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[2018] ZACT 64
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Zaad Holdings Limited v Hygrotech Properties (Pty) Ltd (LM298Mar18) [2018] ZACT 64 (8 August 2018)
COMPETITION TRIBUNAL OF SOUTH
AFRICA
Case
No: LM298Mar18
In
the matter between
Zaad
Holdings
Limited
Primary
Acquiring Firm
And
Hygrotech
Properties (Pty)
Ltd
Primary Target
Firm
Panel
:
Mr Norman Manoim (Presiding Member)
:
Ms Andiswa Ndoni (Tribunal Member)
:
Ms Fiona Tregenna (Tribunal Member)
Heard
on
: 25 July 2018
Order
Issued on : 26 July 2018
Reasons
Issued on : 8 August 2018
REASONS
FOR DECISION
Approval
[1]
On
25 July 2018, the Competition Tribunal {"Tribunal")
unconditionally approved the proposed transaction involving Zaad
Holdings Limited ("Zaad") and Hygrotech Properties (Pty)
Ltd ("Hygrotech"), hereinafter collectively referred
to as
the merging parties.
[2]
The
reasons for approval of the proposed transaction follow.
Parties
to the transaction
Primary
Acquiring Firm
[3]
Zaad
is controlled by Zeder Investments Limited ("Zeder"), a
public entity listed on the Johannesburg Stock Exchange.
The shares
in Zeder are widely dispersed and as such no single shareholder
controls Zeder. Zaad controls nine firms in South Africa
including
Agricol (Pty) Ltd ("Agricol") and Klein Karoo Saad
Bemarking (Pty) Ltd ("KKSB").
[4]
Zaad
is a holding company and is therefore not active in any market.
Through its subsidiaries, Zaad operates in the specialised
agri-inputs industry by breeding, producing, processing and
distributing a broad range of agricultural seeds. Zaad is also active
in the development and distribution of hard agro-chemicals.
[1]
Primary Target Firm
[5]
Roodesen Beteggings (Pty) Ltd
("Roodesen") and Agri-Vie both exercise negative control
over Hygrotech. Roodesen is wholly
owned by the Habe Roode Family
Trust. Agri-Vie is ultimately controlled by the SPFM Shareholders
Trust. Hygrotech controls seven
firms and two of those firms are
situated outside of South Africa. Hygrotech and its subsidiaries are
hereinafter collectively
referred to as the 'Target Group'.
[6]
The Target Group is active in the
breeding, production, processing and distribution of agricultural
seeds. It is also involved in
the production and distribution of soft
agro chemicals and fertitisers.
[2]
Proposed
transaction
[7]
In terms of the
Sale
of Shares Agreement,
Zaad will
acquire 100% of the issued share capital in Hygrotech from its
shareholders. Zaad will therefore exercise sole control
over
Hygrotech post-merger.
Relevant
market and impact on competition
[8]
The
proposed transaction gave rise to potential overlaps in three markets
namely (i) the seed breeding market, (ii) the agro-chemical
market,
and {iii) the fertiliser market.
[9]
In terms of the seed breeding market,
the Competition Commission ("Commission") found that the
merging parties breed different
seeds. In the agro-chemical market,
the merging parties do not produce substitutable products. Zaad is
focused on hard chemicals
whereas the Target Group specialises in
soft chemicals. In terms of the fertiliser market, the Commission
found that the Target
Group's fertiliser products are plant
nutrient/growth stimulant type products used for vegetables. Zaad on
the other hand offers
commodity type fertilisers (for example, the
type of fertiliser that goes on grass).
[10] The
Commission concluded that no horizontal overlap exist between the
activities of the merging parties
in the aforementioned markets, as
the products offered are sufficiently differentiated from one
another.
[11]
Notwithstanding the above, the
Commission found a horizontal overlap in the distribution of 53 types
of agricultural crop seeds,
which are categorised either as vegetable
crop seeds or pasture/forage crop seeds.
[12]
The Commission assessed the broader
markets for the distribution of vegetable crop seeds and
pasture/forage crop seeds.
[13]
The Commission found that in the market
for the distribution of vegetable crop seeds the merged entity will
have post-merger market
share of 13.3% with an accretion of 8%. For
the pasture/forage crop seed market, the Commission found the merged
entity will have
a combined post-merger market share of 46% with an
accretion of 4.6%.
[14]
ln terms of the sub-markets within the
vegetable crop seeds market, the Commission found that a majority of
the post-merger market
shares in those markets were less than 25%,
with low market share accretions.
[15]
There were two markets, the markets for
leek and squash, which had post-merger market shares of 62.85 and
32.58% respectfully. Albeit
those market shares are significantly
high, the Commission was of the view that they are unlikely to raise
competition concerns,
as the market share accretions are less than
3%.
[16]
There were certain markets for vegetable
crop seeds which required further analysis. The Commission was
particularly concerned about
the broad bean market where the
post-merger market share would amount to 95%. However, during the
investigation, the Commission
found that it was a small market and as
consumers were substituting other protein sources for broad beans.
[3]
At the hearing the merging parties confirmed this. They indicated
that there was no longer much demand for this product and that
sales
of the product were low, and went to only one customer. This explains
why no other firms supply this product into the market.
[4]
[17]
In terms of the sub-markets within the
pasture/forage crop seeds market, the Commission found that
post-merger market shares ranged
from 30%-65%. Although these
post-merger market shares are high, the market share accretions are
less than 4%. Only in a few markets
did the accretion exceed 10%, but
here the total market shares were low and did not exceed 25%.
[18]
Similarly to the vegetable crop seeds
markets, there were only a few markets for pasture/forage crop seeds
which required further
analysis. One of those markets which did, was
the lucerne market, where the merged entity would have a combined
post-merger market
share of 72.2%, with an accretion of 5.2%. At the
hearing the Tribunal queried the disparity in the merging parties'
market shares
for this specific market over the last three years;
Zaad has increased its market share from 55.2% in 2014 to 66% in
2017, whereas
Hygrotech has not increased its market share beyond
5.2%.
[5]
[19]
Mr Roselt (the director of Agricol Zaad
subsidiary), explained that lucerne is one of Zaad's focus products,
whereas it is not for
the target firm. Zaad has acquired its position
through promoting a variety of different lucerne products and its
superior distribution
network.
[6]
[20]
The Commission found that entry barriers
in these markets are not insurmountable. The Commission therefore
concluded that the proposed
transaction will not substantially
prevent or lessen competition in any relevant market. We concur with
the Commission's conclusion.
Public
interest
[21]
The merging parties submitted that the
proposed transaction will not result in any job losses. However,
Hygrotech had dismissed
approximately five employees at its
Stellenbosch plant during 2017. After investigating the matter, the
Commission found that the
retrenchments were not merger specific, as
the job losses were the result of financial difficulties faced by
that plant. Further,
the Commission was of the view that the negative
effects on employment flowing from the retrenchments are
insubstantial as the
retrenched employees account for less than 1% of
the merged entity's workforce.
[22]
The Commission therefore concluded that
the proposed transaction is unlikely to raise any other employment
concerns or other public
interest concerns.
Conclusion
[23]
In light of the above, we conclude 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
approve the proposed
transaction unconditionally.
Mr
Norman Manoim
Ms
Andiswa Ndoni and Prof Fiona Tregenna concurring.
8 August 2018
Date
Tribunal
Researcher:
Hlumelo Vazi
For
the merging parties: S Meyer of Cliffe Dekker
Hofmeyr
For
the Commission
R Mokolo and R Maphwanya
[1]
An agro-chemical (also known as a crop protection product), is used
for the application in agricultural production in order to
protect a
seed or plant crop from biological organisms that can negatively
affect the crop development. There are hard agro-chemicals
such as
pesticides and soft agro-chemicals.
[2]
Soft agro-chemicals refer to plant manipulates such as foliar
nutrition, adjuvants and chemical growth agents.
[3]
Transcript, page 10.
[4]
Transcript, pages 13 and 14.
[5]
Transcript, pages 15 and 16
[6]
Transcript, page 19.