COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 53/LM/Aug10
In the matter between:
Aveng (Africa) Limited Acquiring Firm
And
Dynamic Fluid Control (Pty) Ltd Target
Firm
Panel : Yasmin Carrim (Presiding Member)
Andreas Wessels (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on : 27 October 2010
Order issued on : 28 October 2010
Reasons issued on : 17 November 2010
Reasons for Decision
Approval
1] On 28 October 2010, the Competition Tribunal (“Tribunal”)
unconditionally approved the merger between the acquiring firm, Aveng
(Africa) Limited, and the target firm, Dynamic Fluid Control (Pty) Ltd.
The reasons for the approval of this transaction follow below.
1
The parties and their activities
2] The primary acquiring firm is Aveng (Africa) Limited (“Aveng”), a
principal subsidiary of Aveng Limited, which is an investment holding
company that is listed in the Heavy Construction – Construction and
Material sector of the Johannesburg Securities Exchange and does not
itself conduct any business operations. Aveng is a multi-disciplinary
construction and engineering company, focused on infrastructure,
energy and mining opportunities in Africa. For purposes of this
transaction the relevant business unit of Aveng is Alpret Control
Specialists (“ACS”).
3] Dynamic Fluid Control (Pty) Ltd (“DFC”) is the primary target firm. DFC
is jointly controlled by Standard Bank of South Africa, Kagiso Strategic
Investments (Pty) Ltd, and the Trustees for the time being of the
D.W.S. Investment Trust. DFC manufactures and supplies industrial
valves to the water and mining industries. Its operations are mainly split
between two of its subsidiaries, namely Dynamic Fluid Control Water
(Pty) Ltd and Dynamic Fluid Control Mining (Pty) Ltd.1
The transaction
4] In terms of the Sale of Shares agreement, Aveng intends to acquire the
entire issued share capital of DFC. On completion of the proposed
transaction Aveng will have sole control over DFC.
The rationale
5] From the acquiring firm’s perspective, this transaction is part of its
objective to achieve strategic growth in the infrastructure value chain in
South Africa, more specifically Aveng has identified activities in the
water infrastructure value chain as an area of growth. Therefore given
DFC’s experience and reputation in the market for valves utilised in the
water industry, the proposed transaction will facilitate Aveng’s
expansion in the water treatment market. DFC has a broad customer
1 Three of DFC’s other subsidiaries are currently dormant, namely Dynamic Fluid Control 262
1 Three of DFC’s other subsidiaries are currently dormant, namely Dynamic Fluid Control 262
(Pty) Ltd, Insamcor (Pty) Ltd and Pressure Management Systems (Pty) Ltd.
2
base to expand or create business opportunities in the water treatment
and mining sectors.
6] From the perspective of the selling parties, being DFC’s shareholders
comprising of private equity investors and management, the proposed
sale of DFC is seen as an exit opportunity.
Horizontal overlap
7] There is a horizontal overlap in the activities of the merging firms as
both ACS, a division of Aveng, and DFC supply self-operating
regulators as part of their valve product offering.
Potential relevant markets and impact on competition
8] There was some disagreement between the Competition Commission
(“the Commission”) and the merging parties regarding the delineation
of the relevant product market. The Commission argued that the
market should be viewed as a single market for the supply of self-
operating regulators. The Commission defined this market as national
in geographic scope. The merging parties, on the other hand, were of
the view that they focus on different customer segments and that each
of these segments constitute a separate relevant product market (see
below).
9] We however do not, for the purpose of this transaction, find it
necessary to define the exact parameters of the relevant product
market(s) since it does not alter our conclusion.
10] ACS mainly distributes control instrumentation on behalf of Emerson
Process Management (who ACS represents in southern and eastern
Africa), and in particular process control valves. Process control valves
are used in pipelines to control operating conditions such as flow,
pressure, temperature, and liquid level by fully or partially opening or
closing in response to a process signal sent from a control room. In
addition to these process control valves, ACS supplies two brands of
self-operating regulators, being the Fisher and the Daniel self-operating
3
regulators.
11]The majority of DFC’s valve range, on the other hand, consists of
mechanical valves, which use mechanical energy or compressed air for
opening and closing mechanisms. A set of levers, pulleys, linkages,
springs and threaded shafts are used to operate the valve. DFC
supplies one type of valve which is a self-operating regulator, namely
the Cla-Val automatic control valve.
12]Although both ACS and DFC supply self-operating regulators as part of
their product offering each of these firms focus on different customer
segments. DFC supplies the Cla-Val self-operating regulator to the
portable water industry, and ACS supplies its self-operating regulators
to the pulp and paper, oil and gas, refining, synfuels petrochemicals,
chemical, power generation and mining industries. The merging parties
further submitted that the demand in the industries on which ACS
focuses is for application-specific custom-designed or engineered self-
operating regulators, whilst the demand in the portable water industry
as supplied by DFC is for large quantities of “commodity” self-operating
regulators.
13]Assuming that the activities of the merging parties overlap in a (broadly
defined) potential national market for the supply of self-operating
regulators, the market share accretion as a result of the proposed deal
is extremely limited. In light of this we find that the transaction is
unlikely to substantially prevent or lessen competition in this potential
relevant market.
14]Furthermore, we conclude that the merger is unlikely to lead to
significant vertical integration since the two Aveng subsidiaries 2 that
require valves for their operations either do not purchase any valves of
the type supplied by DFC or only require and purchase a very limited
number of valves as supplied by DFC.
Public interest
2 Namely the mining division of Grinaker-LTA and Keyplan (Pty) Ltd, a subsidiary of Aveng.
4
15]The merging parties confirmed that the proposed deal will have no
effect on employment. 3 Furthermore, no other public interest issues
arise from the proposed transaction.
CONCLUSION
16]In light of the above we find that the transaction is unlikely to
substantially prevent or lessen competition in any potential relevant
market. In addition, no public interest issues arise from the proposed
transaction. We accordingly approve the proposed transaction
unconditionally.
____________________ 17 November 2010
Andreas Wessels DATE
Yasmin Carrim and Medi Mokuena concurring
Tribunal Researcher: Thandi Lamprecht
For the merging parties: Webber Wentzel
For the Commission: Themba Mahlangu
3 See inter alia pages 7 and 54 of the record.
5