About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Tribunal
SAFLII
>>
Databases
>>
South Africa: Competition Tribunal
>>
2016
>>
[2016] ZACT 16
|
|
Alstrom Transport Holdings SA (Pty) Ltd v Opiconsivia Investments 265 (Pty) Ltd (LM198Dec15) [2016] ZACT 16 (16 March 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM198Dec15
In
the matter between:
ALSTOM
TRANSPORT
HOLDINGS
SA (Pty)
Ltd
Primary Acquiring Firm
and
OPICONSIVIA
INVESTMENTS
265 (Pty)
Ltd
Primary Target Firm
Panel
: Norman Manoim (Presiding Member)
: Medi Mokuena (Tribunal
Member)
: lmraan Valodia
(Tribunal Member)
Heard
on
: 24 February 2016
Order
Issued on
: 24 February 2016
Reasons
Issued on
: 16 March 2016
Reasons
for Decision
Approval
[1]
On 24 February 2016, the Competition Tribunal ("Tribunal"}
approved the merger between Alstom Transport Holdings
SA (Pty)
Ltd and Opiconsivia Investments 265 (Pty) Ltd.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Alstom Transport Holdings SA
Proprietary Limited ("Alstom"), a private firm
incorporated
in accordance with the laws of the Republic of South
Africa.
[4]
Alstom is controlled by ALSTOM (parent company of the Alstom Group),
a public company registered in France.
[5]
Alstom operates throughout the world and is active in the supply of a
complete range of systems, equipment and services in the
railway
sector. Its railway product range includes rolling stocks such as
passenger and freight coaches, locomotives, railway signaling,
train
control systems, train equipment, rail infrastructure and associated
services.
[6]
In South Africa, Alstom's transport business consists
only of operations through Gibela.
Gibela
manufactures and maintains passenger trains for PRASA in terms of a
Manufacture and Supply Agreement ("MSA") and
a Technical
Support and Spares Supply Agreement ("TSSSA"). Currently,
Gibela's operations are strictly ring-fenced
to these two contracts.
Primary
target firm
[7]
The primary target firm is Opiconsivia Investments 265
Proprietary Limited ("Opiconsivia Investments
265"), which trades under the name Commuter Transport
&
Locomotives Engineering Proprietary Limited ("CTLE").
[8]
CTLE is ultimately owned by Commuter
Transport Engineering Investments Proprietary
Limited ("CTE"). CTE currently holds a controlling interest
in Opiconsivia Investments 268 which in turn holds a controlling
interest in CTLE.
[9]
CTLE acts as a sub-contractor to Original
Equipment Manufacturers (OEMs) to
design and
build trains in South Africa including electric and diesel
locomotives, coaches and electric multiple units. In addition,
it
also carries out overhauling, refurbishing and upgrading of the South
African passenger and freight rail rolling stock. This
includes all
types of electric locomotives, passenger electrical multiple units,
all types of freight wagons and specialized railway
equipment.
Proposed
transaction and rationale
[10]
Alstom intends to acquire 51% of the issued share capital in CTLE
from Opiconsivia Investments 268. In addition it is submitted
that
the merging parties intend to expand the business to offer solutions
throughout Southern Africa post-merger.
[11]
Alstom submits that the transaction is aimed at broadening the scope
of Alstom's current offering in the South African rail
sector.
Following the completion of Gibela's contracts with PRASA, Alstom
submits that it will no longer have a local company through
which to
provide rolling stock products and services to the South African
railway market. As such, it submits that the proposed
transaction
will provide Alstom with a local company and access to manufacturing
and maintenance capacities. Furthermore, subject
to the expected
development of the business, the merging parties submit they
also foresee scope to expand the geographic
reach of the business to
other sub-Saharan African markets as well as potentially integrating
the CTLE site into Alstom Transport's
global manufacturing portfolio
to serve overseas markets.
[12]
CTLE submits that its business has been under significant financial
stress for a number of years. As
such, the proposed
transaction presents an opportunity for it ensure the
sustainability and existence of the company. In
particular, by
partnering with Alstom, CTLE submits that it will not only be able to
return to a sound financial position but it
will also be able to
become a more effective competitor by expanding its technology and
product offering, as well as broadening
is geographic reach. It
submits that the proposed transaction will benefit CTLE, its
shareholders, its employees, the greater Nigel
area and the
competitiveness of the South African rail transport sector.
Impact
on competition
[13]
The Commission considered the activities of the merging parties and
found that although the products supplied by the
merging
parties were intended for use in the rail industry, Alstom did not
provide any other passenger or freight train design,
manufacture,
maintenance or refurbishment services in South Africa, apart from its
activities with PRASA though Gibela. As mentioned
previously, Gibela
is a sole supplier of services to PRASA in terms of the MSA and
TSSSA.
[14]
On the other hand, CTLE acts as a sub-contractor to OEMs to design
and build trains locally and also refurbishes trains. CTLE
currently
competes with firms such as Transnet Engineering, Naledi Rail
Engineering Proprietary Limited ("Naledi Rail Engineering")
and Wictra Holdings ("Wictra").
[15]
Given that Gibela only provides its services to PRASA, the Commission
was of the view that Alstom and CTLE do not compete in
the South
African rail industry. Furthermore customers and competitors of the
merging parties contacted by the Commission confirmed
that Alstom and
CTLE do not compete in the South African rail industry.
[16]
According to the merging parties, CTLE currently has very limited
capability in the design, construction and manufacturing
of newly
built rolling stock. The proposed transaction will therefore enable
CTLE to expand its current product offering.
[17]
On the basis of the above, the
Commission was of the view that
the proposed transaction was unlikely to substantially
lessen or prevent competition in the market.
[18]
In its investigation, the Commission also sought to obtain the views
of third parties and contacted customers, competitors
of the merging
parties as well as trade unions. The Commission submitted that of all
the third parties contacted, only Wictra Holdings
(Pty) Ltd
("Wictra") raised an objection to the proposed transaction.
Wictra is primarily involved in the refurbishment
of trains for
PRASA. Given Alstom's declaration of interest to PRASA to be
considered for the modernization of the refurbished
trains, Wictra's
main concern surrounded the potential for the merging parties to
dominate the refurbishment market by virtue of
its size, scale and
resources.
[19]
However according to the merging parties, there are a
number of firms in South Africa that have comparable
capabilities to CTLE. Furthermore, the merging parties submit that
Alstom does not offer these services apart from under the TSSSA,
and
as such will be a new entrant in the market. Therefore according to
the parties, the proposed transaction will not lessen or
prevent
competition within the local market. In addressing the issue of
PRASA, the merging parties state that PRASA acts independently
and
will award the contract for the modernization of the refurbished
trains to the firm with the most competitive bid.
[20]
In addressing the concerns of Wictra, the Commission confirmed that
PRASA does dictate the whole tender process and appoints
contractors,
such as Wictra, based on the individual service provider's capacity
to deliver and historical performance (cost, quality
and on time
delivery). In addition, it also appeared that PRASA awarded contracts
on a geographic basis. According to the Commission,
this last finding
suggested that PRASA could not award all of its refurbishment
projects to CTLE post-merger, given that the allocation
of contracts
appeared to be regionally driven. Overall, the Commission submitted
that it could not find any evidence to support
the theory that the
merging parties would be able to behave in a manner that could
exclude its competitors from tendering
for these projects.
[21]
At the hearing, the Tribunal allowed Wictra and Opiconsivia
Investments 265 to make further representation with regard to the
allegations of Wictra. However after much debate between the parties,
the Tribunal was of the view that the issues raised did not
differ to
those investigated by the Commission and subsequently concurred with
the Commission's findings. What did emerge at the
hearing was that
CTLE was at present under performing and thus losing business to
Wictra on contracts that it had won tenders for.
The merger will thus
improve CTLE's competiveness as it will enable it to invest
more in its business to improve its level
of service.
[22]
The Tribunal concurs with the Commission
that the proposed transaction is
unlikely to substantially prevent or lessen competition in any
relevant market. The primary reason for doing so is that this is
a
one customer market and the customer has sufficient buying power to
ensure that the market for the services it requires remains
competitive.
Public
interest
[23]
The merging parties confirmed that the proposed transaction will not
result in any adverse impact on employment.
[24]
In assessing the effect of the proposed transaction on international
competitiveness, the merging parties submitted that they
intend on
expanding the business to offer solutions throughout Southern Africa.
In addition, the merging parties are of the view
that the CTLE site
could also be integrated into Alstom Transport's global manufacturing
portfolio to serve overseas markets.
[25]
Given the above submissions, the Commission is of the view that the
proposed transaction is likely to have a positive effect,
as the
proposed transaction is likely to given CTLE the ability to compete
in international markets.
[26]
The proposed transaction further raised no other public interest
concerns.
Conclusion
[27]
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 other public
interest issues arise from the proposed transaction. Accordingly,
we
approve the proposed transaction unconditionally.
16
March 2016
DATE
_________________
Mr
Norman Manoim
Ms
Medi Mokuena and Prof lmraan Valodia
Tribunal
Researcher: Karissa
Moothoo Padayachie
For
the merging parties: Fasken Martineau
For
the Commission:
Zanele Hadebe and Thabelo Masithulela
Intervenor:
Wictra Holdings (Pty) Ltd