COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 36/LM/Apr07
In the matter between:
Premfood Joint Venture Acquiring Firm
And
Premier Fishing (Pty) Ltd and Foodcorp (Pty) Ltd Target Firm
Panel : N Manoim (Presiding Member), M Mokuena (Tribunal Member)
and L Reyburn (Tribunal Member)
Heard on : 11 July 2007
Order Issued : 11 July 2007
Reasons Issued: 7 November 2007
NonConfidential Reasons for Decision
Approval
1] On 11 July 2007, the Tribunal unconditionally approved the merger between
the Premfood Joint Venture andPremier Fishing (Pty) Ltd and Foodcorp (Pty)
Ltd. The reasons for approving the transaction follow.
The parties
2] The primary acquiring firm is an unincorporated joint venture to be known as
the Premfood Joint Venture (“Premfood joint venture”) between Foodcorp (Pty)
Ltd (“Foodcorp”) and Premier Fishing SA (SA) (Pty) Ltd (“Premier”). The
Premfood joint venture will be controlled by Foodcorp and Premier.
3] Foodcorp is controlled as to 65% by Pamodzi Investment Holdings (Pty) Ltd
(“PIH”). Other shareholders of Foodcorp are Employee Share Trust (with a 20%
shareholding) and management (with a 15% shareholding). PIH is controlled by
PIH II (Pty) Ltd (“PHI II”). The major shareholders of PIH are RMB Ventures
Two (Pty) Ltd (“RMB Ventures”) (with a 40% shareholding), and Executives 1
(with a 20% shareholding). RMB Ventures is ultimately controlled by First Rand
Limited.2 PIH’s investments in various sectors are not relevant for the purposes
of these reasons save for its interest in Foodcorp which will be discussed
below.3
4] Foodcorp has more than ten subsidiaries. 4 Foodcorp operates through four
divisions namely Nola, Mageu Number One, Marine Products, and Milling and
baking. The Marine Products division is the one implicated by this transaction.
Foodcorp’s Marine Products Division operates predominantly within the
pilchards, anchovy, hake and lobster sector of the fishing industry.
5] Premier is controlled by Sekfish Investment (Pty) Ltd which is ultimately
controlled by Sekunjalo Investment Limited (“Sekunjalo”). Sekunjalo directly
and indirectly controls more than thirty subsidiaries. 5 Premier has more than
nine subsidiaries. 6 Premier specialises in the harvesting, processing and
marketing of fish and fish related products. Of relevance to this merger is that
Premier holds fishing rights for lobster, Pelagic Fish (Anchovy and Pilchards),
hake deep sea trawl and hake long line, squid and swordfish
6] The primary target firm will acquire two factories; the Laaiplek factory owned
by Foodcorp andthe Saldanha factory owned by Premier.
Background to the transaction
7] In this joint venture each party is contributing a plant that produces canned
pelagic fish, typically, pilchards, for human consumption and fishmeal, typically
from anchovies, for animal consumption. 7 Both firms run integrated operations
1 The executives are Ndaba Allan Ntsele, Sifiso Aubrey Msibi and Jacobus Du Plooy.
2 The First Rand Group is involved in retail banking, investment banking, corporate banking,
2 The First Rand Group is involved in retail banking, investment banking, corporate banking,
private banking, life insurance, health insurance, asset management, employee benefits and
shortterm insurance services. Besides Foodcorp, the First Rand Group does not have any
existing interests in the fishing industry.
3 See Commission’s recommendations on page 6 for a list of PIH’s investments.
4 See record page 39 for a complete list of Foodcorp’s subsidiaries.
5 See www.sekunjalo.com.
6 See record pages 4041 for a list of Premier’s subsidiaries
7 Pelagic fish is a generic term used to describe fish which swim in shoals. These include
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in which the fish in question are caught, brought in by boat to the respective
factories, processed as either canned fish or fishmeal, and distributed.
8] The procurement of fish is regulated by the Department of Environmental
Affairs and Tourism in terms of the Marine Living Resource Act 18 of 1998. In
terms of this legislation parties have to apply for fishing rights and are allocated
a fixed quota in terms of the licence. This means that procurement is not
subject to market forces, but to government regulation as to entry and supply.
Once the fish has been caught it is then processed either as canned fish or fish
meal. Not all firms that have fishing licences process fish. Instead once they
have a catch they contract to sell it to a firm with a plant. Both the joint venture
partners process other firms’ fish as well as their own. Thus the downstream
processing industry is more concentrated than the upstream fishing industry.
9] Premier recently ceased its canning operation at Saldanha because it is no
longer compliant with SABS standards. It would require an investment of R20
million for it to upgrade its plant to make it compliant. It seems Premier are
reluctant to make such an investment in the current climate, where regulations
are reducing the size of allowable catch due to environmental concerns.
10] However, the Saldanha plant whilst deficient in canning operations, is superior
to the Laaiplek operation of Foodcorp in respect of the processing of fishmeal.
Two processes exist for making fishmeal, namely the steam drying method and
the use of a direct flame from a burner. The former process, which Saldanha
has in its plant, is considered by both merging parties as superior.
11] Laaiplek has an efficient canning plant that meets not only SABS standards but
HACCP8 and European Union standards as well.
anchovies, pilchards, mackerel, horse mackerel, and redeye or round herring, among others.
anchovies, pilchards, mackerel, horse mackerel, and redeye or round herring, among others.
In South Africa, pelagic fish primarily refers to pilchards and anchovies.
8HACCP stands for Hazard Analysis and Critical Control Point. HACCP was introduced in
1998 by the U.S. Department of Agriculture to ensure certain standards of food safety are
reached in the meat and poultry processing plants. Currently the Department of Agriculture is
developing safety standards throughout other areas of the food industry, including both
domestic and imported food products (See http://www.cfsan.fda.gov/~lrd/bghaccp.html).
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12] Hence the rationale for the joint venture. Each plant will be used to specialise in
what it is best suited to produce, and with greater volumes, hence some
production efficiencies will be derived, whilst modest in respect of canned
pelagic fish are more significant in pelagic fishmeal production. 9
Relevant Market
13] The parties defined the relevant product market as the market for pelagic fish
products which can be further subdivided into canned pilchards and fishmeal. 10
While the Commission agreed with the merging parties’ market definition, it
submitted that there is an upstream market for the catching of pelagic fish. For
our purposes in this case since this is a narrow market definition it will suffice to
define the relevant product market as the market for harvesting, processing and
marketing of pelagic fish products, being canned fish and fishmeal.
14] Both the Commission and the merging parties argued for a national geographic
market. This seems uncontroversial on the facts before us.
Competition analysis
Harvesting of Pelagic Fish
15] Table 1 shows the limit of what the merging parties can catch for themselves
compared to other industry players. These quotas are in the form of fixed
percentages.
Table 1 Average market shares for parties and their competitors for the period
between 2005 to 2007 for pelagic fish based on total allowable catch (TAC)
Firm 2005 (Quotas) 2006 (Quotas) 2007 (Quotas) Three year
average share
(%)
Foodcorp 20 509 10 109 8 028 5
9 See record page 226... [Confidential].
10 See also transcript on page 9 where the parties argued that the most appropriate definition
is the market for canned pilchards. In relation to canned fish, the parties submitted that they
had analysed the transaction on the basis of a narrow market of canned fish instead of the
broader market for proteins. The parties confirmed that when pricing their product they take
broader market for proteins. The parties confirmed that when pricing their product they take
into consideration the costs of production and the pricing of substitutes like soya and chicken.
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Premier 30 159 15 091 11 984 8
Oceana 63 119 29 187 23 178 15
Saldanha 20 974 8 620 6 848 5
Gansbaai 17 610 8 665 6881 5
Pioneer 29 515 14 462 11 485 7
Other 200 339 117 866 93 559 55
Total 382 225 204 000 162 000 100
Source: merging parties
16] The merged entity will have total market share of 13% in terms of the Total
Allowable Catch. The merger is unlikely to substantially prevent or lessen
competition in the market for harvesting pelagic fish as there are other
competitors in the market. These include Oceana (with a market share of 15%),
Saldanha (with a market share of 5%), and Gansbaai (with a market share of
5%).
Production of canned Pelagic Fish (Pilchards)
Table 2 Market shares for the production of canned Pelagic Fish in South Africa
for 2006 based on estimated turnover 11
Firm Market Share (%)
Oceana12 75
Foodcorp13 17
Premier 0.5
Saldanha 5
House brands 2.5
Total 100
Source: merging parties
17] The post merger market share of the merging parties is approximately 17.5%.
The market share accretion resulting from this transaction is 0.5% as Premier
did not have a significant presence in the market for canned pelagic fish before
its canning facility was closed. 14
Production of fishmeal
11 See transcript page 7.
12 Oceana’s Lucky Star brand is a market leader in the market for canned Pelagic Fish (being
Pilchards).
13 Foodcorp’s leading brand is Glenryck.
14 See transcript pages 11 and 14.
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Table 3 Market shares for the production of fishmeal in South Africa for 2006
based on estimated turnover
Firm Market share (%)
Oceana 35
Foodcorp 10
Premier 10
Saldanha 15
Pioneer 20
Gansbaal 10
Total 100
Source: merging parties
18] The post merger market share of the merged entity will be approximately 20%.
The proposed transaction makes the merged entity one of the three largest
suppliers of fishmeal. Post merger, there will still be four other competitors in
the market Oceana, Pioneer, West Point and Gansbaai. In addition, at the
hearing, the parties submitted that fishmeal imports exert a certain degree of
constraint on local pricing, as fishmeal imports account for approximately 17%
of the total fishmeal available in South Africa. 15
Public Interest
19] There are no public interest issues.
Conclusion
20] The merger does not lead to a substantial prevention or lessening of
competition. There are no public interest issues. Accordingly, the merger is
approved unconditionally.
________________ 7 November 2007
N Manoim DATE
Tribunal Member
M Mokuena and L Reyburn concur in the judgment of N Manoim
15 See transcript page 4.
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Tribunal Researcher : R
Kariga
For the merging parties: N Browne, Cliffe Dekker Attorneys
For the Commission : M Ngobese and S Nunkoo, (Mergers and Acquisitions)
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