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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM173Mar20
In the matter between
KLL Group (Pty) Ltd Primary Acquiring Firm
And
The Starch, Glucose and Animal Feed Ingredients
Business of Tongaat Hulett Ltd
Primary Target Firm
Panel : E Daniels (Presiding Member)
: Y Carrim (Tribunal Member)
: Prof. H Cheadle (Tribunal Member)
Heard on : 6 July 2020
Order Issued on : 6 July 2020
Reasons Issued on : 15 July 2020
REASONS FOR DECISION
Approval
[1] On 6 July 2020, the Competition Tribunal (“Tribunal”) unconditionally approved
the proposed transaction in terms of which KLL Group (Pty) Ltd (“KLL”) is
acquiring the starch, glucose and animal feed ingredients business of Tongaat
Hulett Ltd (“Target Business”).
[2] The reasons for the approval of the proposed transaction follow.
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Parties to the transaction
[3] The acquiring firm is KLL, a firm which is ultimately controlled by Barloworld
Limited Group (“Barloworld Limited”), a public company listed on the JSE and
which has secondary listings on the London and Namibian Stock Exchanges.
Both KLL and Barloworld Limited control several firms in South Africa (“SA”).
Barloworld Limited, all the firms it controls, all the firms controlling it and all the
firms controlled by those firms will be referred to as the “Barloworld Group”.
[4] Barloworld is a distributor of leading international brands, providing integrated
rental fleet management, product support and logistics solutions. Barloworld
Group’s core divisions are comprised of equipment (earth moving equipment
and power systems), automotive (car rental, motor retail, fleet services, used
vehicles and disposal solutions) and logistics services.
[5] The Target Business is owned by Tongaat Hulett, a public company
incorporated in accordance with the company laws of SA. The Target Business
includes various assets and liabilities and includes 100% of the issued share
capital of two firms owned by Tongaat Hulett, namely Tongaat Hulett Starch
(Pty) Ltd and Tongaat Hulett Starch (Australia) (Pty) Ltd.
[6] The Target Business produces starch, glucose and other related maize
products processed through four wet milling plants, with three located in
Gauteng and one in the Western Cape. Starch and glucose are key inputs
across several sectors, inter alia, FMCG and alcoholic beverages. The Target
Business converts non-genetically modified maize (non-GMO maize) into
starch, starch-based and glucose. The co-products produced during the starch
and glucose manufacturing process is supplied to the animal feeds industry.
[7] The Target Business is a sole producer of unmodified and modified starches in
SA and is only one of two starch producers in Africa (the other being in Egypt).
The Target Business is also the sole supplier of glucose to SA and Namibia
The Target Business is also the sole supplier of glucose to SA and Namibia
among other southern African countries.
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Proposed transaction and rationale
[8] The proposed transaction entails the acquisition of the Target Business in its
entirety by KLL. Post-merger, KLL will solely own and control the Target
Business.
Impact on competition
[9] The Competition Commission (“Commission”) found that the proposed
transaction does not result in a horizontal overlap because no firm within the
Barloworld Group conducts business activities/has an interest in businesses
that conduct activities that can be considered as substitutable/competing with
the Target Business’ activities. Although the Commission found a business
relationship between the activities of the merging parties, the Commission
found that the proposed transaction does not result in a vertical overlap
because the merging parties do not operate within the same production
vertical/value chain.
Third party concerns
[10]There were concerns raised by two of the merging parties’ customers
(“complainants”). One’s concern is that post-merger, the merged entity will price
glucose and starch at import parity levels, thus increasing its costs due to there
being no viable alternative suppliers of glucose and starch to turn to. To
assuage its concerns, the complainant proposed that the merger be approved
subject to a condition precluding the merged entity from implementing an import
parity pricing model for the supply of starch and glucose.
[11] The other complainant’s concerns were predicated on the complainant not
having been able to conclude a long-term supply agreement with the Target
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Business. The complainant was concerned that the absence of a long-term
supply agreement with the Target Business/merged entity leaves it vulnerable
to post-merger changes to the terms of supply, inter alia, through price
increases, bundling of products and services, switching to GMO maize and
refusal to supply. The complainant submitted that this could have a detrimental
impact on the ongoing viability of its business. To guard against those concerns,
the complainant proposed that the merger be approved subject to the condition
that requires the merged entity to conclude a supply agreement with the
complainant.
[12] The Commission found that none of the concerns raised by the complainants
are merger specific as they existed pre-merger. Further, where existing supply
agreements have expired, it is common cause that the Target Business has
continued to supply its customers with glucose and starch on the same terms
and conditions as the expired agreements whilst new supply agreements are
being renegotiated. The Commission further found that the latter complainant’s
proposed remedies to address its concerns includes terms and conditions it did
not enjoy under the previous supply terms. The Commission is, therefore, of
the view that the complainant is attempting to use the merger process to
negotiate new contractual terms.
[13] The Commission also found that the complainant, as one of the Target
Business’ largest customers, would probably be able to exercise countervailing
power against the merged entity. The merging parties also indicated that its
customers will be supplied on existing terms and conditions until new contract
negotiations are finalised. Notwithstanding the above, the Commission notes
that the merged entity will be a monopoly in the relevant markets and will,
therefore, continue to monitor and assess the competition dynamics in the
relevant markets, post-merger, in order to ensure that the merged entity does
relevant markets, post-merger, in order to ensure that the merged entity does
not abuse its dominance by engaging in exclusionary/exploitative conduct. The
complainants were informed of the Commission’s recommendation and they
did not persist with their concerns.
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[14] Due to the above, the Commission concluded that the proposed transaction is
unlikely to substantially prevent or lessen competition in any market. We found
no reason to disagree with the Commission.
Public interest
[15] The proposed transaction raises no public interest concerns. The employees of
the Target Business will be transferred to the Barloworld Group in terms of
section 197 of the Labour Relations Act 66 of 1995.
Conclusion
[16] In the light of the above, we concluded that the proposed transaction was
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.
15 July 2020
Mr Enver Daniels Date
Ms Yasmin Carrim and Prof. Halton Cheadle concurring.
Tribunal Case Manager : Kgothatso Kgobe
For the Merging Parties : J Simpson and C Kipa of DLA Piper
M Versfeld and S van der Meulen of Webber
Wentzel
For the Commission : Z Hadebe and W Gumbie