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[2015] ZACT 29
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Chlor-Alkali Holdings (Pty) Ltd v Khumo Bathong Strategic Investments No 2 (Pty) Ltd and Another (019752) [2015] ZACT 29 (25 March 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 019752
In the matter
between:
Chlor-Alkaii
Holdings (Pty)
Ltd
...............................................................................
Primary
Acquiring Firm
And
Khumo
Bathong Strategic Investments No 2 (Pty)
Ltd
..............................................
Primary
Target Firms
and
Star Focus 115
(Pty) Ltd
Panel: Medi Mokuena
(Presiding Member),
Anton Roskam
(Tribunal Member)
Imraan Valodia
(Tribunal Member)
Heard on: 04 March
2015
Order issued on: 04
March 2015
Reasons issued on :
25 March 2015
Reasons for
Decision
Approval
[1] On 04 March 2015
the Competition Tribunal (“Tribunal”) unconditionally
approved the large merger between Chlor-Alkali
Holdings (Pty) Ltd
(“CAH”) and Khumo Bathong Strategic Investments No 2
(Pty) Ltd (“Khumo”) and Star Focus
115 (Pty) Ltd (“Star
Focus”). The reasons for approving the transaction follow.
Parties to the
transaction
[2] The primary
acquiring firm is CAH, a private company incorporated in accordance
with the company laws of the Republic of South
Africa (“RSA”).
CAH is controlled by Investec Principal Investments, a division of
Investec Bank Limited (“IBL”),
which is in turn
wholly-owned by Investec Limited, a public company listed on the
Johannesburg Securities Exchange (“JSE”).
Investec is not
controlled by any shareholder. Investec has shareholding in numerous
entities which are not related to this transaction.
CAH holds shares
in various subsidiaries and joint ventures involved in the
manufacture and/or distribution of salt namely Walvis
Bay Salt
Holdings (Pty) Ltd (“Walvis Bay”), Ekango Salt Refiners
(Pty) Ltd, Botash (Pty) Ltd, Salt & Chemicals
(Pty) Ltd and
NCP Chlorchem (Pty) Ltd.
[3] The primary
target firms are Khumo and Star Focus, which are both private
companies incorporated in accordance with the laws
of RSA. The
shareholders of Khumo are Investec, Netherne Investments (Pty) Ltd
(“Netherne”) and African Pioneer Limited
(“African
Pioneer”). Khumo’s subsidiaries are Star Foods (Pty) Ltd,
Cerebos (Pty) Ltd (“Cerebos”)
and National Salt (Pty) Ltd
which are all involved in the mining, manufacture, packaging and
distribution of salt in South Africa.
[4] The Commission
considered the transaction as one indivisible transaction because of
the cross-shareholding between the target
firms.
Proposed
transaction and rationale
[5] CAH and the
target firms wish to expand their businesses and grow their
footprint.
Competition
assessment
[6] The Commission
identified two product markets, namely 1) the market for the
manufacture and supply of food grade coarse salt
and 2) the market
for the manufacture and supply of food grade fine salt.
[7] The Commission
found that the geographic market was broader than what the parties
had initially indicated as a national market.
It found that a
significant amount of food grade salt was imported from Namibia and
it therefore concluded that the geographic
markets in both the food
grade coarse salt and fine salt markets were national markets that
include imports from Namibia.
[8] Both parties to
this transaction are vertically integrated. CAH’s subsidiary,
Walvis Bay is one of the largest solar evaporation
facilities in
Africa, which processes millions of tonnes of sea water to produce
salt. The operation consists of two firms, namely:
Salt & Chemical
(“S&C”) and Walvis Bay Salt Refiners (“WBSR”).
S&C produces the raw salt,
while WBSR further processes and
markets the salt in South Africa and the rest of Africa. Cerebos on
the other hand is involved
in the production, packaging and
distribution of salt into Southern Africa. Cerebos has two production
facilities. The first plant
is located on the Berg River in Velddrif,
on the West Coast. It produces salt through the solar evaporation of
sea water. The production
at this plant comprises of table salt,
slightly coarser salt and super fine salt. The second plant is
located at Coega and is currently
the only manufacturer of Pure
Vacuum Dried (“PVD”) salt in Southern Africa. It supplies
this high-quality PVD salt
(in the form of table salt) to retail and
industrial customers.
[9] The proposed
transaction results in horizontal and vertical overlaps in the
activities of the merging parties.
The food grade
coarse salt market
[10] In this market
the Commission found that the post-merger market share of the merged
entity would be less than 10%. It competes
with larger players such
as Donald Brown, Swartkops, Kalkpoort and Sun Salt.
[11] The Commission
also considered whether input foreclosure and customer foreclosure
were possible post the transaction.
[12] With regard to
input foreclosure the Commission found that there was excess capacity
of food grade coarse salt available in
the market and that the merged
entity’s customers could buy coarse salt from any of its
upstream competitors such as Swartkops,
Sun Salt and Oranje Soutwerke
etc. Input foreclosure was thus unlikely.
[13] With regard to
customer foreclosure the Commission found that Cerebos also purchased
food grade coarse salt from Kliphoek Salt
Works (“Kliphoek”)
which is six kilometres (“km”) from Cerebos. Kliphoek
stated that Cerebos was its only
customer and that it did not have
any alternative customers should Cerebos cease to buy its food grade
coarse salt. The Commission
found that although Kliphoek was
dependent on Cerebos as a customer it was highly unlikely that
Kliphoek would be foreclosed from
supplying Cerebos in future. It
based its finding on the fact that transport costs for coarse salt
were up to 30% of the value
of salt. Since Kliphoek is only 6 km away
from Cerebos it would not be economically feasible to switch to
sources that were 1000
km away from Cerebos. The merging parties also
confirmed that it would continue to source coarse salt from Kliphoek
post the transaction.
[14] In light of the
above the Tribunal finds that input and customer foreclosure in this
market is unlikely.
The food grade
fine salt market
[15] The post-merger
market share of the merged entity will be less than 30%. Other large
players in the market are, amongst others,
Oranje Soutwerke,
Kalkpoort Soutwerke, Sun Salt and Donald Brown. The Commission also
found that salt re-packers such as GOT Holdings,
Golden Crest, Ocean
Brand and many more compete with vertically integrated salt
producers. According to Swartkops, a competitor
in this market, there
are approximately 21 salt re-packers of which they are aware of.
[16] The Commission
indicated that entry barriers to the food grade fine salt market were
low as new entrants do not need to have
access to salt mines and pans
to compete. They could source bulk salt from various sources and
re-pack it into smaller sizes. New
entrants could set up a plant for
less than R 15 million and compete effectively within two years.
Competitors of the merging parties
also indicated to the Commission
that re-packers put considerable pressure on the industry and that as
a result the number of salt
producers in South Africa had declined
from 86 to 17 in the past five years.
[17] In addition to
this, customers such as Pick n Pay, Shoprite and Spar indicated to
the Commission that they have countervailing
buyer power as they have
the ability to negotiate salt prices, get discounts and even switch
to alternative suppliers of salt.
[18] The Commission
thus concluded that the merged entity was unlikely to unilaterally
increase prices post the transaction.
[19] The Commission
also assessed whether the merged entity could foreclose the
distribution of food grade fine salt in the relevant
downstream
market by increasing the price of bulk fine food salt charged to its
downstream distributor rivals (input foreclosure)
or engage in any
customer foreclosure. The Commission found that other players in the
market such as Swartkops, Oranje Soutwerke
and Sun Salt had excess
capacity and would thus constrain the merged entity in engaging in
any input foreclosure in this market.
With regard to customer
foreclosure the Commission found that Cerebos had bought very small
amounts of fine salt from Sun Salt
in the past and that customer
foreclosure by the merged entity post the transaction was therefore
unlikely.
[20] The Tribunal
therefore finds that the merged entity is unlikely to have the
ability to engage in input and customer foreclosure
in the market for
food grade fine salt.
Third party
concerns
[21] The Commission
also received concerns from market participants who alleged that
post-merger the market will be flooded with
food grade coarse salt
and food grade fine salt, which may drive competitors out of the
market and subsequently lead to adverse
effects on employment. The
Commission found that as Cerebos and Walvis Bay do not supply food
grade fine salt to its competitors,
they will not engage in input
foreclosure in respect of food grade fine salt. The Commission also
found that Botswana Ash (Pty)
Ltd (“Botash”) only sells
chemical grade salt in the South African market and chemical grade
salt is not part of the
proposed transaction. The Commission
therefore came to the conclusion that the merged entity is unlikely
to flood the South African
market with food grade coarse salt or food
grade fine salt.
Public Interest
[22]
The merging parties confirmed that the proposed transaction will have
no effect on employment.
1
CONCLUSION
[23] We agree with
the Commission’s findings that the proposed transaction is
unlikely to substantially prevent or lessen
competition in any of the
identified markets. We therefore approve the transaction without
conditions. The proposed transaction
raised no public interest
concerns.
25 March 2015
DATE
Mr
Anton Roskam
Ms Medi Mokuena
and Prof. Imraan Valodia concurring.
Tribunal
Researcher:
Caroline
Sserufusa
For the merging
parties: Paul Coester of Werksmans Attorneys
For the Commission:
Gilberto Biacuana
1
See
page 64 of the merger record.