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[2016] ZACT 52
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Reunert Limited v Metal Fabricators of Zambia PLC (LM006Apr16) [2016] ZACT 52 (22 July 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM006Apr16
In
the matter between:
REUNERT
LIMITED
Primary
Acqu
i
ring
F
i
rm
and
METAL
FABRICATORS OF ZAM
B
I
A
PLC
Primary
Target Firm
Panel
:Andreas
Wessels
(Presiding Member)
:
F
i
ona
Tregenna
(Tribunal M
e
mber)
:
An
d
i
swa
Ndoni(Tribunal
M
ember)
Heard
on
:
29 June
2016
Order
I
ssued
on
:
29 June 2016
Reasons
I
ssued
on :
22 July 2016
Reasons
for Decision
Approval
[
1
]
On
29 June
2016, the Competition Tribunal ("Tribuna
l
"
)
approved the proposed transaction
i
nvolving
Reunert
Limited
and
Metal
Fabricators
of
Zambia
P
i
e
.
[2]
The
reasons
for
approving
the
proposed
transaction follow
.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The
primary
acquiring
firm
is
Reunert
Limited
("Reunert"),
a
public
company
i
ncorporated
according to the
l
aws
of the
Republic
of
South
Africa. Reunert
is
listed
on
the
Johan
n
esburg
Stock Exchange
(
"
JSE")
and
i
s
not
controlled
by
any
single shareholder.
[
4]
Reunert
manages
a
portfol
i
o
of businesses
i
n
the
fields
of
electr
i
cal
engineering,
i
nformation
communication
technologies
and
applied
electronics.
Relevant
for
the
competition assessment
of
this
proposed
transaction
are
Reunert's activit
i
es
through
i
ts
E
l
ectrical
Engineering business
.
CBI
Electric: African
Cables
(
"
African
Cables")
is
housed
with
i
n
this division
.
[5]
African
Cables
is
i
n
volved
i
n
the
manufacture
and
sup
p
l
y
of
ca
b
l
e
a
n
d
conductor products
from
copp
e
r
r
od
.
Particularly
,
African
Cables
designs
and
manufactures
a comprehensive
range of electrical energy
cables
up
to
1
32
kV and conductors
up
to 765
kV.
I
t
i
s
also
i
nvolved
i
n the
i
nstallation
and
maintenance
of
medium
and
h
i
gh
voltage
cable
systems
.
The
cables
and
conductors
designed
and
manufactured
by
African
Cables
can
be classified
as
:
l
ow
voltage
(LV)
cables,
medium
voltage
(MV) cables, high
voltage (HV) cables, overhead conductors
and
aerial
bundled
conductors
(ABC).
[
6]
In
addition,
African Ca
b
l
es
also
m
anufactures
copper
rod
for
i
ts
own
i
nternal
use
.
The
copper rod is
u
sed
to manufacture its cable and conductor
p
roducts
.
[7]
Reunert also
h
as
an
i
nterest
i
n a
South African joint venture,
CBI
-
Electric
Aberdare ATC Telecom Cables (Pty) Ltd
.
H
owever,
this
company
only supplies telecommun
i
cations
cables and does not compete
i
n
the electrical power
i
ndustry.
Primary
target firm
[8]
The primary target firm is Metal
Fabricators of
Zambia
Pie
("Zamefa"),
a company
incorporated
i
n
accordance with the
l
aws
of
Zambia.
Zamefa is ultimately controlled by
General
Cab
l
e
Corporation
(
"
G
e
n
eral
Cab
l
e
"
),
a
company
i
n
corporated
i
n
Kentucky,
U
n
i
ted
States
of
America
which
h
olds
7
5
.
4%
of
the
shares
i
n
Zamefa
.
[9]
General
Cable
controls
various
firms
around
the
world
.
I
n
South
Africa
,
General Cable controls
N
ational
Cable (Pty) Ltd (“
N
ational
"
)
and General Cable Phoenix S.A (P
l
y)
Ltd
(
"
Phoenix")
.
We
note
that
the Commission however
found
that
N
ational
and Phoen
i
x
have
closed
down
and
are
not
part
of
the
proposed
transactio
n
.
[10]
In South Africa, Zamefa controls Zamefa Metal Fabricators of South
Africa (Ply) Ltd ("Zamefa SA") which holds some
copper rod
inventory for Zamefa in South Africa and this enables Zamefa to
service smaller orders in South Africa on shorter lead
times.
[11]
Zamefa is a manufacturer of copper rod
based in Luanshya on the Zambian copper
belt.
I
t
i
s a
l
argely an
export driven business.
[12]
Zamefa also produces and distributes certain kinds of low voltage
(LV) cables, building wire, overhead conductors and bare
copper
conductors, some of which have been sold into South Africa. These
products were supplied to Phoenix and National.
[13]
Cables and wire products are also manufactured at the Phoenix plant
in KwaZulu Natal. Zamefa can however not produce medium
voltage
(MV) cables since it does not have the appropriate manufacturing
plant. Zamefa is also not active in the manufacturing
of HV cables.
[14]
Zamefa
further
has
the
capacity
to
produce
aerial
bundle
conductors
(ABC)
although
i
t
did
not
do
so
i
n
2015.
Proposed
transaction and rationale
[15]
Accord
i
ng
to
the
Purchase
Agreement
entered
into between
Reunert
and
General Cable,
Reunert
intends
to
acquire
General
Cable's
entire
shareholding
i
n Zamefa.
Following
the
proposed
transaction,
Reunert
will
hold approximately 75% of
the
issued share capital in Zamefa and will
exercise control over Zamef
a
.
[16]
Reunert submitted that the proposed
transaction will
inter a/ia
enable
i
t to
vertically
i
ntegrate
its cable
manufacturing
distribution
business
with
a
rel
i
able
suppl
i
er
of copper
rod
and
generate
efficiencies
.
[17]
Zamefa submitted that the proposed transaction will
inter
alia
increase production and enable its plant to
run more productively.
Impact
on competition
[
1
8]
The
Competition
Commission
("Commission")
identified
a
vertical
overlap
between the
activities
of
the
merging parties since certain of the
cables
manufactured by the
acquiring
group
are
produced
from
copper
rod. The
acquiring group
however
does
not
purchase copper rod from Zamefa pre-merger
.
[19]
In relation to the manufacture and supply of copper rod, the
Commission found that African Cables manufactures copper rod
exclusively for its own internal use, i.e. the copper rod is not
supplied to any third party. The Commission therefore did not
consider this any further.
[20]
The Commission did however
i
dentify
a horizontal overlap between the activities of the
merging
parties
in
the national
market
for
the
manufacture and
sale
of
low
voltage
("LV")
cables. The Commission found
that the merging parties' combined
market
share
in 2015
i
n
this
market
i
s
below
20%.
The
Commission further
stated
that
Aberdare
i
s
the market
l
eader
in
this
market whereas firms such as SOEW and M Tec are also prominent
players. Several competitors and customers confirmed that
Zamefa
(and
General Cable) are not
significant players in this market. The
Commission therefore concluded that this
horizontal overlap is unlikely to result in
a
substantial
prevention
or
l
essening
of
competition. We
concur
with
this
finding.
[21]
As a result of the abovementioned
vertical overlap, the Commission also
considered
an
input foreclosure theory of harm. The Commission however found that
the merged entity
will
not
have
the
abi
l
i
ty
to
foreclose
r
i
vals
.
The
customers
contacted
by
the
Commission
i
ndicated
that they
have
a sufficient
number
of alternative
suppliers
that can supply copper rod to them
.
[22]
The Commission further found that
the
merged entity
i
s
unlike
l
y to
have
the
incentive to
foreclose
given
that
Zamefa has
substantial excess capacity in
the manufacturing
of copper rod. Zamefa's l
i
kely
i
ncentive
is to sell more copper rod to third parties in order
to utilize
more
of
its
capacity
.
Furthermor
e
,
since
African
Cables manufactures
its
own
copper rod,
i
t
i
s unl
i
kely
that
i
t
would be able
to
absorb all of Zamefa
'
s
supply
.
The
Commission therefore found that an input foreclosure strategy was
unlikely to
result
from the proposed transaction.
[23]
The Commission further found that the
proposed transaction was
unlikely to
result in
customer
foreclosure
given that
African
Cables
l
argely
man
u
factures
i
ts
own copper rod and
on
l
y
purchases
a
small
proportion
of
i
ts
copper
rod
requirements
from
th
i
rd
parties.
[2
4
]
We concur with the Commission
'
s
finding that the proposed
transaction
is unlikely to substantially prevent
or
l
essen
competition
either
from
a
hor
i
zontal
or
a
vertical perspective.
Public
interest
[25]
The merging
parties
confirmed
that
the proposed
transaction
will not have
any
negative
effect on employment.
[1]
[26]
The proposed transaction further
raises
no other public
i
nterest
concerns
.
Conclusion
[27]
I
n
l
ight
of
the
above,
we
conclude
that
the
proposed
transaction
is
unlikely
to substantially
prevent
or
l
essen
competit
i
on
i
n any
r
e
l
evant
market.
I
n
addition,
n
o
p
u
b
li
c
i
nterest
i
ssues
arise from the proposed transactio
n
.
Accordingly, we approve the
proposed
transaction
unconditionally.
22
July 2016
DATE
________________________
Mr.
AW Wessels
Prof
F
i
ona Tregenna and Ms And
i
swa Ndoni
concurring
Tribunal
Researcher
:
Busisiwe
Masina
For
the acquir
i
n
g
firm
:
Mr
Judd
Lurie
and
Mr
B
urton
P
h
ill
i
ps
of Bowman
G
i
l
fillan
For
the target firm:
Ms Lara Granville and Ms Marianne Wagner
of
N
orton
Rose Fulbright
For
the Commission
:
Ratshidaho Maphwanya
[1]
M
e
rger
Record,
inter
a
li
a
page
8
.