COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 43/LM/Apr08
In the matter between:
Stefanutti & Bressan Holdings Limited Acquiring Firm
And
Stocks Limited Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal Member), Y
Carrim (Tribunal Member),
Heard on : 18 June 2008
Order Issued : 18 June 2008
Reasons Issued: 11 August 2008
Reasons for Decision
Approval
[1] On 18 June 2008, the Tribunal unconditionally approved the merger between
Stefanutti & Bressan Holdings Limited and Stocks Limited. The reasons for
approving the transaction follow.
The parties
[2] The primary acquiring firm is Steffanutti & Bressan Holdings Limited
(“Stefanutti”), a public company listed on the JSE Securities Exchange.
Stefanutti is not controlled by any single shareholder and its shareholders
holding in excess of 5% of the issued share capital in Stefanutti are B Stefanutti
(with a shareholding of 32.6%), Mowana Investments (Pty) Ltd (with an 11.3%
shareholding), W Meyburgh (with a 7.1% shareholding), J Jackson (with a 6.2%
shareholding), The Stefanutti & Bressan Share Incentive Trust (with a 6%
shareholding), and D White (with a 5.5% shareholding).
[3] Stefanutti has various subsidiaries which include Civil & Coastal Construction
(Pty) Ltd (51%), and Skelton & Plummer Investment Holdings Co. (Pty) Ltd
(80%).
[4] The primary target firm is Stocks Limited (“Stocks”). Stocks is controlled by
RMB Ventures Two (Pty) Ltd (“RMB Ventures Two”) (with a 36.4%), Leswikeng
Building (Pty) Ltd (“Leswikeng”) (with a 27.3% shareholders), and Stocks
Management Consortium (with a 36.3%).
[5] RMB Ventures Two is a wholly-owned subsidiary of First Rand Ltd (“First
Rand”), a public company listed on the JSE Securities Exchange. Leswikeng is
controlled by African Equity Corporation (Pty) Ltd (“AEC”), which holds 51% of
the issued share capital in Leswikeng. Stocks controls a number of
subsidiaries, including Housing Africa Development (Pty) Ltd (“HDA”), which
Stocks recently acquired. The Commission has also considered the activities of
HDA for purposes of the present transaction.
Description of the transaction
[6] In terms of this transaction, Stefanutti intends to acquire 100% of the issued
share capital of Stocks. On completion of the transaction, Stocks will be a
wholly owned subsidiary of Stefanutti and, as a result, Stefanutti will control the
business of Stocks post-merger.
Rationale for the transaction
[7] The merging parties submitted the following reasons as the rationale for the
merger:1
[7.1] Stocks has a strong focus on building construction while Stefanutti is strongly
involved in a diverse range of civil engineering and construction activities and,
as a result, the merger will enable the parties to complement their product
offering and be able to compete with companies like Murray & Roberts and
WBHO, who offer similar services;
[7.2] The merger will enable Stefanutti to penetrate and expand in the Gauteng and
Cape regions where Stocks is strongly present, and Stocks to penetrate KZN
where Stefanutti is strongly present; and
[7.3] The proposed transaction will, on the one hand, enable Stefanutti to expand
beyond the South African borders and draw from Stocks’ expertise in
1 See record pages 34-35.
2
partnering with Middle Eastern companies for the past eight years, while on
the other hand, help Stocks to increase its product offering.
The parties’ activities
Stefanutti
[8] Stefanutti is a civil engineering and construction company. Its range of work
includes construction of industrial and petrochemicals plants, mine
infrastructure, cooling towers for power stations, roads, dams, bridges, water
and effluent treatment plants, marine works, township infrastructure, as well as
industrial, commercial and select residential buildings. It also provides piling
and geotechnical services. Stefanutti operates in the following 8 areas:
[8.1] Building Division: responsible for the construction of industrial buildings
including factories and warehouses and commercial buildings, including office
parks and shopping malls;
[8.2] Road and Earthwork Division: which focuses on the construction of roads, bulk
earthworks, landfill sites, river protection, terraces for new developments and
municipal services;
[8.3] Piling and Geotechnical activity: which undertakes geotechnical surveys, lateral
support, rock anchoring, shotcrete and the installation of concrete piles.
[8.4] Concrete structures: it is through Concrete Structures that Stefanutti performs
the construction of reinforced concrete works for mine infrastructure, storage
silos (including the building of high volume storage facilities), industrial and
chemical plants, bridges, cooling towers for power stations, marine works and
effluent and water treatment plants;
[8.5] Mechanical, electrical and instrumentation construction works : Stefanutti
undertakes this type of work under its subsidiary, Skelton and Plummer, and is
performed for the mining, manufacturing, industrial and petrochemical sectors;
[8.6] Waterworks, Pipelines and Effluent : Stefanutti facilitates the efficient
conveyance, storage and distribution of water and effluent to help in urban
development;
3
[8.7] Mine Residual Disposal Facilities and Open Cast Contract Mining : this involves
specialisation in the design, construction and management of mine residue
disposal facilities and open cast contract mining; and
[8.8] Marine Civil Engineering : this entails undertaking marine civil engineering and
structural rehabilitation projects which require specialist civil engineering skills.
Stefanutti has undertaken projects which include turnkey design and construct
projects through Civil and Coastal Construction, Stefanutti’s subsidiary.
Stocks
[9] Stocks is a building company specialising in general construction works,
residential buildings and non-residential buildings. Stocks’ activities include the
construction of commercial and industrial buildings such as factories, hotels,
hospitals, shopping centres, offices, and airport facilities.
[10] In South Africa, Stocks does commercial construction through its 5 divisions,
namely:
[10.1] Building: this division carries the core business of Stocks, and is involved in
the construction of the abovementioned commercial buildings. Stocks’
residential properties consist mainly of high rise residential apartments;
[10.2] Housing: Stocks has recently acquired the entire share capital in Housing
Africa Development (Pty) Ltd (“HAD”), a specialist housing company. HAD is
mainly involved in the building of residential housing units which range from
R750 000 to R3 000 000. HAD’s operations are focused on developments in
low cost housing, bondage housing, sectional cluster title developments, and
tender work for residential construction.
[10.3] Civils: this is a newly established division and is intended to focus on the
construction of major reinforced concrete structures for the mining industry,
power and industrial plants, bridges and water treatment plants.
4
[10.4] Concessions: these projects typically involve private-public partnerships which
include management of the design, construction, finance and ongoing
operation of the project. For example, prisons, infrastructure, airports and toll
roads projects
[10.5] Major projects: this division was established mainly to ensure that major
building construction projects could be completed anywhere in the country
without sacrificing delivery on existing regional projects. This division
supplements available resources at the Building Division’s regional offices with
specialist expertise for technically for technically challenging major projects.
[10.6] Internationally: Stocks has operations in the Gulf and operates two niche
businesses in Abu Dhabi in the UAE, viz. Al Tayer Stocks (an interior-
contracting firm), and Zenar Steward (an electromechanical company). Zenar
Steward specialises in the design and installation of electrical, mechanical and
plumbing systems whilst Al Tayer Stocks provides turnkey solutions and offers
a variety of services including plastering, furnishings and electrical and
mechanical systems installation.
Relevant market
[11] The merging parties and the Commission submit that their activities overlap in
respect of building construction and the provision of civil engineering services.
The merging parties submitted that although Stefanutti is involved in the
construction of both industrial and construction buildings, its core focus is civil
engineering services; and that Stocks is primarily a building company and its
main focus is building construction. Thus this merger is between a primarily
construction firm and a primarily civil engineering firm.
[12] The Commission and the parties further submitted that the relevant geographic
market is national as both parties undertake their activities throughout South
Africa and there is little competition from foreign firms.
Competition analysis
Africa and there is little competition from foreign firms.
Competition analysis
[13] The merging parties submitted certain market shares which were, in turn, used
by the Commission in its recommendations to the Tribunal. At the hearing the
5
Tribunal indicated that it didn’t agree with the market shares presented by the
parties and the Commission as they did not seem to reflect the reality on the
ground. The parties and the Commission had stated that the post merger
market shares of the merged entity would be less than 3% in both the building
construction market and the civil engineering market. In the Murray & Roberts2
case it was stated that Stefanutti has an 8% market share in the market for civil
engineering and that Stocks had a 19% market share in the market for building
construction. The Tribunal questioned why the parties and the Commission had
not made use of or referred to those market shares or present new market
shares after critiquing those market shares.
[14] In spite of the shortcomings in the parties’ competitiveness report and the
Commission’s recommendations, it is our view that this transaction does not
lead to a substantial prevention or lessening of competition. This is so because
Stefanutti is largely a civil engineering company and Stocks is largely a building
construction company. Stefanutti has a small market share in building
construction and Stocks has a minute market share in civil engineering. As a
result, the market share accretion is very low and does not lead to a substantial
prevention or lessening of competition. In addition, the merged entity continues
to face competition from other market players like WBHO, Murray & Roberts,
Grinaker-LTA, Group 5, among others.
Public Interest
[15] There are no public interest issues.
Conclusion
[16] The merger is approved unconditionally.
________________ 11 August 2008
Y Carrim DATE
Tribunal Member
D Lewis and N Manoim concur in the judgment of Y Carrim
Tribunal Researcher : R Kariga
For the merging parties: Webber Wentzel Bowens Attorneys.
2 See Murray & Roberts Limited and Wade Walker (Pty) Ltd 96/LM/Nov06. See also Murray &
Roberts/ Concor Case No: 101/LM/Oct05.
6
For the Commission : T Masithulela (Mergers and
Acquisitions)
7