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[2016] ZACT 122
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Afric Oil (Pty) Ltd v Part of Businesses of Big Red Investments (Pty) Ltd (LM063Jul16) [2016] ZACT 122 (19 October 2016)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM063Jul16
In
the matter between:
AFRIC
OIL (PTY) LTD
Acquiring
Firm
And
PART
OF THE BUSINESSES OF BIG RED INVESTMENTS
(PTY)
LTD, SOME OF THE ASSETS, LICENSES AND
CONSENTS
BELONGING TO TURQOISE MOON (PTY) LTD
AND
SOME OF THE ASSETS BELONGING TO REDLEX (PTY) LTD
Target
Firm
Panel
: Mondo Mazwai (Presiding Member)
: Medi
Mokuena (Tribunal Member)
:
Andiswa Ndoni (Tribunal Member)
Heard
on
: 14 September 2016
Order
Issued
: 14 September 2016
on
Reasons Issued on : 19 October 2016
Reasons
for Decision
APPROVAL
[1]
On 14
September 2016, the Competition Tribunal ('Tribunal') approved a
large merger between Afric Oil (Pty) Ltd ('Afric Oil') and
part of
the businesses of Big Red Investments, some of the assets, licenses
and consents belonging to Turquoise Moon (Pty) Ltd
and assets
belonging to Redlex (Pty) Ltd.
[2]
The reasons
for the approval follow.
PARTIES
TO THE TRANSACTION AND THEIR ACTIVITIES
Primary
Acquiring Firm
[3]
The primary
acquiring firm is Afric Oil, a private company incorporated in
accordance
with the laws
of the Republic of South Africa. Afric Oil is controlled by Phembani
Oil RF (Pty) Ltd which is in turn controlled
by Phembani Group (Pty)
Ltd ('Phembani Group').
[4]
Afric Oil is
involved in the marketing and selling of petrol, diesel, paraffin and
lubricants to a client base that comprises of
local and national
governments, parastatals, the mining and construction industry, the
transport and manufacturing sector, resellers
and agricultural
industries. Afric Oil's parent company, Phembani Group, holds
investments in the energy, mineral resources and
infrastructure
sectors.
[5]
Afric Oil does
not operate a fuel refinery and is only active in the national
marketing and distribution of the above-mentioned
fuel products. It
does not own independent storage facilities, rather leasing
approximately
2 million
litres of storage space from Transnet wherein it stores its 1.5
million litres of fuel transported weekly via a pipeline
from Durban
in terms of an agreement it has with Transnet.
[6]
When customers
place an order with Afric Oil for petroleum products, they are
directed to use their own transport company to collect
the fuel at
depots owned by other companies or from Transnet's storage facility
directly. Alternatively, Afric Oil is able to make
transport
arrangements for the fuel products to be delivered to specific
customers.
Primary
Target Firm
[7]
The target
firms are the
immovable
properties, statutory licenses and consents ('immovable properties
and licenses') held by Turquoise Moon (Pty) Ltd ('Turquoise
Moon'),
vehicles owned by Redlex (Pty) Ltd ('Redlex') and the wholesale
distribution business ('wholesale business') of Big Red
Investments
(Pty) Ltd ('Big Red').
[8]
The immovable
properties and licenses held by Turquoise Moon consist of two
immovable properties and all statutory licenses and
consents required
for the storage of fuel on such properties.
[9]
The vehicles
owned by Redlex consist of a fleet of trucks comprising of eight fuel
tankers trucks and trailers.
[10]
The
wholesale businesses of Big Red comprise of one immovable property,
certain vehicles,
[1]
movable
property,
[2]
all statutory
licenses and consents required for the conduct of the business of Big
Red,
[3]
supplier and customer
databases, goodwill and the bank account of Big Red.
[11]
The
wholesale business of Big Red is branded under the name 'Forever
Fuels' and its fuel is supplied by various suppliers.
[4]
This fuel is stored in facilities on the property of, and in
accordance with the licenses held by, Turquoise Moon. Big Red then
rents the vehicles owned by Redlex to facilitate its distribution
network which covers areas in the Gauteng, Limpopo, Northern
Cape and
Free State Provinces. Big Red supplies its fuel to seven franchised
independently owned and franchised branded stations
,
supplying
other retail stations on an
ad
hoc
basis.
PROPOSED
TRANSACTION
AND
RATIONALE
[12]
The proposed
transaction involves an acquisition by Afric Oil of the target firms.
On completion of the proposed transaction, Afric
Oil will control the
target firms.
[13]
In terms of
the rationale, Afric Oil submits that the proposed transaction will
increase its distribution footprint and enable it
to more effectively
compete with large competitors in the market.
[14]
The Target
firms submit that the proposed transaction affords an opportunity to
realize their investments.
RELEVANT
MARKETS AND IMPACT ON COMPETITION
[15]
The
transaction presents a horizontal overlap in the wholesale/
distribution of petroleum products arising from Afric Oil and Big
Red
operating in the same market and a vertical overlap between the
merging parties arising from the fact that the wholesale business
of
Big Red procures some of its supplies from Afric Oil.
[16]
The
Commission comprehensively assessed the horizontal overlap between
the merging parties in the regional geographic markets of
the
Gauteng, Limpopo, Northern Cape and Free State Provinces as well as
the national market. In none of the markets assessed did
the market
share of the merged entity exceed 6%, nor did the market share
accretion exceed 2%.
[5]
Given
the low accretion and market share percentages, the horizontal
overlap does not present a threat to competition.
[17]
Any
concerns of input and customer foreclosure arising from the vertical
overlap presented by the proposed merger are rendered nugatory
when
the presence of strong competition from reputable refineries is
considered. On the Commission's version, there are currently
a number
of petroleum product wholesalers readily competing in the market and
customers of the merging parties are easily able
to switch to
alternative suppliers should the wholesale business of Big Red Choose
to only supply Afric Oil and its customers.
[6]
Given
the presence of strong competition in a market in which it is,
according to the commission,
easy
to
switch
between
suppliers,
and
the
small
market
share
possessed
by the post-merger
Afric
Oil, the vertical overlap does not present a threat of foreclosure.
[18]
The proposed
merger thus does not present anti-competitive effects to the market
for the wholesale/ distribution of petroleum products.
PUBLIC
INTEREST
[19]
The Commission
also investigated the potential effects of the merger on third party
transporters and the concerns raised by a holder
of a wholesale fuel
license.
Third
party Transporters
[20]
Under its
pre-merger business model, in the instances where Afric Oil needed to
organise the distribution of its petroleum based
product to
consumers, it would utilise third party trucks from Force Fuel CC and
Copasync (Pty) Ltd. Given that post-merger Afric
Oil would have
access to a fleet of vehicles it previously did not have access to,
the Commission examined the possibility of the
foreclosure of Force
Fuel and Copasync post-merger.
[21]
Afric Oil
submitted that the existing contractual agreements entered into
between itself and the transportation companies would
continue
post-merger. Notwithstanding this submission, the Commission, upon
investigating the contractual agreements entered into
between Afric
Oil and the transportation companies, found that the transportation
contracts have no completion clauses, nor do
they allow for
termination on the grounds of conditions created by the merger.
It is thus not
likely that the merger would result in the foreclosure of such
companies.
Other
Third Party Concerns
[22]
During its
investigation, the Commission
received a
concern from a competitor of Afric Oil, raising the point that the
proposed transaction may concentrate the market further.
This
concentration, according to the competitor, is undesirable because
major oil refineries provide discounts to larger wholesalers
and the
barriers to entry presented by a concentrated market are thus
exacerbated in the market for the wholesale of petroleum
products.
[23]
The merged
entity will account for less than 3% of the national market for the
wholesale of petroleum products. The merger does
not enhance the
market position of the merged entity post-merger to a significant
extent.
[24]
We thus find
that the merger presents no public interest concerns.
CONCLUSION
[25]
Although
presenting horizontal overlaps in the market for the wholesale of
petroleum products, the small market share accretion
renders the
effects of such market overlap nugatory.
[26]
The
merger
does
not
raise
foreclosure
concerns
in
the
markets
for
the wholesale
of petroleum products.
[27]
The proposed
transaction does not raise any public interest concerns.
[28]
Accordingly, we
approved the transaction without conditions.
Mondo
Mazwai
19 October 2016
Date
Medi
Mokuena and Andiswa Ndoni concurring
Tribunal
Researcher:
Alistair Dey-Van Heerden
For
the Merging Parties:
Candice Upfold of Norton Rose Fullbright
For
the Commission:
Billy Mabatamela
[1]
Sixteen
Fuel tankers trucks
,
trailers
and four pick-up bakkies
.
[2]
Including
but not limited to workshop fittings and fixtures
[3]
Big
Red Licenses and consents include all statutory licenses, approvals
and consents (including without limitation
,
environmental
consents) required for the conduct of businesses of the Wholesale
Business of B
i
g
red as a going concern under the name and style of Forever fuels.
[4]
BP
Southern Africa (Pty) Ltd, Chevron South Africa (Pty) Ltd
,
Engen
Petroleum (Pty) ltd, Sasol Limited, Shell South Africa (Pty) Ltd and
Total South Africa (Pty) Ltd.
[5]
Competition
Commission's Report
,
pages
17
-
22
[6]
Competition
Commission's Report
,
page
24 paragraph 72
.