COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 70/LM/Aug06
In the matter between:
Barmarc (Pty) Ltd Acquiring Firm
And
ATC (Pty) Ltd (Telecoms)
Aberdare Cables (Pty) Ltd Target Firm
______________________________________________________________
Panel : DH Lewis (Presiding Member), N Manoim (Tribunal
Member), and Y Carrim (Tribunal Member)
Heard on : 17 January 2007
Decided on : 17 January 2007
Reasons Issued : 16 February 2007
REASONS FOR DECISION
Approval
[1] On 17 January 2007 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Barmarc (Pty) Ltd and ATC (Pty)Ltd
(Telecoms)/Aberdare Cables (Pty) Ltd in terms of section 16(2)(b) of the Act subject
to conditions. The reasons appear below.
Parties
[2] The acquiring firm is Barmarc (Pty) Ltd (“Newco”) a newly established joint
venture that is owned in equal shares by ATC (Pty) Ltd (“ATC”) 1 and Aberdare
1 Reunert Ltd (“Reunert”) controls 74.9% of the shares in ATC. Powerhouse Utilities (Pty) Ltd
(“Powerhouse”), a black owned company holds an interest in ATC comparable to 25.1%.
1
Cables (Pty) Ltd (“Aberdare”). 2
[3] The target firms include the telecommunication cable business and assets of
ATC and telecommunications and the assets and business of telecommunication
and data cable business of Aberdare. Aberdare is an ultimate subsidiary of Altron. 3
ATC is a subsidiary of Reunert 4, a public company listed on the JSE Securities
Exchange (“JSE”)
Transaction
[4] The proposed transaction involves the formation of Newco, a newly
established joint venture that is owned in equal shares by ATC and Aberdare. In
terms of the transaction Newco will acquire ATC Telecoms’ assets and business of
telecommunications cables of ATC as a going concern. The businesses of ATC
Telecoms and Lambda will be sold to Newco as a going concern, but in the case of
Aberdare, the mothballed assets Aberdare Telecoms Network (“ATN,”) will be sold
to Newco.
Background
[5] At the hearing of the matter the merging parties provided the Tribunal with
insights into the background to the transaction. 5 Sometime in 2005 Aberdare
realised that the ATN business was no longer sustainable due to prevailing market
2 Aberdare is controlled by Power Technologies (Pty) Ltd (“Powertech”), which owns 70% of Aberdare
shares. Aberdare has a Black Economic Empowerment shareholder, namely, Izingwe Capital, an
investment company that holds 30% of shares in Aberdare. Powertech is a subsidiary of Allied
Electronics Corporation Ltd (“Altron”), a public company listed on the JSE Securities Exchange.
Aberdare directly controls AFOC and Lambda. The Aberdare division includes the fibre optic cable
assets of Aberdare’s subsidiary, Aberdare Fibre Optic Cables (Pty) Ltd (“AFCOC”) as well as the
copper data cable business and assets of Lambda Cables (“Lambda”) a division of Aberdare.
copper data cable business and assets of Lambda Cables (“Lambda”) a division of Aberdare.
3 Altron has 57.9% interest in Allied Technologies involved in the convergence of
telecommunications, multimedia, information technology and electronics. Altron has 57.7% interests in
Bytes Technology Group Ltd involved in IT services and telecommunications. Aberdare also falls
under Powertech, which is involved in cable, cable accessories and electronical accessories.
4 Reunert also holds a 40% stake in Siemens Telecommunications (Pty) Ltd, a leading supplier of
fixed and mobile voice and data networks.
5 See pages 13 of the transcript.
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conditions. As a consequence it was forced to consider a variety of strategic
alternatives, one of these being a possible partnership with ATC. The parties had
had some discussions with each other during this period regarding the possible joint
venture and had also consulted their major clients. Before the joint venture could be
consummated, Aberdare was not able to sustain its place in the market in respect of
the fibre optic and outdoor copper cables part of the business which was housed in
ATN. It therefore took a decision to close its ATN operations in Port Elizabeth. The
parties submitted in their filing that after ATN ceased operations, Aberdare entered
into an outsourcing or subcontracting arrangement with ATC to supply product for
existing Aberdare customers, Telkom being the major one, until such contracts come
to an end. However Telkom independently decided to place orders directly with ATC
as opposed to Aberdare. Hence by the time the merger was notified to the
Commission, Aberdare had also lost its most significant customer, namely Telkom,
to ATC (Lambda). 6 The merging parties submitted Telkom is the dominant customer
in the market. 7
[6] An agreement on the joint venture was ultimately reached in terms of which
the ATN operations in Port Elizabeth and the Lambda plant would be combined with
the ATC telecommunication and cable business.
Relevant Market
[7] The Commission defined the following relevant markets: the market for the
manufacturing of indoor and outdoor cables; the market for manufacturing data
copper cables and the market for fibre optic cables. However the merging parties
are not active in all of the three markets. The only area of horizontal overlap in the
parties’ activities was the market for the manufacturing of indoor copper cables. 8
6 Aberdare regards its top customers as follows: Telkom SA Ltd, Sasol, Botswana Telecom,Swanlb,
Fibre Centre Africa, Africom (PVT)Ltd, Interconnect, ADC Krone, Datanet See pages 1718 of the
Record
7 See page 9 of the transcript.
8 See Commission Report Page 12.
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Indoor Cable Market
[8] The parties provided the Commission with the following market shares for the
above market.
The estimated national market shares in the market for the manufacturing of
indoor copper cables.
Table 4 Market Shares [%]
4
Competitor 2003 2004 2005
ATC 4 4 4
Lambda
(Aberdare) 83 79 78
Kewberg 5 7 8
Cabletronics 4 6 6
Intercabe 2 2 2
Imports 2 2 2
Total 100 100 100
Post Market
Share 87 83 82
HHI (Pre
merger)
6954 6350 6208
HHI (Post
merger) 7618 6982 6832
Change in HHI 664 632 624
Source: Merging parties
[9] An examination of the Table 4 shows that the merging parties would have
82% combined post market share in the national market for the manufacturing of
indoor copper cables. However the market share accretion as a result of the merger
was only 4%.The merging parties submitted that the market share of the merged
entity and its competitors is not necessarily an accurate indicator of market power
because these markets were bidding markets. The ability of any player in the
relevant markets to accumulate market power could be restricted by the fact that
once you win a tender, your capacity to bid for more tenders is limited because you
may not have all the necessary human and other resources to execute future
projects. We do not regard the indoor cable market as a traditional bidding market
even though the suppliers tend to supply their cables on a tender basis. 9
[10] The reason for Aberdare (Lambda’s) very high market share in this segment
is attributable to its winning the Telkom contract which constitutes 75% of this
market. We were advised at the hearing that Lambda is the only supplier presently
that is capable of supplying Telkom and in this respect is a monopoly supplier to
Telkom irrespective of the merger. The remainder of the market is very small and will
still have enough players in it to ensure competition especially once the link between
9 See in this regard; Murray & Roberts Ltd / The Cementation Company (Africa) Case No
02/LM/Jan04 and Murray & Roberts Ltd / Concor Ltd 101/LM/Oct 05.
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Aberdare and Kewberg is severed.
[11] Although Telkom was consulted by the Commission it has not raised this as a
concern. Neotel the newly licensed entity in fixed line was also approached by the
Commission, but was apparently not interested in making a submission. 10
Presumably had they had concerns they would have done so.
[12] The Tribunal was also concerned that this joint venture could lead to greater
cooperation between the Reunert and Altron Groups, who are competing firms in
other markets outside of the joint venture. Mr Gerrit Pretorius of Reunert indicated
that greater cooperation between the firms was unlikely and that the executives who
would serve on the board of the joint venture would not be members of the boards of
competition companies in the respective groups. 11 The parties were willing to
consider a remedy in that respect, but because of Mr Pretorius’ assurances we find it
unnecessary to impose such a remedy. There is nothing in the board materials from
the merging parties which suggests that this possibility is being contemplated. In
future however the Commission should investigate these issues further, in joint
venture mergers where merging parties continue to compete in activities outside of
the joint venture.
Relationship between Kewberg and Aberdare
[13] The Commission also investigated the relationship between Kewberg and
Aberdare. Recall that in the indoor cable market Kewberg is one of the competitors
of the merging entity and will post merger be the second largest competitor in this
segment. The Commission discovered during its investigations that Aberdare owns
33 % of a share capital in Kewberg Cables and Braids (Pty) Ltd (“Kewberg”). This⅓
was not mentioned by the parties in the merger filing. This was raised with Aberdare
who stated this was an oversight. Mr Cornelius Meiring (“Mr Meiring”) of Aberdare is
who stated this was an oversight. Mr Cornelius Meiring (“Mr Meiring”) of Aberdare is
entitled to a board seat on Kewberg but has not exercised this right in recent years.
10 See page 8 of the transcript
11 See page 15 of the transcript.
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The shareholding link is historic – Kewberg owed money to Aberdare, since it could
not repay the money, the latter was given equity in the former in return. The
Commission was concerned that the link with Kewberg could result in Aberdare
being able to influence the operational and strategic decision making of Kewberg.
[14] In order to address the above concerns the Commission recommended
approval of the transaction subject to the imposition of several conditions which
addressed the Commission’s concerns about the relationship between Kewberg and
Aberdare. 12
[15] The parties consented to the approval of the transaction subject to the
imposition of these conditions. At the hearing the merging parties handed in a sworn
affidavit by Mr Meiring confirming that Aberdare had entered into an agreement to
dispose of its stake in Kewberg and that he had already submitted his written
resignation as a director of Kewberg, with effect from 14 December 2006 . Given this
development we find it unnecessary to impose the conditions attached by the
Commission in its recommendations. 13 However as the sale was still subject to the
approval of the Aberdare board, an event that was to take place after the date of our
order, we have made it subject to the condition set out below, in case board approval
is not obtained,
Public Interest
[16] There are no public interest issues.
12 The following conditions were imposed: Mr Hans Meiring of Aberdare resigns with immediate
effect as a director of Kewberg; Aberdare are not to attend any board or company meetings with
Kewberg; Aberdare disposes of the 33.3% of the share capital of Kewberg within one calendar month
after the matter has been approved by the Competition Tribunal and the CEO of Aberdare will within
five business days of the disposal file a sworn affidavit with the Commission, confirming the disposal
of the 33.3% share capital.
13 The disposal by Aberdare of its interest in Kewberg will render the other conditions redundant .
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Conclusion
[17] Based on the above, we are of the view that the transaction will not result in a
substantial lessening or prevention of competition in the identified markets and is
accordingly approved on the condition contained in annexure A.
Annexure A: Conditions
A. The merger is approved in terms of section 16(2) (b) of the Act subject to the
following condition :
1. The sale of Aberdare Cables (Pty) Ltd (“Aberdare”) 33.3% interest in Kewberg
Cables and Braids (Pty) Ltd (“Kewberg”) to S R Van Rensburg as
contemplated in the affidavit of Cornelius Johannes Meiring, being effected by
the 31 st January 2007 (“the effective date”).
2. In the event that the sale referred to in paragraph 1 does not take place by the
effective date then
a. Aberdare must sell its 33.3% interest in Kewberg within one month
after the effective date to a buyer approved by the Competition
Commission, on the basis that the buyer is independent of both ATC
(Pty) Ltd and Aberdare.
___________________ 16 February 2007
Y. Carrim Date
Tribunal Member
N Manoim and D Lewis concurring.
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Tribunal Researcher : J Ngobeni
For the merging parties : Adv D Unterhalter SC (Instructed by Derek Lotter
(Bowman Gilfillan Attorneys) and Paul Coetser (Brink
Cohen Le Roux Inc.)
For the Commission : HB Senekal (Senior Merger Analyst)
Mergers and Acquisitions
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