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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM169Nov16
In the matter between:
KGALAGADIALLOYS(PTY)LTD Acquiring Firm
And
KALAGADIMANGANESE(PTY)LTD
Panel
Heard on
Date of last submission
Order Issued on
Reasons Issued on
Approval
: Norman Manoim (Presiding Member)
: Yasmin Carrim (Tribunal Member)
: AW Wessels (Tribunal Member)
: 15 December 2016
: 12 January 2017
: 17 January 2017
: 08 February 2017
Reasons for Decision
Target Firm
[1] On 17 January 2017, the Competition Tribunal ("Tribunal") approved the
transaction involving Kgalagadi Alloys (Pty) Ltd ("KA") and Kalagadi
Manganese (Pty) Ltd ("KM").
[2] The matter was heard on 15 December 2016, at which time the Tribunal stood
the matter down so that the merging parties and the Commission could make
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further representations and after considering such representations, the Tribunal
issued its order on 17 January 2017.
[3] The reasons for the approval follow.
Parties to the proposed transaction
Primary Acquiring Firm
[4] The primary acquiring firm is KA, a firm wholly owned and controlled by an
individual, Mrs Daphney Nkosi ("Mrs Nkosi"). KA does not control any firm. It is
a shell company and is not active in any market.
[5] Mrs Nkosi also controls Kalahari Resources (Pty) Ltd ("KR"). KR is an
investment holding company with a 40% shareholding in the primary target firm
as its only interest.
Primary Target Firm
[6] The primary target firm is KM, a firm incorporated in accordance with the laws
of the Republic of South Africa. KM's largest shareholders are KR (40%) and
ArcelorMittal S.A. ("AMSA") (50%).1
[7] KM owns new order mining rights covering an area of approximately 6 300
hectares in the Kalahari Basin. The area is believed to hold some 960 million
tons of manganese ore. KM is currently constructing an integrated commercial
mining operation, encompassing a mine2 and ore processing operation with
future plans to develop a smelter.
[8] We note that although KM is not yet in production, there are two offtake
agreements in place for a large percentage of the manganese ore product
which will be produced in the future. ArcelorMittal Sourcing SCA ("AM
Sourcing") holds certain offtake rights. This right to the offtake will also be sold
as part of the proposed transaction such that AM Sourcing will cede and assign
1 The remaining 10% is held by Industrial Development Corporation South Africa Limited.
2 The KM mine is not yet in production .
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all of its rights to the primary acquiring firm. Traxys Africa (Pty) Ltd3 is also
entitled to a certain offtake in terms of its offtake agreement with KM.
Proposed transaction and rationale
[9] The proposed transaction involves the acquisition by KA of AMSA's 50% share
in and claims against KM. Post transaction Mrs Nkosi effectively will, through
her subsidiary companies, exercise sole control over KM.
[1 O] In terms of rationale, the acquiring firm submitted that the proposed transaction
will inter alia allow Mrs Nkosi to ultimately deliver the Kalagadi manganese
project through its commissioning phase and into production.
[11] The sellers identified the Kalagadi manganese project as suitable for
divestment.
Impact on competition
[12] The Competition Commission ("Commission") identified a product overlap
between the activities of the merging parties insofar as Mrs Nkosi in effect is
increasing her shareholding in KM from 40% to 90%. The Commission however
found that there is no change in the structure of any market and no accretion in
market shares in any market as a result of the proposed transaction.
Accordingly the Commission concluded that the proposed transaction is
unlikely to substantially prevent or lessen competition in any relevant market.
[13] At the merger hearing the Tribunal questioned the merging parties regarding
what appear to be minimum sales prices provided for in the transaction
agreements. These minimum prices relate to products (to be) produced and
sold by the primary target firm, including manganese ore, manganese sinter or
any other relevant mineral product as defined in the transaction agreements.
3 A third party future customer of the target firm.
(14] The Tribunal questioned the merging parties regarding this pricing provision in
the transaction agreements and requested both the merging parties and the
Commission to make written representations on this.
[15] The merging parties submitted that minimum sales prices had been included to
ensure that the calculations of revenue and profitability of KM are based on an
agreed pricing mechanism, which indirectly acts as an incentive to KA to ensure
that KM does not place its product at lower prices than prevailing market
prices.4 They furthermore stated that this pricing mechanism provides a
transparent mechanism for both parties to calculate the deferred consideration
payable by KA to ArcelorMittal. 5
(16] The Commission submitted that in its view the minimum pricing condition
included in clause 5.4 of the Term Sheet Agreement is unlikely to result in post
merger anti-competitive behavior since the calculation methodology is clear,
transparent and based on international benchmarks and it furthermore is
reasonable since it protects both parties to the proposed transaction. 6
[17] We however take no view as to whether or not the minimum pricing condition
contained in the transaction agreements may be anti-competitive in terms of
the Competition Act, 89 of 1998. We approve the proposed transaction
unconditionally on the basis that it does not alter the structure of the market( s)
in which the merging parties are/will be active.
Public interest
(18] The merging parties confirmed that the proposed transaction will have no
negative effects on employment and particularly that no retrenchments or job
losses will occur as a consequence of the proposed transaction.7
[19] No other public interest concerns arise from the proposed transaction.
4 Letter from the merging parties in response to the Tribuna l's request , page 4.
5 Letter from the merging parties in response to the Tribunal's request , page 1.
& Letter from the Commission dated 12 January 2017 , page 5.
& Letter from the Commission dated 12 January 2017 , page 5.
1 Merger Record, pages 9, 47, 52 and 53.
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Conclusion
[20] 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.
Mr. D.Jssels
Mr. Norman Manoim and Ms Yasmin Carrlm
Tribunal Researcher: Alistair Dey-Van Heerden
08 February 2017
Date
For the Merging Parties: Natalie van Ey of Cliffe Dekker Hofmeyr
For the Commission: Xolela Nokele
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