Summary of Judgment

1. Introduction

These proceedings concerned the Competition Tribunal of South Africa’s determination of two interrelated large merger notifications, which the Competition Commission analysed and referred to the Tribunal as a single matter due to their functional interdependence. The Tribunal was required to decide whether the transactions were likely to substantially prevent or lessen competition and whether any public interest concerns required conditions.

The acquiring firms were Bucyrus Africa Underground (Proprietary) Limited (referred to in the reasons as trading as Caterpillar Global Mining LLC, a wholly owned subsidiary within the Caterpillar group) and Barloworld South Africa (Pty) Limited (a wholly owned subsidiary within the Barloworld group). The target firms/assets comprised (i) the Mining Services Business conducted by Eqstra NH (Pty) Ltd (in the first transaction), and (ii) in the second transaction, the Mining Services Business (once acquired by Bucyrus in the first transaction) together with elements of Bucyrus’s distribution and support activities described as Mining Equipment Sales (distribution service business for surface mining equipment) and the Support Business (underground mining equipment support).

Procedurally, the two merger transactions were filed with the Competition Commission on 20 March 2012 and 2 April 2012 respectively. Because the transactions were interrelated, the Commission filed one referral to the Tribunal covering both. The matter was heard on 27 June 2012, the Tribunal issued an order on 27 June 2012 granting approval, and later delivered reasons on 16 July 2012.

The general subject-matter of the dispute was the consolidation and reorganisation of distribution and after-sales support arrangements for certain Bucyrus/Caterpillar mining equipment product lines in South Africa, culminating in Barloworld becoming the sole distributor and support provider for the relevant Bucyrus and Caterpillar branded products in South Africa.

2. Material Facts

The Tribunal treated the transactions against a commercial backdrop in which Bucyrus and Caterpillar had been involved in prior merger transactions forming part of a broader integration process. Bucyrus had previously acquired the mining business of Terex Corporation (a transaction approved by the Commission in 2010), and Caterpillar acquired Bucyrus International in 2011 (a transaction approved by the Commission). The Tribunal characterised the present transactions as the last phase of the Caterpillar/Bucyrus merger integration.

In the first transaction, Bucyrus acquired the Mining Services Business conducted by Eqstra as an indivisible going concern. A key factual premise accepted by the Tribunal was that, following Caterpillar’s acquisition of Bucyrus, Bucyrus had entered into a distribution agreement with Eqstra’s Mining Services Business division to continue distributing and providing after-sales services for certain Bucyrus branded products (including drilling equipment, hydraulic excavators, and mining trucks). The Tribunal accepted that Bucyrus was, in substance, “buying itself out” of this distribution arrangement. It was also accepted that Eqstra required Bucyrus to acquire the business because the division would become redundant without the distribution agreement, which was otherwise due to terminate in December 2013.

In the second transaction, Barloworld acquired (i) the Mining Equipment Sales and Support Business then conducted by Bucyrus, as well as (ii) the Mining Services Business that Bucyrus was acquiring from Eqstra in the first transaction. The Tribunal accepted that, post-merger, all Caterpillar products originating from Eqstra, Bucyrus and Caterpillar would be distributed solely by Barloworld in South Africa.

The Tribunal accepted the commercial rationale advanced by the merging parties. Bucyrus (trading as Caterpillar Global Mining) sought to ensure that mining equipment customers could procure required equipment and related support services through its dealer network (Barloworld). Barloworld’s rationale was to broaden its offering as Caterpillar’s established dealer (the relationship dating to 1927), enabling a “one stop shop” distribution model for Caterpillar’s expanded mining equipment range following the Caterpillar/Bucyrus integration.

For purposes of competition assessment, the Tribunal accepted that the Commission analysed the transactions as a whole due to interdependence. The Tribunal recorded that the parties’ activities included Bucyrus’s supply of surface and underground mining equipment and after-sales services; Eqstra’s Mining Services Business distribution and after-sales service provision for certain Bucyrus branded products; and Barloworld’s distribution and product support capabilities across a range of global brands including Caterpillar.

On the facts relevant to competitive overlap, the Tribunal recorded that Barloworld overlapped horizontally with the Mining Services Business in the surface mining trucks market. It also recorded that Bucyrus overlapped horizontally with the Mining Services Business in the rotary blast hole drills market, while noting that the merged entity had previously acquired the manufacturing rights/assets and was now acquiring distribution rights/assets for those products. The Tribunal further recorded that there was no overlap between Barloworld and Bucyrus.

The Tribunal accepted the Commission’s factual characterisation of procurement and market dynamics: mining equipment sales are commonly determined through bidding/tender processes, market shares can be volatile, and therefore the Commission assessed market shares over a five-year period to reflect market conditions more accurately. It accepted that in surface mining trucks, Barloworld would have a high post-merger share (recorded as 51%), but also accepted the fact that Bucyrus and the Mining Services Business had not sold surface mining trucks in the past two years, resulting in low accretion over the review period. For rotary blast hole drills, the Tribunal recorded a post-merger share of 15% and that Barloworld was a new entrant to that market.

The Tribunal accepted that barriers to entry were high, including capital and labour costs and regulatory hurdles. It also accepted that customers possessed countervailing power, being sophisticated firms purchasing through tenders where maintenance, parts availability, warranties, and service considerations materially affect purchasing decisions. The Tribunal recorded the Commission’s and parties’ submission that customers were generally not amenable to being forced into bundled purchases because they tend to diversify suppliers and procure different equipment types from different bidders.

On public interest facts, the Tribunal accepted the merging parties’ submission that they did not anticipate retrenchments, as employees were to be transferred within the merging parties. It also recorded evidence given at the hearing that the transaction could potentially support future job creation (an estimate of approximately 1000 jobs was mentioned).

3. Legal Issues

The central legal questions before the Tribunal were whether the two interdependent large mergers, assessed in substance as a combined arrangement, were likely to result in a substantial lessening or prevention of competition in any relevant market, and whether public interest considerations necessitated approval subject to conditions.

The dispute primarily concerned the application of competition law principles to market facts, rather than the resolution of sharply contested primary facts. The Tribunal’s task required market definition and competitive assessment (including concentration, market dynamics, and buyer power), and then a predictive evaluative judgment as to the likely competitive effects of the transactions—particularly regarding concerns such as tying or bundling and the effects of consolidating distribution and after-sales support under a single distributor.

4. Court’s Reasoning

The Tribunal adopted the Commission’s approach of analysing the two transactions together, reasoning that their interdependence meant they formed a coherent competitive event: the first transaction moved a distribution business from Eqstra to Bucyrus, and the second then moved that distribution and additional support functions to Barloworld, resulting in a single distribution channel for the relevant Caterpillar/Bucyrus product portfolio.

In identifying competitive interactions, the Tribunal accepted the Commission’s conclusion that relevant markets for analysis were national and centred on (i) the manufacturing of rotary blast hole drills, and (ii) the manufacture and supply of surface mining trucks. Within this framework, the Tribunal recorded the overlaps: Barloworld with the Mining Services Business in surface mining trucks; and Bucyrus with the Mining Services Business in rotary blast hole drills. It also accepted that there was no overlap between Barloworld and Bucyrus, which limited the scope of horizontal consolidation concerns between those two entities.

A significant element of the Tribunal’s reasoning concerned the nature of competition and procurement in the relevant sectors. It accepted that demand is commonly organised through tenders, and that annual tender outcomes may cause significant fluctuations in sales volumes and therefore market shares. This supported the Commission’s methodological decision to consider market shares over a longer period (five years), and it contextualised why a high share figure did not necessarily translate mechanically into durable market power in the presence of repeated competitive bidding.

The Tribunal further accepted the Commission’s assessment of post-merger shares and accretion as indicative that the merger was unlikely to materially increase concentration in a manner that would harm competition. Although Barloworld’s post-merger share in surface mining trucks was recorded as high, the Tribunal accepted that the market share accretion was low over the measured period, particularly in light of the factual finding that Bucyrus and the Mining Services Business had not sold surface mining trucks in the preceding two years. For rotary blast hole drills, the Tribunal accepted that Barloworld’s post-merger share was modest and that it was not currently active in that market pre-merger, again limiting concerns about incremental consolidation.

The Tribunal considered concerns raised (including by competitors) regarding the possibility of tying and bundling. It accepted the Commission’s and parties’ position that such strategies were unlikely to be feasible or sustainable given customer behaviour. The Tribunal placed weight on customer sophistication and procurement practices, which tended to allocate different equipment requirements to different bidders and discouraged reliance on a single supplier for all needs. It accepted that customers typically diversify suppliers and use competitive tension among distributors to drive pricing outcomes, which would constrain any attempt by the merged entity to compel bundled purchases.

The Tribunal also accepted the Commission’s conclusion that there was sufficient competition remaining in the market and that there was no evidence of exclusive distribution agreements that would foreclose rivals. The Tribunal’s acceptance of these findings was consistent with its broader view that customer countervailing power and tender-based procurement reduced the likelihood of the merger resulting in anticompetitive effects.

On public interest, the Tribunal accepted the submission that no retrenchments were anticipated because employees would be transferred within the merging parties. It recorded, without treating it as a condition for approval, the statement made at the hearing that the transaction might support job creation in the future. The Tribunal did not identify any adverse public interest effects requiring conditions.

In conclusion, the Tribunal endorsed the Commission’s overall assessment, viewing the transactions as the final steps in an earlier integration process, and accepted that the mergers were unlikely to substantially lessen or prevent competition.

5. Outcome and Relief

The Tribunal unconditionally approved both large mergers. No behavioural or structural conditions were imposed.

The reasons as provided do not record a costs order.

Cases Cited

Commission Case No. 2010Jan4894 (Bucyrus acquisition of the mining business of Terex Corporation).

Commission Case No. 2011Jan5584 (Caterpillar acquisition of Bucyrus International; approved by the Commission in April 2011).

Legislation Cited

No legislation is expressly cited in the reasons provided.

Rules of Court Cited

No rules of court are expressly cited in the reasons provided.

Held

The Competition Tribunal held that, when assessed as a whole, the interdependent transactions were unlikely to lead to a substantial lessening or prevention of competition in the identified national markets for rotary blast hole drills and surface mining trucks.

The Tribunal further held, on the material placed before it, that concerns about tying and bundling were not likely to be feasible or sustainable because customers in these markets are sophisticated, procure through tenders, and generally diversify suppliers, thereby exercising meaningful countervailing power.

The Tribunal held that no material public interest concerns (including retrenchments) arose on the evidence presented that would justify conditional approval, and it therefore approved the mergers without conditions.

LEGAL PRINCIPLES

The Tribunal applied the principle that interdependent transactions may be assessed collectively where their competitive effects are intertwined and where the transactions together create the relevant post-merger structure.

The Tribunal applied a principle of merger assessment attentive to the realities of tender-based procurement, recognising that market shares in such markets can be volatile and may be more reliably considered over a longer horizon where annual tender outcomes can materially change suppliers’ shares.

The Tribunal applied the principle that competitive harm theories such as tying and bundling must be evaluated against market conditions, including buyer sophistication and purchasing practices; where customers have substantial countervailing power and routinely diversify supply, the feasibility and sustainability of foreclosure strategies may be materially constrained.

The Tribunal applied the approach that merger control requires an integrated assessment of market structure, entry conditions, and buyer power, and that the absence of evidence of exclusive arrangements and the presence of continuing competitive constraints may support unconditional approval where no substantial lessening of competition is shown.