COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:19/AM/Feb12
(014167)
In the matter between:
SUNSET BAY TRADING 368 (PTY) LTD Acquiring Firm
And
JOBLING INVESTMENTS (PTY) LTD Target Firm
Panel: Yasmin Carrim (Presiding Member),
Medi Mokuena (Tribunal Member)
Takalani Madima (Tribunal Member)
Order issued on: 08 May 2012
Reasons issued on : 27 June 2012
Reasons for Decision
Approval
[1]On 8 May 2012 the Competition Tribunal ("Tribunal") approved the intermediate merger
between Sunset Bay Trading 368 (Pty) Ltd and Jobling Investments (Pty) Ltd subject to
conditions. Our reasons for approving the transaction are set out below.
[2] The merging parties notified the above merger with the Competition Commission (the
"Commission") in terms of section 13A(1) of the Competition Act1 ("the Act") on 9 November
2011.
[3] On 6 February 2012 the Commission issued a Notice CC 16 in terms of
section 14 of the Act, prohibiting the transaction.
[4] On 20 February 2012 the merging parties filed a Form CT 4 Request for Consideration in
terms of Rule 32 of the Tribunal Rules.
The Parties to the transaction
1 Act No. 89 of 1998.
[5] The primary acquiring firm, Sunset Bay Trading 368 (Pty) Ltd ("Sunset Bay"), which
primarily operates in the Gauteng Region, conducts its business through Gold Circle Metals,2
Derco Metals and Triangle Metals which are its trading divisions stocking and distributing
various non-ferrous metals to original equipment manufacturers ("OEMs").
[6] Gold Circle Metals stocks a variety of products such as brass and copper extrusions,
earthing tape for electrical application as well as local and imported mirror-finished sheeting,
shimstock, tubing, different qualities of cast bronze bar, oil impregnated bronze, aluminium
bronze, cast iron solid bar and a variety of copper based ingot.
[7] A further entity within the acquiring firm's structures which is relevant for the proposed
transaction is Copalcor,3 a firm controlled by Sunset Bay. Copalcor is a manufacturer of
copper, brass and alloy-based semi-finished products and turnkey busbar solutions. The
solutions it offers include a wide range of rolled, extruded and forged non-ferrous metal
products for the local and international market.
[8] Copalcor is therefore active in the upstream market for the manufacturing of semi-
fabricated products and in the downstream market for the distribution of non-ferrous metals
and semi-finished goods.
[9] The primary target firm, Jobling Investments (Pty) Ltd ("Jobling"), is an investment
company which holds 100% of the shares in Maksal (Pty) Ltd4 ("Maksal"). Jobling has no
other business activities other than its shares in Maksal. Maksal is comprised of three main
business units: copper tubes, copper busbar and the importation of copper fittings and rubber
insulation.
[10] Copper tubes are Maksal's main business and this division manufactures plumbing
tubes, air-conditioning tubes and refrigeration tubes which are supplied to retailers,
wholesalers and smaller independent retailers. Maksal also exports approximately half of its
wholesalers and smaller independent retailers. Maksal also exports approximately half of its
copper tubes. Maksal also imports copper fittings and rubber insulation from China and Great
Britain
[11] Maksal produces extruded copper busbar and solid copper extrusions
used in high and low voltage reticulation applications. Its customers for the above products
are OEM and stockists thereof. OEMs produce electrical switchboards used in high and low
reticulation and protection units.
[12] Maksal supplies Sunset Bay and Copalcor with extruded copper busbar
and solid copper extrusions.
[13] The relevant market identified for the purposes of the competition analysis is the market
for extruded copper busbar and solid copper extrusions.
2 httD:// www.aoldcirclemetals.co.za/aboutus.htm
3 Copalcor's manufacturing plant is situated in Wadeville Germiston and it has stockist
divisions in Cape Town, Pretoria, Durban and Port Elizabeth.
4 http://www.maksal.com/About.aspx
The Transaction
[14] The transaction involves Sunset Bay's acquisition of 50% of the issued share capital in
Jobling from the Pistorius Trust. Sunset Bay already has a shareholding of 36% in Jobling.
The proposed transaction will therefore result in Sunset Bay increasing its shareholding to
86% and thereby acquiring sole control of Jobling and also acquiring indirect control of
Maksal.
The Rationale
[15] The acquiring firm, as an existing shareholder, is exercising its preemptive right to
purchase the 50% shares following an offer by an independent third party to purchase same.
[16] The target firm's current Managing Director, who controls the Pistorius Trust, wishes to
embark on a new business venture and therefore wishes to eliminate his risk exposure
associated with Jobling.
Competition Analysis
[17] In its analysis of the proposed transaction, the Commission was of the view that the
transaction presents both vertical and horizontal dimensions.
[18] Both Maksal and Copalcor manufacture solid copper extrusions and extended copper
busbar. The Commission however established that Copalcor only manufactures solid copper
extrusions for its own internal use and does not have the capacity to manufacture same for
the general market. The Commission concluded that there is no overlap in the upstream
manufacturing of solid copper extrusions.
[19] Maksal supplies Sunset Bay and Copalcor with solid copper extrusions and extruded
copper busbar which they distribute to OEMs, giving the merger a vertical dimension.
[20] Maksal also supplies solid copper extrusions and extruded copper busbar
directly to OEMs thereby also giving the transaction a horizontal dimension
in that the merging parties both supply OEMs.
[21] The Commission concluded that Maksal, Sunset Bay and Copalcor sell
the same product and compete for the same customers and should at
least be considered to be competitors.
[22] The Commission's market share calculations show that the merged entity
[22] The Commission's market share calculations show that the merged entity
will have a relatively high market share at the downstream level for the distribution of solid
copper extrusions and extruded copper busbar when one includes the MSS5 customers
5 MSS South Africa ("MSS") was the largest importer of extruded and rolled copper
busbar products in South Africa and Copalcor purchased its stock and its customer list in
October 2011. MSS informed the Commission that it sold its South African operations due to
inadequate returns and underperformance due to a drop in demand and lower margins due to
resulting from the purchase agreement with MSS. The merged entity's biggest competitor is
Non-Ferrous Metal Works (Pty) Ltd ("NFM") which has a relatively low market share and other
stockists seem to have negligible market shares.
[23] The Commission found that barriers to entry into the downstream market for the
distribution of solid copper extrusions and extruded copper busbar are likely to be very high
due to the highly specialized nature of the products involved. The proposed vertical
integration will therefore raise barriers to entry into this market.
[24] It also found that the upstream and downstream markets are highly concentrated and
concluded that the proposed transaction will result in a higher market concentration.
[25] The Commission therefore concluded that the proposed transaction raises foreclosure
concerns and is likely to lead to a substantial prevention or lessening of competition in the
above markets and therefore recommended the prohibition of the proposed merger.6
[26] In contrast to the above contentions, the merging parties submit that Sunset Bay and
Maksal are at different levels of the supply chain, with Maksal being active in the upstream
market for the manufacturing of solid copper extrusions and extruded copper busbar, while
Sunset Bay is in the downstream market for the distribution thereof.
[27] The merging parties' view is that NFM, which is a vertically integrated firm, is an effective
competitor in the downstream market and would be a significant constraint post-merger.
Further, the merging parties state that imports are a significant factor in the downstream
market and would further materially constrain any attempts to increase prices.
[28] The merging parties also contend that customers have significant countervailing power in
that they are price-sensitive and are willing and able to switch to other suppliers if they regard
the prices of a particular supplier as being high.7 Further, the merging parties believe that the
Commission's foreclosure concerns could be easily remedied by imposing supply related
conditions on the merger.8
[29] On the days leading up to the Tribunal's hearing of the proposed merger,
the merging parties and the Commission agreed on conditions to be imposed on the
transaction to remedy the Commission's competition concerns.
[30] The proposed conditions impose supply conditions in terms of which the merged entity
must continue to make products available for sale to existing and new independent stockists.
The conditions also focus on transparency
and equal treatment of stockists in the event of a reduction in production.
a weaker currency.
6 Commission's Notice CC 16 dated 6 February 2012.
7 Customers are able to monitor prices on the London Metal Exchange which is the
international pricing measure in the markets herein.
8 Form CT 4 Request for Consideration dated 20 February 2012.
[31] The conditions, which are applicable for a period of 3 (three) years, also require strict
monitoring and an annual audit certificate by an independent auditor.
[32] The Tribunal also ordered that the conditions be posted on the merged entity's website
for a 3 (three) year period. This was aimed at facilitating the reporting of non-compliance with
the conditions by customers and the
general public.9
Public Interest
[33] The merging parties submit that the proposed transaction will result in 1(one) job loss,
being that of the Managing Director, and that the Transction further raises no other public
interest concerns.
[34] The merging parties further state that the transaction will result in 21 new jobs being
created at, Sunset Bay for the lower income group sector.
Conclusion
[35] Having considered above facts, we found that the proposed conditions adequately
addressed the competition concerns raised by the proposed merger.
[36] The above merger was therefore approved, on the conditions attached hereto as
annexure A and to our order issued on 8 May 2012.
27 June 2012
DATE
Yasmin Carrim
Tribunal Researcher: Songezo Ralarala
For the merging parties: Vani Chetty of Vani Chetty Competition Law (Pty) Ltd
For the Commission: Jabulani Ngobeni, Werner Rysbergen and Reena Das Nair
9 http://www.maksal.com/News.aspx is where the Conditions and the Tribunal's Order
and Conditions are located on the merging parties website.