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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM289Feb18
In the matter between
Philafrica Foods (Pty) Ltd Primary Acquiring Firm
And
Zutco (Pty) Ltd – Heilbron – Free State,
Pakworks (Pty) Ltd – Heilbron – Free State
Primary Target Firms
Approval
[1] On 7 February 2018 , the Competition Tribunal (“the Tribunal”) unconditionally
approved the acquisition of two companies, Zutco (Pty) Ltd – Heilbron – Free
State (“Zutco”) and Pakworks (Pty) Ltd – Heilbron – Free State (“Pakworks”),
by Philafrica Foods (Pty) Ltd (“Philafrica”).
[2] The reasons for the approval follow.
Panel : Ms Mondo Mazwai (Presiding Member)
: Mrs Medi Mokuena(Tribunal Member)
: Prof Fiona Tregenna (Tribunal Member)
Heard on : 13 June 2018
Order Issued on : 13 June 2018
Reasons Issued on
: 10 July 2018
REASONS FOR DECISION
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Parties to the transaction and their activities
Primary acquiring firm
[3] The primary acquiring firm is Philafrica, an investment company involved in the
food processing industry. Philafrica owns and operates a number of wheat and
maize mills, oil extraction plants and animal feed manufacturing facilities.
Philafrica is owned and controlled by AFGRI Hold ings (Pty) Ltd (“AFGRI
Holdings”), which holds a large number of agriculture commodity trading
companies. AFGRI Holdings and its subsidiaries are hereafter referred to as
the AFGRI Group.
Primary target firms
[4] The primary target firm s are Zutco and Pakworks. The t arget firms operate
together as a single economic entity that manufactures savoury snacks on
behalf of Simba (Pty) Ltd (“Simba”).
Proposed transaction and rationale
[5] In terms of the proposed transaction, Philafrica is purchasing a majority interest
in both of the target f irms, as well as the immovable property on which they
operate. This majority shareholding will grant Philafrica sole control over the
target firms. However, the current owners will still retain a minority shareholding
in the target group post-merger.
Analysis of Indivisibility
[6] The proposed transaction includes a Put Option in favour of the sellers, in terms
of which they may compel Philafrica to purchase the remaining minority interest
in the target group at a later date.
[7] The Commission was of the view that it was unnecessary to conclude whether
the initial acquisition and subsequent Put O ption can be considere d one
indivisible transaction. This is because the initial acquisition of shareholding
constitutes a ‘crossing of the bright line’ subsequent to which Philafrica can
unilaterally influence the board decisions of the target group , thus exercising
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sole control , since the current shareholders who will ret ain a minority
shareholding will not have any negative control.
[8] It is therefore not necessary to conclude on the divisibility of the Put Option
since the exercise of the Put Option will not result in a change of control.
Relevant market and impact on competition
Vertical assessment
[9] The Competition Commission (“The Commission” ) assessed potential
foreclosure concerns that may arise out of the proposed transaction due to an
existing vertical relationship between the merging parties . With regards to this
vertical relationship, AFGRI Group is active in the upstream market for the
processing of yellow maize, which it supplies to the target group in the
downstream market for the production of savoury snacks.
[10] Post-transaction, the target group will be unable to foreclose yellow maize as
an input to downstream competitors a s the target group’s maize requirements
make up a small percentage of the AFGRI Group’s annual production. Further,
there are a number of alternate suppliers of yellow maize available.
[11] Customer foreclosure post-merger is also unlikely as the AFGRI Group will not
make unilateral decisions regarding the target group’s suppliers. Instead it is
Simba who contracts for the supply of the yellow maize that the target group
uses to produce the savoury snacks. In this regard, Simba appoints more than
one supplier of yellow maize to mitigate supply risks and decides on volumes
to be procured from each of the approved suppliers.
[12] We agree that the proposed transaction is unlikely to raise any foreclosure
concerns.
Information Sharing
[13] A competitor of the AFGRI Group in the upstream market also raised concerns
of potential information sharing arising from the transaction . According to the
competitor, the AFGRI Group will gain access to sensitive pricing information
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through ownership of the target gr oup, to whom the competitor also supplies
yellow maize.
[14] The Commission evaluated the nature of the pricing information that is received
by the target group and found that it is only a net price that is shared -
incorporating a range of components and disco unts. The Co mmission is
satisfied that the prices are not an accurate representation of actual prices
negotiated with Simba and that the AFGRI Group would be unable to accurately
determine pricing strategies of the competitor in order to undercut them.
Accordingly the transaction is unlikely to lead to anti -competitive information
sharing in the relevant markets.
Public interest
[15] The Commission was satisfied that the proposed transaction was unlikely to
adversely impact employment or any other public interest concern.
Conclusion
[16] In light of the above, we agreed with the Commission’s analysis that the
proposed transaction was unlikely to substantially prevent or lessen
competition in any relevant market or to raise any public interest issues.
[17] Accordingly, we approve the proposed transaction unconditionally.
10 July 2018
Ms Mondo Mazwai Date
Mrs Medi Mokuena and Prof Fiona Tregenna
Tribunal Researcher:
J Thomson
For the merging parties
W Rysbergen and D Rudmond of Webber Wentzel
For the Commission:
R Molotsi and T Masithulela