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[2013] ZACT 110
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Zaad Holdings Ltd v Klein Karoo Saad Bemarking (Pty) Ltd (016881) [2013] ZACT 110 (20 November 2013)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No.: 016881
In
the matter between
Zaad
Holdings
Limited
Primary Acquiring Firm
And
Klein
Karoo Saad Bemarking (Pty) Ltd
Primary Target Firm
Pane
:
Takalani Madima (Presiding Member)
Mondo
Mazwai (Tribunal Member)
Anton
Roskam (Tribunal Member)
Heard
on:
16 October 2013
Order
issued on:
16 October
2013
Reasons
issued on:
20
November 2013
Reasons
for Decision
Approval
[1]
On 16 October 2013 the Competition
Tribunal (“Tribunal”) unconditionally approved the merger
between Zaad Holdings Limited
(“Zaad”) and Klein Karoo
Saad Bemarking (Pty) Ltd (“KKSB”)
[2]
The reasons for approving the proposed
transaction follow.
Parties
to transaction
[3]
The
primary acquiring firm is Zaad, which currently owns 49% in the
issued share capital of KKSB. Zaad is owned and controlled by
Zeder
Investments Financial Services (“ZFS”).ZFS is directly
controlled is directly controlled by Zeder Investments
Limited
(“Zeder”). Zeder has concluded a management agreement
with PSG Corporate Services (Pty) Ltd (“PSG Corporate
Services") which is a wholly owned subsidiary of PSG Group
Limited (“PSG”), in terms whereof PSG Corporate Services
rendered certain management services to Zeder, including investment
advice.
[1]
Zaad general activities include breeding, production, processing and
distribution of seeds. These include seeds such as Canola,
Lusern,
Oats, Rye, Okley Brush, White Buffalo, Blue Buffalo grass and many
others.
[4]
The primary target firm is KKSB which is
a wholly owned subsidiary of Klein Karoo Limited (“KKL”).
KKL is not controlled,
directly r indirectly by any one firm. KKSB’s
general activates include breeding, production, processing and
distribution
of seeds. These include Weeping Laugh grass, However
KKSB’s involvement in breeding is limited to maize and
vegetable seed.
Proposed
transaction
[5]
in terms of the proposed transaction,
through a Sale of Agreement, Zaad intends to acquire the remaining
shares (51%) in KKSB from
KKS, either in terms of KKS’s right
to put the remaining shares in KKSB to Zaad. This will result in KKSB
being wholly-owned
by Zaad.
Competition
assessment
[6]
The proposed transaction results in both
horizontal and vertical overlaps.
[7]
The relevant product market is the
market for the breeding, production, and commercialisation of seeds,
with the geographic market
being national as seeds are produced and
distributed throughout the country.
[8]
The
horizontal overlaps arise as a result of both merging parties being
active in the market for the distribution of seeds such
as sunflower,
forage sorghum, weeping love grass, Rhodes grass, grain sorghum,
triticale, kikuyu, tail fescue, perennial rye grass,
cocksfoot,
canola, lucerne amongst others. However the Commission were satisfied
that such overlap will not results in substantial
lessening or
prevention of competition, due to alternative players in the various
markets as well as low barriers to entry.
[2]
[9]
Vertical overlaps rise from the fact
that Zaad produces canola, blue buffalo grass, white buffalo grass,
bottle brush, smuts finger,
teff, tall fescue and weeping love grass
whilst KKSB is involved in the distribution of such.
[10]The
other vertical overlap arises since KKSB produces maize and
vegetables, whilst Zaad is active in the distribution of such.
The
Commission has submitted that in instances, existing seed
alternatives from the local market and imported seeds, low barriers
to entry at distribution level and extensive use of independent seed
distributors by seed companies will constrain the merged entity
post
merger for any activities of customer foreclosure.
Barriers
to entry
[11]Barriers
to entry are low, and range from, capital requirements, regulatory
requirements and reputation requirements. Barriers
to entry are only
significant in the breeding market as there are advanced breeding
technologies, substantial expertise, investment
and germplasm
required for entry. The commercial market is less specialised and
thus requires less investment ranging in the region
of R15-R80
million, depending on the scale of facilities required.
[12]The
regulatory barriers do not pose that much of a barrier as they are
simply aimed at the desired safety, quality and credibility
standards
of seeds. During the hearing the Commission assured us that they did
not only rely on the submission of the Merging parties
in relation to
barriers to entry, but also relied on submission made by market
participants who submitted that entry into the market
can take up to
three years or less in the respective markets.
[3]
[13]
The
merging parties during the hearing went on to add that in the
downstream market for the distribution of seeds barriers to entry
are
very low and as such one finds distributors entering and exiting the
market frequently. This they submitted is due to the nature
of the
industry being research and development in nature, as well as the
industry being seasonal, two to three years is not a long
period of
time for entry.
[4]
Market
share
[14]
The Commission’s investigation
revealed that market shares, in the various distribution of seeds
post merger, would be quiet
high, some as high as even
72%(distribution of white buffalo seeds). However it has submitted
that the transaction is unlikely
to substantially prevent or lessen
competition as barriers to entry are low and there are various
alternatives such as Barenbrug,
Kaap Agri and Calla Viljoen.
Public
interest
[15]
The
merging parties confirmed that the proposed transaction will have no
adverse effect on employment
[5]
and the proposed transaction raises no other public interest
concerns.
Conclusion
[16]
We approve the merger unconditionally.
20
November 2013
DATE
Takalani
Madima
Mondo
Mazwai and Anton Roskam concurring
Tribunal
Researcher: Caroline
Sserufusa
For
the merging parties: Chris Charter for
Cliffe Dekker Hofmeyer
For
the Commission:
Gilberto Biacuana
[1]
See para 1.4 pages 52-53 of the merger record.
[2]
See Commission report at pages 8-9.
[3]
See Transcript of hearing at page 4.
[4]
Ibid at pages 4-5 respectively.
[5]
See merger record at page 91.