Brief Summary

Competition Law — Merger Control — Conditional approval of merger between DCD-Dorbyl (Pty) Ltd and Elgin Brown and Hamer Group Holdings (Pty) Ltd — Competition Commission initially approving merger subject to conditions due to concerns of substantial lessening of competition in ship repair services — Tribunal reviewing conditions and ultimately granting conditional approval after considering submissions from the merging parties and the TNPA regarding market access and competition concerns.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings concerned an application for the Competition Tribunal’s consideration of an intermediate merger in terms of the Competition Act 89 of 1998 (as amended). The matter arose after the Competition Commission had approved the merger subject to conditions, and the merging parties sought the Tribunal’s reconsideration of that conditional approval.

The first applicant/acquiring firm was DCD-Dorbyl (Pty) Ltd (“DCD”), a diversified mechanical engineering group with relevant activities in ship repair through its marine cluster. The second applicant/target firm was Elgin Brown and Hamer Group Holdings (Pty) Ltd (“EBH Group Holdings”), an investment holding company that effectively wholly owned Elgin Brown and Hamer (Pty) Ltd (“EBH”), which provided ship repair and related services across several Southern African ports. The respondent was the Competition Commission (“the Commission”).

The merger was filed with the Commission on 30 January 2012. On 26 April 2012, the Commission approved the merger subject to conditions aimed at addressing competition concerns, particularly relating to access to port infrastructure in Cape Town and Durban. On 14 May 2012, the merging parties brought an application for consideration under section 16(1)(a) of the Act, challenging the Commission’s conditional approval. A pre-hearing conference was held on 10 July 2012, and the matter was heard on 31 July 2012, on which date the Tribunal issued an order conditionally approving the merger. The Tribunal’s reasons were issued on 29 August 2012.

The general subject matter of the dispute was whether the merger would substantially prevent or lessen competition in relevant markets for ship repair services (including certain segments involving oil and gas vessels/structures), and whether conditions were necessary and appropriate to address any merger-specific competition concerns, particularly in relation to control over key ship repair facilities and leases in the Port of Cape Town.

2. Material Facts

DCD operated a marine cluster providing a broad range of ship repair and conversion/modification services, with a predominant focus on repair and conversion services for “oil and gas vessels”. Its ship repair services included steel and pipe fabrication, mechanical work, large-scale machining, engine/propulsion repair, electrical repairs, blasting and coating, and valve testing. DCD generally offered these services on a turn-key basis involving overall project management (sometimes subcontracting aspects), although it also provided certain services on a non-project-managed basis.

DCD was predominantly active in the Port of Cape Town, where it had extensive facilities enabling it to provide a “complete shipyard” service. Its Cape Town facilities included exclusive use of 50% of the A-Berth lay-down area, along with workshops (pipe, fabrication, fitting, electrical, machining), offices, and support space. Outside Cape Town, DCD had a presence in East London through a 50% ownership interest in East London Shipyards (“ELSY”), a joint venture between DCD and Elgin Brown and Hamer (Pty) Ltd, and it operated a small workshop in Saldanha.

EBH Group Holdings was the holding company that effectively wholly owned EBH. EBH provided ship repair and associated services, including steel fabrication, piping, mechanical repairs, machining, blasting and coating, electrical repairs, hydraulics, inspections, underwater repairs, and project management. EBH was active in the ports of Cape Town, Durban, East London (through its involvement in ELSY as described in the record), and Walvis Bay. In relation to Cape Town, the merging parties described EBH’s facilities as limited to plant and equipment and property leased from the Transnet National Ports Authority (“TNPA”), as well as buildings owned by EBH.

The proposed transaction entailed DCD acquiring 100% of the shareholding in EBH Group Holdings, resulting in DCD obtaining sole control. DCD’s stated rationale was diversification into container and cargo vessel repair, particularly in Durban (where it was not active), and strengthening its offering to international shipping through access to additional ports and a broader service offering. The target shareholders’ rationale was to allow retiring shareholders to exit and realise cash.

The Tribunal accepted that ship repair requires access to key infrastructure, typically including facilities for holding a vessel (such as dry docks, synchrolifts, or repair quays for afloat repairs), workshops for functional repair disciplines, and infrastructure for moving and accommodating components (including cranes and lay-down areas). In South Africa, key port infrastructure (including land) is owned by the state through the TNPA, and market participants may book use of TNPA-owned facilities and lease TNPA-owned land. The Port of Cape Town had three TNPA-owned dry dock facilities (Sturrock dry dock, Robinson dry dock, and a synchrolift) leased on a short-term common-user basis, and a repair quay including the A-berth, primarily used for repair of oil and gas vessels.

The Commission received complaints from competitors, primarily Dormac (Pty) Ltd and Belmet Marine (Pty) Ltd, concerning the alleged inaccessibility of the A-berth in Cape Town for oil and gas-related repairs.

A material development after the Commission’s initial conditional approval was the receipt of submissions from the TNPA. The TNPA indicated it had been engaged in a bid process for ship repair facilities, decided to cancel the current tender process, and emphasised its preferred common-user model requiring equal access without discrimination on tariffs and operating/booking procedures. The TNPA further advised that certain draft conditions were not executable because port land could not be alienated and TNPA leases did not confer rights to dispose of buildings, as immovable assets revert to TNPA at the end of the lease. The TNPA stated that the existing lease in respect of EBH’s repair facility in Cape Town would expire on 28 February 2013, and suggested it should be allowed to lapse, after which a transparent process could appoint a new lessee. The TNPA also expressed an intention to initiate a review of ship repair operations and tariffs involving affected parties.

In the run-up to the Tribunal hearing, revised conditions were agreed between the Commission and the merging parties. A pre-hearing process addressed third-party participation, including Dormac being furnished with relevant conditions and TNPA submissions and being afforded opportunities to intervene or provide written submissions. Dormac elected not to intervene formally, submitted that the revised conditions were unsuitable and unenforceable (as they relied on TNPA intervention), and attended the hearing on a watching brief without oral submissions beyond its written position.

3. Legal Issues

The central legal questions were whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market for ship repair services, and, if so, whether conditions could appropriately and proportionately address the identified merger-specific concerns.

The dispute primarily concerned the application of competition law principles to a complex factual matrix, including market definition and competitive effects analysis, and the crafting of conditions directed at structural and access-related features of port-based ship repair. It also involved an evaluative judgment about the enforceability and potential unintended consequences of proposed conditions, given TNPA ownership and leasing constraints and the role of tender processes for access to facilities.

A further issue was whether competitor concerns about the A-berth raised merger-specific issues in this transaction, or whether they were better addressed through monitoring of existing conditions imposed in prior proceedings and through regulatory/advocacy engagement rather than merger conditions in the present matter.

4. Court’s Reasoning

The Tribunal approached the competitive assessment by considering the Commission’s delineation of the broader ship repair sector into multiple relevant markets, recognising that substitution possibilities depend on vessel type, repair type, and the infrastructure and expertise required. The Commission identified overlapping activity in four markets: general ship repair (including oil and gas repairs) for international vessels, for port bound vessels, for regional vessels, and a separate market for international oil and gas ship repair. The Tribunal indicated that it would focus on unilateral effects, noting that no cogent evidence supported likely coordinated effects, although allegations of cartel activity were mentioned in the Commission’s report.

For general ship repairs for international vessels, the Tribunal accepted the Commission’s conclusion that unilateral competition effects were unlikely. The rationale was that DCD and EBH held an insignificant position in a market characterised by a wide geographic scope and many participants, and customers contacted raised no concerns.

For general ship repairs for port bound vessels, the Tribunal accepted that the merging parties’ activities largely did not overlap in individual ports except Cape Town, and that customers approached did not raise competition concerns. The Tribunal also accepted that the TNPA would continue to control key infrastructure such as dry docks and quays, and that alternative providers (including Dormac and Hesper in Cape Town) existed. The Tribunal noted that in East London the merger did not change the relevant structure because the merging parties already operated through the ELSY joint venture.

For the international oil and gas ship repair market, the Tribunal addressed competitor concerns about access to the A-berth in Cape Town. It accepted the Commission’s view that the merger did not create merger-specific concerns in this segment, largely because EBH did not control the A-berth and did not hold long-term leases relating to it. The Tribunal referred to conditions imposed in an earlier DCD/Globe matter intended to ensure that 50% of the A-berth lay-down area remained accessible to other players on a common-user basis. In this transaction, the Tribunal agreed that A-berth access concerns lacked merger-specificity and were more appropriately dealt with through monitoring processes related to existing conditions rather than new conditions directed at this merger.

The Tribunal’s principal focus was the market for general ship repairs (including oil and gas repairs) for regional vessels, where DCD and EBH were active across different Southern African ports and where, at a regional level, the merger would increase concentration in control over facilities. The Commission’s concern was that the merged entity would control key infrastructure such as docking facilities and workshops post-merger, strengthening its competitive position, and that ownership or control of docking facilities is a significant advantage in winning tender work because tendering parties must demonstrate secured docking capacity. The Commission further considered entry and expansion barriers to be high, with the merging parties noting the cyclical nature of ship repair and high working capital requirements.

To remedy these concerns, the Commission and the merging parties proposed conditions directed at reducing the merged entity’s concentration of control over ship repair facilities in Cape Town, particularly by preventing the merged entity from controlling the current EBH ship repair facility on the northern side of the Graving Dock after the EBH/TNPA lease expired.

During the hearing, the Tribunal raised two key concerns about the proposed conditions. First, it identified a conflict between a proposed condition dealing with the merged entity’s post-expiry occupation of the Cape Town EBH facility and the primary condition aimed at preventing future control of that facility. The merging parties agreed to delete the conflicting condition, which the Tribunal treated as resolving that inconsistency.

Second, the Tribunal raised a concern that the primary condition preventing the merged entity from controlling the EBH Cape Town facility could have unintended negative competition and/or public interest consequences depending on which third party won the tender to operate that facility and thereby gained the associated market share. To address this risk, the Tribunal required an additional measure: that the Commission engage the TNPA in an advocacy role to highlight competition and/or public interest issues relating to ship repair facilities generally, and particularly regarding tenders affecting access by small and medium-sized enterprises. The Commission and the merging parties did not object to this enhancement.

Having considered the overlap being confined at the port level to Cape Town, the presence of other regional players (including Dormac and Hesper), and the enhanced set of conditions, the Tribunal concluded that the conditions were adequate and proportionate to address the competition concerns identified in the regional-vessels segment and that the Commission would be able to enforce them, alongside its advocacy engagement.

On public interest, the Tribunal recorded the merging parties’ submission that the transaction would not result in retrenchments and found no other public interest concerns arising on the record.

5. Outcome and Relief

The Tribunal conditionally approved the intermediate merger between DCD-Dorbyl (Pty) Ltd and Elgin Brown and Hamer Group Holdings (Pty) Ltd.

The approval was subject to conditions including a ten-year prohibition on the merged entity acquiring or establishing control (directly or indirectly) over the EBH ship repair facility located on the northern side of the Graving Dock in Cape Town, measured from the expiry of the EBH/TNPA lease on 28 February 2013. The conditions also required notification to the Commission if control were to be acquired after that ten-year period, cooperation with a TNPA investigation into ship repair conditions and tariffs, and Commission advocacy engagement with the TNPA concerning competition and public interest issues in relation to ship repair facilities and tender access for small and medium-sized enterprises.

The reasons provided do not record any separate or specific costs order.

Cases Cited

DCD-Dorbyl (Pty) Ltd and Globe Engineering Works (Pty) Ltd (Competition Tribunal of South Africa) Case No. 108/LM/Oct08.

Legislation Cited

Competition Act 89 of 1998 (as amended), including section 16(1)(a).

Public Finance Management Act 1 of 1999 (referenced in relation to TNPA considerations concerning early lease termination and potential consequences).

Rules of Court Cited

No rules of court were cited in the reasons.

Held

The Tribunal held that the merger should be approved subject to conditions, with the principal merger-specific concern arising in the market for general ship repair services (including oil and gas repairs) for regional vessels, due to the merged entity’s increased concentration of control over key ship repair infrastructure, particularly in Cape Town.

The Tribunal further held that the competitor concerns relating to access to the A-berth in Cape Town did not give rise to merger-specific concerns in this transaction, and that such concerns were better addressed through monitoring processes related to existing conditions from prior proceedings.

The Tribunal held that the enhanced conditions, including the ten-year restriction on control of the EBH Cape Town facility and the Commission’s advocacy engagement with the TNPA, were adequate and proportionate to address the identified competition concerns, and that no public interest concerns (including retrenchments) arose on the record.

LEGAL PRINCIPLES

The Tribunal applied the principle that merger assessment under the Competition Act requires identification of relevant markets and an evaluation of whether the transaction is likely to lead to a substantial prevention or lessening of competition, with particular attention to unilateral effects where supported by the evidence.

The decision reflects the principle that, in infrastructure-dependent sectors, competitive effects may turn materially on control and access to essential or strategically important facilities (such as docks, quays, and leased workshop sites), and that conditions may be crafted to address merger-specific concentration or foreclosure risks linked to such control.

The Tribunal’s reasoning also illustrates the principle that merger conditions should be internally consistent, enforceable, and proportionate, and that the Tribunal may adjust proposed conditions to reduce the risk of unintended competition or public interest consequences, including by requiring advocacy or engagement with a state infrastructure owner where tendering and access rules significantly influence competitive outcomes.

Finally, the decision applies the principle that concerns raised by third parties must be evaluated for merger-specificity, and where an issue is not caused or materially altered by the transaction, it may be treated as falling outside the proper scope of merger conditions for that particular merger (while potentially being addressed through monitoring of prior conditions or other appropriate mechanisms).

DCD-Dorbyl (Pty) Ltd and Another v Competition Commission (53/AM/May12) [2012] ZACT 77; [2012] 2 CPLR 386 (CT) (29 August 2012)