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[2018] ZACT 27
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New Largo Coal (Pty) Ltd New Largo Coal Business of Anglo American Inyosi (Pty) Ltd (LM002Apr18) [2018] ZACT 27 (24 July 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM002Apr18
In
the matter between
New
Largo Coal (Pty)
Ltd
Primary Acquiring Firm
And
New
Largo Coal Business of Anglo
American
Primary Target Firm
lnyosi
(Pty) Ltd
Panel
: Norman Manoim (Presiding Member)
:
Enver Daniels (Tribunal Member)
:
Yasmin Carrim (Tribunal Member)
Heard
on
: 5 July 2018
Order
Issued on : 5 July 2018
Reasons
Issued on : 24 July 2018
REASONS
FOR DECISION
Approval
[1]
On
5 July 2018, the Competition Tribunal ("Tribunal")
unconditionally approved the proposed transaction in terms of which
New Largo Coal (Pty) Ltd ("New Largo Coal") is acquiring
the New Largo Coal Business of Anglo American lnyosi (Pty) Ltd
("AAIC") (hereafter referred to as the "target
business").
[2]
The
reasons for the approval of the proposed transaction follow.
Parties
to the transaction
Primary Acquiring Firm
[3]
New
Largo Coal is a newly incorporated company which currently has no
activities. However, its three shareholders have interests
in the
national market for the supply of thermal coal to the tied domestic
market.
[1]
•
[4]
The
three shareholders are Seriti New Largo (Pty) Ltd ("Seriti New
Largo") with a 45% interest, the Industrial Development
Corporation of South Africa Ltd ("IDC") with a 22,5%
interest and Coalzar (Pty) Ltd ("Coalzar") with a 22.5%
shareholding.
[2]
According to the merging parties the acquiring firm will be jointly
controlled by Seriti New Largo and the IDC. (Despite Coalzar
holding
an equal equity interest to the IDC it is not identified as a joint
controller).
[5]
Seriti
New Largo is a wholly-owned subsidiary of Seriti Resources Holdings
(Pty) Ltd ("Seriti Resources"). Seriti Resources
is not
directly or indirectly controlled by any single firm.
[3]
Seriti Resources directly controls Seriti Coal (Pty) Ltd ("Seriti
Coal").
[6]
Through Seriti Coal, Seriti Resources recently acquired thermal coal
assets. In July
2017, the Competition Commission ("Commission")
approved an intermediate merger in terms of which Seriti Resources
acquired
the Kriel business ("Kriel Business"), New Denmark
Business ("ND Business") and New Vaal Business ("NV
Business") of Anglo Operations (Pty) Ltd ("AOPL") and
its closed Collieries Businesses. Seriti Resources, through
its
recently acquired Businesses, supplies thermal coal to Eskom power
stations through
Coal
Supply Agreements.
[4]
[7]
The IDC holds non-controlling minority interests in Exxaro Resources
("Pty")
Ltd ("Exxaro"), and South32 Ltd
("South32"). Exxaro manages six coal mines that produce
thermal coal to Eskom
power stations, steam and coking coal. South32
has four mining operations as well as processing plants that produce
energy coal
for the domestic and export market.
Primary
Target Firm
[8]
The target business is a division of the AAIC, which is in turn
controlled by Anglo
South Africa (Pty) Ltd ("ASA"). ASA is
a wholly-owned subsidiary of Anglo American South Africa Limited
("AASA"),
which is in turn ultimately controlled by Anglo
American pie ("plc").
[5]
[9]
The target firm comprises a coal mining project under development, a
closed colliery
which ceased operations in or about 1998 and a
conveyor belt under development. The target business is being
developed specifically
for the exclusive supply of thermal coal to
the Kusile power station.
Proposed
transaction and rationale
[10] In
terms of the New Largo
Sale and Purchase Agreement,
New Largo
Coal will acquire control over the target business. Post-merger, the
New Largo Business division will be jointly controlled
by Seriti
Resources and the IDC.
Relevant
market and impact on competition
[11]
The
Commission found that the three shareholders of the acquiring firm
operate in the thermal coal business. Exarro, and Seriti
Resources'
recently acquired assets in particular, supply thermal coal to Eskom
power stations. Therefore, the Commission found
that the target
business is a potential competitor due to the fact that it is being
developed to supply Eskom. Eskom's practice
is to enter into long
term supply contracts with mines situated adjacent to its power
stations. These are referred to in the industry
as tied mines as they
either do not compete or compete in a limited respect with the market
for the domestic supply or export supply
of coal.
[12]
The
Commission found that as the merger resulted in a dilution of the
market share previously held by AAIC the merger would not
lead to
increased concentration.
Information
exchange: IDC
[13]
However,
the Commission further found that the proposed transaction is likely
to facilitate the exchange of economically sensitive
information.
This is because the IDC who are to have a director in the acquiring
firm also has interests in Exxaro and South32.
The IDC has given an
undertaking that it will not appoint the same director to the New
Largo board who it has appointed to Exxaro.
The IDC does not enjoy
the right to appoint a director to the South32 board. The merging
parties also made the point that the IDC
in any event does not have a
controlling stake in either of these latter two companies.
Information
exchange: Seriti
[14]
The
Commission also considered whether the proposed transaction would
result in information sharing because of cross-directorship
with the
subsidiary interests of the other controlling shareholder, Seriti
Resources. This is because one of the two directors
of Seriti
Resources (Mr Teke), who is earmarked to sit on the New Largo board,
also sits on the boards of Seriti Coal, Lephalale
Coal Mines and
Liviero Group Ltd ("Liviero") among others. The merging
parties submitted that Mr Teke has since resigned
from Lephalale Coal
Mine, and therefore, there is no issue of cross directorship
with regards to Lephalale.
[6]
[15]
The
merging parties further submitted that Liviero provides open casts
mining services, and is therefore not active in the supply
of thermal
coal. Therefore, there is no overlap between the activities of
Liviero and New Largo Coal and the issue of cross
directorship
should fall away.
[16]
Coalzer
will appoint Pius Mokgokong and Yacoob Mansoor to the New Largo
board. Both Mr Mokgokong and Mr Mansoor sit on board of
Msobo Coal.
In addition Mr Mokgokong sits on the board of Liketh Investments. The
merging parties submitted that this will not
lead to any concerns
about information exchange as Msobo Coal is an export mine, while
Liketh is in the downstream coal processing
market and does not own
any mines itself.
[17]
The
merging parties explained that given that the target firm will be a
tied mine. This means that the only competition that will
take place
will be when Eskom calls for bids to supply Kusile. The merger does
not increase the bargaining power of the target
firm in this respect
from what it was pre-merger. This is because the entitles which have
been identified to give rise to cross-directorship
with New Largo are
not direct competitors of New Largo, and that there is no material
overlap between those entities' activities
and New Largo's.
[18]
Moreover
Eskom has significant countervailing power due its importance as a
customer and because it is the largest purchaser of
domestic thermal
coal volumes.
[7]
Moreover the merging parties further submitted that there is
ex
ante
competition for Eskom tied
opportunities, and that the market is highly fragmented with a number
of large firms supplying thermal
coal to Eskom.
[19]
We
were advised that Eskom had no concerns regarding the proposed
transaction.
[20]
The
Commission concluded on these facts that co-ordination is unlikely.
We agree with the Commission's findings.
Public
interest
[21]
The
proposed transaction will not have any adverse effect on employment
as the employees of AAIC will be transferred to New Largo.
The
proposed transaction raises no other public interest concerns.
Conclusion
[22]
In
light of the above, we concluded 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 approved the proposed
transaction unconditionally.
Mr
Norman Manoim
Mr
Enver Daniels and Ms Yasmin Carrim.
24
July 2018
Tribunal
Case Manager
: Kgothatso
Kgobe
For
the Merging Parties
: D Dingley
of Webber Wentzel
For
the Commission
: R Mokolo and R Maphwanya
[1]
Relates to sale and supply of thermal coal through long-tern,
contracts (+30 years) with customers like Eskom.
[2]
The remainder of the issued share capital of New Largo Coal are held
by the New Largo Community Trust (5%), and the New Largo
Employees
Trust (5%).
[3]
Its shareholders are Masimong Benefictation (Pty} Ltd, CIH Projects
(Ply) Ltd, Thebe SPV 0011 (Pty) Ltd and Kamanda Investments
(Ply)
Ltd(each shareholder owns 25% of Seriti Resources).
[4]
See merger record, pages 72 and 73.
[5]
AA pie has a primary listing on the London Stock Exchange and a
secondary listing on the JSE.
[6]
See pages 1B, 19 and 20 of the Transcript.
[7]
See pages 18 of the Tran script and 93 of the Merger Record.