COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:65/LM/Aug11
In the matter between:
STEFANUTTI STOCKS (PTY) LTD Acquiring Firm
And
CYCAD PIPELINES (PTY) LTD Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Andreas Wessels (Tribunal Member)
Heard on : 14 December 2011
Order issued on : 14 December 2011
Reasons issued on : 22 December 2011
Reasons for Decision
Approval
1] On 14 December 2011, the Competition Tribunal (“Tribunal”) approved
the large merger between Stefanutti Stocks (Pty) Ltd (“Stefanutti”) and
Cycad Pipelines (Pty) Ltd (“Cycad”). The reasons for approving the
proposed transaction follow below.
The parties to the transaction
2] The primary acquiring firm is Stefanutti, a private company
incorporated according to the laws of the Republic of South Africa. It is
a multi-disciplinary construction company, providing various
construction-related activities1. It is wholly-owned by Stefanutti Stocks
Holdings Limited (“Stefanutti Holdings”), a public company listed on the
JSE with no single controlling shareholder.
3] The target firm is Cycad, a private company incorporated according to
the laws of the Republic of South Africa. Cycad is involved in the
pipeline construction market and specialises in pipe-laying and pipe
refurbishment activities in the water, gas, fuel and sewerage industries.
Cycad is also involved in undertaking civil and minor mechanical work,
but merely in conjunction with these pipeline activities.
4] Both parties are currently respondents in proceedings by the
Competition Commission (“Commission”), for contravening section 4 of
the Competition Act2 (“the Act”), which will be elaborated on below.
5] In terms of the proposed transaction, Stefanutti will purchase 100% of
the issued shares in Cycad, acquiring a controlling interest in Cycad.
The Rationale
6] Cycad usually does not engage in joint ventures, as 80% of its work is
done with it being the main contractor. The other 20% is done by way
of joint ventures which are usually with Stefanutti.
7] Post-merger, Stefanutti will have more access to specialist skills and
will have the ability to participate in the pipeline construction market,
which it identified as being a growth sector in the South African market.
8] Cycad is currently categorised by the CIDB 3 as a grade 8 firm and this
transaction will enable it to expand into the growing grade 9 category,
as there is sufficient demand for such a specialised market. Firms in
this industry are graded by the CIDB according to their ability to
perform work of a particular scale. The higher the grade the more a
1 Activities such as the construction of fixed infrastructure, municipal services, industrial
facilities, mining facilities , as well as other structures and buildings
2 89 of 1998
3 Construction Industry Development Board
2
firm is able to perform large scale civil engineering work. According to
the CIDB grading system, a company may only tender for a contract for
which it is graded. Lower-rated firms can participate in joint ventures
with a higher rated firm for such tender purposes.
The relevant market and the impact on competition
9] The relevant market is the market for civil engineering services. The
upstream market is the market for steel pipeline construction for
companies with a grading of 8 or 9.
10]The Commission found that the transaction results in both a horizontal
and a vertical overlap, as both parties provide civil engineering services
as part of their construction activities. However, Cycad’s civil
engineering services are limited as they do not provide such services
as a separate product; as such services are only provided as part of
their principal activity, being pipeline construction.
11]The vertical overlap exists because Stefanutti used Cycad’s pipeline
construction services to undertake large infrastructure projects which
required specialised pipe-laying components.
12]Both Cycad4 and Stefanutti5 have low pre-merger market shares in their
respective market.
CO-ORDINATED EFFECTS
13]The only issue that needs further consideration in this merger is the
possibility that it may facilitate collusion or enhance a pre-existing
collusion. 6
14]The merging parties have disclosed that both are respondents in
separate investigations by the Commission alleging that they with other
4 Between 13% - 18% over the past four years: 2007 – 2010
5 Between 8% - 11% over the past three years: 2008 – 2010
6 See Main Street 333(Pty) Ltd and Kumba Resources Ld (14/LM/Feb06) at paragraph 37
firms may have been involved in conduct that contravenes section 4 of
the Act. The merging parties argued that even if the firms were
ultimately found to have contravened the Act in respect of these
activities the current merger would not make future collusion more
likely or more difficult to prosecute. The reason is that the alleged
collusion occurred in separate and unrelated markets – one in
construction in respect of Steffanuti and the other in pipeline
construction in respect of Cycad - and thus the merging firms are not
alleged to have colluded with one another nor would the merger make
collusion in either of these markets more likely or easier to enforce as
vertical mergers have the potential of doing. 7
CONCLUSION
15]The proposed transaction does not raise any barriers to entry, nor are
there any significant public interest issues.
16]The Tribunal agrees with the recommendation of the Commission that,
in light of the other competitors active in the relevant markets, the
merging parties’ alleged collusive activities not involving the other party
and that the transaction does not result in a substantial overlap, the
merger is unlikely to substantially prevent or lessen competition in the
markets. As such, we approve the merger unconditionally.
____________________ 22 December 2011
NORMAN MANOIM DATE
Yasmin Carrim and Andreas Wessels concurring.
Tribunal Researcher: Nicola Ilgner
For the merging parties: Webber Wentzel
For the Commission: Lerato Monareng
7 See Mondi Limited v Kohler Cores and Tubes, a division of Kohler Packaging Limited
(20/CAC/Jun02) at paragraph 45
4