COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 130/LM/Dec08
In the matter between:
Business Venture Investments No 1311 (Pty) Ltd Acquiring Firm
and
Sea Harvest Corporation Ltd Target Firm
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member) and U Bhoola (Tribunal Member)
Heard on : 25 March 2009
Order issued on : 25 March 2009
Reasons issued on : 27 May 2009
Reasons for Decision
Introduction
[1] On 25 March 2009 the Tribunal approved the merger between Business
Venture Investments No 1311 (Pty) Ltd and Sea Harvest Corporation Ltd.
The reasons follow below.
The transaction and parties
[2] In terms of the transaction Newco will acquire the entire issued share capital
of Sea Harvest Corporation Ltd (“Sea Harvest”) by acquiring Brimco (Pty)
Ltd’s interest of 21.52%, Sea Harvest Employee Trust’s interest of 5.32% and
Tiger Brand Limited’s interest of 73.16%.
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[3] The primary acquiring firm is Business Venture Investment No 1311 (Pty) Ltd
(“Newco”), a newly formed company for purposes of this transaction. The
shareholders in Newco are:
• Brimco (Pty) Ltd (“Brimco”) (55%),
• Management (15%),
• Staff (1%),
• Kagiso Strategic Investments III (Pty) Ltd (“Kagiso Investments”)
(25%), and
• Other Equity (5.32%).
Brimco and Kagiso Investments will jointly control Newco. Brimco is a wholly
owned subsidiary of Brimstone Investment Corporation Ltd (“Brimstone”).
Kagiso Investments is controlled by Kagiso Trust.
[4] Brimstone holds interests in various firms, the most important, for our
purposes, is its 11.8% interest in Oceana Group Ltd, a company listed on the
JSE. Brimstone and Tiger, (Tiger holds 38.5% of the shares in Oceana),
have entered into a voting pool agreement, which has the effect, according to
the Commission, of enabling Brimstone and Tiger to jointly controll Oceana.
[5] The primary target firm is Sea Harvest. Tiger Brands Ltd (“Tiger”) which owns
73.16% of the share capital of Sea Harvest controls it. The balance is held by
Brimco (21.52%) and the Sea Harvest Employee Trust (5.32%).
[6] Sea Harvest in turn controls:
• Atlantic Trawling (Pty) Ltd
• Sea Harvest Trust
• Vuna Fishing Company (Pty) Ltd which in turn controls Sea Vuna Fishing
Company (Pty) Ltd
• The Sea Harvest Corporation of Namibia
Rationale for the transaction
[7] The transaction has come about because Brimstone has exercised a put
option which required Tiger to sell its holding in Sea Harvest to it. Brimstone,
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exercised the option because it wishes to increase its shareholding in Sea
Harvest with the view of building a “Food Cluster”. The transaction will also
increase Sea Harvest’s empowerment base.
Effect on Competition
[8] Although the transaction only involves the acquisition of Sea Harvest by
Brimstone we will consider the activities of both Oceana and Sea Harvest in
light of Brimstone’s involvement in both companies.1
Background to the industry
[9] The fishing industry in South Africa is characterised by mainly two features. It
is regulated by Government and in terms of the Marine Living Resource Act
18 of 1998 the Minister of Environmental Affairs and Tourism must, before
granting any fishing rights, determine the total allowable catch which must be
allocated to different interest groups, such as commercial, recreational and
foreign fishing. These rights are allocated for periods of between 10 – 15
years.2 Another feature of the fishing industry is that the major players,
Oceana, Sea Harvest and Irvin & Johnson (“I&J”), are completely vertically
integrated into the harvesting of fish (they own fishing vessels), the
processing of fish in their processing facilities such as canneries and value-
adding processing facilities and the marketing of fish and fish products to the
wholesale, retail and food industries through their own marketing channels. 3
Smaller competitors usually operate at only one of these three levels.
Relevant market
[10] Oceana’s core business focus is the harvesting, processing, procurement,
marketing and sale of pelagic fish products (in particular anchovy and
pilchards), including canned fish and fishmeal. Oceana also engages in the
catching of hake and has a small quota which represents 3.24% of the TAC 4
1 See discussion of the cross shareholding below.2 Qotas were allocated to successful applicants in the beginning of 2006.3 According to the parties this is one of the few mechanisms available to players in the
industry to expand and grow. 4 Total Allowable Catch, the allocation of the total amount of fish allowed to be caught as
determined by the Department of Environment and Tourism.
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for hake. Oceana has an allocated quota of 16.76% of the TAC for anchovy
and 14.36% for sardines.
[11] Sea Harvest and its subsidiaries are primarily involved in the harvesting,
processing and supply of hake ; it holds a quota of 26.82% of the Total TAC
for hake. It also has a small quota of 0.3% of the total TAC for small pelagic
species.5
[12] The Commission found that the parties’ activities overlap in the market for
the harvesting, supply and marketing of hake, as well as in the market for the
harvesting, supply and marketing of pelagic fish, in particular pilchards used
in canning and anchovies used in fish meal.6
[13] The geographic market for the harvesting and marketing of small pelagic fish
is both national and international according to the Commission. Canned
pilchards and mackerel are mostly sold and marketed by Oceana in South
Africa, very little is exported. In contrast 50% - 80% of fish meal is exported
and the balance sold nationally.
[14] According to the parties , South Africa is a net exporter of hake and hake
products, while local competitors in the market do not face any import
competition except for a small quantity imported from Namibia. The relevant
geographic market for the hake product market is therefore defined by the
Commission as national.
Competitive effect
[15] The Commission concluded in its recommendation that the increase in the
market shares of the merging parties in the affected markets were
insignificant and were unlikely to substantially prevent or lessen competition
in any market. However some concern was raised by the Tribunal about
Brimstone’s shareholding in both Oceana and Sea Harvest and the co-
5 In exchange for Sea Harvest’s 10% interest in the Desert Diamond Fishing Company (Pty)
Ltd, Desert Diamond catches and markets Sea Harvest’s small mackerel quota.6 Oceana utilises their allocated small pelagic quotas in their own canneries for marketing
under the Lucky Star and Seafare Brands. The by-product is marketed and sold nationally as
pet food under the Lucky Pet brand. Sea Harvest do not produce canned pilchards, sardines,
mackerel, tuna or fishmeal and its small horse mackerel quota is harvested and marketed by
the Desert Daimond Company.
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ordinated effects, specifically market division, this might give rise to as a
result of Brimstone being represented on both Boards.
[16] According to the parties Brimstone will post the transaction hold a non-
controlling stake in Oceana and together with the Kagiso Group will “step into
the shoes” of Tiger as the controller of Sea Harvest. 7 Tiger will remain as
shareholder in Oceana with no stake in Sea Harvest. Although the
transaction will to some extent reduce the cross shareholding problem it is
not totally removed, since Brimstone remains a shareholder in both and
retains the right to appoint directors to both of Sea Harvest and Oceana’s
Boards. See pre-merger and post merger diagrams of Sea Harvest below.
Diagram 1: Sea Harvest’s shareholders before the transaction
100% 73.16% 5.32%
21.52%
7 The Commission disagrees with the merging parties and is of the opinion that Brimstone
through a voting pool agreement will jointly control Oceana with Tiger.
5
Brimstone Tiger Sea Harvest
Trust
Brimco
Sea Harvest
Diagram 2: Sea Harvest’s shareholders after the transaction
100% 15% 1% 25% 4%
55%
100%
[17] Brimstone alleges that as a minority shareholder it does not control Oceana
and can therefore not influence its decisions. The Commission argued that
the voting pool agreement between Tiger and Brimstone, regarding their
common shareholding in Oceana, gives the two firms the ability to jointly
control Oceana. Although this arrangement did not come about as a result of
the transaction, and indeed existed prior to the transaction, the merging
parties nevertheless decided to cancel the voting pool agreement save for the
pre-emptive rights in regard to the sale of shares. It is unclear whether this
formal cancellation of the agreement eliminates concerns of possible co-
ordination. With Brimstone as a controlling shareholder in Sea Harvest and a
significant shareholder in Oceana – its stake in Oceana is worth more than its
stake in Sea Harvest – the incentives to co-ordinate between the firms is still
retained. Even if co-ordination does not take the form of price collusion it
could be used to enforce a market division – e.g. Sea Harvest would focus on
hake and Oceana on pelagic.
6
Brimstone Managemen
t
Staff Kagiso Other
Brimco
Newco
Sea Harvest
[18] However as the merger does not establish or strengthen the possibility of co-
ordination – it is not a merger specific concern. We nevertheless advised
Brimstone during the course of the hearing to try to eliminate the potential for
problems in this regard. 8
Public Interest
[19] The transaction does not raise any significant public interest concerns.
___________________ 27 May 2009
N Manoim Date
D Lewis and U Bhoola concurring.
Tribunal Researcher: R Badenhorst
For the merging parties: Adv Mike van der Nest instructed by Edward Nathan
and Sonnenbergs
For the Commission: Hardin Ratshisusu
8 See our decision in Main Street 333(Pty) Ltd and Kumba resources 14/LM/Feb06 at
paragraph 73 - 78.
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