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[2014] ZACT 28
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Business Venture Investments No. 1657 (Pty) Ltd v CLP Chemical (Pty) Ltd (017673) [2014] ZACT 28 (29 January 2014)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case No.: 017673
In the matter between:
Business
Venture Investments No. 1657 (Pty) Ltd Primary
Acquiring
Firm
and
CJP Chemical (Pty)
Ltd
Primary Target Firm
Panel
Takalani Madima (Presiding Member)
Mondo
Mazwai (Tribunal Member)
Medi
Mokuena (Tribunal Member)
Heard
on
20 November 2013
Order issued
on
20 November 2013
Reasons
issued
29 January 2014
DECISION
Approval
[1]
On
20 November 2013, the Competition Tribunal (“Tribunal”),
in terms of
section 16(2)(a)
of the
Competition Act of 1998
[1]
,
approved the acquisition by Business Venture Investments No. 1657
(Pty) Ltd of CJP Chemical (Pty) Ltd.
[2]
The reasons for approving
the proposed transaction follow.
Parties
to transaction
Acquiring
firm
[3]
The primary acquiring
firm is Business Venture Investments No. 1657 (Pty) Ltd (“BVI
Newco”), a newly incorporated company
created for purposes of
this transaction. It does not provide any products or services.
[4]
Investec Bank Limited
(“Investec”) will hold a 65% share in BVI Newco. Investec
is a specialist banking group which
provides a myriad of financial
products and services.
[5]
Of relevance to this
transaction is NCP Chlorchem (Pty) Ltd (“NCP”), a
subsidiary of Investec. NCP is a manufacturer
of chlorine, caustic
soda lye, caustic soda flakes and chlor-alkaii derivatives. NCP
supplies caustic soda flakes to CJP and other
distributors in South
Africa who then sell the product to resellers and end-users in the
industrial sector. NCP competes with CJP
in the market for the
distribution of caustic flakes.
Target
firm
[6]
The primary target
firm is CJP Chemicals (Pty) Ltd (“CJP”), which is
controlled by Standard Bank Limited which holds
77.23% of the target
firm. The remaining shares are held by various individuals.
[7]
CJP is an importer,
stockist and distributor of raw chemical materials such as acid
casein, calcium carbonate DC, caustic soda flakes
and ferrous
sulphate BP in South Africa and the rest of the continent. CJP
distributes caustic soda flakes to resellers and end-users
such as
Tiger Brands.
Proposed
transaction and rationale
[8]
In terms of the
proposed transaction, BVI Newco will acquire the entire issued share
capital of CJP.
[9]
Thereafter, Investec
will hold a 65% shareholding in BVI Newco, whilst the remaining
shares will be held by various individuals.
[10]
From Investec’s
perspective, the rationale for this transaction is diversify its
portfolio into a business area to which Investec
is not exposed.
Competition assessment
Horizontal
overlaps
[11]
A horizontal overlap
between the activities of the parties will arise as a result of this
transaction, given that BVI Newco, through
NCP, distributes caustic
soda flakes to industrial customers and resellers in competition with
CJP.
[12]
The merged entity
will hold an estimated 29% of the market share in the market for the
distribution of caustic soda flakes, following
a market accretion of
15%. Various customers have confirmed that there are indeed various
other reputable players, such as CHC
Chemicals, Protea Chemicals and
Crest Chemicals in the market who are viable alternatives.
Vertical
assessment
[13]
A vertical
relationship will arise from the proposed transaction given that BV!
Newco is active in the manufacturing of caustic
soda flakes through
NCP in the upstream market, whilst CJP is active as a distributor of
caustic soda flakes in the downstream
market.
[14]
NCP
is the only local manufacturer and supplier of caustic soda flakes in
the country. Imports by distributors for resale purposes
account for
about 70% of the supply of such soda flakes over the past year.
[2]
Therefore, the Commission found that the likelihood of input
foreclosure arising is rather small. Most of NCP’s current
customers confirmed that a viable alternative to local procurement is
importing.
[15]
The Commission is
satisfied that the transaction will not lead to foreclosure of any
sorts given that there are various alternative
players in both the
upstream and downstream markets.
Engagement
with third parties
[16]
The Commission
received concerns relating to the merger from two participants during
its investigation, one being a competitor in
the distribution of
caustic soda flakes and a customer of CJP.
[17]
They
canvassed concerns relating to the likelihood of NCP favouring CJP
post-merger. They requested that the merged entity undertakes
to sell
caustic soda flakes at the same price as CJP sold the caustic soda
flakes. The merging parties submitted that NCP undertakes
to sell
caustic soda flakes at the same price CJP sold the product at and
that they would continue supplying caustic soda flakes
to the local
distributors which NCP currently supplies.
[3]
[18]
The Commission then
tried to ascertain whether the concerns raised were merger-specific
and concluded that the competitor that raised
concerns has imported
at least 50% of its caustic soda flakes requirements and over the
past year and it only procured caustic
soda flakes from NCP for three
months. Therefore, it is not dependent on the supply of soda flakes
by NCP.
[19]
The Commission found
that CJP cannot absorb the total caustic soda flakes production of
NCP, however, CJP is already operating at
95% capacity and even if
CJP were to expand its warehouse and distribution facilities, it is
unlikely that it wouid absorb all
the caustic soda flakes from NCP as
CJP is not a prominent player in the relevant market.
[20]
Therefore, the
Commission concluded that the undertaking offered by the merging
parties was not necessary given the lack of substantial
competition
concerns.
[21]
Regarding Chet
Chemicals, the Commission discovered during its investigation that
Chet Chemicals no longer procures its product
requirements from CJP
but rather from CJP’s competitors.
[22]
We therefore conclude
that the proposed transaction does not substantially prevent or
lessen competition in any relevant market.
Public interest
[23]
The merging parties
confirmed that the proposed transaction will not have any adverse
impact on employment and that no retrenchments
will result from the
proposed transaction
4
No other public interest issues arise as a result of this
transaction.
Conclusion
[24]
Having regard to the
facts above, we find that the proposed transaction is unlikely to
substantially prevent or lessen competition
in any relevant market.
Furthermore, no public interest concerns arise as a result of the
proposed transaction. Accordingly, we
approve the proposed merger
unconditionally.
29
January 2014
DATE
_____________________
DR
TAKALANI MADIMA
Ms
Mondo Mazwai and Mrs Medi Mokuena concurring
Tribunal Researcher:
Nicola llgner
For the Commission:
Zanele Fladebe
For the acquiring firm:
Johan Coetzee of Glyn Marais Inc.
For
the target firm: Paul Coetser and Ahmore Burger-Smidt of Werksmans
Attorneys
[1]
Act No 89 of 1998, as amended.
[2]
See
page 3 of the transcript.
[3]
See page 4 of the transcript.