COMPETITION TRIBUNAL SOUTH AFRICA
Case No: 98/LM/Sep08
In the matter between:
Aveng (Africa) Ltd Acquiring firm
And
Keyplan (Pty) Ltd Target firm
Panel : D Lewis (Presiding Member); Y Carrim (Tribunal Member); N
Manoim (Tribunal Member)
Heard on : 17 September 2008
Decided on : 17 September 2008
Reasons Issued : 20 October 2008
Reasons for Decision
Approval
[1] On 17 September 2008 the Competition Tribunal issued a Merger Clearance
Certificate unconditionally approving the merger between Aveng (Africa) Ltd and Keyplan
(Pty) Ltd. The reasons appear below.
Parties
[2] The primary acquiring firm is Aveng (Africa) Ltd (“ Aveng (Africa ), a subsidiary of
Aveng Ltd (“Aveng”), which is listed on the JSE Ltd.1
[3] The primary target firm is Keyplan (Pty) Ltd (“Keyplan”).2 Keyplan has a single
subsidiary, Keyplan Water Treatment (Pty) Ltd (“Keyplan Namibia”), which is incorporated in
Namibia.
Transaction
[4] The merger involves the acquisition by Aveng Africa of 100% of the issued share
capital in Keyplan. After the implementation of the proposed transaction, Keyplan will
continue to operate as a separate stand alone subsidiary within the Aveng Group of
Companies (“the Aveng Group”).
1 Aveng Ltd owns 75% of the issued share capital in Aveng (Africa), the balance of 25% is owned by a Tiso
Group led black economic empowerment consortium. Aveng (Africa) has four operating divisions namely: Aveng
Manufacturing, Engineering and Projects Company (“E+PC”), Grinaker-LTA and Moolmans. Aveng
Manufacturing comprises four business units: Steeledale; Infraset; Duraset and Lennings Rail Services.2 The current shareholders of Keyplan are Adrian Viljoen (28%); John Buchanan (26%); Ralph Jones (26%) and
Gavin Lee (20%)
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Rationale
[5] The acquiring firm submits that the transaction represents an opportunity for Aveng
Africa to enter the market for the provision of process design engineering services to clients
who require water and wastewater treatment services. Aveng Africa believes that the
transaction will enable it to enter into the environmental services industry in Southern Africa.
[6] From the target firm’s view, the transaction represents an opportunity to obtain
access to greater financial resources available within the Aveng Group as well as to the
Aveng Group empowerment credentials.
Parties’ Activities
[7] The Aveng Group provides a wide range of construction, manufacturing, engineering
and related services within South Africa and the rest of Africa, as well as within Australasia
and the Pacific. Aveng (Africa) has four operating divisions namely: Aveng Manufacturing,
Engineering and Projects Company (“E+PC”) 3, Grinaker-LTA4 and Moolmans 5. The parties
submit that E+PC has recently established an environmental services business line which
aims to provide services with specific focus areas in respect of water and wastewater
treatment, emission control and land remediation. Aveng Manufacturing comprises four
business units: Steeledale6; Infraset7; Duraset8 and Lennings Rail Services9.
[8] The target firm provides turn-key engineering and consulting services in the field of
separation technologies, focussing on process engineering services in respect of water and
wastewater treatment, primarily focussing on treatment solutions which utilise membrane
technologies, industrial gaseous emission control, and industrial gas processing and related
services.10
Market Definition
3 E+PC offers a comprehensive range of engineering and project management services to mining and energy
sector in relation to construction projects4 Grinaker-LTA offers a comprehensive range of stand alone or integrated services that cover the following:
building, earthworks, civil engineering , mechanical and electrical construction for industrial capital projects and
infrastructure; building commercial buildings; property development and building within commercial, retail, leisure
and niche markets; mine development for underground mining and underground contract mining and financing,
building, operating and transferring projects in infrastructure markets.5 Moolman’s provide open cast mining services.
6 Steeledale is involved in beneficiating steel reinforcing bars and mesh for concrete structures.
7 Infraset manufactures concrete products for the infrastructure market.
8 Duraset manufactures steel and concrete products for the mining industry
9 Lenning Rail Services provides a range of construction and maintenance services for South Africa’s transport
utility, Transnet and other rail customers10 Keyplan Namibia provides the same services as Keyplan, but currently has only one contract related to water
desalination plant in Namibia.
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[9] The Commission identified three separate markets namely: the water and
wastewater treatment services market which can be separated into two distinct product
markets , that is, the municipal and industrial markets; secondly the gaseous emission
market and the market for civil construction. The Commission’s examination of the market
for water and wastewater treatment revealed that there is a distinction between waste water
treatment for the industrial market and water waste treatment for municipalities, each
requiring different technologies, distinct marketing approach and skills. 11 The Commission
therefore concluded that the water and wastewater treatment services market which can be
separated into two distinct product markets, that is, the municipal and industrial markets.
[10] In the gaseous emission control market, the Commission found that there is an
overlap in the activities of the merging parties in relation to industrial gaseous emission
control. Based on submissions from Lurgi (Pty) Ltd (“Lurgi”) 12 the Commission distinguishes
between upstream and downstream gaseous emission control. According to the Commission
upstream means that gas and or other streams are primarily treated to render them suitable
for particular process although the treatment will also render the process environmentally
friendly.13 Downstream relates to the treatment of final gaseous emissions primarily for
environmental suitability. We therefore agree with the Commission’s conclusion that
gaseous emission control can be regarded as a distinct market in respect of downstream
environmental oriented services for which there is an overlap in the activities of the merging
parties.
[11] The Commission also concluded that there is a separate national market for civil
construction. In this market the Commission found that there is no difference in personel,
machinery and resources needed for different types of civil engineering work. The
machinery and resources needed for different types of civil engineering work. The
Commission found that various players supply services across the above mentioned
spectrum. Therefore the Commission concluded that from a supply side civil engineering
firms already have the capacity to provide these services. We agree with the Commission’s
conclusion.
[12] The geographic market for water treatment, waste water treatment; gaseous
emission control services and civil construction is, national.
Competition Analysis
11 According to the Commission correspondence from competitors (such as Degremont, Foster Wheeler and
VWS Envig (Pty)Ltd) also reveals that competitors do not necessarily provide services to both municipal and
industrial clients and that the provision of services to either municipal or industrial client does not give one
capacity to provide services across these segments.12 Lurgi is one of Keyplan’s major competitors.
13 The Commission submits that this appears to be at the level at which the acquiring firm’s sulphuric acid
activities are placed; as it relates to producing sulphuric acid as an end product.
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[13] According to the Commission there is a limited overlap in the activities of the merging
parties in connection with the provision of water treatment services and gaseous emission
control. In addition the transaction also gives rise to vertical integration in that Keyplan
subcontracts its civil engineering and construction services for water treatment and gaseous
emission control services to civil and construction engineering companies of which the
acquiring firm is one. In the water and wastewater treatment the Commission investigation
reveals that Aveng does not appear amongst the major players and as such cannot be
regarded as a significant market player or a player at all. 14 According to the Commission,
Keyplan, on the other hand, tenders for projects requiring specialised water and wastewater
treatment services.15 We agree with the Commission’s view that the proposed transaction is
unlikely to substantially prevent or lessen competition in the markets for provision of water
and wastewater treatment services as there is a limited overlap in the activities of the
merging parties.
[14] With regard to the gaseous emission control market, the Commission is of the view
that the presence of the merging parties in the gaseous emission control market is de
minimis. We therefore agree with the Commission that the proposed transaction is unlikely
to substantially prevent or lessen competition.
[15] In the market for civil construction services the Commission analysed both customer
and input foreclosure. We agree with the Commission’s conclusion that proposed transaction
is not likely to lead to input foreclosure even though Aveng is one of the major civil
construction companies in the Republic with about 19% of the portion of the civil
construction market, because 81% of this market’s portion is still available to other water and
wastewater treatment companies. With regard to customer foreclosure the Commission
wastewater treatment companies. With regard to customer foreclosure the Commission
found that civil construction companies do not focus on one segment of construction.
Accordingly the unavailability of a customer involved in water and wastewater treatment in a
multibillion rand civil construction market is unlikely to lead to foreclosure of civil construction
companies. We agree with the Commission’s conclusions.
Conclusion
[16] There are no public interest issues. Accordingly the transaction is unconditionally
approved.
14 According to the Commission, competitors are not aware that Aveng is involved in the water and wastewater
treatment services market.15 Again the ability of international companies such as Degremont to enter and capture a relative sizeable market
share (10%) in less than two years, suggest that barriers to entry for international companies are low.
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___________________ 20 October 2008
N Manoim Date
Tribunal Member
D Lewis and Y Carrim concurring
Tribunal Researcher : Jabulani Ngobeni
For the merging parties : Routledge Modise
For the Commission : Mfundo Ngobese (Mergers and Acquisitions)
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