COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 66/LM/Jun07
In the matter between:
Element Six Abrasives S.A. Acquiring Firm
And
Barat Carbide Holding Gmbh Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member) and Y Carrim (Tribunal Member)
Heard on : 26 September 2007
Order Issued : 26 September 2007
Reasons Issued: 24 October 2007
Reasons for Decision
APPROVAL
1] On 26 September 2007, the Tribunal unconditionally approved the merger
between Element Six Abrasives S.A. and Barat Carbide Holding Gmbh. The
reasons for approving the transaction follow.
THE PARTIES
2] The primary acquiring firm is Element Six Abrasives S.A. (“Element Six”), a
company incorporated under the laws of GrandDuchy of Luxembourg. Element
Six has in excess of twenty subsidiaries worldwide. In South Africa Element Six
controls Element Six (Production) (Pty) Ltd (“Element Six Production”), and
Element Six (Pty) Ltd (“Element 6”).
3] Element Six is jointly controlled by Element Six SA (“Element Six SA”) and
Umicore Abrasives S.A. (“Umicore”). Element Six SA is controlled by De Beers
Investments (Lux), a company incorporated under the laws of the GrandDuchy
of Luxembourg (“De Beers”). The issued shares in De Beers are held by the
Anglo American Group (with a 45% shareholding), the Central Holdings Group
(with a 40% shareholding), and the Government of Botswana (with a 15%
shareholding).
4] Umicore is controlled by Umicore Finance Luxembourg S.A. (“Umicore
Finance”), which is in turn, controlled by a subsidiary of Umicore Belgium
(“Umicore Belgium”), a company incorporated under the laws of Belgium.
5] The primary target firm is Barat Carbide Holding GmbH (“Barat Holdings”), a
German limited liability company. Barat Holdings is controlled by Equita GmbH
& Co Fonds 3 KaA (“Equita”). Barat Holdings controls three firms namely Barat
Carbide GmbH, Barat Hard Alloy (Wuxi) Co Limited and Barat Carbide (Pty) Ltd
(“Barat SA”). 1
DESCRIPTION OF THE TRANSACTION
6] This is an international transaction in terms of which Element Six intends to
acquire the entire issued share capital of Barat Holdings from Equita and
minority shareholders. 2
RATIONALE FOR THE TRANSACTION
7] The primary acquiring firm perceives this transaction as an opportunity to
expand beyond its diamondbased products range into the broader “hard
material” market.
8] From the primary target firm’s perspective, the merger allows Equita, which is a
private equity company, to realise its return on investment and exit from the
1 The impact of the proposed transaction in South Africa arises in relation to the acquisition of
control by Element Six over Barat Holdings’ local subsidiary, Barat Carbide (Pty) Ltd
control by Element Six over Barat Holdings’ local subsidiary, Barat Carbide (Pty) Ltd
2 73.35% of the issued shares in Barat Holdings will to be acquired from Equita and
the remaining 26.65% of the issued shares in Barat Holdings will be acquired from
minority shareholders.
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market.
THE PARTIES’ ACTIVITIES
Primary acquiring firm
9] Element Six is a global manufacturer and supplier of high quality
superabrasives and industrial diamond materials including synthetic and natural
diamond and the complementary superabrasives cubic carbon nitride. Diamond
and cubic carbon nitride products are mainly used in the manufacture of tools
for applications including drilling, sawing, cutting, grinding and polishing of
different materials such as ferrous and nonferrous metals, natural stone and
concrete, wood based materials, plastics, glass and ceramics.
10] In South Africa, Element Six is involved in the manufacturing of superabrasives
and industrial diamond materials including carbide tooling, ceramic
components, metal components, carbide substrate, synthesis products and
acid recovery of diamond products.
Primary target firm
11] Barat Holdings is a global manufacturer and distributor of carbide. It
manufactures hard metal products ranging from powder processing to complete
tools. The tools are used in instances where wear is problematic and common
materials such as steel area of limited application.
12] Barat Holdings also produces soft rock tools, which are components of tooling
systems for the extraction and removal of minerals, asphalt and concrete.
These tools can also be used in the construction (foundation/pile drilling),
mining and tunnelling industries, crushing and of wood, compost and soil
preparation, as well as trenching and soil stabilisation.
13] Barat SA 3 manufactures and supplies tungsten carbide powders, tools for the
mining industry as well as wear parts for the steel processes and industrial
wear parts applications. It supplies soft rock tools to the coal mining industry,
wear parts are sold to various industries and tungsten carbide inserts are
supplied to original equipment manufacturers (“OEMs”). Carbide powders are
3 Barat SA is located in Springs, Johannesburg. See record page 96.
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not sold to third parties, but are largely consumed inhouse.
THE RELEVANT MARKET
Relevant product market
14] The merging firms are both active in the market for manufacturing of hard
materials. The acquiring firm is involved in the manufacturing of superabrasive
products and the target firm manufactures carbide products. The merging firms
submitted that there is no overlap in their activities and that 4 the differences
between the hard materials manufactured by them supported a narrow market
definition. They defined two separate product markets namely the market for
carbide products and the market for superabrasive products on the basis that
there were significant differences between the properties of the products and
their use as well as significant difference in their prices. 5 The Commission, on
the other hand, defined the relevant product market as the broad market for
hard material products. While the Commission agrees with the merging parties
that there is no overlap in the activities of the parties in the narrow market, as
defined by them, it still contends that the market should be defined as the
market for hard material products since there is substitution between carbide
products and superabasives in certain industries. 6 In our view, it is not
necessary to make a finding on the most appropriate definition of the relevant
product market since the global market shares of the merged entity remain low
irrespective of whether the market is defined narrowly or broadly.
15] The Commission identified three vertical markets that are affected by this
transaction and these are:
[15.1] The market for the manufacturing of substrate tungsten carbide disks where
Barat Holdings is active. Element Six purchases substrate tungsten carbide
disks from Barat Holdings which serve as backing disks to its polycrystalline
diamond products range;
diamond products range;
[15.2] The market for the manufacturing of carbide powders where Barat Holdings is
active. Element Six utilises carbide powders in its manufacturing process and
4 See record page 97.
5 See record page 97101.
6 See Commission’s Recommendations pages 67.
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Barat Holdings is involved in the manufacturing of carbide powders; and
[15.3] The market for mining and tunnelling tools where Barat Holdings is active. De
Beers, the controlling firm of the primary acquiring firm and Anglo American
Group are involved in mining and Barat manufacture mining and tunnelling tools
and it is anticipated that Barat Holdings will be sourcing polycrystalline diamond
(“PCD”) inserts from Element Six
Relevant geographic market
16] The relevant geographic market for both the horizontal and vertical product
markets is international. This is because the merging parties compete with
global players and their customers are located throughout the world. In addition
there are no tariffs or import duties on carbide products and superabrasives are
low bulk high volume products which can be transported easily around the
world via airfreight. 7
COMPETITION ANALYSIS
Horizontal analysis
17] The combined global market shares of the merging parties in the broader
market for the manufacturing of hard material products is estimated to be about
6%. They face competition from global players such as Diamond Innovations,
Megadiamond, ABC Superabrasives and Xertech. The Commission conceded
that in the narrowly defined market there is no overlap in the activities of the
merging parties and, as a result, there are no competition concerns. 8
Vertical analysis
Substrate tungsten
18] The South African plant of Barat Holdings does not manufacture substrate
tungsten carbide disks and the Barat group of companies does not sell
substrate tungsten carbide disks to any other South African company. Element
Six sources its substrate tungsten carbide disks from Barat Carbide Germany.
7 The competitors of the merging firms also confirmed that they are global players and that the
supplies of hard material products compete worldwide.
supplies of hard material products compete worldwide.
8 See Commission’s Recommendations page 9.
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19] Barat Holdings has less than 1% global market share for the market for the
manufacturing of tungsten carbide wear parts. All of Barat Holdings’ tungsten
carbide wear parts are used by Element Six. Barat Holdings supplies only
12.5% of Element Six’s tungsten carbide wear parts requirements. From this, it
is evident that no input foreclosure concerns arise as there are alternative
global suppliers of carbide disks and these include Sandvik (with a 25% market
share), Ceratizit (with a 20% market share), Kennametal (with a market share
of 15%), and Zhou Zhou (with a 5% market share), among others. No customer
foreclosure concerns arise as there are alternative customers of substrate
tungsten carbide disks such as Boart Longyear, Sasol Synfuels and Corus.
Carbide Powders
20] With regards to carbide powders, the merging parties’ state that approximately
82% of carbide powders manufactured by Barat Holdings are consumed
internally and only 18% is sold to external parties. Of the sales to external
parties, approximately 82% is sold to Element Six.
21] No input foreclosure concerns arise in this market as a result of this
transaction since there are alternative global manufacturers of carbide powders
such as Sandvick. Allegheny, Zhou Zhou, Kennametal, Starck, Metaltech and
Tribaccher. Likewise, no customer foreclosure arises as there are alternative
customers of carbide powders such as Atlas Copco, PMP and Boart Longyear.
In addition, Element Six’s total requirements for carbide powders constitute
approximately 1% of the total supply of carbide powders. As a result, more than
90% of carbide powders are available in the market for other customers.
PCD cutting inserts
22] Barat Holdings does not source any of its PCD cutting inserts from Element Six.
Barat Holdings’ requirements of PCD cutting inserts constitutes less than 1% of
Barat Holdings’ requirements of PCD cutting inserts constitutes less than 1% of
the total PCD cutting inserts available in the market. Element Six has a global
market share of 49% in the market for the manufacturing of PCD cutting
inserts. Element Six is not in a position to refuse to supply PCD cutting inserts
to other customers as Barat Holdings can only consume 1% of its output. There
are many customers in the market and these include LTL Abrasives, W
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Diamant, Durasynthetic, Ehlers Tooling, Atlas, Copco, JDA Diamond, Huddy,
Boart Longyear.
23] In addition there are alternative suppliers of PCD such as Diamond Innovation
(with 22% market share), Lljin (with 9% market share) Sumitomo (with 5%
market share) and Megadiamond (with 4% market share). The proposed
transaction does not raise customer or input foreclosure concerns in the market
for PCD cutting inserts.
Mining and Tunneling tools
24] Barat Holdings has a market share of approximately 16% in the national market
for the manufacturing of mining and tunnelling tools. Barat Holdings’ global
market share is estimated to be less than 1%. No input foreclosure concerns
arise from this transaction as there are alternative suppliers of mining and
tunnelling tools such as Kennametal SA with 40% market share, Seco Rock
with 19% market share, and Sandvik with 9% market share. No customer
foreclosure concerns arise as there are alternative customers for mining and
tunnelling tools such as Sasol Mines, EXXARO, and BHP Billiton. 9
PUBLIC INTEREST
25] There are no public interest issues.
CONCLUSION
26] The transaction is unlikely to result in the substantial lessening of competition in
the relevant markets. There are no public interest issues. Accordingly, the
transaction is approved unconditionally.
________________ 24 October 2007
Y Carrim DATE
Tribunal Member
9 Anglo Coal currently purchases approximately 20% of its total mining and tunnelling tool
requirements and 6% of Barat Holdings’ total production of mining and tunnelling tools in
South Africa.
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D Lewis and N Manoim concur in the judgment of Y Carrim
Tribunal Researcher : R Kariga
For the merging parties: Webber Wentzel Bowens Attorneys
For the Commission : E Ramohlola (Mergers and
Acquisitions)
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