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[2020] ZACT 81
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Barnes Group Holdings (Pty) Ltd v Barnes Reinforcing (Pty) Ltd (LM1230ct19) [2020] ZACT 81 (20 February 2020)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM1230ct19
In
the matter between:
Barnes
Group Holdings (Pty) Ltd
Primary Acquiring Firm
And
Barnes
Reinforcing (Pty) Ltd
Primary Target Firm
Panel:
Yasmin Carrim
(Presiding Member) Andiswa Ndoni (Tribunal Member) Halton
Cheadle
(Tribunal Member)
Heard
on: 15 January 2020
Order
Issued on: 15 January 2020
Reasons
Issued on: 20 February 2020
Reasons
for Decision
Approval
[1]
On 15 January 2020, the Competition Tribunal ("Tribunal")
unconditionally approved the transaction involving
Barnes Group
Holdings (Pty) Ltd and Barnes Reinforcing (Pty) Ltd.
[2]
The reasons for approving the proposed transaction follow.
Parties
to the proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Barnes Group Holdings (Pty) Ltd
("Barnes Holdings"), a private company incorporated
in
accordance with the laws of the Republic of South Africa.
[6]
Barnes Holdings and the firms indirectly and directly controlled by
it will be hereinunder collectively be referred to
as the Barnes
Group.
Primary
target firm
[9]
The primary target firm is Barnes Reinforcing (Pty) Ltd ("BRI"),
a private company incorporated in terms of
the company laws of South
Africa.
[10]
BRI is jointly controlled by Group Five Construction (Pty) Ltd
("Group Five")
[11]
BRI controls Titan Reinforcing (Pty) Ltd (''Titan) and Vulcania
Reinforcing Solutions (Pty) Ltd ("Vulcania"). BRI
and all
the firms controlled by it will be collectively referred to as the
Target Group.
[12]
The Target Group manufactures and supplies reinforcing steel and mesh
products, it cuts, bends and installs reinforcing steel
products and
supplies reinforcing and wire products.
Proposed
transaction and rationale
[13]
[….]submitted that the proposed transaction would take place
in two steps. Firstly, as part of the first transaction
[….]
would acquire Group Five's 50% shareholding in BRI and thereafter, as
part of the second transaction, - [….]
shareholding in BRI to
Barnes Holdings by way of intragroup transfer of shares. Post-merger,
BRI will be solely controlled by Barnes
Holdings.
[14]
The Acquiring Firm submitted that Group Five is unable to comply with
its obligations as shareholder towards BRI, nor is it
able to pay its
debts. This has triggered an involuntary sale in terms of the
shareholders agreement, providing for
to acquire its
shareholding in BRI.
[15]
According to the Target Group, the sale of BRI to the existing
shareholder is a commercial imperative in order to ensure its
own
business rescue strategy is complied with and further ensures the
continuity of the existing employees' gainful employment
within the
Target Firm's own continued existence and keep costs competitive.
Impact
on competition
[16]
The Commission considered the activities of the merging parties and
found that the proposed transaction presents a horizontal
and
vertical overlap. The horizontal overlap occurs in that Barnes
Group's subsidiaries, [….] and the Target Group are active
in
the production and supply of rebar (cut and bend); rebar (straight
and cut), mesh and wire.
[17]
The vertical overlap occurs in that the Target Group procures various
steel products from Barnes Group. The steel products
by the Target
Group from Barnes Group includes rebar and mesh products. The Target
Group uses these products to produce rebar (cut
and bend); mesh and
binding wire; and rebar (straight and cut).
[18]
The Commission did not conclude on the relevant geographic market but
assessed the effects the proposed merger would have on
a national
basis in the following markets:
[18.1] The national
upstream market for the production and distribution of (i)
reinforcing steel (rebar) and (ii) mesh &
wire products;
[18.2] The national
downstream market for the supply of (i) rebar products (cut &
bend); (ii) rebar (straight & cut);
and (iii) mesh & wire
products.
[1]
[19]
The Commission found that the merged entity will have an estimated -
combined post-merger market share in the production and
supply of
mesh and wire; - [….] in the production and supply of rebar
(cut & bend); and - in the production and supply
rebar (straight
and cut).
[20]
The Commission submitted that the horizontal overlap between the
activities of the merging parties was unlikely to substantially
prevent or lessen competition as the merging parties are relatively
smaller players. the Commission also found that the merged
entity
would continue to face competition from various other players such as
Reinforcing Steel Contractors, Reinforcing & Mesh
Solutions and
Steel and Reinforcing Suppliers.
[21]
With respect to vertical overlap, the Commission assessed whether the
merging parties would have the ability and incentive
to foreclose the
downstream competitors of the Target Group from accessing rebar and
mesh products required in the downstream production.
[22]
The Commission found that Barnes Group is not a dominant supplier of
rebar steel and mesh and would continue to face competition
from
other players such as ArcelorMittal SA, Cape Gate, SA Metal and
Fortune Steel. Thus it did not have the incentive or ability
to
foreclose downstream competitors.
[23]
Given the above, the Commission concluded that the proposed
transaction is unlikely to substantially prevent or lessen
competition
in any relevant market in South Africa.
Public
interest
[24]
The merging parties confirmed that the proposed transaction will have
no adverse effect on employment in South Africa and raises
no other
public interest concerns.
[2]
Conclusion
[25]
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.
Ms
Yasmin Carrim
Ms
Andiswa Ndoni and Mr Halton Cheadle concurring
DATE:
06 February 2020
Tribunal
Case Manager: Ms
Busisiwe Masina
For
the merging parties: Mr
Greg Shapiro of
Eversheds Sutherland Attorneys
For
the Commission: Ms
Rethabile·Ncheche
[1]
Please see Table 1 page 17 of the CC recommendations
[2]
Merger Record, pages 17.