COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 32/LM/Mar09
In the matter between:
MINING OIL AND GAS SERVICES (PTY) LTD Acquiring Firm
and
ELBROC MINING PRODUCTS (PTY) LTD
STOPE TECHNOLOGY SERVICES (PTY) LTD Target Firms
Panel : D Lewis (Presiding Member), N Manoim (Tribunal
Member) and M Mokuena (Tribunal Member)
Heard on : 27 May 2009
Order issued on : 27 May 2009
Reasons issued on : 10 June 2009
Reasons for Decision
Introduction
[1] On 27 May 2009 the Tribunal approved the merger between Mining Oil and
Gas Services (Pty) Ltd (“Mogs”) (Primary acquiring firm), and Elbroc Mining
Products (Pty) Ltd (“Elbroc”) and Stope Technology Services (Pty) Ltd
(“Stope Tech”) (Primary target firms). The reasons follow below.
The transaction and parties
[2] Elbroc is active in the manufacturing of hydraulic and sheen prop supports
which are used for underground mining, and Stope Tech provides support
services for South African gold mines. Mogs through its various interests and
subsidiaries is active in various activities, including amongst other things;
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hydraulic mining, sand mining, mining and supply of platinum, and coal
mining.
[3] The transaction involves the acquisition of 100% of the shares of Elbroc and
Stope Tech by Mogs. Elbroc and Stope Tech are held by common
shareholders1, and Mogs is jointly controlled by Royal Bafokeng Mogs (Pty)
Ltd and CV5 Limited.
Rationale for the transaction
[4] For Mogs this transaction is an investment strategy and opportunity to grow
and have a successful track record in supplying products and services in the
mining industry, particularly the gold mining industry. It was submitted that
Mogs’ decision to acquire both Elbroc and Stope Tech together is based on
the fact that the two firms have a longstanding supplier/manufacturer
relationship.
[5] The shareholders of Elbroc and Stope Tech regard this transaction as a
means to facilitate the transfer of equity to a reputable black owned entity in
order to comply with BEE objectives.
Effect on Competition
[6] The first issue that the Tribunal had to deal with relates to the fact conceded
by the merging parties that this merger has been implemented by the parties
since 15 December 2007. The Commission averred that it is currently
investigating and engaging with the parties on the pre-implementation matter.
For the purpose of this transaction, the Tribunal had to focus on the issue
whether or not the merger is likely to substantially prevent or lessen
competition in the relevant markets.
[7] There is no horizontal overlap between the activities of the merging parties.
However the Commission found that there is potential vertical overlap in that
Elbroc sells hydraulic and friction prop supports directly to both coal and
platinum mines in addition to Stope Tech, and also that Stope Tech could in
future sell its services to any firm within the Mogs’ group.
1 Guinea Fowl Investments (Pty) Ltd has 62.11%, Magaru Investments Holdings (Pty) Ltd has
1 Guinea Fowl Investments (Pty) Ltd has 62.11%, Magaru Investments Holdings (Pty) Ltd has
32.63%, and Mr Grant Roach has 5.26% shareholding in the target firms.
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[8] However, the Commission found that the potential vertical overlap does not
lead to any foreclosure concerns. In the market for hydraulic and friction prop
supports, Elbroc has a small market share of 10% and faces competition from
other larger players. The Commission also found that Elbroc has not secured
any contract or sold any of its products to any firm within Mogs’ group.
[9] The Tribunal was concerned about Stope Tech’s high market share of 92% in
relation to the services it provides. The Commission found that this market
share almost exclusively relates to the provision of stope propping support
services to gold mines; a tender market in which firms compete by bidding for
tenders for the provision of such services. In addition the merging parties
submitted that most mining companies provide these services in-house, and
that there are few companies who source these services externally. The
Commission also found that to date Stope Tech has not secured any contract
or sold any of its services to any firm within Mogs’ group, notwithstanding that
the transaction has been in place for more that one year.
[10] The Commission conducted interviews with the customers of the merging
parties, and no concerns were raised regarding this transaction.
Conclusion
[11] The pre-implementation of this transaction, is a subject matter still to be
heard and decided another day and hence we need not address it now. In
respect to the relevant issue in this transaction, the Tribunal finds that the
transaction does not pose any competition problems because the post
implementation track record indicates that foreclosure concerns have not
been realised to date despite the merger having been implemented for a
period of nearly 18 months. On this ground, the Tribunal concludes that the
transaction is unlikely to substantially lessen or prevent competition in the
relevant markets.
Public Interest
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[12] There are no public interest concerns.
___________________ 10 June 2009
N Manoim Date
D Lewis and M Mokuena concurring.
Tribunal Researcher: L Xaba
For the merging parties: Adv. Engelbrecht instructed by Strauss Scher Attorneys
For the Commission: L Khumalo
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