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[2019] ZACT 1
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Rebel Packaging (Pty) Ltd v West Coast Paper Traders (Pty) Ltd (LM072May18) [2019] ZACT 1 (23 January 2019)
COMPETITION TRIBUNAL OF SOUTH
AFRICA
Case
No: LM072May18
In
the matter between
Rebel
Packaging (Pty) Ltd
Primary
Acquiring Firm
And
West
Coast Paper Traders (Pty) Ltd
Primary Target Firm
Panel
: Mr A Roskam (Presiding Member)
: Ms A Ndoni (Tribunal Member)
: Mrs M Mokuena (Tribunal Member)
Heard on
: 19
December 2018
Order Issued on
: 19 December 2018
Reasons Issued on
: 23 January 2019
REASONS
FOR DECISION
Approval
[1]
On
19 December 2018, the Tribunal unconditionally approved the proposed
transaction
in terms of which Rebel Packaging (Ply) Ltd ("Rebel")
is acquiring control over West Coast Paper Traders (Ply) Ltd ("West
Coast"). Rebel and West Coast will hereafter be collectively
referred to as the "merging parties".
[2]
The
reasons for the approval of the proposed transaction follow.
Parties
to the transaction
[3]
The acquiring firm is Rebel, which is a wholly-owned subsidiary of
Mpact Ltd ("Mpact").
Mpact is a firm listed on the
Johannesburg Stock Exchange and is not controlled by any single
shareholder.
[4]
Mpact is a paper and plastic packaging manufacturer with operations
in South Africa
(SA), Zimbabwe, Namibia and Botswana.
[1]
Mpact's paper business
comprises three parts, each of which operates at a different level of
the paper and paper packaging value
chain. Of relevance to the
proposed transaction is Mpact's activities in the manufacture and
supply of intermediate paper products,
containerboard and carton
board in particular.
[5]
Pre-merger, Rebel has a 49% negative control over West Coast.
[6]
The target firm is West Coast, which is controlled by Rebel. The
remainder of the
shares in West Coast are held by the Trustees of the
AM Mills Family Trust, the Trustees of the Mills Family Trust, and
the Trustees
of the GW Godwin Family Trust.
[7]
West Coast is a trader or converting merchant in relation to various
paper products
such as cartonboard and containerboard. West Coast
focuses on the supply of paper materials to smaller and medium sized
businesses
which,
inter alia,
operate as corrugated carton
manufacturers.
Proposed
transaction and rationale
[8]
The proposed transaction consists of a post-implementation
notification of an intermediate
merger whereby Rebel acquired a 49%
negative control over West Coast. In addition, the notification
involves the current transaction
whereby Rebel intends to increase
its shareholding in West Coast from 49% to 60%. Post-merger, West
Coast will become a subsidiary
of Rebel and will ultimately be
controlled by Mpact.
Relevant
market and impact on competition
[9]
The Competition Commission ("Commission") found a vertical
overlap between
the activities of the merging parties as Mpact
manufactures industrial paper such as containerboard and cartonboard
and West Coast
purchases paper to break bulk and on-sell to smaller
customers that are not serviced by Mpact. The Commission assessed the
following
markets:
(i)
the national upstream market for the
manufacture and supply of containerboard;
(ii)
the national
upstream market for the manufacture and supply of cartonboard with
imports; and
(iii)
the national downstream market for paper
merchants.
[10] In the national
upstream market for the manufacture and supply of containerboard, the
Commission found
that Mpact has a market share of[ ... ], with the
remaining share held by Sappi (36.26%), Corruseal (10.80%) among
other market
participants. In the national upstream market for the
manufacture and supply of cartonbaord, the Commission found that
Mpact is
the only player in the market with a market share of[ ... ],
while imports constitute [... ] of the market. Further, the
Commission
submitted that due to high barriers to entry and low
demand in this market, Mpact has remained the only player in the
market.
[2]
[11] In
the downstream market for paper merchants, the Commission found that
West Coast has a market share
of approximately [... ] in the market
for the trading of paper. The Commission further found that this is a
highly fragmented market
with a number of players (nationally and
regionally) such as Papercor, Peters Papers and Quicklit among
several others that will
constrain West Coast.
Vertical
Assessment
Input
&
Customer
foreclosure (Containerboard)
[12] In the
upstream market for the supply of containerboard, the Commission
found that Mpact
holds a market share of [... ], thus implying that
approximately [... ] is held by its competitors,
inter
alia,
Sappi and Neopak. Based on the
estimated market shares, the Commission concluded that it is unlikely
that Mpact will engage in any
input foreclosure strategy.
[13] The
Commission further found that West Coast sources its containerboard
requirements entirely
from Mpact, and thus makes it unlikely that
upstream firms will be significantly foreclosed. Further, the
Commission contacted
the Competitors of Mpact such as Sappi and
Neopak who both indicated that West Coast is not a significant
customer of theirs, and
thus had no concerns with the proposed
transaction.
Input
&
Customer
foreclosure (Cartonboard)
[14] In the
upstream market for the supply of cartonboard (including imports),
the Commission
found that Mpact has the ability to engage in
foreclosure strategies. This is because Mpact is the only
manufacturer of cartonboard
in SA. However, the Commission concluded
that this is unlikely as the supply of cartonboard to West Coast and
its competitors is
minimal. Furthermore, the Commission is of the
view that foreclosure as a result of the proposed transaction is
unlikely because
imports which account for approximately [... ] of
the sale of cartonboard will constrain Mpact.
[15] With
Mpact being the only supplier of cartonboard in the country, the
Commission was of
the view that it is unlikely that there will be any
significant customer foreclosures even in the worst-case scenario.
Furthermore,
the Commission is of the view that no SA firm can be
foreclosed as a result of the proposed transaction because Mpact
accounts
for over [... ] of West Coast's procurement of cartonboard,
and the remainder is accounted for by imports.
[16] In view of
the above, the Commission concluded that the proposed transaction is
unlikely to lead
to a substantial prevention or lessening of
competition in any relevant market. We have no reason to disagree
with the Commission's
findings.
Coordinated
effects
[17] The
Commission has implicated Mpact in [... ] complaints of collusion in
the paper industry
[... ]. The complaints relate to market
division/allocation and price fixing in,
inter
alia,
the market for the manufacture
and supply of corrugated sheet. The Commission sought to establish
what role West Coast could be
involved in the cartels and the merged
entity's ability to coordinate post-merger.
[18] The
Commission found that West Coast is not active in all the [... ].
Further, the Commission
is of the view that the proposed merger is
unlikely to create or strengthen coordination in the markets. This is
because the proposed
transaction will not provide Mpact with
sensitive information it previously did not have access to through
its negative control,
and because none of West Coast's downstream
rivals compete against Mpact anywhere else in the adjacent markets.
Public
interest
[19] The
proposed transaction does not raise any public interest concerns.
Conclusion
[20] 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
Anton Roskam
Mrs
Medi Mokuena and Ms Andiswa Ndoni concuring.
23
January 2019
Date
Tribunal
Case Manager
: Kgothatso
Kgobe
For
the Merging Parties
: A Roets
of Nortons Inc
For
the Commission
: S Molefe
[1]
The business involves the production of paper and plastic packaging
products, and recycling (of both paper and plastic).
[2]
From submissions by customers and competitors, the Commission
understands that the market is small and has not grown over the
years. and thus failed to attract any new entrants.