IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CASE NO.: 07/LM/JAN07
In the matter between:
NEWSHELF 809 (PTY) LTD
and
CONSOL LIMITED
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member), and Y Carrim (Tribunal Member)
Heard on : 15 March 2007
Order issued on : 15 March 2007
Reasons issued on : 13 April 2007
REASONS FOR APPROVAL
Approval
[1] On 15 March 2007, the Competition Tribunal unconditionally approved the
proposed merger between Newshelf 809 (Pty) Ltd (“Newshelf”) and Consol Limited
(“Consol”). The reasons for the approval follow.
The Merger Transaction
[2] The proposed merger involved the acquisition of the entire issued share
capital of packaging company, Consol Ltd (“Consol”) by Brait Private Equity through
Newshelf 809 (Pty) Ltd (“Newshelf”). 1 This transaction will be implemented by way of
a scheme of arrangement in terms of section 311 of the Companies Act. As soon as
this transaction is implemented and as part of the integrated transactions, Newshelf
intends to transfer the business of Consol to Maxitrade 91 General Trading (Pty) Ltd,
a newly incorporated wholly owned subsidiary of Newshelf. 2 According to the
merging parties, no single shareholder will control Consol postmerger. Brait will hold
32% of the equity in the new entity and thus will not be able to exercise de jure
1 Newshelf is a newly formed entity for purposes of the proposed transaction. It is
currently controlled by Brait IV SA Partnership (“Brait RSA Fund”), which in turn is
managed by Brait South Africa Ltd (“Brait South Africa”).
2 There was no sale agreement to be entered into between Maxitrade and Consol to
acquire the business of Consol. In addition, the merging parties asserted that there were
no further consents required regarding the Maxitrade-Consol sale. However, the merging
no further consents required regarding the Maxitrade-Consol sale. However, the merging
parties will be required to file with our Registrar a Maxitrade-Consol Agreement as soon
as it is concluded.
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voting control it on its own. As the company will be closely held and has a provision
in its articles providing for a 60% approval of most resolutions, this stake is unlikely
to constitute a de facto controlling stake either. 3
Rationale
[3] This is a private equity transaction. The private equity investors are motivated
by a sense that they can enhance the value of the target firm, whilst sellers are
presumably persuaded to sell by the offer of a considerable premium to the current
market price.
Relevant market
[4] Brait SA is an international investment and financial services group focused
on private equity, corporate finance and specialized funds. It has interests in a
variety of sectors. In particular, it has interests in the wine bottle market and in
beverage packing. Consol is a packaging company and focuses primarily on
consumer glass packaging products (i.e., bottles) for use in the packaging of
beverages, food, pharmaceuticals and cosmetics. According to the Commission,
glass comprises 95% of Consol’s business whilst 5% is its rigid plastic packaging for
chemicals, food products, and containers for paints and for healthcare products.
Competition evaluation
[5] Consol is the largest bottling firm in the country. It operates in an industry
which according to the merging parties’ internal documents “is a stable duopoly”. 4
The other constituent of the alleged duopoly is Nampak which has a 22% market
share to Consol’s 76%. Consol is also a minor player in plastic packaging, an
industry in which Nampak is the major player. Ordinarily, a transaction such as this in
which the company changes from being widely held to being held by institutional
shareholders, would not raise competition issues. However Brait, which leads the
consortium doing the private equity deal, holds interests both in the glass sector and
consortium doing the private equity deal, holds interests both in the glass sector and
related downstream sectors. Given the concentrated nature of the glass bottling
market, the merger warrants further scrutiny.
[6] Brait owns a 40% interest in Douglas Green Bellingham (“DGB”), a customer
of Consol. DGB sources wine bottles from Consol (as well as from third parties) and
uses them to bottle wine. Brait also owns a 37% interest in Beverage Packaging
(“Bevpack”), an independent beverage contract packing company with facilities to
package beverages in cans, glass and PET bottles. Brait has appointed two directors
to the Bevpack board.
[7] The above interests raise both horizontal and vertical implications. The
horizontal implications arise from that Bevpak may be a competitor of Consol. The
vertical implications arise because DGB is a customer of Consol.
3 See page 2 of the transcript.
4 See page 179 of the merger record.
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[8] With regard to the vertical implications, the merging parties submit that
Consol’s annual sales of wine bottles to DGB amount to approximately 5,4% of its
total wine bottle sales and approximately 1,1% of Consol’s total sales. According to
the Commission, DGB purchases 53,5% of its wine bottles from Consol whilst the
balance of 46,5% is sourced from Nampak. The merging parties submitted that
Consol’s sales to DGB do not constitute a material component of Consol’s total sales
to its wine bottle customers. Consol asserted that it would prefer not to jeopardize its
relationship with major wine bottle customers. For this reason the Commission was
of the view that input foreclosure would not be profitable on the part of Consol
because DGB purchases only 3% of Consol’s total wine bottles. This effectively
means that if Consol were to do so, it would lose 97% of its customers.
[9] The Commission was also of the view that the proposed transaction would not
lead to customer foreclosure because DGB is a smaller player which purchases less
than 1% of the entire wine bottles market notwithstanding that it sources 53,5% of its
wine bottles from Consol. The Commission submitted that should Consol foreclose
its competitors (such as Nampak) from selling wine bottles to DGB, then these
competitors can sell their wine bottles to the remaining 99% of wine bottle
customers.5 The merging parties asserted that it is unlikely that Brait SA’s investment
in DGB and in Consol could be beneficial to DGB because Brait SA does not control
or manage DGB. Neither does Brait Fund IV control Newshelf.
[10] We agree with the Commission that the vertical issues are insufficient to
justify any concerns with the merger.
[11] With regard to the horizontal implications, Brait SA had advised the
[11] With regard to the horizontal implications, Brait SA had advised the
Commission that it had concluded a sale agreement in respect of the disposal of its
37% interest in Bevpack. On 27 February 2007, the merging parties advised the
Commission that the Bevpack deal had been partly implemented – the only
outstanding issue was that the Brait Group was awaiting final payment from the
purchaser. As a result of these assurances the Commission did not further
investigate the horizontal issues since Brait was voluntarily divesting its packaging
interest premerger.
[12] At the hearing of the matter on 15 March 2007 the Tribunal sought clarity on
whether the sale of the interest had taken place. The merging parties were
surprisingly unable to provide the exact details of the buyer, but asserted that the
Bevpack sale had been concluded. They testified that the only outstanding issue was
between themselves and the relevant municipal council relating to the rates on the
property that was subject to sale. They believed that the council had incorrectly
calculated the relevant rates, and that the council was at that time recalculating the
rates. They asserted that once the rates issue was sorted out the sale could be
completed.6 We were advised that in the interim the incumbent Bevpack
5 DGB has 9% of the bottled wine market whilst others constitute about 52%. The rest is
shared amongst the smaller players.
6 See the testimony of Mr Maharaj from Brait, page 5 of the transcript.
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management was carrying on with the management of the Bevpack business. 7 In
light of all these submissions, we advised the merging parties that we were
considering imposing a condition relating to the sale of Brait’s interest in Bevpack. 8
They responded that they did not think there was any objection to the condition being
imposed, but argued that such condition would be highly immaterial to the proposed
transaction.9 At the conclusion of the hearing, the tribunal wrote to the merging
parties requesting further information about the sale of Bevpack and the identity of
the buyer. In the letter we indicated that we were considering imposing a condition
requiring that the sale take place by no later than a date to be specified in the order.
Later that same afternoon, the merging parties filed with us papers indicating that
Brait had divested itself of all interests in Bevpack with effect from 15 March 2007 i.e
on that very day. 10 Both the signed CM42 (Securities Transfer Form) and the letters
of resignation of the two Brait directors who sit on the Bevpack board were signed
and dated 15 March 2007.
[13] It would appear that the merging parties desire to get the Consol transaction
approved unconditionally had expedited, in a matter of hours, a deal that seems to
have taken weeks to resolve – the sale of the Brait interest in Bevpack. What
induced this new expedition is not a matter of concern for us – the result is that the
divestiture has taken place prior to us making our decision. We are therefore
satisfied that the potential overlap has been eliminated and therefore need not be
evaluated.
Public interest
[14] There are no significant public interest issues at stake.
Conclusion
[15] Given the information submitted before us, including the confirmation by the
merging parties that Brait had divested fully divested its interest in Bevpack, we are
merging parties that Brait had divested fully divested its interest in Bevpack, we are
satisfied that the proposed merger is unlikely to substantially prevent or lessen
competition in the affected market/s.
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7 See pages 4-6 of the transcript.
8 Note that the problem for the merging parties was that they had persuaded the
Commission not to investigate whether the overlap was problematic as they were in a
great hurry to complete the merger because of its enormous funding implications. The
Commission was entitled to insist if it was being asked to not to pursue this enquiry that
the merging parties either dispose of the interest prior to our approval or that our
approval was subject to this condition.
9 See page 6 of the transcript.
10 We are advised that the sale is for the full 37% interest that Brait had in Bevpack.
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N Manoim
Concurring: D Lewis and Y Carrim
Tribunal Researcher: T Masithulela
For Brait: M Phillips (Read Hope Phillips Inc.)
For Consol: E van Biljon (Tabacks Inc.)
For the Commission: M Dasarath and L Blignaut (Mergers & Acquisitions)
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