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[2019] ZACT 75
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Saudi Arabian Oil Company v Saudi Basic Industries Corporation (LM029May19) [2019] ZACT 75 (21 October 2019)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM029May19
In
the matter between:
Saudi
Arabian Oil Company
Primary Acquiring Firm
And
Saudi
Basic Industries Corporation
Primary Target Firm
Panel
: Mr A Roskam (Presiding Member)
: Mr E Daniels
(Tribunal Member)
: Mr AW Wessels
(Tribunal Member)
Heard on
: 25 September 2019
Order Issued on : 25
September 2019
Reasons Issued o
: 21 October
2019
REASONS
FOR DECISION
Approval
[1]
On
25 September 2019, the Tribunal unconditionally approved the proposed
transaction in terms of which Saudi Arabian Oil Company
("SAOC")
is acquiring control over Saudi Basic Industries Corporation
("SABIC").
[2]
The
reasons for the approval follow.
Parties
to the transaction
[3]
SAOC
is a joint stock company established by Royal Decree of the Kingdom
of Saudi Arabia. SAOC controls various firms in different
jurisdictions. However, SAOC does not directly or indirectly control
any firm in South Africa (SA). SAOC and all the firms it controls
will hereafter collectively be referred to as "Saudi Aramco".
[4]
Saudi
Aramco is primarily active in the exploration, production and
marketing of crude oil. To a lesser extent, Saudi Aramco is
active in
the production and marketing of refined products, and petrochemical
products.
[5]
SABIC is also a joint stock company which was established by
Royal Decree of the Kingdom of Saudi Arabia. SABIC is controlled by
the Public Investment Fund of Saudi Arabia ("PIF") with a
70% equity interest. The residual 30% of the shares are publicly
traded. SABIC controls various firms in different jurisdictions.
[6]
SABIC
is active in the production and sale of commodity chemicals
(including petrochemicals), polymers, fertilizers and metals.
Proposed
transaction and rationale
[7]
SAOC
intends to acquire 70% of the issued shares of SABIC from the PIF.
[1]
Post-merger, Saudi Aramco will control SABIC, and the remaining 30%
of the shares will be traded publicly.
Impact
on competition
[8]
The
Competition Commission ("Commission") found that the
proposed transaction presents product overlaps in the market
for the
supply of petrochemical products, namely (i) ethylene propylene and
terpolymer rubbers (EPDM)
[2]
;
(ii) polyethylene (PE)
[3]
;
and (iii) polybutadiene rubber (PBR).
[4]
The Commission assessed the narrower PE product market. Particularly,
the supply of High-Density PE (HDPE)
[5]
and Linear Low-Density PE (LLDPE)
[6]
.
[9]
The
Commission found that the merged entity's combined post-merger market
shares in the market for the supply of HOPE and LLDPE
range between
10%- 15% and 15%-20% respectively. The Commission also found that
there are other market participants including Safripol
and Exxon
Mobil that will exercise competitive constraints against the merged
entity.
[10] In the PBR market, the
Commission found that the merged entity will have a minimal
post-merger market
share within the range of 1%-5%. The Commission
also found that there are other significant market participants
including Synthos
and Versalis that will exercise competitive
constraints against the merged entity.
[11]
In the EPDM market, the Commission found that the merged
entity will have a post-merger market share within the range of
10%-15%.
The Commission also found that there are other market
participants including Mitsui and Dow that will exercise competitive
constraints
against the merged entity.
[12]
During its investigation of the proposed transaction, the
Commission received concerns from two industry participants. The
concerns
were that the proposed transaction will,
inter alia,
create a consortium of four major players in the EPDM market.
This is because the merging parties are party to joint ventures (JV)
with some big players in the market.
[7]
The Commission however found that the JVs are purely for [... ].
[8]
The Commission therefore concluded that the proposed transaction is
unlikely to result in a consortium of large players.
[13]
In view of the above, the Commission concluded that the
proposed transaction will unlikely lead to a substantial prevention
or lessening
of competition in any relevant market. We have no reason
to disagree with the Commission's findings.
Public interest
[14]
The proposed transaction does not raise any public interest
concerns.
Conclusion
[15]
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.
21 October 2019
Date
Mr
Anton Roskam
Mr Enver
Daniels and Mr Andreas Wessels concurring.
Tribunal
Case Manager : Kgothatso Kgobe
For
the Merging Parties : X Nyali of
Bowmans; A Mdee and W Graaf of
ENS
Africa
For
the Commission
: R Molotsi and T Masithulela
[1]
The proposed transaction is an international transaction which has
been notified in multiple jurisdictions, namely COMESA, Taiwan
and
Mexico, among others
[2]
A synthetic rubber material mostly used in the automotive industry
to manufacture, inter alia, sealing systems.
[3]
Also known as plastic which is used to manufacture industrial
wrappings and retail packaging bags, among other products.
[4]
A synthetic rubber used in the manufacture of tyres and solid core
golf balls.
[5]
A more rigid PE commonly used to manufacture drain pipes and
automotive fuel tanks.
[6]
A more flexible PE used to manufacture lids and plastic bags.
[7]
CC recommendation page 22, and page 1004 of the Merger Record
[8]
Information claimed as confidential.