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[2015] ZACT 56
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Boxmore Plastics (SA) Proprietary Limited v Cinqpet, a division of Astrapak Manufacturing Holdings Proprietary Limited (LM015May15) [2015] ZACT 56 (30 June 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM015May15
DATE:
30 JUNE 2015
In the matter between:
Boxmore
Plastics (SA) Proprietary
Limited
..................................................
Primary
Acquiring Firm
And
Cinqpet,
a division of Astrapak
Manufacturing
.................................................
Primary
Target Firm
Holdings
Proprietary Limited
Panel
Norman Manoim (Presiding Member),
Imraan
Valodia (Tribunal Member)
Andiswa
Ndoni (Tribunal Member)
Heard on
17 June 2015
Order
issued on 17 June 2015
Reasons
issued on : 30 June 2015
Reasons
for Decision
Approval
[1]
On
17 June 2015 the Competition Tribunal (“Tribunal”)
unconditionally approved the large merger between Boxmore Plastics
(SA) Proprietary Limited (“Boxmore”) and Cinqpet, a
division of Astrapak Manufacturing Holdings Proprietary Limited
(“Astrapak”). The reasons for approving the transaction
follow.
Parties
to the transaction
[2]
The
primary acquiring firm is Boxmore, which is jointly controlled by
Investec Bank Limited (“Investec”) and Boxmore
PET
Investment Proprietary Limited (“Boxmore PET”). Investec
is an international, specialist banking group. Investec
also holds
interests in a number of subsidiaries which, apart from Boxmore, are
not relevant for the purposes of the competitive
analysis as these
subsidiaries do not provide products and/or services which compete
with those provided by the target firm. Boxmore
PET is wholly-owned
by Business Venture Investments No. 1431 Proprietary Limited and
Investec is a wholly-owned subsidiary of Investec,
which is listed on
the Johannesburg Stock Exchange Limited (“JSE”). Boxmore
is involved in the design, manufacture,
distribution and sale of
Polyethylene Terephthalate (“PET”) products, specifically
bottles and pre-forms, used for
the carbonated soft drinks (“CSD”)
and beverage industry. The major portion of Boxmore’s business
is the production
and sale of pre-forms. The blown bottles represent
a small percentage of the total volume of Boxmore’s business.
[3]
The
primary target firm is Cinqpet, a division of Astrapak. Astrapak is a
wholly-owned subsidiary of Astrapak Limited which is listed
on the
JSE. Cinqpet was acquired by Astrapak in 2001, and has its
manufacturing site situated in Denver, Johannesburg. Cinqpet
manufactures and distributes PET based rigid plastic containers i.e.
bottles, jars and pre-forms using both single- stage and two-stage
technologies.
[1]
The business is focused on producing products primarily for the
Johannesburg, Pretoria and surrounding areas as the transportation
costs of moving bottles and jars to other regions is high. The
products produced by Cinqpet are supplied to the non-CSD beverage,
food, water, chemical, home care and personal care sectors.
Proposed transaction and rationale
[4] By way of a Sale of Business Agreement, Boxmore will acquire
certain assets and the associated Cinqpet business owned by Astrapak.
These assets include stock, trade debtors, (excluding Tiger Brands
Limited (“Tiger Brands”)) and all the assets listed
in
Cinqpet’s fixed asset register. The sale also includes assets
not listed but required for the operation of Cinqpet, save
for Aoki
350LL110 earmarked for the transfer to another Astrapak business
division in East London. Post-merger, Boxmore will own
and control
the business and assets of Cinqpet as a going concern.
[5]
Since July 2012, when it won the tender, Cinqpet supplied all
of Tiger Brands’ PET converted beverage bottles to Tiger
Brands’
bottles division. However in November 2104, Tiger
Brands gave Cinqpet six months’ notice to terminate the
contract. Since
Tiger Brands accounted for the majority of its
business this caused a major crisis. Unable to find another customer
to replace
Tiger Brands, Astrapak the parent company, decided to sell
Cinqpet. The proposed transaction is therefore the best solution to
deal with the situation and create a sustainable business, so as to
avoid retrenchments. After the termination, Tiger Brands put
the
business up for tender. We were informed at the hearing that going
forward, the Tiger Brands supply contract will be split
amongst three
suppliers, namely, Cinqpet, Polyoak Packaging (Pty) Ltd (“Polyoak”)
and MPact respectively.
[2]
[6]
For
Boxmore, the proposed transaction will assist it to economically grow
its existing pre-form manufacturing business, diversify
its
manufacturing footprint and aid in its problem of shortage of
manufacturing space and electrical supply. Mr David Drew (“Mr
Drew”) on behalf of Boxmore confirmed this and further
submitted that the aim for the proposed transaction was not to get
the Tiger Brands business as that business was not part of the
proposed transaction, since its termination was the main reason
the
Cinqpet business was put up for sale.
[3]
Competition
assessment
[7]
The
proposed transaction gives rise to a horizontal overlap, as the
merging parties are both involved in the manufacturing and
distribution of PET converted beverage bottles. The proposed
transaction also results in a vertical overlap as Boxmore is a
customer
of Cinqpet for pre-forms for bottles of varying sizes.
[8]
The
Commission identified the relevant product market as the market for
the manufacture and distribution of PET converted beverage
bottles in
Gauteng. This is because the target firm is primarily active in the
Gauteng region. When assessing the horizontal overlap,
the Commission
also took into account what the market shares of the merging parties
will be without the Tiger Brands contract.
Post-merger, the market
share will be less than 15%. The Commission submitted that
post-merger, the merged entity will continue
to face competition from
other market players such as MPact, Polyoak and Nampak inter alia. We
agree with the Commission’s
findings.
[9]
In
relation to the vertical overlap, the Commission assessed the
proposed transaction for any likelihood of input foreclosure and
customer foreclosure. In relation to input foreclosure the Commission
concluded that the proposed transaction raises no concerns
as the
merged entity will not have market power to restrict the supply of
PET pre-forms converted for beverage bottles of various
sizes to its
competitors in the downstream market. In relation to the customer
foreclosure the Commission also concluded that there
are no concerns
since apart from the merged entity there are more than enough
downstream customers in the market from whom competitors
of the
merged entity can obtain a supply of PET converted beverage bottles.
The Commission thus concluded that the proposed transaction
will not
result in any substantial lessening or prevention of competition in
the identified market We agree with the Commission’s
conclusion.
Public Interest
[10]
The proposed transaction will
have no negative impact on employment post-merger. The proposed
transaction raised no other public
interest concerns.
CONCLUSION
[11]
We agree with the Commission’s
findings that the proposed transaction is uniikely to substantially
prevent or lessen competition
in the identified /iarket. We therefore
approve the transaction without conditions.
30 June 2015
Mr
Nbrman Manoim
Prof.ftlmraan
Valodia and Ms Andiswa Ndoni concurring.
Tribunal
Researcher: Caroline Sserufusa
For the
merging parties: Natalie von Ey of Cliffe Dekker Hofmeyr Inc
For the
Commission: Daniela Bove
[1]
Both these processes produce PET bottles, however, in the single
stage method of production, the pre-form and the bottle is produced
in one continuous process of pre-form injection moulding and bottle
blowing in a single machine, such that the pre-form cannot
be
removed.
[2]
See page 6 of the transcript of the hearing.
"
See page 9 of the transcript of the hearing.