COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 34/LM/Jun10
In the matter between:
Total South Africa (Pty) Ltd Acquiring Firms
And
Tosaco Commercial Services (Pty) Ltd Target Firm
Panel : Norman Manoim (Presiding Member),
Andreas Wessels (Tribunal Member)
and Yasmin Carrim (Tribunal Member)
Heard on : 08 September 2010
Order issued on : 08 September 2010
Reasons issued on : 06 October 2010
Reasons for Decision
Approval
1] On 08 September 2010, the Competition Tribunal (“Tribunal”)
unconditionally approved a merger between the above mentioned
parties. The reasons for approving the transaction follow.
The parties and their activities
2] The primary acquiring firm is Total South Africa (Pty) Ltd (“Total SA”) a
public company incorporated under the company laws of the Republic of
1
South Africa. Total Sociėtė Anonyme (“Total Overseas Holding”),
Industrial Partnership Investments Ltd (“Remgro Limited”) and Main
Street 87 (Pty) Ltd (“Main Street”)1 jointly control Total SA.
3] Total SA is active in the petrochemicals industry. Through its stake in the
Natref refinery based in the inland region, Total SA has refinery
capabilities and is a producer, refiner and seller of petroleum products. 2
Total SA sells its petroleum products to retail, commercial and industrial
customers; to various customers active in various industries and to
dealers (retailers) across about 588 branded service stations throughout
South Africa. Total SA also offers commercial customers diesel credit
cards with which they use to purchase fuels and lubricants at service
stations and make payments at tollgates. Additionally, Total SA offers
technical services to commercial customers which include fuel
equipment maintenance, tribology and fuel, and lubricant advisory
services.
4] The primary target firm is Tosaco Commercial Services (Pty) Ltd (“TCS”)
a company incorporated under the company laws of the Republic of
South Africa. TCS is jointly controlled by Total SA and Main Street 87
(Pty) Ltd. TCS itself does not directly or indirectly control any firm.
5] TCS is involved in the sale of petroleum products. TCS markets and
distributes petrol, diesel, illuminating paraffin and lubricants to
commercial customers.
The Transaction
6] The proposed merger transaction is for Total SA to exercise a call option
by either acquiring 75.1% stake held by Main Street in TCS or the
business of TCS as a going concern.
1 A Black Economic Empowerment consortium
2 Products including petrol, diesel, fuel oils, aviation fuels, marine fuels, bitumen, liquefied petroleum
gas (“LPG”), lubricants, agro chemicals, illuminating paraffin and kerosene.
2
The relevant market and impact on competition
7] The proposed transaction arises from a market structure known as dual
distribution system where both the supplier and its distributors supply
their products to the same market. This market, for analysis, is
considered to have vertical and horizontal effects.
8] There are two relevant markets, the upstream market for the refining and
production of petroleum products, and the downstream market for
marketing and distribution of petroleum products. Total SA is involved in
both these markets. TCS is involved in only the downstream market. The
markets are broken down into further narrower markets namely, the
market for the production and refining of petroleum products; the
downstream market for the commercial or wholesale marketing and
distribution of petroleum products; and the downstream market for the
retail marketing and distribution of petroleum products.
9] In the upstream market for the production and refining of petroleum
products Total SA is active through its stake in Natref refinery which is
located in the inland regions. TCS is not present in this market as a
supplier but present as a customer of Total SA. Vertical overlaps exist in
the market under discussion and the downstream market for the
wholesale marketing and distribution of petroleum products. The
geographical market is regional, inland, and on this basis the market
shares held by Natref and consequently Total SA are low and there is no
accretion post the merger.
10] In the market for the commercial or wholesale marketing and
distribution of petroleum products both the merging parties are active
on a national level (throughout South Africa). There is a horizontal
overlap in this market as both the merging parties are involved in the
business of selling products comprising of petrol. TCS is a small player
business of selling products comprising of petrol. TCS is a small player
in this market. The accretion in market shares as a result of the merger
is low and will not be greater than 15% post the merger. There are also
a number of effective competitors in this market. Accordingly the merger
3
does not raise any concerns in this market.
11] The proposed merger transaction will result in vertical integration. This is
because Total SA, the acquiring firm, is active in the upstream market for
the production of petroleum products. Further, TCS, the target firm, is
active in the downstream market for the commercial marketing and
distribution of petroleum products and exclusively purchases various
products from Total SA.
12] Total SA however is already vertically integrated and is a supplier to
various other customers as well as its own downstream marketing and
distribution divisions. Customers in the downstream market are also able
to source product from other oil companies in the country and Total SA’s
rivals in the inland region. Post the merger transaction Total SA indicates
that it will continue to provide products to its competitors and customers,
including TCS’s customers. Hence the likelihood of customer or input
foreclosure is small.
Public interest
13] Approximately 22% of TCS’s workforce will be negatively affected by the
proposed merger transaction due to expected duplication of functions in
the merged firm. This will see a total of 5 employees being retrenched.
However, these are semi-skilled or skilled employees who are likely to
find employment elsewhere.
14] Total SA is a broad based black economic empowerment firm and this
transaction is a consequence of a BEE transaction that was framed
several years ago and is now coming to its full conclusion.
Conclusion
15] Due to the low market share accretion, the presence of effective
competition and insignificant public interest concerns, the proposed
4
merger transaction is approved without conditions as it is unlikely to
substantially prevent or lessen competition.
____________________ 06 October 2010
Yasmin Carrim DATE
Norman Manoim and Andreas Wessels concurring
Tribunal Researcher : Mahashane Shabangu
For the Merging parties : Paul Coetser of Werksmans Attorneys
For the Commission : Themba Mahlangu of the Mergers
and
Acquisitions Division
5