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[2014] ZACT 32
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Improchem (Pty) Ltd v Clariant Southern Africa (Pty) Ltd In respect of its Water Treatment Business and 50% of Blendtech (Pty) Ltd (018523) [2014] ZACT 32; [2014] 1 CPLR 105 (CT) (4 June 2014)
COMPETITION TRIBUNAL
OF SOUTH AFRICA
Case No.: 018523
In
the matter between
Improchem (Pty) Ltd
Primary Acquiring Firm
And
Clariant Southern
Africa (Pty)
Ltd
Primary Target Firm
In respect of its
Water Treatment Business and 50% of Blendtech (Pty) Ltd
Panel : Takalani
Madima (Presiding Member)
Andiswa
Ndoni (Tribunal Member)
Imraan
Vaiodia (Tribunal Member)
Heard
on : 21
May 2014
Order issued
on : 21
May 2014
Reasons
issued on: 04
June 2014
Reasons for Decision
Approval
[1]
On 21 May 2014 the
Competition Tribunal (“Tribunal”) unconditionally
approved the merger between Improchem (Pty) Ltd
(“Improchem”)
and Clariant Southern Africa (Pty) Ltd, in respect of its Water
Treatment Business and 50% of Blendtech
(Pty) Ltd (“Blendtech”).
Parties
to transaction
[3]
The primary acquiring
firm is Improchem, a wholly-owned subsidiary of AECI Limited
(“AECI”). AECI is a public company
listed on the JSE
Limited and offers products and services to the mining and
manufacturing sectors both locally and internationally.
Improchem is
a seller of chemical processing, water and wastewater treatment,
water optimisation, total water management, hygiene
and sanitation as
well as additive products and services to the industrial sector and
the municipal sector, in particular to the
mining, municipal water
treatment, food and beverages and oil refining sectors.
[4]
The primary target
firm is Clariant, which is wholly-owned subsidiary of Clariant
Produkte (Deutschland) GmbH (Clariant Produkte),
which is a German
company. The Water Treatment Business of Clariant provides water and
wastewater treatment products and associated
services to industrial
and municipal sectors. The Water Treatment Business also produces
chemicals used in the cosmetics, antiperspirant
deodorant, hair care
and skin care industries.
[5]
Blendtech on the
other hand is also fuliy active in all aspects of water and water
waste treatment including raw and process water
treatment, drinking
water production, and industrial applications in boilers amongst
others.
Proposed
transaction and rationale
[6]
Through a Sale of
Business Agreement, Improchem intends to acquire the water treatment
business of Clariant, as well as 50% of Blendtech.
Post transaction
Improchem will therefore acquire sole control over the Water
Treatment business.
[7]
AECI
submits that the proposed transaction will assist it in its strategy
of investing to facilitate its growth strategies, and
will provide
Improchem with an opportunity of accessing additional client base and
the public sector market.
[1]
Clariant on the other hand submits that the proposed transaction will
assist it to dispose of the water treatment market which
is not core
to Clariant’s operations and business.
[2]
Competition
assessment
[8]
The proposed
transaction results in two horizontal overlaps, however no vertical
overlaps arise as a result f the proposed transaction.
[9]
Both the Commission
and merging parties agreed on two relevant product markets to be the
markets for industrial water and waste
water treatment and the
municipal water and waste water treatment. The municipal segment
specialises in treating portable water
and sewage whilst the
industrial segment specialises in treating industrial affluent. Both
the Commission and the merging parties
agreed on the relevant
geographic market to be national since both services are offered
throughout South Africa.
[10]
During its
investigation the Commission tried to ascertain whether the two
relevant product markets did not constitute a single
market i.e.
demand and supply side substitutability.
[11]
Market participants
the Commission spoke to submitted that the two sectors are different.
Firstly the industrial segment is more
service intensive, whilst the
municipal segment is more focused on the supply of chemicals. !n
addition to this the industrial
segment requires constant servicing
and on-site supervision whilst the municipal segment requires no
on-going servicing.
[12]
The Commission also
came to a conclusion that there is no demand side substitutability
between the two markets as the water treatment
needs of the municipal
segment customer, mainly requires water treatment for portable water,
whilst the industrial segment customer,
requires water treatment to
extract effluent.
Market Shares
[13]
There
was some discrepancy between the market shares submitted by the
merging parties and the Commission. During the hearing the
Commission
submitted that their market shares were based on submissions from
market participants as there is no reliable source
in the market that
calculates market shares in the identified product markets.
[3]
After interaction with market participants, the Commission came to
the conclusion that the estimated market share of the merging
parties
will be approximately 10-55% in the relevant product markets. Whilst
the merging parties submitted their market shares
to be less than 25%
in both markets.
[14]
During the hearing we
asked the Commission whether they were not concerned with the high
market shares that the merging parties
would have post merger, and
the Commission re-assured us that because they received their market
shares form a market participant,
it is possible that the market
participant might have overestimated the post merger market shares.
In addition to this, the Commission
re-assured us that the markets
are highly competitive and have various other players such as Buckman
Laboratories, Nalco, Zeta
Chem, Watercare Mining, and Process Water
Chemicals inter alia.
[15]
The
Commission’s interaction also revealed that none of the market
participants raised any concerns to the proposed transaction.
[4]
One market participant even went further to submit that the
transaction will bring about synergies that will benefit the
customers.
[5]
Public interest
[16]
During
the Hearing the merging parties confirmed that the employees of
Clariant will be absorbed into Improchem and thus no job
losses will
result from the proposed transaction.
[6]
We are thus satisfied that the proposed transaction will not have
negative impact on employment or any other public interest issue.
[17]
Therefore, I conclude
that the transaction is unlikely to substantially prevent or lessen
competition in any relevant market.
CONCLUSION
[18]
I approve the merger
unconditionally.
04 June 2014
DATE
Dr Takalani
Madima
Ms Andiswa Ndoni and
Mr Imraan Vaiodia concurring
Tribunal Researcher:
Caroline Sserufusa
For the merging parties:
Vani Chetty of Vani Chetty Competition Law
For
the Commission: Reabetswe Molotsi
[1]
See pages 56-57 of Merger record in Competitiveness Report submitted
by merging parties.
[2]
See page 57 of Merger record in. Competitiveness Report submitted by
merging parties.
[3]
See page 8 of Transcript of hearing.
[4]
See pages 1461, 1464, and 1458 of the Merger Record in minutes of
discussions held with Market Participants such as Buckman
Laboratories, Nalco and Thuthukani Chemical Services.
[5]
See page 1458 of the Merger Record in Minutes of discussion with
conducted with Buckman Laboratories.
[6]
See page 9 of Transcript of the hearing.