COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 85/LM/Aug07
In the matter between:
PROTEA CHEMICALS
(A DIVISION OF THE OMNIA GROUP (PTY) LTD) Acquiring Firm
and
ZETACHEM (PTY) LTD Target Firm
Panel : Y Carrim (Presiding Member); U Bhoola
(Tribunal Member); and L Reyburn (Tribunal Member).
Heard on : 28 November 2007
Decided on : 28 November 2007
Reasons Issued on : 17 January 2008.
REASONS FOR DICISION
INTRODUCTION
[1] On 28 November 2007, the Tribunal unconditionally approved the merger between
Protea Chemicals ( “Protea Chemicals” ) and Zetachem (Pty) Ltd ( “Zetachem”).
THE TRANSACTION
[2] The primary acquiring firm is Protea Chemicals. Protea Chemicals is an operating
division of Omnia Group (Pty) Ltd ( “Omnia Group” ). Omnia Group is jointly controlled
by Omnia Group Investment Ltd ( “Omnia Investment” ) and its empowerment partner,
Sakhile (Pty) Ltd ( “Sakhile”). Omnia Investment is wholly owned by Omnia Holdings
Ltd ( “Omnia Holdings” ). Omnia Holdings is not directly or indirectly controlled by any
firm.
[3] The primary target firm is Zetachem. Zetachem is not controlled by any firm. It is
controlled by its shareholders: Ferdinand Richard Bekink (50%); KMG Trust (23.75%);
CEEJ Coucourakis Family Trust (23.75%) and Kenneth Bruce Lamont Thompson
(2.5%). Zetachem controls one company, Liquid chemicals (Pty) Ltd, which transport
Sodium hypochlorite to Zetachem customers.
[4] In terms of the Sale of Shares Agreement concluded between the merging parties,
Omnia Group, through Protea Chemicals, is acquiring 100% of Zetachem’s issued
share capital a well as all claims on loan account against Zetachem, from its
shareholders. The transaction will result in Protea Chemicals being in sole control of
Zetachem.
RATIONALE FOR THE TRANSACTION
[5] The Omnia Group seeks to acquire Zetachem as part of its strategy to grow its
business. The founding directors and shareholders of Zetachem wish to realise their
investment.
THE PARTIES’ ACTIVITIES
[6] The Omnia Group specialises in chemical services, providing customised solutions
in the chemical, mining and agricultural markets. In South Africa the Omnia Group has
several operating divisions, 1 including Protea Chemicals.
[7] Protea Chemicals is a chemical and polymer distributor in Africa and has a strong
presence in subSaharan countries. It trades across a wide range of industries such as
1 These includes Fertilizer, which produces dry, liquid and specialty fertilizers as well as
feedstock for the explosives industry at various plants and Bulk Mining Explosives,
manufactures and markets electronic detonators, bulk packaged and cartridge explosives at
various plants including, Rustenburg, North West and Delmas, Mpumalanga.
2
agricultural, animal feed, mining, personal care and cosmetics, food and beverages,
water care, petroleum, textile and surface coating, paper and packaging sectors.
[8] It boasts several operating divisions, 2 including: Protea Chemicals Western Cape;
Protea Chemicals Eastern Cape; Protea Chemicals KwazuluNatal; and Protea
Chemicals Inland. Protea Chemicals also operates sodium hypochlorite plants in the
Eastern and Western Cape.
[9] Zetachem supplies polymer and chemicals management systems to companies in
the water treatment industry. The largest producer of organic coagulants in Africa,
Zetachem’s products includes chemicals used as liquid solid separation and charge
modification, a sterilant and bleach, defoamers, surfactants and an herbicide. It has
two plants in Durban producing organic coagulants. It also has a sodium hypochlorite
plant in Durban. Zetachem’s sodium hypochlorite sales account for 9.4% of its annual
turnover. Zetachem essentially serves four main industries: the water and waste
industry;3 the pulp and paper industry; 4 the timber and agricultural industry; and the
mining industry. 5
THE RELEVANT MARKET
[10] Although both Zetachem and Protea Chemicals are involved in the polymer
market, the Commission noted that the products made by them are not interchangeable
in that the polymers supplied by Protea Chemicals are used in the plastic and rubber
industries while the polymers sold by Zetachem are used as flocculants in the water
treatment industry. Hence there is no overlap in the activities of the parties in the
polymer market.
2 Its divisions include Protea Chemicals inland; Protea Mining Chemicals; Protea Specialty
Chemicals; Protea Animal Feed; Protea Bulk Resources; Africa Polymers and Protea Polymers.
Chemicals; Protea Animal Feed; Protea Bulk Resources; Africa Polymers and Protea Polymers.
3 It supplies an extensive range of synthetic organic and inorganic coagulants and flocculants to
assist in liquid solid separation for the production of safe drinking water. It also supplies
polyamines, polydadmacs and polyacrylamides which make up 655 of its business and
chemicals to the sewerage treatment industry.
4 It supplies chemicals such as coagulants; flocculants and defoamers, among others.
5 In the mining industry Zetachem supplies flocculants used for the liquid solid separation to
customers in the mineral sands segment.
3
Relevant product market
[11] The parties’ activities overlap in the market for the production and supply of
sodium hypochlorite. Protea Chemicals produces sodium hypochlorite in the Western
Cape (Cape Town) and Eastern Cape (Port Elizabeth). Zetachem manufacture sodium
hypochlorite in KZN.
[12] However in KZN, Protea Chemicals KZN operates mainly as a third party reseller
of chemical products obtained from other suppliers. It obtains sodium hypochlorite
from Zetachem and other manufacturers which it then repackages and sells ‘as is’ to its
customers. In addition, Protea Chemicals KZN supplies Zetachem with a number of
other chemical products on an ad hoc basis.
[13] Sodium hypochlorite is a clear pale greenish yellow solution produced by a
carefully controlled reaction of chlorine with caustic soda lye. It is commonly referred to
as “liquid bleach” and is used as a bleaching and disinfectant agent in various
applications. As a disinfectant it can be used to chlorinate water for drinking purposes,
for swimming pools and to control biological growth in cooling water systems. Sodium
hypochlorite would typically be sold to customers in the water treatment, the pulp and
paper, the household bleach or fast moving consumer goods (“ FMCG”) sector and
other industrial applications. In the water treatment segment it is used for drinking
water purification purposes. In the pulp and paper segment it is used to treat water in
the production process and to recycle water for further use. In the FMCG sector it is
diluted and added with certain additives before being sold to the general public through
supermarkets.
[14] The parties submitted that the production methodology of most sodium
hypochlorite producers differs from one producer to another, with the result that some
hypochlorite producers differs from one producer to another, with the result that some
manufacturers produce low quality while others produce high quality products.
According to them, Zetachem produces high quality sodium hypochlorite while Protea
Chemicals produces a low quality product. Furthermore, they submitted that
Zetachem’s business philosophy is to supply sodium hypochlorite only in bulk while
Protea Chemicals supplies its customers, usually with no bulk storages, in smaller
4
quantities.
[15] Low quality sodium hypochlorite is generally considered volatile and unstable,
making it difficult and risky to transport over long distances. High quality sodium
hypochlorite, on the other hand, is considered stable and can be transported over long
distances. For this reason, the merging parties argued that Protea Chemical’s supply
is restricted to customers within 200km of its plants in Western Cape and Eastern Cape
while Zetachem is able to supply from Durban to Gauteng. Relying on the above, the
parties further submitted that they are not competitors as such.
[16] Table 1 below shows the major producers of sodium hypochlorite in South Africa.
Table 1: Major producers of sodium hypochlorite in South Africa.
Manufactur
er
Province Annual production
Capacity
(Tonnes)
Mondi KwazuluNatal 28 291
NCP Gauteng 24 400
Zetachem KwazuluNatal 12 000
Protea Chemical
(Cape)
Western and Eastern Cape 5 000
Sasol polymers Free State 2 121
[17] The Commission’s investigation revealed that from a demand side perspective
the strength of sodium hypochlorite is measured by the percentage of its chlorine
content, which varies from manufacturer to manufacturer. 6 Customers purchasing
sodium hypochlorite in the paper and pulp industry are less stringent in their quality
requirements and purchase from all producers. In the water treatment industry
customers view all producers, except Mondi, as satisfactory sodium hypochlorite
suppliers. Mondi’s product is considered to have low chlorine content. Further, with
the exception of Mondi and Sasol products, which are considered to have low chlorine
content, customers in the FMCG sector, consider all other producers as satisfactory
6 For example the chlorine content of sodium hypochlorite produced by the major producers is
6 For example the chlorine content of sodium hypochlorite produced by the major producers is
as follows: Mondi produces sodium hypochlorite with 10% 12% chlorine content; Sasol 12%;
Protea Chemicals 12.5%; Zetachem 8% 12% in the water treatment industry and 15% 18% in
the paper and pulp and household bleach industries.
5
sodium hypochlorite suppliers.
[18] Given the above, the Commission defined the relevant market as that for sodium
hypochlorite, regardless of the method of production used by manufacturers. Having
regard to differing quality demands from users of sodium hypochlorite, the Commission
defined the market on the basis of various customer segments.
[19] In the pulp and paper industry, the Commission defined the market as
encompassing all sodium hypochlorite producers identified in Table 1 above; in the
water treatment industry the Commission defined the market as encompassing all
sodium hypochlorite producers, except Mondi; and in the FMCG industry the
Commission defined the market as encompassing only products manufactured by
Protea chemicals; Zetachem and NCP, to the exclusion of Mondi and Sasol.
Relevant geographic market
[20] The Commission’s investigations revealed that all market players viewed low
quality sodium hypochlorite as volatile and very difficult to transport over long
distances. As discussed above, the merging parties had submitted that there is no
geographic overlap in their activities, since Protea Chemicals could not supply to
locations beyond 200km from its plants.
[21] Zetachem whose production methodology results in high quality and durable
products has been able to supply product to its main customer in Gauteng. Zetachem
has also exported its product to customers in Zimbabwe and Mauritius. However,
except for its one Gauteng customer, all of Zetachem’s South African customers
remain largely in KZN.
[22] Based on the above, the Commission defined the geographic market as regional
with KwazuluNatal and Gauteng constituting one region and the Cape constituting the
other region.
other region.
[23] Accordingly, the relevant market structure, from the perspective of sodium
6
hypochlorite supplied to the pulp and paper; water treatment; and FMCG industries, is
as follows:
Customer
segment
Region: KZN/Gauteng Region: Cape
pulp and paper producers: NCP,
Zetachem, Mondi and
Sasol
Producer: Protea
Chemicals
water treatment producers: NCP,
Zetachem, and Sasol
Producer: Protea
Chemicals
Household
Bleach/FMCG
producers: NCP and,
Zetachem..
Producer: Protea
Chemicals
COMPETITION ANALYSIS
Horizontal dimension
[24] As noted above, while the parties’ activities overlap in the market for the
production and supply of sodium hypochlorite, there is no geographic overlap in their
activities. Protea Chemicals is able to distribute its low quality product only within
200km of its plants in the Western Cape (Cape Town) and Eastern Cape (Port
Elizabeth). Zetachem on the other hand supplies only into the KZN and Gauteng. Put
differently, Zetachem doers not have customers in the Cape.
[25] The Commission submitted that despite evidence of Zetachem’s potential to
extend its sodium hypochlorite supply to other regions, including the Cape, there
remains strong evidence that the parties operate in different geographic markets. There
is clearly no overlap in the customer base of the parties, as Zetachem does not have a
single customer in the Cape. As the merging parties pointed out, this is largely due to
the fact that while Protea Chemicals’ customers procure sodium hypochlorite in small
quantities on a just in time basis and have no storage facilities. Zetachems’ business
philosophy is to supply its products only in bulk. As a result Zetachem does not
exercise a competitive constraint on the market conduct of Protea Chemicals, pre
7
merger.
[26] The Commission also noted that the merger will not cause any practical unilateral
competition concerns in the Cape region, such as pricing behaviour, as Protea
Chemicals is already a monopoly in that market. The merging parties further submitted
that the transaction will not change the market structure in the market for the
manufacturing of first principle sodium hypochlorite as Protea Chemicals will simply
replace Zetachem as a national first principle supplier.
Vertical dimension
[27] Zetachem supplies sodium hypochlorite to Protea Chemicals KZN. The merging
parties submitted that the transaction will not raise any customer foreclosure concerns
as Protea Chemicals KZN does not currently source sodium hypochlorite from any
other producer. Although Protea Chemicals (inland) sources sodium hypochlorite from
NCP, the parties submitted that this is estimated to be [Confidential: 0% 2%] of NCP’s
total production capacity and that the quantity of sodium hypochlorite sourced by
Protea Chemicals (inland) from NCP is therefore not material. Accordingly, the parties
submitted, there is no risk that NCP will be removed as a competitor. The merging
parties further submitted that the transaction will not raise any input foreclosure
concerns as Zetachem does not currently supply sodium hypochlorite to any
competitors of Protea Chemicals.
[28] In addition, Protea Chemicals KZN supplies Zetachem with a number of chemical
products on an ad hoc basis. All the products that Zetachem source from Protea
Chemicals KZN are commodity chemicals that are freely traded in the South African
chemical industry. The merging parties submitted that the transaction will not raise any
customer foreclosure concerns as Zetachem does not currently have any supply
agreement with any of the suppliers of the relevant products and that Zetachem’s total
purchases of these products per annum are insignificant. The merging parties further
submitted that the transaction will not raise any input foreclosure concerns as the
merged entity will not be able to foreclose Zetachem’s competitors from the supply of
these products as there are a number of local and international suppliers from which
8
these products can be sourced.
[29] In our view, the transaction is unlikely to substantially prevent or lessen
competition in the relevant markets.
CONCLUSION
[30] We find that the transaction does not raise any significant public interest issues
and accordingly approve the merger without conditions.
_______________ 17 January 2008
Y Carrim Date
U Bhoola and L Reyburn concurring.
Tribunal Researcher : P S Munyai
For the merging parties : Webber Wentzel Bowens
For the competition commission : H B Senekal, R Hawthorne, K Morris,
and D Motsamai.
(Mergers & Acquisitions)
9