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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM093Aug16
In the matter between:
BASF SE, German Primary Acquiring Firm
and
Rockwood Specialties Group GMBH, Germany
Chemetall U.S., Inc., USA Primary Target Firms
Panel
Heard on
Order Issued on
Reasons Issued on
Approval
: Mondo Mazwai (Presiding Member)
: Medi Mokuena (Tribunal Member)
: lmraan Valodia (Tribunal Member)
: 26 October 2016
: 26 October 2016
: 23 November 2016
Public Reasons for Decision
[ 1 ] On 26 October 2016, the Competition Tribunal ("Tribunal") unconditionally approved
a merger between BASF SE, Germany ("BASF") and the target firms Rockwood
Specialties Group GMBH, German ("Rockwood") and Chemetall U.S., Inc., USA
("Chemetall US") and collectively referred to as the target firms.
[ 2 ] The reasons for approving the proposed transaction follow.
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Parties to transaction
Primary acquiring firm
[ 3] The primary acquiring firm, BASF is a public firm listed on the Frankfurt Stock
Exchange and Zurich Stock Exchange and not controlled by any one firm. In South
Africa, BASF controls a number of firms and will collectively be referred to as the
BASF Group.1
[ 4] In South Africa, the BASF Group supplies products under the chemicals segment,
performance products segment, functional materials and solutions segment and an
agricultural solutions segment. For purposes of this transaction BASF Group's
activities under the functional materials and solutions is relevant. This segment is
involved in the supply of coatings to original equipment manufacturers ("OEM's"), in
particular, it supplies e-coatings, clear coatings, base coatings and surface coatings
(primers) to automotive OEM's such as
Primary target firm
[ 5] The primary target firm Rockwood is the parent company of Chemetall GmbH.
Rockwood Specialties Group Inc is the holding company of Chemetall US, the second
target firm to this transaction. Chemetal GmbH and Rockwood are controlled by
Albermarle Corporation, USA which is a public company incorporated in the USA and
listed on the New York Stock Exchange and also not controlled by a single firm.
[ 6] Rockwood is a developer, manufacturer and marketer of specialty chemicals and
advanced materials used for industrial and commercial purposes. In South Africa,
Chemetall SA develops and produces surface treatment products to prepare metal
surfaces of a product prior to its painting to protect from corrosion and to ensure better
paint adhesion. The surface treatment products are utilized by a number of industries
including automotive OEM's. Chemetall SA has an exclusive distribution agreement
1 Firms controlled by BASF: BASF Holdings South Africa (Pty) Ltd; BASF South Africa (Pty) Ltd; BASF
Coatings Services (Pty) Ltd; BASF Agricultural Specialties (Pty) Ltd; BASF Polyurethane South Africa (Pty)
Ltd; Engelhard (South Africa) Pty Ltd.
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with Hemmelrath Lackfabrik GMBH ("Hemmelrath") to supply Hemmelrath's coatings
to the automotive OEM's customers.
Proposed transaction and rationale
[ 7] The proposed transaction involves BASF, through wholly owned subsidiaries,
acquiring 100% of the issued share capital of the target firms, Rockwood and
Chemetall. Following the transaction, BASF will control the target firms.
[ 8 ] BASF submits that the proposed transaction is an investment opportunity for it and
allows it to become active in the surface treatment sector. For Albermale, the
proposed transaction enables it to pay the debt incurred from the acquisition of
Rockwood Holdings and assists in returning capital to shareholders.
Impact on competition
[ 9] According to the Competition Commission's ("the Commission") findings the proposed
transaction does not result in a substantial prevention or lessening of competition in
any market and their finding in this regard is detailed below.
[ 10] As stated above, the Acquiring Group is involved in the provision of paint coatings for
automobiles whereas the target firms are involved in the provision of surface treatment
products which treats the metal before coatings are applied. The activities of the
parties are therefore complementary rather than substitutable. The Commission
identified a horizontal overlap in three markets, (i) the market for the distribution of
base coatings in South Africa, (ii) the market for the distribution of clear coatings in
South Africa and (iii) the market for the distribution of automotive primers in South
Africa. It is important to note that the Commission's evaluation of these markets is
premised on an overlap that only arises as a result of Chemetall's distribution
agreement to supply Hemmelrath's coatings to the automotive OEM's customers.
According to the Commission the distribution agreements which are set to end in
August 2017 would likely not be renewed and so would no longer result in an overlap
August 2017 would likely not be renewed and so would no longer result in an overlap
in the above-mentioned markets. According to the Commission, Hemmelrath intends
to enter the market by supplying the products directly.
[ 11 ] Even on a conservative approach, taking into account the overlaps, the Commission
still found that the merger would not result in a substantial lessening or prevention of
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competition as the market accretions in all three markets are low. In addition there are
a number of competitors who would continue to constrain the merged entity post
transaction. In addition the Commission found that competition for the supply of these
coatings takes place at the bidding level outside South Africa. South African
automotive OEM's do not have a discretion in this regard and would be obliged to use
the authorized coating supplier.
[ 12 ) The Commission also evaluated whether the proposed transaction would result in the
ability to tie or bundle products as Chemetall's surface treatment products may be
considered to be complementary to the coatings supplied by BASF. The Commission
found that the tender processes for these products occur separately at the behest of
automotive OEM's at a global level who issue tenders when required. In addition, the
Commission found that in the merged entity is not dominant in either the coatings or
the surface treatment products markets. As such, the Commission found that that the
merged entity did not have the ability to effectively tie/ bundle post-merger.
[ 13) The Commission evaluated whether the transaction would give rise to coordination
and found that coordination as a result of the proposed transaction was unlikely. This
was premised on two primary reasons, the first being that various coatings are not
substitutable as customers require products per specification. Second, when
evaluating the potential of information exchange between Hemmelrath and BASF the
Commission found that the distribution between the parties only occurs in the South
African market whereas the bidding process occurs internationally. BASF's potential
access to information on pricing for two customers is unlikely to affect the global
tender process.
[ 14) At the hearing, we required clarification on the potential overlap in industrial coatings
which the merging parties identified in their merger filing. The parties confirmed that
which the merging parties identified in their merger filing. The parties confirmed that
the overlap was no longer relevant as BASF had sold that business in a transaction
that was approved by the Commission. This transaction, taken as a whole does not
result in a substantial lessening or prevention of competition.
Public interest
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[ 15 ] The merging parties confirmed that the proposed transaction will not result in an
adverse impact on employment.2 The proposed transaction further raises no other
public interest concerns.
Conclusion
[ 16] 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.
·Ms Mo do Mazwai
23 November 2016
DATE
Ms Medi Mokuena and Prof lmraan Valodia concurring
Tribunal Researcher: Aneesa Raval
For the merging parties: Judd Lurie of Bowman Gilfillan
For the Commission: Dineo Mashego and Grashum Mutizwa
2 Inter alia merger record page 13.
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