COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 109/LM/Oct08
In the matter between:
Lafarge South Africa (Pty) Ltd Acquiring Firm
And
Ash Resources (Pty) Ltd Target Firm
Panel : D Lewis (Presiding Member) N Manoim, (Tribunal Member),
and U Bhoola (Tribunal Member)
Heard on : 25 March 2009
Order Issued : 25 March 2009
Reasons Issued: 17 July 2009
Reasons for Decision
Approval
[1] On 25 March 2009, the Tribunal unconditionally approved the merger between
Lafarge South Africa (Pty) Ltd and Ash Resources (Pty) Ltd. The reasons for
approving the transaction with conditions follow.
The parties
[2] The primary acquiring firm is Lafarge South Africa Holdings (Pty) Ltd
(“Lafarge”), a company incorporated in terms of the company laws of the
Republic of South Africa. Lafarge is controlled by Financiere Lafarge and has in
excess of 50 subsidiaries.1
[3] The primary target firm is Ash Resources (Pty) Ltd, a company incorporated in
terms of the laws of South Africa. Ash Resources is jointly controlled by Lafarge
with 75% interest and by Roshcon (Pty) Ltd (“Roshcon”) with 25% interest, the
1 See Appendix 1 to the Commission’s recommendations, being an Organogram of Lafarge
latter enjoys certain minority protections which confer control. 2 Roshcon is a
subsidiary of Eskom Enterprises.
Description of the transaction
[4] In terms of the proposed transaction, Lafarge intends to acquire the remaining
25% shareholding held by Roshcon in Ash Resources. On completion of the
transaction, Ash Resources will be 100% owned by Lafarge.
THE PARTIES’ ACTIVITIES
Primary acquiring firm
[5] Lafarge is active in South Africa through the following:
Lafarge Mining South Africa
[6] Lafarge Mining South Africa does quarrying/crushing of lime stone; building
aggregates (hard rock, stone and sand) and natural gypsum.
Lafarge Industries South Africa (Pty) Ltd (“Lafarge Industries”)
[7] Lafarge Industries produces cement and cementious products; blending of
cement; ready mix concrete manufacturing, manufacture of gypsum ceiling and
wallboards and partitioning systems. In addition, Lafarge Industries South
Africa sells and distributes these products.
Primary target firm
[8] Ash Resources is the procurer, manufacturer and distributor of pulverized fly
ash. Fly ash is a by-product of coal combustion in the power generation
industry. It is produced from combustion of powdered coal during the process
of raising steam for the generation of electricity. Ash Resources sells the
following products in South Africa:
2 Lafarge argued that the transaction did not constitute a notifiable transaction as Lafarge had
sole control of Ash Resources by virtue of its 75% shareholding and day to day “sole control of
Ash Resources.” Lafarge averred that it filed the merger under protest as the Commission’s
advisory opinion had highlighted that the transaction is notifiable. The Commission argued that
Roshcon had joint control with Lafarge because of minority protections and afforded to it by
the Shareholders’ agreement. The Tribunal refrained from hearing argument on that score and
stated that Lafarge had an option of either filing or not filing.
2
[8.1] Dura-Pozz (the trade name given by Ash Resources for classified fly ash) is
used as a cement extender in line with SABS 1491 Part 2, and is the only fly
ash which is specified for its high grade cement. It is also used and marketed
under SABS EN 197 for use in other concretes.
[8.2] The classified fly ash may be refined further to produce even finer particles for
use in the highest specification of cement, which may be used in pillars for high
rise buildings. This product is sold under the name Super Pozz.
[8.3] Pozz-Fill (the trade name given by Ash Resources for unclassified fly ash) is
used by blenders as an extender for cement in certain applications – including
compliance with SABS EN 197, and in production of concrete and in the mining
industry for backfilling.
[8.4] Pozz sand (used as a reactive sand for brick and block making)
[8.5] Fillers (used in a variety of applications in the polymer industry).
Overlapping activities
[9] Although there is no overlap in the activities of the merging parties, the
transaction gives rise to vertical integration. On the one hand, the primary
target firm is involved in the upstream production and supply of classified and
unclassified fly ash for use as a cement extender and in the production of
concrete while on the other hand, the primary acquiring firm is involved in the
downstream production of cement and concrete.
Rationale for the transaction
[10] Under the pre-emptive provisions of a shareholder’s agreement between
Lafarge and Roshcon, Lafarge has the first right to acquire Roshcon’s shares in
the event that Roshcon wishes to sell its share. The opportunity has now arisen
from the desire of Roshcon to dispose of its interests in Ash Resources and for
Lafarge to purchase the Roshcon Shareholding. Lafarge still wishes to pursue
a BEE strategy in relation to Ash Resources. The parties submitted that
3
Lafarge is currently in discussions with an identified BEE partner with a view to
on-sell the shares in Ash Resources which it will acquire from Roshcon.
[11] With regards to Roshcon, which is controlled by Eskom Enterprises, part of
Eskom Holdings, Eskom has decided to realise non-core assets and
investment holdings in order to raise funds for further necessary infrastructure
development. The shareholding in Ash Resources is non-core to Eskom and
accordingly offered to Lafarge under the pre-emptive provisions of a
shareholders’ agreement between Lafarge and Roshcon.
The relevant market
[12] The Commission has defined the upstream market as the market for the
production and supply of fly ash. The fly ash is a by-product of powdered coal
combustion in the power generation industry and is used as a cement extender.
The parties and the Commission submitted that fly ash can be classified or
unclassified. Unclassified fly ash is derived directly from the combustion
process and can have bigger granules. Classified fly ash is termed “classified”
because of the different sizes of the particles and their chemical strength.
[13] The difference between the Commission’s approach to that of the merging
parties is that the merging parties, while not making a definitive finding on the
product market, argued for a broader market which include cement extenders
because, as they averred, fly ash (whether classified or unclassified) is
substitutable with many cement extenders. The Commission, on the other
hand, argued that there is no credible substitute for fly ash because of various
reasons like cost and differing chemical properties, among others.
[14] The Commission further defined two downstream markets namely, the
downstream market for the production and supply of blended cement, and the
downstream market for the production and supply of ready-mix concrete. The
downstream market for the production and supply of ready-mix concrete. The
merging parties did not define the market in this way. For the purposes of these
reasons, we will consider the markets defined by the Commission.
4
Competition analysis
[15] The Commission submitted that if the substitutes for classified ash are not
taken into account, Ash Resources has 100% of the classified fly ash market.
The Commission further stated that if the market shares of the suppliers of the
substitutes to classified fly ash were considered, then Ash Resources’ market
share would go down as the suppliers of the substitutes accounted for 45%.
These are Slament (29%), PPC (13%) and Bernoberg (3%). Ash Resources
faces competition from Ulula, a new entrant into the market, which stated that it
can account for 20% while Ash Resources can account for 80% of the
classified fly ash market.
[16] With regards to unclassified fly ash, the Commission submitted that Ash
Resources has a market share of 67%, which diminishes to 10% when it is
considered within the broader cement extender market, including classified fly
ash and other cement extenders. While Ash Resources remains the major
supplier of unclassified fly ash, it faces competition from other market players
like Starline Distributors (29%). Natal Portland (9%) utilises fly ash from Majuba
Power Station for its own internal purposes.
Downstream production and supply of blended cement
[17] Cement extenders predominantly utilise unclassified fly ash. Lafarge
purchases its entire unclassified fly ash requirements from Ash Resources and
as a result, there is no question of customer foreclosure. The Commission
found it not necessary to consider the sizes of the cement blenders vis a vis
that of Lafarge as the main concern with this transaction is input foreclosure.
Downstream production and supply of ready-mix concrete
[18] The Commission submitted that for completeness sake, the major suppliers of
ready mix are Lafarge (25%), Holcim (28%), Pronto (13%), and Wearne (6%),
among others. Lafarge purchases its entire classified fly ash requirement from
Ash Resources. Customer foreclosure is unlikely as there are other credible
Ash Resources. Customer foreclosure is unlikely as there are other credible
substitutes to Lafarge.
5
Foreclosure concerns
[19] If one considers the capacity of the new entrant, Ulula, then Ash Resources
has 80% of the market for classified fly ash and Ulula has 20%. With regards to
unclassified fly ash the parties have a market share of 27% which diminishes to
10% when one includes the other cement extenders.
[20] It seems that although Lafarge has the ability to foreclose its competitors in the
ready mix market, there is no incentive to do so post merger as currently
Lafarge only utilizes 34% of total classified capacity and 8% unclassified fly ash
from Ash Resources’ production. There is no change to the pre-merger
situation once the merger has been approved and implemented. In addition, as
the Commission has identified, there are two new entrants namely Ulula and
Sephaku Cement. Ulula is still increasing its production capacity and currently
has capacity to supply 20% of the classified fly ash requirements. Sephaku has
not yet begun production of fly ash but has the potential and will start producing
for the cement market by mid-2010
Public Interest
[21] There are no public interest issues.
Conclusion
[22] The merger is approved unconditionally.
________________ 17 July 2009
D Lewis DATE
Tribunal Member
N Manoim and U Bhoola concurring.
Tribunal Researcher : R Kariga
For the merging parties: J Wilson instructed by Bell Dewar & Hall
For the Commission : M Ngobese and B Majenge (Mergers and Acquisitions)
6