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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM207Jan17
In the matter between
TWK Agri Proprietary Limited Primary Acquiring Firm
And
BedRock Mining Support Proprietary Limited Primary Target Firm
Panel : Mrs Medi Mokuena (Presiding Member)
: Ms Andiswa Ndoni (Tribunal Member)
: Prof Fiona Tregenna (Tribunal Member)
Heard on : 26 April 2017
Order Issued on : 26 April 2017
Reasons Issued on : 25 May 2017
REASONS FOR DECISION
Approval
[1] On 26 April 2017, the Competition Tribunal ("the Tribunal") unconditionally
approved the large merger between TWK Agri Proprietary Limited ("TWK Agri")
and BedRock Mining Support Proprietary Limited ("BedRock"), hereinafter
referred to as the merging parties.
[2] The reasons for the approval are as follows.
Parties to the transaction
Primary Acquiring Firm
[3] TWK Agri is a private company incorporated in tenns of the law of the Republic
of South Africa. It is ultimately controlled by lWK Agriculture Holdings
Proprietary Limited. 1WK Agri and its controlling firms and subsidiaries will
collectively be referred to as the TWK Group.
[4] The TWK Group engages in the supply of agriculture and related services such
as woodchip production, forestry seedlings and fertilised and organic
supplements amongst others. Its range of products include timber, grain, trade
mechanisation, financing, insurance and vehicles and tyres. TWK Agri
conducts its lumber and mining timber sawmill in Swaziland. Relevant for this
transaction is TWK Agri's business activities relating to timber.
Primary Target Firm
[5] BedRock is a private company incorporated in terms of the law of the Republic
of South Africa that is ultimately controlled by Platau Investment Holdings
Proprietary Limited ("Platau").
[6] BedRock is a mining support company, which uses timber to manufacture
underground mine and stope support products and dunnage in its mills located
in Mpumalanga. These timber products are sold to its customers (which are
mines). BedRock does not supply its milled hardwood to any third party, but
uses it internally as an input into its dunnage and timber-based mining support
products. BedRock primarily sources its timber from MTO Forestry (Pty) Ltd
("MTO Forestry") with which it has a long-term supply agreement.
Proposed transaction and rational
[7] In this transaction, TWK Agri is acquiring shareholding of more than 50% in
BedRock from Platau. Following the implementation of this acquisition, TWK
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Agri and Platau will have joint control over Bedrock. Furthermore, TWK Agri will
have an irrevocable option to acquire additional shares over a period of three
years.1
[8] TWK Agri submitted that the proposed transaction will enable it to increase its
business value in South Africa. Furthermore, the proposed transaction will
make TWK Agri more sustainable and thus allowing it to effectively compete
with large competitors in the market.
[9] Platau submitted that the proposed transaction will ensure the sustainability of
the company post-realisation of the current shareholders' investment.
Relevant market and impact on competition
[1 O] This is a vertical transaction. TWK Agri is active in the supply of hardwood
timber whilst Bed Rock is active in the business of manufacturing timber-based
mining support products. The Commission found two other vertical overlaps,
however these were not investigated further as they did not raise any
competition concerns. 2
[11] As such, the Commission considered the proposed transaction within the
following markets:
[10.1] The upstream market for the supply of timber in the Mpumalanga
·region, including parts of Swaziland.
[10.2) The downstream market for the manufacture and supply of timber
based mining support products within Swaziland.
[12] In analysing vertical integration, competition authorities consider market
foreclosure i.e. upstream and downstream. The Commission, in determining
1 The details of this transaction are confidential.
2 The second overlap concerned the supply ofroundwood poles. The third overlap concerned TWK Group's
lumber and timber sawmill operations in Mpumalanga and BedRock's timber sawmills in Mpumalanga.
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the possibility of input foreclosure, considered whether, post-merger, TWK Agri
would have the ability and incentive to deal exclusively with BedRock thus,
denying other customers access to TWK Agri as a supplier of hardwood timber.
In this regard, the Commission established that TWK Agri is relatively a small
player as it accounts for an insignificant percentage of the upstream market
unlike other players such as Sappi, Mondi and Peak Timbers. Consequently,
TWK Agri is not in a position to exercise market power to the detriment of its
customers. In addition, the Commission found that should TWK Agri implement
an input foreclosure strategy, it would be highly unlikely to recoup (its) lost
revenue.
(13] Accordingly, the Commission found that the proposed transaction is unlikely to
raise input foreclosure concerns.
[14] With regard to customer foreclosure, the Commission examined whether, post
merger the merging parties would be in a position to and be incentivised to deny
TWK Agri's competitors the ability to supply BedRock hardwood timber thus.
denying competitors an adequate customer base. It is worth bearing in mind,
that BedRock, has a long-term supply agreement with MTO Forestry.
[15) Given this, the Commission concluded that the proposed transaction is unlikely
to raise input foreclosure concerns.
[16] The Commission did receive concerns regarding the proposed transaction from
a market participant. These included possible negative effects arising from input
and customer foreclosure. However, the Commission maintained its findings as
expressed above.
[17] In view of the above, we concur with the Commission's conclusion that the
proposed transaction is unlikely to result in input foreclosure or customer
foreclosure, and that the proposed transaction is unlikely to substantially
prevent or lessen competition in any relevant market.
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Public interest
[18) The merging parties submitted that the proposed transaction will not have any
substantial negative effects on the employees of lWK Agri or Bedrock. No
retrenchments are envisaged as a result of the proposed transaction.
[19) Based on the above, the Commission was of the view that the proposed
transaction does not have an effect on employment and does not raise any
other public interest concerns.
Conclusion
[20) In light of the above, we conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition in any market in South Africa or
raise any adverse public interest issues. Accordingly, we approve the proposed
transaction unconditionally.
25 May 2017
Mrs Medi Mokuena Date
Ms Andiswa Ndoni and Prof Fiona Tregenna concurring
Tribunal Researcher:
For the merging parties:
For the Commission
Ndumiso Ndlovu
Candice Upfold of Norton Rose Fulbright
Reabetswe Molotsi and Ratshidaho Maphwanya
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