COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 131/LM/Dec08
In the matter between:
Crest Chemicals (Pty) Ltd Acquiring Firms
and
CH Chemicals (Pty) Ltd Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member) and Y Carrim (Tribunal Member)
Heard on : 6 May 2009
Order issued on : 6 May 2009
Reasons issued on : 12 May 2009
Reasons for Decision
Introduction
[1] On 6 May 2009 the Tribunal approved the merger between the
abovementioned parties. The reasons follow below:
The transaction and rationale
[2] The proposed transaction is by Crest Chemicals (Pty) Ltd (“Crest
Chemicals”), of the entire chemicals business of CH Chemicals (Pty) Ltd (“CH
Chemicals”) as a going concern. 1 Crest Chemicals is jointly controlled by
Chemical Services Limited (“Chemserve”) and Brenntag Holdings. CH
Chemicals is a wholly owned subsidiary of CHC Group SA (Proprietary)
1 CH Chemicals is not selling at the holding level, but only disposing of its chemical
distribution business.
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Limited, which in turn is jointly controlled by CHC Holdings (Proprietary)
Limited and the Danela Trust. Both merging parties operate in the chemical
distribution business.
[3] Crest Chemicals views CH Chemicals’ product offering as complimentary to
its own business, which will enable it to expand its range of products currently
supplied to its existing and potential customers. Crest Chemicals also
considers this as an opportunity to enhance efficient utilisation of storage and
distribution facilities. For CH Chemicals, the rationale is that the owner
wishes to retire, and considers Crest Chemicals a stable partner in the exit of
his shareholding in CH Chemicals.
Relevant Market
[4] The Commission did an exhaustive analysis in which it found a horizontal
overlap in a range of chemical products distributed by the merging parties
based on supply side substitutability. 2 However, in the view of the Tribunal,
what is important in defining the relevant market in this proposed transaction
is that we are dealing with a distribution market in which the merging parties
are active, and not a chemical products market as the merging parties are not
involved in the manufacturing of chemical products. In the circumstances, the
competitive assessment should consider other rivals and potential rivals in the
distribution business. This is not to say that there are necessarily low barriers
to entry in the market for distributing all chemical products. In many instances
specialised equipment is required when handling and distributing chemical
products and, as we learnt in this transaction, access to dockside facilities for
importation. However, the relevant market is more appropriately considered
to be a distribution market.
[5] The Commission correctly averred that the chemical distribution business
encompasses 4 segments, namely; the indent traders, the niche market
encompasses 4 segments, namely; the indent traders, the niche market
distributors, the manufacturer-traders and the general third party distributers,
and that the merging parties fall within the segment of third party general
distributors. The merging parties thus directly compete with general third
party distributors such as among others; Protea Chemicals, CJ Petrow,
2 Initially there were some 50 individual products, and ultimately for the purpose of analyzing
the horizontal relationship, the Commission zoned on 9 horizontal markets for the chemical
products distributed by the merging parties.
2
Servochem, Corda, and SIM. In addition potential competitors include other
companies with experience in logistics and transport.
Effect on Competition
Horizontal analysis
[6] The Commission in its assessment did not consider all the potential
competitors in the distribution market. However, the Tribunal found that there
are no major competitive issues arising as the merging parties do not have a
large or dominant position in the relevant market, and that there are a
number of viable alternative distributors that can effectively constrain the
merged entity.
[7] Even when adopting the Commission’s approach to analyse each overlapping
chemical product distributed, it was found that the market shares of the
merging parties pre and post merger were insignificant. 3 In respect to the
biocides, coalescing solvents and nitrocellulose markets, Protea Chemicals
raised concerns citing the concentration of exclusive agreements under one
distributor, making the merged entity the only route into South Africa for those
products. In addition, Sancryl, a Durban customer for surfactants products,
raised concerns that its prices for some of the surfactants it purchases from
Crest had significantly increased for approximately 30% on its NP15 product,
since Crest acquired Bergen. However, the Commission during its
investigations interviewed other customers of these products who did not
raise any concerns due to availability of several alternative import sources of
the said products. It was also pointed out in the hearing that the price
escalation referred to was significantly influenced by exchange rate
movements and by increases in the prices of key inputs.
[8] With regards to the NP15 product, the Commission found that this is not a
bulk product, which enables it to be imported in various ways and also that
there are many other alternative sources for this product. At the hearing the
there are many other alternative sources for this product. At the hearing the
merging parties submitted that any price rise in the surfactants product can
not solely be attributable to the Crest-Bergen merger since there are other
factors which usually contribute to price fluctuations such as the price of input
3 In the chlorinates product, the Commission found that the merging parties have relatively
high combined market shares (approximately 49%), however, that there are a number of
viable alternative suppliers.
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products such as oil, and since the product is fully imported, the rand
exchange rate fluctuations could also be a contributing factor.
Vertical Analysis
[9] The proposed merger also has a vertical dimension in that certain
subsidiaries of Chemserve purchase some products from CH Chemicals. 4
The Commission found that there are no foreclosure concerns due to the
presence of other viable alternative companies in the upstream and
downstream markets. In addition it found that none of the companies in the
Chemserve group have market power in the relevant market, and thus any
foreclosure strategies would not be profitable. The Commission also found
that Chemserve is already in a position to self deal but the fact that it
purchases outside its sister companies shows that it is unlikely to have the
incentive or intention to self deal.
Conclusion
[10] Based on the above, the Tribunal finds that the proposed merger is unlikely to
substantially lessen or prevent competition in the relevant market. There are
no public interest concerns.
___________________ 12 May 2009
D Lewis Date
N Manoim and Y Carrim concurring.
Tribunal Researcher: L Xaba
For the merging parties: Webber Wentzel Bowens
For the Commission: Grashum Mutizwa and Kate Morris
4 See pgs. 52 – 54 of the Commission’s recommendation for a Table showing the products
sourced from CH Chemicals by the various Chemserve subsidiaries during the last three
years.
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