Brief Summary

Competition — Merger Control — Conditional approval of merger between Sinosteel Group Corporation and Deen Holdings Corporation — Sinosteel to acquire sole control over Deen Holdings — Competition Commission assessed potential horizontal and vertical overlaps in the chrome ore market — Found that the merger unlikely to substantially prevent or lessen competition due to low combined market share — Public interest concerns addressed through conditions regarding employment — Tribunal approved merger with conditions to mitigate retrenchment risks.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings concerned the approval of a large merger before the Competition Tribunal of South Africa in terms of which Sinosteel Group Corporation Limited (the primary acquiring firm) sought to acquire sole control of Deen Holdings Corporation Limited (the primary target firm). The matter was considered by a Tribunal panel constituted by I Valodia (Presiding Member), E Daniels, and L Mncube.

The reasons record that, on 16 March 2022, the Tribunal conditionally approved the merger. The Tribunal documentation also reflects that the matter was heard on 16 March 2021, that an order was issued on 17 March 2021, and that reasons were issued on 18 March 2021. The summary proceeds on the basis of the dates and sequence as they appear in the judgment record, without attempting to reconcile them.

The dispute was situated in the context of chrome ore and ferrochrome activities, including mining, beneficiation, supply, and trading of chrome ore, as well as associated public interest concerns (notably employment effects and the greater spread of ownership). The Competition Commission investigated the transaction and ultimately concluded that it was unlikely to substantially prevent or lessen competition, recommending approval subject to public interest conditions, which the Tribunal accepted (with refinement to at least one condition following union participation).

2. Material Facts

Sinosteel Group Corporation Limited is a firm incorporated under the laws of the People’s Republic of China and is wholly owned by the Government of the PRC, through the State-owned Assets Supervision and Administration Commission. In South Africa, Sinosteel controls several firms, including Sinosteel South Africa (Pty) Ltd, and has operations relating to iron ore, chrome ore, and nickel ore.

Through three joint ventures in South Africa—Tubatse Alloy (Pty) Ltd, Tubatse Chrome (Pty) Ltd, and Tubatse Chrome Minerals (Pty) Ltd (collectively, the JV Entities)—Sinosteel and its subsidiaries conduct activities in mining, beneficiation, and the supply of chrome ore and ferrochrome. Through Sinosteel South Africa, the Sinosteel Group also trades chrome ore from South Africa. Sinosteel additionally has activities in South Africa relating to the renting of office space and business development/consulting services, although these were not central to the competition assessment recorded in the reasons.

Deen Holdings Corporation Limited is incorporated in Mauritius and is controlled by a company incorporated in Hong Kong, China. Deen Holdings operates in South Africa through various mining-related firms, but for purposes of the merger assessment in the reasons, the relevant operational footprint was through Samancor and its affiliates. Samancor is active in chrome ore mining, smelting, and the production of electrode paste, described as an essential input in the production of ferrochrome.

The merger entailed Sinosteel acquiring Deen Holdings’ 50% shareholding (as described in the reasons) such that, post-merger, Sinosteel would solely control Deen Holdings. The Commission identified a horizontal overlap in the global market for the trading of chrome ore, and considered potential vertical relationships in South Africa, given Sinosteel’s chrome trading activities and Samancor’s chrome ore production and supply activities.

The Commission also recorded limited supply relationships between the parties, including Sinosteel supplying coke nuts and equipment spare parts to an affiliate of Deen Holdings during 2020. On the information before it, the Commission assessed these relationships as unlikely to raise material foreclosure concerns, including because Sinosteel was characterised as a small player in the spare parts market (with a market share stated as less than 1%).

On public interest facts, Samancor had implemented retrenchments for operational requirements commencing in January 2020 and completed by December 2020, affecting a number of employees (with the number not reproduced in the reasons extract). No retrenchments were undertaken in 2021. The Commission’s review of internal documentation indicated that discussions about the proposed transaction commenced approximately a year after these retrenchments were implemented, and that the restructuring was linked to adverse market conditions (including oversupply and a drop in global prices, and later deterioration linked to the Covid-19 pandemic).

The Commission also recorded that Samancor’s budgeting processes foresaw the possibility of future retrenchments due to ongoing streamlining efforts, against a backdrop of continued market challenges (including pressure on worldwide commodity prices, ferrochrome price declines, and increasing costs of production). The Commission found that neither the historic nor contemplated retrenchments were merger-related, but nonetheless pursued employment-related conditions given the broader economic climate and unemployment levels.

Two unions raised concerns during the investigation, including concerns about prior retrenchments and the implementation of a “recall clause,” as well as broader employment security and issues said to relate to a prior Samancor merger in 2018. It was accepted in the investigation that the 2018 moratorium and recall periods had lapsed and that those prior retrenchments were not merger-specific. One union elected to participate in the Tribunal proceedings, and the Tribunal recorded that a condition relating to the variation clause was strengthened through this participation.

On spread of ownership, the reasons record that neither merging party had B-BBEE shareholding or an employee share ownership programme post-merger. The merging parties disputed the Commission’s interpretation of the statutory requirement, contending the transaction was (at worst) public interest neutral. They nevertheless tendered a condition linked to Samancor’s application for a mining right with the Department of Mineral Resources and Energy (DMRE). The tendered ownership allocation would be implemented only if the mining right application succeeded, and would involve allocating shareholding in the Mineral Right Holding Entity to an ESOP, a relevant community, and HDP shareholder(s), with the Tribunal aligning the timing of this condition to the mining right application’s approval.

3. Legal Issues

The central legal questions concerned, first, whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market, given the Commission’s identified horizontal overlap (global chrome ore trading) and potential vertical relationships (national chrome mining/supply and downstream trading activities).

These questions primarily involved the application of competition law to economic facts, including market characterisation, market shares (as recorded), and an assessment of foreclosure theories (input and customer foreclosure) in relation to chrome ore production/supply and trading.

Second, the Tribunal was required to determine whether the merger raised public interest concerns, particularly in respect of employment and the greater spread of ownership. This entailed an evaluative assessment of whether retrenchments were merger-related and, even if not merger-related, whether conditions were appropriate, as well as whether and when ownership-spread commitments should be imposed and implemented.

4. Court’s Reasoning

On the competition assessment, the Tribunal recorded and accepted the Commission’s identification of relevant markets for purposes of analysis as the national market for the mining and supply of chrome and the global market for the trading of chrome ore. The Commission had identified a horizontal overlap in the global trading market and concluded that the transaction was unlikely to substantially prevent or lessen competition because the merged entity’s post-merger market share remained low (recorded as within a 0–4% range, with an accretion recorded as 0–2%).

On vertical effects, the Tribunal summarised the Commission’s approach to potential foreclosure concerns. Upstream, in the national chrome mining and supply market, the Commission concluded that the merged entity’s market share was approximately a stated figure (redacted in the reasons extract) with no accretion, and that other competitors held meaningful market shares (also redacted in the extract). The Commission assessed the ability of the merged entity to foreclose local chrome traders and found it unlikely, relying materially on the proposition that Samancor was not a dominant supplier (with a market share figure redacted in the extract) and that Samancor had only one customer for chrome ore in South Africa (named in the reasons, but the extract does not clearly reproduce the name). The Commission further considered potential customer foreclosure and concluded that, given the merging parties’ downstream share in chrome ore trading (recorded as 2%), the transaction did not raise such concerns.

The Commission also engaged with a party described as Samancor’s only ferrochrome customer in South Africa, who indicated confidence that sufficient competition would remain between Samancor and other identified competitors. The Tribunal stated that it concurred with the Commission’s overall conclusion that the merger was unlikely to substantially prevent or lessen competition in any relevant market.

On public interest and employment, the Tribunal accepted the Commission’s factual conclusion that both historic retrenchments (January to December 2020) and contemplated retrenchments were not merger-related, given the timing of merger discussions and the market-driven reasons for restructuring and streamlining. However, the Commission’s approach (endorsed in the Tribunal’s conclusion) nonetheless treated the prevailing economic and unemployment context as justification for imposing merger conditions aimed at preventing merger-specific harm and providing mitigatory protections.

The Tribunal recorded that the merging parties agreed to a two-year moratorium on merger-specific retrenchments, and a 24-month recall mechanism that gives preference to retrenched employees when vacancies arise. The Tribunal further recorded that, following additional submissions by unions and the merging parties, it was satisfied that a revised condition addressed merger-specific employment concerns. It also recorded that union participation resulted in a strengthening of the condition relating to the variation clause.

On the greater spread of ownership, the Tribunal recorded that the Commission invited submissions because neither merging party had B-BBEE shareholding or an employee share ownership programme post-merger. While the merging parties disputed the Commission’s interpretation of the Act, they tendered an ownership-spread condition linked to Samancor’s DMRE mining right application. The Tribunal’s evaluative intervention focused on the timing of the condition: it aligned implementation to the mining right application’s approval, thereby addressing the outstanding dispute between the Commission and merging parties on when the tendered condition should take effect.

The Tribunal ultimately concluded that the merger conditions imposed had a positive effect on the public interest, alongside its agreement with the Commission that the transaction did not raise substantial competition concerns.

5. Outcome and Relief

The Tribunal conditionally approved the large merger whereby Sinosteel would acquire sole control of Deen Holdings.

The relief granted took the form of public interest conditions, including a two-year prohibition on merger-related retrenchments and obligations concerning a database and notification process for affected employees to facilitate applications for vacancies, as well as an ownership-spread condition linked to the success of Samancor’s DMRE mining right conversion/application and aligned in timing by the Tribunal.

The reasons extract does not record a distinct costs order in relation to the Tribunal proceedings.

Cases Cited

No external case law was cited in the Tribunal’s reasons as provided.

Legislation Cited

Competition Act 89 of 1998 (as amended).

Labour Relations Act 66 of 1995 (as amended), including section 189.

Rules of Court Cited

Rules for the Conduct of Proceedings in the Competition Commission (Commission Rules), including Rule 39.

Rules for the Conduct of Proceedings in the Competition Tribunal (Tribunal Rules), including Rule 37.

Held

The Tribunal held that the proposed acquisition of sole control by Sinosteel over Deen Holdings was unlikely to substantially prevent or lessen competition in any relevant market, having regard to the low combined shares recorded in the global chrome ore trading market and the Commission’s assessment that the merger was unlikely to give rise to material foreclosure concerns in the national chrome ore mining and supply context or in downstream trading.

The Tribunal further held that the transaction warranted approval subject to conditions addressing public interest considerations. In relation to employment, the Tribunal accepted that historic and contemplated retrenchments at Samancor were not merger-related, but nonetheless imposed conditions to prevent merger-specific retrenchments for a defined period and to provide a structured mechanism to inform and enable affected employees to apply for vacancies. In relation to the greater spread of ownership, the Tribunal accepted a condition tendered by the merging parties that was contingent on the success of a DMRE mining right application, and it aligned the timing of implementation of that condition to the approval outcome of the application.

LEGAL PRINCIPLES

The merger assessment applied the principle that a large merger may be approved where it is not likely to substantially prevent or lessen competition in any relevant market, which requires an evaluative assessment of horizontal overlaps and potential vertical effects, including the merged entity’s ability and incentive to engage in input foreclosure or customer foreclosure.

In evaluating vertical effects, the analysis proceeded on the basis that foreclosure concerns are less likely to arise where the upstream supplier is not dominant and where downstream market presence is limited, as reflected in the Commission’s reliance on market shares and customer structure to conclude that neither input nor customer foreclosure was likely.

The decision also reflects the principle that the public interest enquiry in merger control may justify merger conditions even where adverse outcomes (such as retrenchments) are found not to be merger-caused, provided that the conditions are directed at preventing merger-specific harm and addressing identified public interest risks in context.

Finally, where public interest commitments are tendered but contingent on external regulatory outcomes (such as a mining right approval by the DMRE), the Tribunal may address disputes about enforceability and practicality by aligning the timing of implementation to the occurrence of the relevant triggering event, as part of crafting appropriate merger conditions.

Sinosteel Group Corporation Limited v Deen Holdings Corporation Limited (LM123Nov21) [2021] ZACT 81 (18 March 2021)