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[2018] ZACT 70
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Naledi Forging (Pty) Ltd v DCD Ringrollers, a division of DCD Group (Pty) Ltd (LM003Apr18) [2018] ZACT 70 (20 June 2018)
COMPETITION TRIBUNAL OF
SOUTH AFRICA
Case
No: LM003Apr18
In the matter between:
Naledi
Forging (Pty)
Ltd
Primary Acquiring Firm
and
DCD
Ringrollers, a division of DCD Group (Pty) Ltd
Primary Target Firm
Panel
: Andiswa Ndoni (Presiding Member)
: lmraan Valodia (Tribunal Member)
: Medi Mokuena (Tribunal Member)
Heard
on
: 06 June 2018
Order
Issued on : 06 June 2018
Reasons
Issued on : 20 June 2018
Reasons for Decision
Approval
[1]
On
06 June 2018, the Competition Tribunal ("Tribunal")
approved the proposed transaction between Naledi Forging (Pty)
Ltd
and DCD Ringrollers, a division of DCD Group (Pty) Ltd.
[2]
The
reasons for approving the proposed transaction follow.
Parties to proposed transaction
Primary
acquiring firm
[3]
The
primary acquiring firm is Naledi Forging (Pty) Ltd ("Naledi"),
a private company incorporated in accordance with the
laws of South
Africa. Naledi is jointly controlled by Naledi lnhlanganiso ("Nl")
[1]
and the IDC. Naledi does not control any firm.
[4]
Naledi
imports and supplies the SA market with forged wheels and related
products for trains. Solid steel forged wheels are a complete
wheel
that do not use tyres. These products are used in freight and heavy
haul applications.
Primary
target firms
[5]
The
primary target firm is DCD Ringrollers ("DCD RR"), a
division of DCD Group (Ply) Ltd ("DCD"). DCD RR does
not
directly or indirectly control any firm.
[6]
DCD
RR is active in the manufacture and fitment of solid metal tyres for
trains. Tyres are a component of a complete wheel, which
tyres are
fitted onto metal disks to form an alternative type of complete wheel
used on trains. These wheels are typically used
in light rail
applications.
Proposed
transaction and rationale
Primary
acquiring firm
[7]
Naledi
submitted that the proposed transaction will facilitate the growth
and expansion of the target firm and the product range
of the target
firm will be enhanced by the inclusion of the acquiring group's
products.
Primary
target firm
[8]
DCD
submitted that it has been operating at a loss for a number of years
and thus a strategy was approved whereby various operations
in the
group would either be sold or closed.
[9]
In
terms of the proposed transaction, Naledi intends to acquire the
business relating to the manufacture and supply of seamless
forged
products carried out by DCD RR as a going concern from DCD. Naledi
will thereafter exercise unfettered control
over
DCD RR.
Impact on competition
[10] The Commission found that
there was no overlap in the activities of the merging parties as the
target
firm manufactures and supplies metal tyres whereas Naledi
imports and supplies complete sets of forged wheels. Forged wheels do
not use tyres such as those sold by DCD RR.
[11]
The
tyres manufactured by DCD RR are fitted onto steel disks to form an
alternate type wheel which compete against forged wheels.
DCD RR does
not manufacture or supply the wheels themselves but only supplies the
metal tyres that are fitted onto the disks to
form the tyred wheel.
[12]
The
forged wheels from Naledi are used in
heavy
haul applications
whereas the tyred wheels on which the DCD tyres are used are for
light haul application.
[13]
The
Commission thus concluded that there was no overlap as the metal
tyres and forged wheels could not be considered as reasonable
substitutes both from a demand and supply perspective. The structure
of any market was thus not altered by the proposed transaction.
[14]
The
parties were questioned by the Tribunal on whether they competed in
any serious way pre-merger, to which the merging parties
responded
that they do not due to the differing applications of their
products.
[2]
Third
Party Concerns
[15]
Cast
Products South Africa {Ply) Ltd ("CPSA"), a competitor of
Naledi submitted a concern to the Commission relating to
a supply
contract that was awarded to Naledi by Transnet to supply forged
wheels. The contract was awarded to Naledi on the basis
that they
localise their operations.
[16] CPSA was concerned that the
transaction will give the impression of localisation through
DCD RR
(which has local operations) but that Naledi will still be importing
cheap wheels from China and not bear the costs of localisation.
This
could affect the ability of CPSA to compete as a local producer and
have negative effects on job security within their company.
[17]
CPSA
is a manufacturer of cast wheels whereas Naledi imports forged
wheels. These wheels are used interchangeably by Transnet from
a
demand perspective, from a supply perspective they are manufactured
differently. There is no local capability to produce forged
wheels.
[18] The Commission was of the
view that Naledi is unlikely to be using the transaction to
meet the
localisation requirement. This is because DCD RR does not supply
forged wheels (nor have the ability to do so) but rather
only tyres.
Therefore acquiring DCD RR is unlikely to assist with the
localisation requirement.
[19] Irrespective of the
transaction Naledi will still have to find a way to manufacture
locally
produced forged wheels in South Africa. This requirement is
independent of the merger. The Commission dismissed the concerns as
not being merger specific.
[20]
The
Commission, at the hearing before the Tribunal, were questioned as to
whether the merger would lead to a circumvention of the
locality
requirement. The Commission and the merging parties made it clear
that there was a plan in place pre-merger which the
merging parties
have to comply with regarding the localisation requirements.
[3]
Further, the merging parties submitted that a concerned customer of
Naledi, confirmed that Naledi was in compliance with the localisation
plan.
[4]
Public
interest
[21]
The
merging parties submitted that the proposed transaction will have no
adverse effect on employment.
[5]
[22]
However,
NUMSA raised a concern indicating that the employees want to verify
their contracts of employment since they do not have
copies before
the merger is finalised. They also requested clarity on who the
minority shareholders are and how the shares are
allocated after the
merger. Further, they wish for NUMSA to be part of discussions so
that it can observe the agreement signed
between the companies.
[23]
The
merging parties confirmed to NUMSA that those employees who wish to
obtain a copy of their employment contracts may contact
DCD RR's
human resource practitioner, NUMSA has indicated to the Commission
that they still need to engage with their employees
and meet with the
merging parties before they can confirm that their concerns have been
met.
Conclusion
[24]
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,
Prof.
lmraan Valodia
Ms
Andiswa Ndoni and Mrs Medi Mokuena concurring
20
June 2018
DATE
Case
Manager:
Kameel Pancham
For
the merging parties : Heather Irvine of
Falcon and Hume on behalf of
Naledi
Forging
Chris Charter
of CDH on behalf of DCD Ringrollers
For the Commission:
Rethabile Ncheche
[1]
The Naledi Inhlanganiso Group is a black owned (45% Black Women
Owned, in process of increasing
to
more than 50%).
It
was
established in 2013 by the Group Executive Chairman Mr Sibusiso
Maphatiane.
[2]
Transcript pages 8-10
[3]
Transcript page 12 lines 20-25 and page 13 lines 1-5.
[4]
Transcript page 13 lines 6-20.
[5]
Inter alia
Commission Recommendation page 33.