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[2018] ZACT 37
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Southern Palace Group of Companies (Pty) Ltd v Murray & Roberts Limited in respect of the Genrec Division (LM253Dec17) [2018] ZACT 37 (22 March 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM253Dec17
In
the matter between:
Southern
Palace Group of Companies (Pty) Ltd
Primary
Acquiring Firm
and
Murray
&
Roberts
Limited
in
respect of the Genrec
Division
Primary Target
Firm
Panel
: Yasmin Carrim (Presiding Member)
: AW Wessels (Tribunal Member)
: Mondo Mazwai (Tribunal Member)
Heard
on
: 21 February 2018
Order
Issued on : 21 February 2018
Reasons
Issued on : 22 March 2018
Reasons
for Decision
Approval
[1]
On
21 February 2018, the Competition Tribunal ("Tribunal")
approved the proposed transaction between Southern Palace Group
of
Companies (Pty) Ltd and Murray & Roberts Limited in respect of
its Genrec Division.
[2]
The
reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary acquiring firm
[3]
The
primary acquiring firm is the Southern Palace Group of Companies
(Pty) Ltd ("SPG"), a private company incorporated
in
accordance with the laws of South Africa. SPG is a wholly owned black
investment company with diverse interests in real estate,
industrial
companies, IT, metals, mining and construction.
[4]
SPG controls the Murray and Roberts Infrastructure and Building
Platform (l&B
Platform) and Afripallet SA.
[1]
[5]
The Commission noted that it recently approved the acquisition of
Scaw by a joint
venture involving SPG and Barnes Group Holdings. This
transaction has since been approved by the Tribunal.
[2]
[6]
The acquisition of Scaw has led to SPG now being active in the wire
rod and rolled
steel product markets. This is an input used for steel
fabrication which is an activity of the target firm.
Primary
target firm
[7]
The primary target firm is Murray & Roberts Limited ("M&R")
in respect
of the Genrec Division ("Genrec"). M&R is a
public company incorporated in accordance with the company laws of
South
Africa and is controlled by the Murray and Roberts Group which,
in turn, is ultimately controlled by Murray and Roberts Holdings
Limited. M&R does not control any firms in South Africa.
[8]
Genrec is a manufacturer of steel fabrication solutions and
undertakes high, medium
and heavy structural steel fabrication,
structural steel, project services, steel erections and site
services.
Proposed
transaction and rationale
Primary
acquiring firm
[9]
The acquiring firm submitted that the transaction represented an
attractive investment
opportunity as they anticipated increased
infrastructure spend in the future and foresee significant synergies
with Genrec.
Primary target firm
[10]
Murray & Roberts wishes to divest of its operations conducted
through the Murray & Roberts
manufacturing business unit, which
includes Genrec.
[11]
In terms of the proposed transaction, SPG intends to acquire 100% of
M&R
in respect of Genrec. Upon implementation Genrec will
be controlled by SPG.
Impact
on competition
[12]
The Commission considered the activities of the merging parties and
found that there are
no horizontal overlaps as the acquiring group is
a supplier of steel products while the target firm is involved in the
fabrication
of steel for the construction industry. The acquiring
group does not conduct any steel fabrication activities.
[13]
In this regard, the Commission noted that the acquiring group
produces and supplies long
steel and wire rod products which are used
as inputs in the steel fabrication sector and that this may result in
a vertical overlap,
however they also note that the acquiring firm
does not supply any products to the target firm.
[14]
The Commission did consider input foreclosure as a result of the
merger but found this
unlikely due to the number of steel fabricators
in the industry. Third party steel fabricators and suppliers that
were contacted
did not raise any concerns as there are ample
alternatives for steel supply.
[15]
Further, the acquiring group has no economic incentive to stop
supplying to other customers
as the target firm has a market share of
less than 5% in the fabrication sector. The acquiring group also
supplies the products
to other industry sectors aside from the steel
fabrication sector.
[16]
With regards to customer foreclosure the Commission found this
unlikely as the acquiring
group through Scaw will have a 14% market
share in the supply market with other suppliers such as Cape Gate,
Mittal, SA Metals
and CISCO having market shares ranging from 15% to
66%.
Public
Interest
[17]
The merging parties submitted that the proposed transaction will have
no adverse effect
on employment.
[3]
[18]
The Commission noted that there may be a public interest benefit
arising as a result of
this transaction. The Merger Agreement
contains a Restraint of Trade ("ROT') clause which precludes the
seller (M&R) from
operating any business in competition with the
business conducted by the target firm in South Africa for a period of
5 years.
[19]
The Commission was of the view that the restraint period will afford
the acquirer sufficient
opportunity to establish the know-how,
expertise and reputation in the relevant markets.
[20]
Moreover, M&R is one of the biggest firms in the construction
industry and can enter
the market easily should it wish to do so,
therefore it is important to have an ROT longer than 3 years to
protect the investment
of the acquiring firm.
[21]
The Commission concluded that a ROT of 5 years is appropriate in this
instance as it promotes
the ability of a firm owned by HDl's to
become competitive in the steel and construction sectors and is thus
pro-competitive.
[22]
The Commission was of the view that the proposed transaction is
unlikely to raise concerns
on any other public interest grounds.
Conclusion
[23]
In light of the above, we concluded that the proposed transaction is
unlikely to substantially
prevent or lessen competition in any
relevant market. Accordingly, we approved the proposed transaction
unconditionally.
Ms
Yasmin Carrim
Mr
AW Wessels and Ms Mondo Mazwai concurring
22 March 2018
Case
Manager:
Kameel Pancham
For
the merging parties: Ahmore
Burger-Smidt of Werksmans Attorneys
For
the Commission:
Boitumelo Makgabo
[1]
The J&B platform comprises of the following entities - Concor,
the direct and indirect subsidiaries of Concor and Forum SA
Trading
284.
[2]
Case no. LM124Aug17.
[3]
Inter alia
Commission's Recommendation page 20.