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[2016] ZACT 29
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Business Venture Investments 1889 (Pty) Ltd v Idwala Industrial Holdings Limited (LM197Dec15) [2016] ZACT 29 (12 April 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM197Dec15
In
the matter between:
BUSINESS
VENTURE
INVESTMENTS
1889 (PTY)
LTD
Primary
Acquiring Firm
and
IDWALA
INDUSTRIAL
HOLDINGS
LIMITED
Primary Target Firm
Panel
: Andreas Wessels (Presiding Member)
: Fiona Tregenna
(Tribunal Member)
: Andiswa Ndoni (Tribunal
Member)
Heard
on
: 09 March 2016
Order
Issued on
: 09 March 2016
Reasons
Issued on
:
12 April 2016
Reasons
for Decision
Approval
[1]
On 09 March 2016, the Competition Tribunal ("Tribunal")
approved the proposed transaction involving Business Venture
Investments 1889 (Pty) Ltd and ldwala Industrial Holdings Limited.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Business Venture Investments 1889 (Ply)
Ltd ("BVI"), a newly established firm incorporated
in terms
of the company laws of the Republic of South Africa.
[4]
BVI will shortly become a wholly-owned subsidiary of Investec
Equity Partners (Ply) Ltd ("IEP") once SA Reserve
Bank
approval is received. IEP has also been established recently and upon
receipt of SA Reserve Bank approval will be controlled
by Investec
Bank Limited ("Investec Bank").
[5]
BVI is an investment holding company, which upon implementation of
the proposed merger will hold investments in the following
firms
which are of relevance to the competition assessment of the proposed
transaction:
•
Chlor-Alkali Holdings
(Pty) Ltd;
•
Ferro South Africa (Ply)
Ltd ("Ferro"); and
•
CJP Chemicals (Pty) Ltd.
[6]
The firms in which BVI will hold investments supply various chemicals
and minerals. These chemicals include, amongst others,
salt, soda
ash, caustic soda flakes and chlorine. Ferro is a local manufacturer
and supplier of base coating materials; its product
range includes
thermos-setting powder coatings, plastic masterbatch,
ceramic glazes, porcelain enamels, glass colour,
inks, unsaturated
polyester resins and coating resins.
Primary
target firm
[7]
The primary target firm is ldwala Industrial Holdings Limited
("ldwala"), a firm incorporated according to the company
laws of the Republic of South Africa. ldwala
controls
the following firms: (i) Lime Distributors (Ply) Ltd; (ii)
ldwala Industrial (Ply)
Ltd
[1]
;
and (iii)
Pybus
Thirty-one
(Ply)
Ltd
[2]
[8]
ldwala is a supplier of limestone, lime and calcium carbonates, as
well as a broad range of industrial minerals including pyrophylite
and magnetite.
Proposed
transaction and rationale
[9]
BVI intends to acquire 100% of the ordinary share capital in ldwala.
[10]
BVI submitted that the proposed transaction is an attractive private
equity investment opportunity.
[11]
ldwala submitted that the proposed transaction will allow management,
together with the new shareholder to drive growth in
key markets and
enhance profitability and savings through various initiatives and
projects.
Impact
on competition
Horizontal
overlap
[12]
The Competition Commission ("Commission") found that the
merging parties' activities overlap horizontally in national
markets
for the distribution of (i) hydrated lime; and (ii) calcium
carbonate.
[13]
The Commission found that in both of the above-mentioned markets the
market share accretion as a result of the proposed transaction
is
de
minimus.
The Commission thus concluded that the proposed
transaction will not result in a significant change in the structure
of the markets
and thus is unlikely to substantially prevent or
lessen competition in any relevant market.
[14]
We concur
with the Commission's finding that the proposed transaction
is unlikely
to
substantially
prevent
or
lessen
competition
in
any
relevant
market
given
the
de
minimus
market
share
accretions as
a
result
of the
proposed transaction. We however
note
that
we
take
no
definitive
view
on
the
parameters
of
the
relevant
geographic
markets,
i.e.
whether
the
geographic
markets
are
regional,
national
or wider
in scope.
We further
take
no
view
on
the
presence
of
import
competition
in these
markets since
we lack
sufficient information on this score.
[3]
Vertical
aspects
[15]
The Commission assessed the likelihood of input foreclosure and found
that ldwala sold (i) a small percentage of its calcium
carbonate to
CJP Chemicals (Pty) Ltd ("CJP"), a subsidiary of BVI; (ii)
a small percentage of its unfloated calcium carbonate
to Ferro; and
(iii) a small percentage of its pyrophylite to Ferro. The bulk of
ldwala's sales of these products however go to
third parties not
related to the merging parties. The Commission therefore concluded
that the BVI group of companies is not a significant
customer or
route to market for ldwala.
[16]
Furthermore, customers such as Sappi Southern Africa (Pty) Ltd,
Columbus Stainless (Pty) Ltd, Crest Chemicals (Pty) Ltd, Kiran
Global
Limited and Cyclone Chemicals (Pty) Ltd indicated that they have long
term supply agreements with ldwala that are unlikely
to be affected
by the proposed transaction.
[17]
The Commission received a concern from Omnia Group (Pty) Ltd
("Omnia"), a competitor of BVI. Omnia alleged that the
merged entity would post-merger cease to supply ldwala's products to
BVl's competitors since the merging parties will be vertically
integrated. The Commission however found that this potential concern
was unlikely to cause harm since the relevant products constitute
a
very small percentage of Omnia's turnover.
[18]
In determining whether the proposed transaction will result in
customer foreclosure, the Commission assessed whether any competitors
of ldwala will be foreclosed from supplying products to the BVI
companies. The Commission found that customer foreclosure was
unlikely since BVI bought minimal amounts of the relevant products
from other competitors, save for Ferro which imported a certain
amount of unfloated calcium carbonate from Ascom Geology &
Mining, an Egyptian company with no presence locally. Therefore
the
Commission concluded that the proposed transaction is unlikely to
raise any customer foreclosure concerns.
[19]
We concur with the Commission's finding that the proposed transaction
is unlikely to raise significant vertical concerns.
Bundling
[20]
The Commission further investigated potential post-merger bundling by
the merged entity. It however found that a bundling and
tying
strategy by the merged entity is unlikely to be successful
post-merger. Customers indicated that they can switch to alternatives
should the merging parties attempt to force them to bundle and
competitors indicated that they are not concerned that bundling
would
be possible. Therefore, the Commission found that the proposed
transaction is unlikely to result in bundling
I
conglomerate
effects. We concur with this finding.
Public
interest
[21]
The merging
parties
confirmed that
the
proposed
transaction will not
result
in
any
adverse
impact
on
employment.
[4]
[22]
The proposed transaction further raises no other public interest
concerns.
Conclusion
[23]
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.
12
April 2016
DATE
_____________________________
Mr.
Andreas Wessels
Prof
Fiona Tregenna and Ms Andiswa Ndoni concurring
Tribunal
Researcher:
Busisiwe Masina
For
the merging parties:
Paul Coetser of Werksmans Inc
For
the Commission:
Seabelo Molefe
[1]
A dormant
company
soon to be
liquidated.
[2]
A dormant company soon to be liquidated.
[3]
See Commission's Report inter alia page 26.
[4]
Merger record, pages 18
and 65.