IN THE COMPETITION TRIBUNAL OF SOUTH AFRICA
CASE NO.: CASE NO: 56/LM/MAY08
In the merger between:
Macsteel Services Centre (Pty) Ltd Primary Acquiring Firm
and
Harvey Roofing Products Primary Target Firm
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Panel : D Lewis (Presiding Member), N Manoim (Tribunal Member), and
L Reyburn (Tribunal Member)
Heard on : 30 July 2008
Order issued on : 30 July 2008
Reasons issued on : 14 August 2008
REASONS FOR DECISION
APPROVAL
[1] On 30 July 2008 the Tribunal unconditionally approved the merger between
Macsteel Service Centre and Harvey Roofing Products. The reason for the decision
follows:
THE MERGING PARTIES
[2] The primary acquiring firm is Macsteel Service Centre SA (Proprietary) Limited
(“MSC”) which is controlled by MSCSA Investments, which in turn is a wholly owned
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subsidiary of Macsteel Holdings (Pty) Ltd. The primary target firm is Harvey Roofing
Products (“HRP”), a business division of Murray and Roberts Limited (“M & R”).
THE TRANSACTION AND RATIONALE
[3] In terms of the proposed transaction, MSC will acquire HRP as a going concern
from M & R. The effect post merger is that HRP will be integrated into the business of
MSC.
[4] For MSC this transaction is an opportunity to diversify its current portfolio of
businesses. M & R Group regards HRP to be a non-core business, and HRP considers
this transaction as an opportunity for synergies in marketing, distribution and exporting.
RELEVANT MARKET
Horizontal overlap
[5] According to the Commission and the parties, there is a limited horizontal overlap
in the activities of the parties in the supply of pre-painted or textured steel sheeting and
similar colour coated products such as sheeting or tiles. Macsteel Roofing produces
products from pre-painted galvanized coil called Chromadek and Colorbond. The
equivalent product that Harvey produces is Harveyspan or Tuffspan which are
manufactured from galvanized coil to which a coloured sand coating is added.
[6] According to the Commission, the relevant upstream market is the market for the
supply of galvanized steel material that is cut-to-size from galvanized coil for use in
industries like the steel tile manufacturing industry. The Commission submitted that
Macsteel obtains its product from Mittal, although there are a number of other
merchants that also obtain coil from Mittal which they then cut and slit. In the
downstream product market, the Commission submitted that there is also a limited
overlap in the market for colour coated steel sheets and comparable tiles used for
roofing.
Vertical Relationship
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[7] There is a vertical relationship between activities of the merging parties in that
HRP sources galvanized steel sheets from MSC, which is the main input material in the
manufacturing of its steel roof tiles.
Geographic market
[8] The geographical market is considered to be national for all the relevant products
markets which are manufactured, distributed and supplied nationally.
COMPETITION EVALUATION
[9] In the market for pre-painted or textured steel sheeting/ colour coated sheeting or
tiles where there is a limited horizontal overlap, Macsteel Roofing has 22% market
share pre-merger and HRP has less than 1% market share. Post merger, they will have
a combined market share of around 23% in this market. There are no horizontal
concerns given the insignificant market share accretion in this market.
[10] However, the Tribunal raised concerns that Harvey‘s tiles have 55% of the steel
tile market. At the hearing, Miss Finesse from Harvey submitted that there are other
domestic players such as Rollco which has 25% market share, Pro Roof 10%, Global
Roofing Solution 5% and other domestic suppliers including international suppliers,
which are highly competitive despite not having very high market shares. In addition the
merging parties submitted that the steel tile market is not a capital intensive industry,
and that the barriers to entry in this industry are low.
[11] The Tribunal further raised concerns about any possibility of margin squeeze that
might arise due to Macsteel’s relationship with Mittal. However the Commission
submitted that other merchants also have access to Mittal’s coil, and that there are no
major concerns given Mittal’s current best buy policy of smaller volumes which has had
the impact of bringing in more merchants that are able to supply downstream tile
manufacturers. There is also no evidence that Mittal is favouring Macsteel in the
domestic market.
domestic market.
[12] At the hearing Mr Pimstein, Chief Executive of Macsteel also submitted that
Mittal’s policy of smaller volumes has invited in smaller customers to deal directly with
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Mittal, and that this has resulted in smaller customers buying at higher volume levels,
which means that even if this policy changed, it will not have any negative impact on
them since they are already buying higher volumes at the most competitive levels in the
Mittal matrix, which is easily accessible to all.
[13] In the vertical analysis, we concur with the Commission that there are no
customer foreclosure concerns as Harvey does not purchase galvanized steel sheets
from any other supplier other than from MSC. The merging parties submitted that there
are no input foreclosure concerns as Harvey only purchases 13% of MSC’s total supply
of galvanized steel sheets and will be unable to absorb all of MSC’s supply of
galvanized steel sheets. The merging parties further submitted that there are other
parties that could supply Pristine Tiles, MSC’s only customer in this market, with its
required product in this market. The Commission also interviewed several merchants in
the market, such as Pro Roof, Trident Steel, Steelrode, and Gibb Steel who averred that
they have capacity to supply the same service to independent tile manufacturers.
CONCLUSION
[14] In light of the above, we find that this merger will not result in a substantial
lessening or prevention of competition in any of the relevant markets. Accordingly, we
approve the merger without conditions.
[15] There are no public interest issues.
_______________ 14 August 2008
D Lewis Date
Tribunal Member
N Manoim and L Reyburn concur in the judgment of D Lewis
For the merging parties : Webber Wentzel Bowens
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For the Commission : T Mavhase
(Mergers and Acquisitions)
Tribunal Researcher: L Xaba
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