IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CT Case No: 13/LM/Jan08
In the matter between:
SCAW SA (PTY) LTD PRIMARY ACQUIRING FIRM
and
OZZ INDUSTRIES (PTY ) LTD PRIMARY TARGET FIRM
Panel : D Lewis (Presiding Member), Y Carrim (Tribunal Member), and U
Bhoola (Tribunal Member)
Heard on : 30 May 2008
Order issued on : 4 June 2008
ORDER
Further to the recommendation of the Competition Commission in terms of section 14A
(1) (b), the merger between Scaw SA (Pty) Ltd and Ozz Industries (Pty) Ltd is approved
in terms of section 16 (2) (b) on the following conditions:
1. The merged entity undertakes, subject to the provisions of paragraph 2 below, to
continue to produce high chrome or standard grinding cylpebs or eclipsoids
products to meet the requirements of its customers and potential customers for a
period of five years after the merger is approved.
2. The merged entity's obligations, as provided for in paragraph one, are subject to
the following:
2.1 that its ability to produce the requisite volumes of cylpebs and/or eclipsoids is
not negatively affected by factors outside of its control such as vis major or
force majeure , or by reason of any exceptionally inclement weather,
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interruption or shortages of supply of power 1, or by reason of civil commotion,
political riot, strike or lock-out or delay or any other causes beyond its control
or if significant maintenance has to be performed which reduces the capacity
of the East Iron Foundry plant (in which the eclipsoids and cylpebs are
produced) for the period during which maintenance is performed); and/or
2.2 it is not required to produce a particular quantity and/or size of cylpeb or
eclipsoid which would adversely impact its ability to maximise the volume of
cylpebs or eclipsoids which it is able to produce; and/or
2.3 in the event that it is commercially feasible to do so, the merged entity may
produce in excess of the current capacity of the East Iron Plant which is
estimated to be an average rate of 65 tonnes per day2; and/or
2.4 in the event that customer demand for cylpebs and eclipsoids decreases to
the extent that there is not sufficient demand to justify the continued
production of cylpebs and eclipsoids, the merged entity is not obliged to
continue producing cylpebs and eclipsoids. For the purposes of this provision,
insufficient demand means either:
2.4.1 if orders received by the merged entity for cylpebs and eclipsoids from
customers in any six month period result in an average daily production
of eclipsoids and cylpebs combined of below 50 tonnes per day; or
2.4.2 the merged entity provides a certificate from its external auditors to the
effect that levels of production of cylpebs and/or eclipsoids over any six
month period are sub-economic in that they have resulted in a negative
EBIT (revenue less fixed and variable manufacturing costs, less
depreciation, less SGA (Sales General and Administration costs) as
reflected in the merged entity's accounts); and/or
1 If, owing to power shortages, the merging parties are required to reduce power usage, power usage by the East Iron
Foundry (in which the eclipsoids and cylpebs are produced) will be reduced proportionately.2 Operating at Ozz current shift system.
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2.5 in the event that significant capital expenditure is required to maintain the
current capacity of the East Iron Foundry (in which the eclipsoids and cylpebs
are produced) and this would result in a negative NPV (net present value at a
10.5% real discount rate), the merged entity is not required to continue
producing cylpebs and/or eclipsoids.
3. The merged entity furthermore undertakes that the maximum ex works price which
the merged entity will charge current and potential customers from the date on
which the merger is implemented for 11% high chrome or standard (no chrome)
cylpebs of eclipsoids in South Africa during the five year period (referred to in
paragraph one) will be based on a reference (or base) price as set out below which
will be adjusted from time to time according to a price adjustment formula in the
manner described below.
3.1 The reference (or base) price for high chrome cylpebs or eclipsoids will be the
Ozz ex-works price applicable to Impala as at 30 June 2007 and, the
reference price for standard cylpebs or eclipsoids will be the Ozz ex-works
prices applicable to Mogale Gold as at 30 June 2007. For the sake of
clarity, the ex works price applicable to Impala Platinum was R5,450 per
tonne and the ex-works price applicable to Mogale Gold was R4,575 per
tonne. In addition, for the sake of clarity, the reference price will, on
implementation of the merger, be adjusted to take into account any changes in
the cost elements set out in clause 4 between the date of the reference price
and the date on which the merger is implemented and the percentages in
Tables A and B will be adjusted accordingly.
3.2 Subsequent adjustments to the reference price for the purposes of calculating
the maximum price referred to in clause 2, whether quarterly or interim, will be
determined on the basis set out below.
3.3 Quarterly adjustments, which shall be effective on 1 January, 1 April, 1 July
3.3 Quarterly adjustments, which shall be effective on 1 January, 1 April, 1 July
and 1 October of each year shall be based on actual steel scrap price
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adjustments received by Scaw from its steel scrap supplier/s, actual
ferrochrome price adjustments received by Scaw from its ferrochrome
supplier/s, actual ferromanganese price adjustments received by Scaw from
its ferromanganese supplier/s, actual ferrosilicon price adjustments received
by Scaw from its ferrosilicon suppliers/s and published indices for power, for
labour and consumables reflected in Table A and Table B in respect of high
chrome and standard grinding media, respectively.
4. Interim adjustments from time to time on the basis of –
4.1 actual steel scrap price adjustments received by Scaw from its Steel scrap
supplier/s (as regards steel scrap) from time to time; and/or
4.2 actual ferrochrome price adjustments received by Scaw from its ferrochrome
supplier/s from time to time; and/or
4.3 actual ferromanganese price adjustments received by Scaw from its
ferromanganese supplier/s; and/or
4.4 actual ferrosilicon price adjustments received by Scaw from its ferrosilicon
supplier/s; and/or
4.5 the actual increase in the cost of power, labour and/or consumables.
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Table A
Cost
Element
% in the
case of
high
chrome
Relevant
Index or
letter of
supply
Description of adjustment mechanism
Steel Scrap 32.6% Letter of
supply
Steel scrap price adjustment will based on the
actual adjustment received by Scaw from its
Steel scrap supplier/s.
Ferrochrome 31.9% Letter of
supply
Ferrochrome price adjustment will based on the
actual adjustment received by Scaw from its
Ferrochrome supplier/s.
Ferromangan
ese
2.3% Letter of
supply
Ferromanganese price adjustment will based on
the actual adjustment received by Scaw from its
Ferromanganese supplier/s.
Ferrosilicon 1.4% Letter of
supply
Ferrosilicon price adjustment will based on the
actual adjustment received by Scaw from its
Ferrosilicon supplier/s
Power 6.4% SEIFSA
table K
The latest available index (not the average)
compared with the index from the preceding
quarter.
Labour 11.8% SEIFSA
table C3 –
all hourly
paid.
Consumables 13.6% SEIFSA
table U-
Locally
The latest available index (not the average)
compared with the index from the preceding
quarter
Table B
Cost
Element
% in the
case of
standard
Relevant
Index or
letter of
supply
Description of adjustment mechanism
Steel Scrap 48% Letter of
supply
Steel scrap price adjustment will based on the
actual adjustment received by Scaw from its
Steel scrap supplier/s.
Ferrochrome 1.6% Letter of
supply
Ferrochrome price adjustment will based on the
actual adjustment received by Scaw from its
Ferrochrome supplier/s.
Ferromangan
ese
1.1% Letter of
supply
Ferromanganese price adjustment will based on
the actual adjustment received by Scaw from its
Ferromanganese supplier/s.
Ferrosilicon 2.6% Letter of
supply
Ferrosilicon price adjustment will based on the
actual adjustment received by Scaw from its
Ferrosilicon supplier/s
Power 6.4% SEIFSA
table K
The latest available index (not the average)
compared with the index from the preceding
quarter
Labour 17.4% SEIFSA
table C3 –
all hourly
paid.
Consumables 22.9% SEIFSA
table U-
Locally
Labour 17.4% SEIFSA
table C3 –
all hourly
paid.
Consumables 22.9% SEIFSA
table U-
Locally
The latest available index (not the average)
compared with the index from the preceding
quarter
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5. As set out above, the maximum price for the standard and high chrome eclipsoids
or cylpebs may be adjusted (on the basis of the cost elements set out in Table A in
respect of high chrome grinding media and in Table B in respect of standard
grinding media, as amended in terms of clause 6 below) during the course of any
year in the event that there is a variation in:
5.1 the price at which Scaw obtains scrap steel; and/or
5.2 the price at which Scaw obtains ferrochrome; and/or
5.3 the price at which Scaw obtains ferromanganese; and/or
5.4 the price at which Scaw obtains ferrosilicon; and/or
5.5 the cost of procuring power, labour and/or consumables.
6. In addition, any price adjustment to any customer to which this condition applies
after the date on which this merger is approved shall be:
6.1 made in writing and submitted to the relevant customer;
6.2 supported by the following:
6.3 a price list, detailing the revised prices;
6.4 details of the percentage variations in the revised prices; and
6.5 letters from suppliers in relation to steel scrap and the relevant alloys.
7. Following an interim or quarterly price adjustment, the percentage which the
various cost elements make up of the price will be adjusted accordingly and all
current customers to whom this condition applies will be provided with a table
setting out the new percentages.
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8. For the duration of these conditions, Scaw will provide the Commission with an
audit certificate issued by an independent auditor, sanctioned by the Commission,
on an annual basis, verifying compliance with these conditions. Scaw's financial
year ends on 31 December and the audit certificate will be provided to the
Commission within 8 weeks of Scaw's financial year end. For the duration of this
condition, the Executive Chairman of, or a person holding the equivalent status at,
Scaw will provide the Commission with an affidavit at six monthly intervals from the
date of the approval of the merger confirming substantial compliance with these
conditions.
9. The reporting obligations are applicable for the duration of these conditions. The
final audit report and affidavit will be furnished to the Commission once the period
for these conditions has lapsed.
10. The Commission may, where appropriate, in response to a request from Scaw
showing good cause, grant an extension of the time periods foreseen for the
provision of the audit certificate referred to in clause 8. Where Scaw seeks an
extension of a time period, it shall submit a request to the Commission no later
than one month before the expiry of that period, showing good cause. Only in
exceptional circumstances shall Scaw be entitled to request an extension within the
last month of any period.
11. The Tribunal may, on good cause shown, and on notice given to the other party,
lift, revise or amend these conditions upon being approached either by the
Commission or the merging parties, provided that any such revision or amendment
shall not extend beyond the parameters of these conditions.
_____________________
D Lewis
Presiding Member
Concurring: Y Carrim and U Bhoola
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