COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 79/LM/Nov09
In the matter between:
WBHO CONSTRUCTION (PTY) LTD Acquiring Firm
And
ROADSPAN HOLDINGS (PTY) LTD Target Firm
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member) and
Andreas Wessels (Tribunal Member)
Heard on : 03 March 2010
Order issued on : 03 March 2010
Reasons issued on : 23 March 2010
Reasons for Decision
Approval
[1] On 03 March 2010 the Competition Tribunal (“Tribunal”) approved the
acquisition by WBHO Construction (Pty) Ltd of Roadspan Holdings (Pty) Ltd.
The reasons for approval follow below.
Proposed transaction
[2] The primary acquiring firm is WBHO Construction (Pty) Ltd (“WBHO”), a wholly
owned subsidiary of Wilson Bayley Holmes-Ovcon Limited (“WBHO Limited”).
WBHO Limited is listed on the JSE Limited and is not controlled by any firm; its
largest shareholders are Public Investment Corporation; Investec Asset
Management (Pty) Ltd; and the Old Mutual Investment Group (South Africa)
(Pty) Ltd. WBHO controls a number of firms and has interests in a number of
joint ventures.
1
[3] The primary target firm is Roadspan Holdings (Pty) Ltd (“Roadspan”), an
investment holding company. The active firms controlled by Roadspan are
Roadspan Asphalt Plants (Pty) Ltd (“Roadspan Asphalt Plants”) and Roadspan
Surfaces (Pty) Ltd (“Roadspan Surfaces”).1
[4] The proposed transaction involves the acquisition by WBHO, who already holds
a minority stake of 30% in Roadspan, of a further 40% stake in the issued share
capital of Roadspan. Upon completion of the proposed transaction WBHO will
hold 70% of the issued share capital of and have sole control over Roadspan.
Rationale for transaction
[5] The merging parties submit that the rationale for the proposed transaction is to
provide further working capital and functionality to Roadspan. The merging
parties state that this will allow the merged entity to become more competitive as
Roadspan will benefit from the financial and functional support that WBHO can
provide. Roadspan wishes to obtain experienced (construction contract)
management to run its business in order to improve its credit terms with
suppliers, expose it to new business opportunities and provide security to its
employees.
Parties and their activities
[6] WBHO is a building and civil engineering contractor operat ing throughout South
Africa. The group constructs amongst other things: roads, pipelines, residential
and commercial property. The relevant activities of WBHO for the purposes of
the competition assessment of this transaction relate to the construction of
roads.
[7] The above-mentioned subsidiaries of Roadspan (see paragraph 3 above) are
involved in the manufacture and supply of (cold and hot mix) asphalt, as well as
the provision of road surfacing and rehabilitation services.
1 Roadspan also controls Roadspan Quarries (Pty) Limited (dormant) and Roadspan Sanyati
JV (Pty) Limited. At the hearing of this matter the merging parties stated that the latter joint
venture no longer has any activities and that it is in the process of being dissolved.
2
Horizontal overlap
[8] Regarding the production and supply of asphalt, t here is no overlap in the
activities of the merging parties since WBHO does not manufacture or supply
either cold or hot mix asphalt.
[9] As stated in paragraphs 6 and 7 above, WBHO is active in the provision of roads
construction services, whilst Roadspan is active in the provision of road
surfacing and rehabilitation services. Roads construction involves all activities
related to the preparation of the road and surfacing, which often begins with the
removal of earth and rock by digging and blasting, construction of
embankments, bridges and tunnels, and removal of vegetation and followed by
the laying of pavement material (for example asphalt). This laying of pavement
material is referred to as road surfacing and involves the laying of the top
layer/surface of the road which is done either when a new road is constructed or
when an existing road is rehabilitated or repaired. Road surfacing and
rehabilitation involve the laying and compacting of (i) hot mixed asphalt as road
surfacing2; (ii) bituminous chip and spray paving 3; or (iii) concrete paving 4 as
road surfacing.
[10] According to WBHO it does not at present tender for road surfacing contracts. At
present it outsources all asphalt paving functions to third parties, but could
potentially provide chip and spray paving services as part of its roads
construction services.
[11] Given that road surfacing is a submarket of the broader road s construction
market5, there is limited horizontal overlap between the activities of the merging
parties. Given this limited overlap and the fact that Roadspan is a relatively
insignificant player in a broader road surfacing market (see paragraph 13 below)
the proposed deal is unlikely to raise any horizontal competition concerns. We
shall therefore not assess this limited horizontal relationship any further in these
reasons.
reasons.
Vertical integration
2 Also referred to as “asphalt paving” or simply as “the tarring of roads”.
3 Chip and spray surfacing involves the spraying of a bitumen tack coat, followed by the
application of a single sized stone on such layer.
4 Concrete road surfacing involves the mixing of cement, stone and water and the laying of
this mixture with a purpose built concrete paver.
5 The laying/paving of asphalt is usually the last part of the road construction process.
3
[12] The proposed transaction gives rise to vertical integration given that Roadspan
is involved in the (upstream) manufacturing and supply of hot mix asphalt, as
well as the (downstream) provision of road surfacing and rehabilitation services
to inter alia the broader roads construction market where WBHO is active.
Relevant markets
Relevant product markets
[13] According to the Competition Commission ’s assessment the relevant product
markets are:
(i) the (upstream) market s for the manufacture and supply of (a) cold mix
and (b) hot mix asphalt; these constitute separate relevant markets;
Hot mix asphalt is used for larger or new road construction . Cold mix
asphalt, on the other hand, is a temporary application usually used for
small road maintenance work, for example pothole repairs; it is bagged
and can be stored for more than six months. Roadspan has a relatively
insignificant market position in the manufacturing and supply of cold mix
asphalt and therefore this market would not be considered any further in
these reasons since this Roadspan activity is unlikely to raise any vertical
competition concerns.
(ii) the (downstream) roads construction market6; and
(iii) the (downstream) road surfacing and rehabilitation market (which, as
explained in paragraph 9 above, is a submarket of the broader roads
construction market).
Relevant geographic markets
[14] The Commission concluded that the relevant geographic market for the
production and supply of hot mix asphalt is at most regional. Hot mix asphalt is
temperature sensitive and must be paved at temperatures in excess of 140
degrees Celsius; the mix cools down when transported and can thus easily
reach unacceptably low temperature levels. Furthermore, hot mix asphalt cannot
6 See, for example, the Tribunal’s decision in the large merger between Murray & Roberts
Limited and Concor Limited, Case no. 101/LM/Oct05.
4
be transported over longer distances due to transport cost factors. However, the
merging parties submit that although the asphalt production plants have a limited
supply radius, the relevant geographic market for hot mix asphalt is nevertheless
national since market participants use mobile asphalt plants (which comprise
staff and equipment) to provide hot mix asphalt throughout South Africa. The
Commission’s market investigation confirmed the latter phenomenon of mobile
asphalt plants.
[15] For the vertical assessment of the instant transaction the exact geographic
scope of the relevant geographic markets for (i) hot mix asphalt production and
supply, (ii) roads construction and (iii) road surfacing and rehabilitation services
can be left open since it does not alter our conclusion regarding the likely vertical
competitive effects of the proposed deal.
Competition assessment
Manufacture and supply of hot mix asphalt
[16] The merging parties estimate that Roadspan has a national market share of less
than 10% in the manufacturing and supply of hot mix asphalt. Several larger
competitors than Roadspan are active in this market, including Much Asphalt,
National Asphalt and Akasia Road Surfacing, as well as smaller players such as
Rand Roads and Concor Roads & Earthworks.
[17] The Commission analysed the geographic overlaps between Roadspan’s
asphalt plants and that of other asphalt producers and found substantial
overlaps between these plants within a 200 km radius of the Roadspan plants. In
the Kimberly region, where there is limited overlap, Roadspan competes with a
much larger competitor, namely Much Asphalt. Roadspan has no presence in
the supply of asphalt in the KwaZulu-Natal, Western Cape and Eastern Cape
provinces. Furthermore, on a regional basis the mobile asphalt plant
phenomenon (see paragraph 14 above) further mitigates against any likely
vertical competition concerns resulting from this proposed deal.
vertical competition concerns resulting from this proposed deal.
Roads construction
5
[18] The merging parties estimate that WBHO has a national market share of less
than 10% in the broader roads construction market where it competes with a
number of larger competitors including Raubex, Grinaker LTA, Murray & Roberts
and Group 5. Basil Read is a smaller competitor. There is no reason to believe
that WBHO’s market position in this market would be significantly different on a
regional basis.
Road surfacing and rehabilitation
[19] The merging parties estimate that Roadspan has a national market share of less
than 10% in the market for the surfacing and rehabilitation of roads. According to
the merging parties the largest player in this market is Road Mac Surfacing,
followed by smaller competitors such as Rand Roads, Power Construction,
Concor Roads & Earthworks and Tau Pele Construction. If regional geographic
markets are assumed, the merging parties estimate that Roadspan has a market
share of less than 15% in Gauteng, which is the area in which most road
surfacing and rehabilitation activities take place. According to the merging
parties’ estimates, Roadspan’s market share in this market would be less than
10% in all geographic regions other than Gauteng.
Conclusion
[20] As is evident from the above, Roadspan is a relatively small player in the
downstream market for the provision of road surfacing and rehabilitation
services; likewise WBHO is a relatively small player in the broader roads
construction market. Furthermore, the Commission’s market investigation has
confirmed that customers have a number of alternative suppliers in each of the
relevant markets, including the market for the manufacturing and supply of hot
mix asphalt. Moreover, Roadspan at present does not have the capacity to
supply all the acquiring group’s asphalt and roads surfacing needs, and
therefore it is expected that WBHO would post-merger continue to purchase
therefore it is expected that WBHO would post-merger continue to purchase
asphalt and road surfacing services from Roadspan’s competitors. We therefore
conclude that the proposed deal is unlikely to raise vertical input or customer
foreclosure concerns.
Public interest
6
[21] No public interest issues arise from the proposed deal. The merging parties
have confirmed that no retrenchments or job losses are anticipated as a result of
the proposed deal.
Conclusion
[22] In light of the above, we find that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market. Furthermore,
no public interest issues arise from the proposed deal. Accordingly we approve
the proposed transaction without conditions.
____________________ 23 March 2010
Andreas Wessels DATE
Yasmin Carrim and Norman Manoim concurring
Tribunal Researcher: Thandi Lamprecht
For the merging parties: Cliffe Dekker Hofmeyr Inc
For the Commission: Fergus Reid (Mergers and Acquisitions Division)
7