COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 57/LM/Sep10
In the matter between:
Daybreak Farms (Pty) Ltd Acquiring Firm
And
Rossgro Chickens (Pty) Ltd Target Firms
Panel : Yasmin Carrim (Presiding Member)
Andreas Wessels (Tribunal Member)
Medi Mokuena (Tribunal Member)
Heard on : 03/11/2010
Order issued on : 03/11/2010
Reasons issued on : 29/11/2010
Reasons for Decision
Approval
1] On 10 November 2010 the Competition Tribunal (“Tribunal”)
unconditionally approved the merger between Daybreak Farms (Pty)
Ltd (“Daybreak Farms”) and Rossgro Chickens (Pty) Ltd (“Rossgro
Chickens”)
The Transaction
2] The acquiring firm is Daybreak Farms which is ultimately controlled by
Afgri Limited (“Afgri”). Daybreak is a fully integrated broiler operation,
which provides feed, breeds and grows chickens, and is involved in
slaughtering and producing the final product, i.e. frozen chicken
products.1
1 Through its three operating divisions; Afgri Agri Services, Afgri Financial Services and Afgri Foods,
Afgri provides diverse and integrated range of products and services. The service for production of
frozen poultry products falls within the Afgri Foods division.
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3] The target firm is Rossgro Chickens which is part of Rossouw Group
which has farming operations in the Delmas area. Rossgro Chickens is
mainly active in the operation of a poultry abattoir as well as the
processing and sale of poultry products such as fresh and frozen
chicken portions, whole birds, and frozen tray packs.
4] In terms of the transaction Daybreak Farms will acquire the business of
Rossgro Chickens as a going concern.
Rationale
5] Through this transaction Daybreak Farms will expand capacity,
particularly in its abattoir operations, as well in the production of frozen
poultry products. For the Rossouw Group, the proposed transaction will
enable it to focus on its primary production farming operations.
Competition Analysis
Horizontal Analysis
6] A horizontal overlap arises in respect to the slaughtering, processing
and sale of frozen poultry products. Daybreak Farms only produces
frozen poultry products, and Rossgro Chickens’ production is also
largely frozen poultry.2
7] In terms of the market share estimates provided by the Commission
Daybreak Farms currently has 3.7% market share and Rossgro
Chickens has 1.8% market share. The market share accretion post
merger is minimal as the merger entity will have 5.5% market share.
Hence from the perspective of the horizontal overlap the transaction
does not raise competition concerns. The merged entity will continue
to face competition from large competitors such as Rainbow, Astral
and Supreme3.
Vertical Analysis
2 Rossgro Chickens’ fresh poultry products constitute about 3% of its overall production.
3 These competitors have 24%, 17.2% and 7.6% market share, respectively.
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8] There is a vertical relationship between the merging parties. Both the
Commission and the merging parties identified two direct vertical
relationships – the first involves the rearing of broilers in the upstream
market, which are then supplied to the abattoir for processing and sales
operations in the downstream market. The second involves the
production of chicken feed in the upstream market which is supplied to
broiler growers in the downstream market.
9] According to the parties, Daybreak Farms uses independent broiler
farmers to grow broilers that it itself does not have the capacity to grow
for its downstream operations. In terms of the supply to broiler growers
in the downstream, the parties submitted that there are other poultry
feed providers from whom feed could be obtained other than from Afgri.
They submitted that the merged entity will not have sufficient capacity to
embark in any foreclosure strategy since it will remain relatively
insignificant.
History of Collusion and Co-ordinated Effects
10] There is a pending investigation by the Commission of collusion/co-
ordination in the Poultry sector. The Commission had received an
application for leniency under its Corporate Leniency Policy from one of
the players in the industry. The Commission submitted that it had
factored this into its assessment of the merger. The cartel under
investigation pertains to price fixing in the market for production of fresh
poultry products and not the frozen poultry market which is relevant to
this merger. However given that Rossgro Chickens is to a limited extent
active in the fresh poultry market, the Commission at the hearing
explained that the fresh poultry market is generally on a regional market
basis, and that the cartel conduct under investigation is in a different
region to that in which Rossgro Chickens is involved.
11] Further, the Commission said that given the small size of the merged
11] Further, the Commission said that given the small size of the merged
entity, particularly Rossgro Chickens in the industry, the merger was
unlikely to strengthen the cartel conduct.
Employment Impact
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12] According to the parties the merger will result in 14 retrenchments.
However, it was submitted that the affected jobs relate to junior
management and administration staff. Daybreak Farms undertook to
do its utmost to accommodate as many employees transferred from
Rossgro Chickens as possible, and to retrench only as a matter of
last resort. In light of this undertaking and given that the employees
likely to be affected are skilled employees whose mobility within the
labour market would not be difficult we are of the view that the merger
does not raise serious concerns with respect to job losses.
Conclusion
13] We therefore conclude that the proposed merger is unlikely to lead to a
substantial prevention or lessening of competition in any of the relevant
markets. Hence the proposed transaction is approved unconditionally.
____________________ 29/11/2010
Yasmin Carrim DATE
Andreas Wessels and Medi Mokuena concurring
Tribunal Researcher: Londiwe Senona
For the merging parties: Webber Wentzel
For the Commission: F. Reid
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