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[2015] ZACT 78
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Chemical Services Limited v Resinkem Proprietary Limited (LM231Mar15 (021030)) [2015] ZACT 78 (2 July 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM231Mar15
(021030)
In
the matter between:
Chemical
Services
Limited
Primary Acquiring Firm
and
Resinkem
Proprietary
Limited
Primary Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: Fiona Tregenna
(Tribunal Member)
: Medi Mokuena (Tribunal
Member)
Heard
on
: 3 June 2015
Order
Issued on
: 3 June 2015
Reasons
Issued on
: 2 July 2015
Reasons
for Decision
Approval
[1]
On 3 June 2015, the Competition Tribunal ("Tribunal")
unconditionally approved the merger between Chemical Services
Limited
("CSI"} and Resinkem Proprietary Limited ("Resinkem").
[2]
The reasons for approving the proposed transaction follow.
Parties
to transaction
Primary
acquiring firm
[3]
The primary acquiring firm is CSL, a firm incorporated in accordance
with company laws of South Africa. Prior to implementation
of this
transaction CSL controlled 50 percent of the shareholding in
Resinkem.
[4]
CSL is a wholly-owned subsidiary of AECI Ltd which is a public
company listed on the Johannesburg Stock Exchange. AECI is a
South
African- based explosives and speciality chemicals group which
services the mining and manufacturing sectors.
Primary
target firm
[5]
The primary target firm is Resinkem which is jointly controlled by GP
Chemicals International Holding Sari (GP Chemicals) and
CSL.
[6]
Resinkem is involved in the manufacture and supply of formaldehyde
solutions, urea formaldehyde resins and phenolic resins.
In addition
to this, Resinkem also toll manufactures the following products:
phenolic resins, animal feed supplements, pulp and
paper additives
and extenders and scavengers. Resinkem is also involved in the trade
of industrial urea.
Proposed
transaction and rationale
[7]
The proposed transaction involves CSL, who already holds 50% of
Resinkem acquiring the remaining 50% from GP Chemicals.
The
proposed transaction will therefore constitute a change from joint to
sole control.
[8]
The proposed transaction was as a result of Resinkem losing its
largest and only significant contestable customer of formaldehyde
resin which resulted in the business no longer being economically
viable as a self- standing business. GP Chemicals therefore intends
to exit the joint venture as a result of this. Sole control would
allow AECI more manoeuvrability in incorporating Resinkem into
its
existing and planned operations.
Impact
on
competition
[9]
The Competition Commission ("the Commission") found
that the proposed transaction resulted
in a
vertical overlap as Resinkem supplies to a number of AECI
subsidiaries. It found that the vertical overlap would not have
any
effect on the proposed transaction and instead focused on the supply
of chemical products to customers outside the AECI Group.
The
Commission therefore focused its analysis on the following affected
markets; urea formaldehyde resins, formaldehyde and Salcurb
S. The
Commission concluded that the proposed transaction would not result
in input foreclosure in the abovementioned markets.
Furthermore the
Commission found that there are alternative suppliers in the market
which would be capable to supply customers
in the event of input
foreclosure.
[10]
The Commission also investigated the possibility of a change in
incentives. It found that the proposed transaction did not
alter the
structure of the market and a change in incentives is unlikely as
Resinkem had lost a significant proportion of its business.
The
Commission concluded that the proposed transaction would unlikely
result in Resinkem raising prices or decreasing output.
[11]
We concur with the Commission's competition assessment that the
proposed transaction is unlikely to substantially prevent or
lessen
competition in any relevant market. We further agree that it is
unlikely that the proposed transaction would result in input
foreclosure or a change in incentive for Resinkem to increase prices
or decrease output.
Public
interest
[13]
The merging parties brought attention to the fact that as a result
of losing significant business that 12 retrenchments were
affected.
The merging parties submit that these retrenchments
were
not merger
specific.
The
merging
parties
further
submitted
the
possibility
that
save
for
the
proposed
transaction
Resinkem
would
face
eventual
liquidation which would
result in
approximately 21
more jobs
being
lost.The merging
parties
confirmed
that the
proposed
transaction
will
not result
in an
adverse
impact on
employment.
[1]
The
proposed
transaction
further
raises
no
other
public
interest
concerns.
Conclusion
[14]
In light of the above, we conclude that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in any relevant market. In addition, no public interest
issues arise from the proposed transaction. Accordingly, we approve
the
proposed transaction unconditionally.
02
July 2015
DATE
________________________
Yasmin
Carrim
Fiona
Tregenna and Medi Mokuena concurring
Tribunal
Researcher:
Aneesa Ravat
For
the merging parties: Derek
Lotter and Claire Avidon of Bowman Gilfillan
For
the Commission:
Relebohile Thabane and Nompucuko
Nontombana
[1]
Inter
alia
merger
record page 3.