures construction equipment, which it leases out, to third parties.
[8] In analysing the proposed transaction the Commission found that the
proposed transaction affects four markets namely: the market for the
distribution of surface mining equipment; the market for open cast 5 contract
mining services where MCC contracts are involved; the market for the
distribution of construction equipment 6 where Terex Africa is involved and the
market for renting out construction equipment where MCC Plant Hire is
involved. 7
[9] In the market for distribution of surface mining equipment, the
Commission’s investigation found that the major manufacturers of this
equipment include Caterpillar, Komatsu, Hitachi and Liebherr. According to
the Commission surface mining equipment 8 is used for loading and hauling
overburden and ore in open cast mining application.
[10] As both parties sell surface mining and construction equipment
throughout South Africa as well as in Southern Africa, the Commission in line
with the decision of the Tribunal in the Barloworld matter 9 defined the
geographic market as national.
Market Shares
The estimated market shares for distribution of
surface mining equipment
Table 1
Name of Competitors Market Shares (%)
Caterpillar 45
Komatsu 20
5 According to the Commission open cast contract mining services entails the contracting of third party
company such as MCC Contracts, Moolman (Pty) Ltd and Diesel Power (Pty) Ltd to undertake mining
of minerals on behalf of mining companies such as Amplats, Impala Platinum and Lonmin.
of minerals on behalf of mining companies such as Amplats, Impala Platinum and Lonmin.
6 The Commission’s investigation revealed that this entails the distribution of equipment, which is
used in the construction industries. The construction equipment, which Terex and its competitors
distribute, includes wheel loaders, excavators and grades. Most of the players that distribute
construction equipment also distribute mining equipment. These distributors include players such as
Barloworld, which distributes on behalf of Caterpillar and Terex Africa, which distributes on behalf of
Terex Corporation. Other players, which distributes on their behalf and in competition with Terex
Africa and Barloworld include Komatsu, Bell, Volvo and Lieberr.
7 According to the Commission the plant hire market involves the hiring out of heavy earthmoving
equipment. In this market there are players such as MCC Plant, CAT Rental Store, Margado and
Tiechman rent out heavy equipment such as graders and excavators to third parties involved in the
construction sector. Their customers are players such as Murray & Roberts, Grinaker –LTA, WBHO
and Roschcon.
8 This equipment includes mining trucks and excavators
9 Tribunal case number 20/LM/Apr03
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Hitachi 10
Liebherr 10
Terex Africa 10
Others 5
Total 100
HHI 2750
[11] According to the Commission Terex Africa has a 10% market share for the
distribution of surface mining equipment. Although Terex Africa’s market share is not
high the market is highly concentrated with an HHI of 2750. According to the
Commission this high level of concentration is due to the size of Caterpillar,
which has 45% of the market. Terex Africa also competes in this market with
players such as Komatsu, Hitachi and Liebherr.
The estimated market shares for distribution of construction equipment
Table 2
Name of Competitor Market Shares (%)
Caterpillar 35
Komatsu 16.5
Bell 14
Volvo 13
Hitachi 8.5
Liebherr 7.5
Others 5.5
Total 100
HHI 2020
[12] The Commission found that in this market Terex Africa falls under
“Others” as can be seen in Table 2 above, which are very small players.
According to the Commission the reason why Terex is small in this market is
that it started recently to distribute construction equipment. An examination of
the transaction shows that the combined entity would continue to face a
number of strong effective competitors notably Caterpillar which is the market
leader followed by Komatsu then Bell, Hitachi and Liebherr.
The estimated market share in the plant hire market
Table 3
Name of Competitor Market Shares (%)
MCC Plant Hire 27
CAT Rental Store 20
Tiechman 10
Sandton Plant Hire 10
Alfs Tippers 5
Others 28
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Total 100
HHI 2138
[13] The Commission found that in this market MCC Plant has a relatively
high market share of 27%. According to the Commission this market is highly
concentrated partly due to the fact that 28% of the market has been lumped
together under “Others”. The Commission is of the view that if the 28% under
others were to be broken down, the level of concentration would decline
significantly.
The estimated market share for open cast contract mining service
Table 4
Name of Competitor Market Shares (%)
MCC Contract 19
Scharighuisen 17
Moolman Bros 16
Concor 7
Diesel Power 5
Basil Reed 3
Others 33
Total 100
HHI 2078
[14] As can be seen from the market shares on Table 4 above although
there are other players MCC Contracts has the highest market share.
According to the Commission this market is also highly concentrated partly
due to the fact that 33% of the market has been lumped together under
“Others”. The Commission is of the view that if the 33% under “Others” were
to be broken down, the level of concentration would decline significantly.
Competitive Analysis
[15] The Commission found that the proposed transaction results in vertical
integration. The vertical integration occurs firstly in that Terex Africa sells
mining equipment to MCC Contracts, which utilises this mining equipment to
extract minerals on behalf of mining companies. Secondly, Terex Africa sells
construction equipment and MCC Plant Hire procures construction equipment,
which it leases out to third parties.
[16] As vertical mergers raises competition concerns if the market shares
are high, the Commission firstly considered the effect of the proposed
transaction on competition in the national markets for the distribution of
surface mining equipment and open cast contract mining services and also
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the market for distribution of construction and equipment plant hire. Secondly
the Commission considered whether this merger would result in facilitating
collusion or whether it will result in foreclosure of competitors either upstream
or downstream. And lastly the Commission also contacted customers and
competitors of the merging parties in order to solicit their views regarding the
proposed transaction.
[17] In the market for the distribution of surface mining equipment and open
cast contract mining services, the Commission found that the transaction will
not result in customer input foreclosure as MCC Contracts procures a small
percentage of equipment from Terex Africa. We agree with the Commission’s
conclusion because a number of strong competitors would remain in this
market inter alia the market leader Caterpillar 10, Komatsu, Hitachi and
Liebherr. According to the Commission these competitors can supply other
customers in the event Terex Africa decides to supply MCC Contracts only.
The Commission’s investigation also found that with regard to customer
foreclosure, the proposed transaction would not result in customer
foreclosure, as MCC is not a major customer of surface mining equipment. 11
[18] In the market for construction equipment and plant hire, the
Commission found that the transaction would not result in input foreclosure,
as MCC Plant Hire does not source any construction equipment from Terex
Africa.12 The Commission also found that the proposed transaction would not
result in customer foreclosure, as MCC Plant Hire is not a major customer of
construction equipment. 13 We agree with the Commission’s conclusion
because it is clear that upstream suppliers will still have the ability to continue
selling to downstream customers.
[19] With regard to the likelihood of the proposed transaction facilitating
[19] With regard to the likelihood of the proposed transaction facilitating
collusion if the upstream participant gains access to the information about its
competitors from a downstream participant, the Commission found that this is
unlikely to occur as, both the upstream and downstream markets are
characterised by many firms. The Commission further found that the proposed
transaction would not result in collusion, as it does not increase contacts
between players in the upstream and downstream markets.
10 See table 1 above
11 According to the Commission the major customers of surface mining equipment are mining
companies such as De Beers Diamond Company, AngloGold Ashanti and others. The other customers
of surface mining equipment are competitors of MCC Contracts, which are Moolman Bros, Basil Read,
Diesel Power, Concor/ Murray & Roberts and Scharrighuisen/ Benigon.
12 As can be seen from Table 2 there are other big players in this market such as Caterpillar, Komatsu,
Hitachi and Liebherr. According to the Commission these competitors can supply other customers with
construction equipment in the event that Terex Africa decides to supply MCC Plant Hire only.
13 According to the Commission the major customers of construction equipment include construction
companies such as Basil Read, GrinakerLTA, Concor/ Murray & Roberts, WBHO and Group Five
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[20] The Commission also contacted both the customers 14 and
competitors15 of the merging parties in order to solicit their views with regard
to the proposed transaction. Customers interviewed by the Commission
indicated that they do not have concerns with the proposed transaction, as
there are a number of other alternative suppliers of earthmoving equipment.
However Torquip, Komatsu and Barloworld raised concerns with regard to
customer foreclosure. They were concerned that MCC Plant Hire and MCC
Contracts would procure their surface mining and construction equipment
only. The Commission’s investigation revealed that the vertical integration
would not result in customer foreclosure as MCC Plant and MCC Contracts
are not major customers of earthmoving equipment. The Commission found
that the concerns raised do not hold, as there are many big suppliers that can
supply earthmoving equipment. We agree with the Commission because if
faced with price increase from the merged entity the downstream firms can
turn to alternative suppliers.
Public Interest Issues
[21] There are no public interest issues.
Conclusion
[22]. 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.
___________________ 09 January 2007
D. Lewis Date
Tribunal Member
N Manoim and M Mokuena concurring.
Tribunal Researcher : J Ngobeni
For the merging parties : Vishal Koovejee (Deneys Reitz Inc)
14 The customers are Potgietersrus Platinum Mines, Murray & Roberts, Stephanutti & Bressan and
WBHO
15 The competitors are Tiechman, Sandton Plant Hire, Margado, Alfs Tippers and Torquip
Construction Equipment (“Torquip”), Komatsu, Liebherr, Bell and Babcock.
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For the Commission : Makgale Mohlala
Mergers and Acquisitions
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