COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 88/LM/Aug07
In the matter between:
Formex Industries (Pty) Ltd Acquiring Firm
And
Autotube Manufacturing (Pty) Ltd Target Firm
Panel : U Bhoola (Presiding Member), Y Carrim (Tribunal Member)
and M Holden (Tribunal Member),
Heard on : 17 October 2007
Order Issued : 17 October 2007
Reasons Issued: 24 October 2007
Reasons for Decision
Approval
1] On 17 October 2007, the Tribunal unconditionally approved the merger
between Formex Industries (Pty) Ltd and Autotube Manufacturing (Pty) Ltd.
The reasons for approving the transaction follow.
The parties
2] The primary acquiring firm is Formex Industries (Pty) Ltd (“Formex”), a
company incorporated in terms of the company laws of the Republic of South
Africa. Formex is 90% controlled by Hosken Consolidated Investments Limited
(“HCI”). The remaining 10% of the issued shares in Formex is held by the
Johan Swart Family Trust.
3] Formex controls Formex Pressings (Pty) Ltd and Baisch Engineering (Pty) Ltd.
These companies are dormant at the moment.
4] HCI controls more than fifteen firms. 1
5] The primary target firm is Autotube Manufacturing (Pty) Ltd (“Autotube”). The
shareholders of Autotube are Kevin Andrew van der Westhuizen (“Kevin”) and
Peter Hendrik van der Merwe (“Peter”) who respectively hold 75% and 25% of
the issued share capital of Autotube. 2 Kevin and Peter jointly control Tubeworx
(Pty) Ltd. Autotube controls Philmec (Pty) Ltd.
Description of the transaction
6] Formex intends to acquire 100% of the issued share capital of Autotube.
Pursuant to this transaction, Autotube will be a wholly owned subsidiary of
Formex.
Rationale for the transaction
7] The primary acquiring firm views the merger as strengthening the competitive
position of both companies in the export market by giving them greater access
to export markets.
8] Autotube, the primary target firm, states that Formex is a well established
company that will enable the merged entity to grow further.
The parties’ activities
Primary acquiring firm
9] Formex is involved in the manufacture and distribution of the following
automotive components:
[9.1] Catalytic converter pressings : a catalytic converter is a device, placed in the
1 The companies controlled by HCI include Vukani Gaming Corporation, Golden Arrow Bus
Service, Mettle, HJS Advisory Services, Tylon, Tsogo Sun Group, Johnnic Holdings, E.tv, Y
FM, Three Blind Mice Communications, Johnson Crane Hire, Formex Engineering, Johnson
Access, Syntell and Limtech. HCI also has shares in Clover, Noah Financial Innovation,
Isilumko Saffing and Business Systems Group (Africa).
2 Record page 28.
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exhaust pipe, which converts various emissions into less harmful ones using,
generally, a combination of platinum, palladium and rhodium as catalysts.
Catalytic converter pressings consist out of metal pressings that join the
exhaust pipes and the catalytic converter.
[9.2] Other automotive pressings : these include subassembly and line of fuel tanks.
[9.3] Pulleys: a pulley is a component that is characterised by two or more pulleys
common to a belt. This allows for mechanical power, torque and speed to be
transmitted across axes. If the pulleys are of differing diameters, a mechanical
advantage will be realised. Included in a range of pulleys are crankshafts,
powersteering, water pump and numerous components for crankshaft anti
vibration dampers.
[9.4] Door locks : this division produces mechanical and electrical locking systems for
the automotive industry.
Primary target firm
10] Autotube is involved in the manufacture of the following exhaust systems and
components for the automotive industry:
[10.1] Manipulated automotive exhaust tubing and assemblies: these are stainless
steel pipes that are used for the exhaust of motor vehicles.
[10.2] Muffler boxes : these are stainless steel silencer/exhaust boxes used to reduce
engine noise.
[10.3] Catalytic converter components : these are stainless steel housing with coated
ceramic component, being part of a motor vehicle exhaust in order to reduce
bad engine fumes. Autotube’s catalytic converter components are metal rolled
tubes which are shells that cover the catalytic converters.
Competition analysis
11] The merging parties submitted that there is no horizontal overlap in their
activities as they manufacture different products. In their view, the
manufacturing and distribution of catalytic converter pressings and the
manufacturing and distribution of catalytic converter pressings and the
manufacture and distribution of catalytic converter metal rolled tubes were not
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in the same relevant product market. Catalytic converter pressings are metal
pressings that join exhaust pipes and the catalytic converter while metal rolled
tubes are the shells that cover the catalytic converters. Catalytic converters
consist out of metal pressings (cones manufactured by Formex), metal rolled
tubes (manufactured by Autotube), and monolith (brick) inside. 3 The cones
and the tubes basically form the outside of the catalytic converter. At the
hearing, the parties explained that the products they produce do not compete in
the same market because they differ in functionality. In addition, the technical
skills and expertise required to make them differ to a very large degree. They
also confirmed that it would be difficult for a manufacturer to switch from
making catalytic converter pressings to making catalytic converter tubes, or
vice versa, because such switching would require huge capital investments,
specialised technical skills and marketing and distribution strategies which
would require some time to establish. In light of the above, we conclude that
there is no overlap in the activities of the parties.
12] The proposed transaction does not result in any vertical integration.
Public Interest
13] There are no public interest issues.
Conclusion
14] The merger is unlikely to substantially prevent or lessen competition. There are
no public interest issues. Accordingly, the merger is approved unconditionally.
________________ 24 October 2007
Y Carrim DATE
Tribunal Member
U Bhoola and M Holden concur in the judgment of Y Carrim
Tribunal Researcher : R Kariga
3 Record page 334.
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For the merging parties: E Britz, Formex Industries (Pty) Ltd
For the Commission : I Selaledi (Mergers and
Acquisitions)
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