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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:
76/LM/Jul12
[015404 ]
In the matter between:
Mondi Limited
Acquiring Firm
And
Mondi Shanduka Newsprint (Pty) Ltd
Target Firm
Panel : Andreas Wessels (Presiding Member)
Medi Mokuena (Tribunal Member)
Takalani Madima (Tribunal Member)
Heard on : 10 October 2012
Order issued on : 10 October 2012
Reasons issued on : 30 November 2012
Reasons for Decision
Approval
1. On 10 October 2012 the Competition Tribunal (“Tr ibunal”) unconditionally
approved the acquisition by Mondi Limited (“Mondi”) of the forestry
business of Mondi Shanduka Newsprint (Pty) Ltd (“MSN”).
2. The reasons for the approval of the proposed tra nsaction follow below.
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Parties and their activities
3. The primary acquiring firm is Mondi, a public co mpany with a primary
listing on the Johannesburg Securities Exchange (“J SE”). Mondi is not
controlled by any single firm. It controls a number of firms.
4. Mondi is an integrated packaging and business pa per producer. It has
interests in South Africa in the forestry, pulp, paper and packaging sectors.
It owns and manages forestry operations located in KwaZulu-Natal and in
the southern parts of Mpumalanga. It also has two S outh African paper
and pulp mills that are located in KwaZulu-Natal in the Merebank (Durban)
and Richards Bay areas, respectively. The Mondi Mer ebank Mill produces
a range of office paper, and hosts MSN’s newsprint and telephone
directory paper operations. We note that Mondi and MSN share this mill,
but use different machines in their downstream prod uction processes. The
Mondi Richards Bay mill produces hardwood pulp and linerboard. Mondi
also has a woodchip plant in Richards Bay.
5. The primary target firm is the forestry business of MSN. MSN is a joint
venture between Mondi and Shanduka Resources (Pty) Ltd (“Shanduka”).
Premerger Mondi has a 50% interest in MSN and Shand uka has a 42%
interest. The Mondi Employee Investment Company and the Mondi
Shanduka Community Trust each currently hold a non- controlling 4%
interest in MSN.
6. MSN was created in 2004 and consists of commerci al softwood (pine) and
hardwood (gum and wattle) plantations in the Midlan ds of KwaZulu-Natal,
as well as the operations at the Merebank Mill.
7. The MSN business consists of three main operatio ns: (i) the tree
plantations; (ii) recycled fibre operations that su pply recycled fibre for
newsprint production; and (iii) virgin fibre operat ions that produce pulp
stock for MSN’s newsprint and telephone directory b rands. The proposed
transaction however only involves MSN’s upstream fo restry business and
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not its downstream activities (see description of p roposed transaction
below).
Proposed transaction and rationale
8. In terms of the proposed transaction Mondi will acquire, as a going
concern, the entire forestry business carried on by MSN, including the
land, the forests owned, leased and managed by MSN, as well as forestry
specific stock and consumables, employee liabilitie s and movable assets
required for the on-going forestry business (the “t ransferred business”). By
virtue of the proposed transaction, Mondi will acqu ire 100% ownership of
the transferred business.
9. For the sake of clarity we note that the transfe rred business does not
include MSN’s recycled fibre and virgin fibre opera tions which operations
will continue to be operated by MSN post-transaction.
10. Mondi’s rationale for the proposed merger is to secure fibre supply for the
Merebank Mill.
11. MSN stated that the proposed transaction will provide a cash injection into
the business.
Competition analysis
12. The Competition Commission (“Commission”) after investigation of this
matter concluded that the activities of the merging parties horizontally
overlap with regards to their upstream forestry pla ntation activities, i.e. the
supply of hardwood pulp logs, saw logs and hardwood poles. The
Commission further found that Mondi and MSN’s plant ations primarily
produce pulpwood logs for paper manufacturing and v ery limited saw logs
and poles. Furthermore, all of the softwood pulp lo gs produced by MSN
are supplied to Mondi’s downstream paper manufactur ing activities. Both
parties however supply hardwood pulp logs, saw logs and hardwood poles
into the market.
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13. There is no overlap in the downstream manufacturing markets since Mondi
produces office paper, linerboard and woodchips whi le MSN produces
newsprint and directory paper.
14. The Commission further concluded that there is a vertical aspect to the
proposed transaction in that MSN supplies hardwood pulp logs to third
party paper manufacturing customers and could potentially supply Mondi.
15. The Commission defined the following relevant markets:
15.1. Upstream: regional markets for the supply of (i) hardwood pulp
logs; (ii) saw logs; and (iii) hardwood poles. The Commission
regarded the geographic scope of these markets as a n area within
150 km from the forestry plantations of the merging parties in the
KwaZulu-Natal province; and
15.2. Downstream: national markets for the producti on and supply of (i)
pulp; (ii) office paper; (iii) newsprint; (iv) tele phone directory paper;
and (v) linerboard. For the purposes of the competi tion assessment
of this transaction we however do not have to take a definitive view
on the exact parameters of the various downstream m arkets since
it does not alter our ultimate conclusion with rega rds to potential
foreclosure as a result of this transaction.
Horizontal overlap
16. The Commission concluded that the post-merger m arket share of the
merged entity in the regional market for hardwood poles will be
approximately [0-10]%. In the regional market for saw logs the merged
entity’s post-merger market share will be approxima tely [10-20]%. Other
players in this market include Merensky (the larges t player in this market),
Bracken Timbers, Tekwani Sawmills and UCL. In the r egional market for
the supply of hardwood pulp logs the merged entity will have a market
share of approximately [20-30]%. In this market the merged entity will
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however still face competition from NCT Growers (th e dominant player in
this market) and Sappi.
17. There is no evidence of any coordinated effects in these markets as a
result of the proposed transaction and we therefore do not deal with this
aspect in these reasons.
Vertical assessment
18. As stated above, this transaction has a vertica l aspect in that MSN
supplies hardwood pulp logs to third party customer s and could potentially
supply Mondi’s downstream activities.
19. With regards to softwood, the merging parties s ubmitted that Mondi is the
only customer of softwood pulp logs of MSN in the K waZulu-Natal
province. Furthermore substantial quantities of Mon di’s softwood pulp logs
and hardwood pulp logs are currently supplied to it s downstream paper
operations.
20. With regards to saw logs and hardwood poles, th e merging parties
submitted that their downstream operations do not r equire saw logs and
hardwood poles. Although certain customers raised concerns with regards
to the supply of poles, the Commission concluded th at it does not
envisage any possibility of the merged entity refus ing to supply
downstream saw millers and pole treatment operators since the merged
entity does not utilise these materials in its downstream operations.
21. According to the merging parties the only MSN c ustomers supplied with
hardwood pulp logs from MSN are Sappi and NCT Fores try. The
Commission noted that Sappi and Mondi are already e ngaged in supply
swaps of hardwood in KwaZulu-Natal and that on the face of it this merger
is unlikely to have any substantial effect on that. The Commission further
noted that Mondi used some of the hardwood pulp log s that it purchased
from MSN to honour this supply swap arrangement wit h Sappi. The
Commission was of the view that any attempts to for eclose Sappi may
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affect these arrangements negatively. NCT Forestry submitted to the
Commission that the proposed merger will not distur b the flows in the
market because MSN is a small market participant.
22. The Commission further found that customer foreclosure was unlikely as a
result of the proposed transaction since although M ondi obtains its
supplies from its upstream plantations, its forestr y plantations cannot
satisfy the demand by its mills. MSN currently obta ins most of its materials
from its plantations.
Conclusion
23. The Commission concluded that the proposed tra nsaction is unlikely to
substantially prevent or lessen competition in any relevant market from
either a horizontal or vertical perspective. We have no reason to doubt this
conclusion.
Public interest
24. The merging parties confirmed that the proposed transaction will have no
adverse effect on employment in South Africa and wi ll not result in any
retrenchments in South Africa.
1 The proposed transaction raises no other
public interest concerns.
Conclusion
25. We approve the proposed transaction unconditionally.
____________________ 30 November 2012
Andreas Wessels Date
Medi Mokuena and Takalani Madima concurring
Tribunal researcher: Ipeleng Selaledi
For the merging parties: Janine Simpson of Webber Wentzel Attorneys
For the Commission: Rakgole Mokolo
1 See merger record, pages 357 and 362. Also see paragraph 7.8 of the Commission’s
merger report.