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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM156Feb20
In the matter between:
Izimbiwa Associated Companies (Pty) Ltd Primary Acquiring Firm
and
Bittersweet Trade and Invest 55 Proprietary Limited Primary Target Firm
Panel : Yasmin Carrim (Presiding Member)
: Fiona Tregenna (Tribunal Member)
: Andiswa Ndoni (Tribunal Member)
Heard on : 29 April 2020
Order Issued on : 29 April 2020
Reasons Issued on : 05 May 2020
Reasons for Decision
Approval
[1] On 29 April 2020, the Competition Tribunal (“Tribunal”) unconditionally
approved the transaction involving Izimbiwa Associated Companies (Pty) Ltd
and Bittersweet Trade and Invest 55 (Pty) Ltd.
[2] The reasons for approving the proposed transaction follows.
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Parties to the proposed transaction
Primary acquiring firm
[3] The primary acquiring firm is Izimbiwa Associated Companies (Pty) Ltd (“IAC”)
an investment holding company and a wholly-owned subsidiary of the
Phembani Group (Pty) Ltd (“Phembani”), a private company incorporated in
accordance with the laws of the Republic of South Africa.
[4] Phembani is controlled by the Capgro Trust through various firms. The Capgro
Trust is controlled by Mr Phuthuma Nhleko (Mr Nhleko). The Capgro Trust
trustees are Mr Nhleko and Mr Robyn John Elliot Beale. Phembani is a South
African based industrial holding company with a focus on investing and
operating in the oil, gas, minerals, mineral resources, metals and infrastructure
related industries. Phembani and IAC shall collectively be referred to as the
“Acquiring Group”.
[5] The Capgro Trust holds various investments, however, of relevance to the
proposed transaction are the investments of the Capgro Trust in the mining
industry through Phembani. The relevant Phembani’s current portfolio include
Izimbiwa Coal Proprietary Limited14 (“Izimbiwa Coal”) which is a coal mining
company. Izimbiwa Coal’s only operating mine is the Middleburg Complex
located in Mpumalanga. This mine operates in the production and supply of
thermal coal.
Primary target firms
[6] The primary target firm is Bittersweet Trade and Invest 55 Proprietary Limited
(“Bittersweet”). Bittersweet is controlled by Julovision Proprietary Limited
(“Julovision”) 50%; and Lifocept Proprietary Limited (“Lifocept”) 50%.
[7] Bittersweet controls a number of firms which includes, Crimson Clover
Proprietary Limited (“Crimson”), in turn Crimson has a 100% shareholding in
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Lexshell 828 Investments Proprietary Limited (“Lexshell 828”). 828 in turn has
a 51.9% shareholding in Lexshell 827 Investments.
[8] Lexshell 827 Investments has a 50.1% shareholding in Lexshell 826
Investments. Lexshell 826 has a 100% shareholding in Umcebo Mining.
Umcebo Mining controls Hlagisa Mining Proprietary Limited (“Hlagisa”).
[9] Crimson, Lexshell 828, Lexshell 827, Lexshell 826, Umcebo Mining and
Hlagisa shall be referred to as the “Target Group”.
[10] The only operating entities of the Target Group are Umcebo Mining and
Hlagisa. Umcebo Mining operates in the production and supply of thermal coal
through Wonderfontein Colliery, an open-cast mine. In addition, Hlagisa owns
the Wildfontein mine which is no longer producing coal. Hlagisa has an
arrangement with Mafube coal mine whereby Hlagisa contract mines coal from
Mafube. Hlagisa owns the coal it mines but the mine itself is owned by
Mafube.1
Proposed transaction and rationale
[11] In terms of the proposed transaction, Phembani is acquiring the entire
shareholding of Bittersweet from Julovision and Lifocept via IAC. According
to the Call Option Agreement entered between the merging parties, Phembani
has an irrevocable right and option to purchase Julovision and Lefocept’s
shares in, and claim against, Bittersweet.
[12] The conditions precedent of the Call Option Agreement state that Phembani
can exercise the Call Option at any time between the Effective Date and 10
years after that. Phembani has elected to exercise the Call Option and intends
to acquire (through IAC, the primary acquiring firm) the entire issued share
capital of, and claims against, Bittersweet. Upon implementation of the
proposed transaction, Bittersweet will be controlled by Phembani via IAC.
1 Please see further para 21 and 22 page 14 of the CC recommendation
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[13] The Acquiring Group submitted that Phembani has exercised the Call Option
with the objective of enhancing its coal portfolio. The Target Group submitted
that the Bittersweet shareholders are exiting the investments in line with the
Call Option Agreement.
[14] This transaction follows a merger transaction between Izimbiwa Associated
Companies (Pty) Ltd and Moxitorque Investments (Pty) Ltd LM139Aug17
approved by the Tribunal on 20 October 2017, where the merging parties
informed us that the transaction was phase one of a broader transaction which
would ultimately result in Izimbiwa acquiring control of Umcebo Mining. In that
transaction the merging parties had advised that a second phase of the
transaction would be notified to the Commission as and when it occurred. The
transaction before us is therefore envisaged second phase.
Impact on competition
[15] The Commission considered the activities of the merging parties and found
that they overlap with regard to the production and supply of thermal coal. The
Commission found that the Acquiring Group is active in the supply of coal
through Izimbiwa Coal and the Target Group is active in the supply of coal
through Wonderfontein and Hlagisa. The Commission also found that the
merging parties supply their thermal coal to the domestic and export market
however the Commission noted that the merging parties do not supply thermal
coal to Eskom under a tied market arrangement or through long term contracts.
[16] The Commission did not conclude on the exact relevant market, however the
Commission did assess the horizontal overlap between the activities of the
merging parties in the national market for the supply of thermal coal to Eskom
under short term contracts, the national market for the supply of coal to other
customers other than Eskom (“Residual market”) and the export market. The
Commission’s assessment revealed the following:
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[16.1] In the national market for the supply of thermal coal to Eskom under
short term contracts, the Commission found that the merged entity will
have a combined post-merger market share of approximately less than
15%. The Commission concluded that the proposed merger is unlikely
to substantially prevent or lessen competition in the market for the
supply of thermal coal to Eskom as the merged entity will remain a small
supplier to Eskom. Furthermore, the merged entity will continue to face
competition from other reputable players active in the market.
[16.2] In the national market for the supply of coal to customers other than
Eskom (“Residual market”), the Commission found that the merged
entity will have a market share of approximately less than 10%. The
Commission submitted that the proposed transaction is unlikely to
substantially prevent or lessen competition in the residual domestic
market as the combined post-merger market shares of the merging
parties are low. Furthermore, the Commission also noted that there are
various other players active in the market such as Anglo-American Coal
South Africa with a market share of approximately less than 70%,
Exxaro Recourses Limited with a market share of approximately less
than 20%, and South32 SA Coal Holdings Proprietary Limited with a
market share of approximately less than 15%.
[16.3] In the market for the export of coal the Commission found that the
merged entity will have a market share of less than 1%. The
Commission found that the proposed transaction is unlikely to
substantially prevent or lessen competition in the export market as the
merged entity is a minuscule player. Furthermore, the Commission
noted that there were various other players active in the market such as
Anglo-American Coal South Africa with a market share of approximately
less than 30%, Exxaro Recourses Limited with a market share of
approximately less than 20%, and South32 SA Coal Holdings
approximately less than 20%, and South32 SA Coal Holdings
Proprietary Limited with a market share of approximately less than 20%.
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[17] The Commission submitted that none of the customer and/or competitors of
the merging parties raised concerns about the proposed merger and
recommended that we approve the proposed transaction unconditionally.
Public interest
[18] The proposed transaction will not have any negative effect on employment in
South Africa and raises no other public interest concerns.
Conclusion
[19] 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
approve the proposed transaction unconditionally.
____________________ 05 May 2020
Ms Yasmin Carrim DATE
Prof Fiona Tregenna and Ms Andiswa Ndoni concurring
Tribunal Case Manager : Ms Busisiwe Masina
For the merging parties : Mr Wade Graff of ENS Africa Inc
For the Commission : Nolubabalo Myoli and Themba Mahlangu