Brief Summary

Competition — Merger — Conditional approval of acquisition — Air Liquide Large Industries South Africa (Pty) Ltd's acquisition of 16 air separation units from Sasol South Africa Ltd conditionally approved by the Competition Tribunal — The merger assessed for its impact on the supply of industrial and specialty gases — Commission found no substantial prevention or lessening of competition due to the integrated nature of the Target Assets with Sasol’s operations and minimal production volume — Approval granted subject to conditions to ensure continued supply to Sasol.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings concerned a large merger notified under the Competition Act 89 of 1998, in which the Competition Tribunal was required to decide whether to approve a transaction involving the acquisition of productive assets used in the manufacture of industrial and specialty gases at Sasol’s Secunda Synfuels site.

The acquiring firm was Air Liquide Large Industries South Africa (Pty) Ltd (ALLISA), a newly incorporated, ring-fenced entity formed specifically to implement the transaction and intended to be dedicated almost entirely to supplying gases to Sasol. ALLISA formed part of the wider Air Liquide Group, ultimately controlled by Air Liquide S.A., a publicly listed company on Euronext Paris.

The target firm was described as the business of owning and operating 16 air separation units (ASUs) of Sasol South Africa Limited (the Target Assets, being Trains 1–16 at Sasol’s Secunda Synfuels site). These assets were owned and controlled by Sasol South Africa Limited, a company listed on the JSE and NYSE and not controlled by a single shareholder.

From a procedural standpoint, the Tribunal heard the matter on 8 June 2021, received the last submission on 10 June 2021, issued an order on 11 June 2021 granting conditional approval, and later furnished reasons on 2 July 2021. The Competition Commission investigated the transaction and assessed both competition and public interest implications, with participation by the Department of Trade, Industry and Competition (DTIC) and the union CEPPWAWU during the investigation and/or hearing.

The general subject-matter of the dispute concerned the merger’s potential impact on competition in markets for industrial and specialty gases and, notwithstanding the competition assessment, whether the merger would adversely affect the public interest, particularly employment, B-BBEE and spread of ownership, procurement from SMEs and HDP-controlled firms, localisation, and sector/region-related commitments (including emissions reduction and renewable energy initiatives at the Secunda site), as well as supply considerations relevant to medical-grade oxygen during the COVID-19 context.

2. Material Facts

The Target Assets comprised 16 ASUs located at Sasol’s Secunda Synfuels site. An ASU separates atmospheric air into components, principally oxygen and nitrogen, using cryogenic air separation technology. The Tribunal accepted that the Target Assets were fully integrated into Sasol’s production facilities and were used primarily to produce industrial gases for Sasol’s internal consumption, notably as inputs into Sasol’s coal-to-liquids (CTL) process and associated chemicals production.

A significant factual feature relied upon in the assessment was that, due to the integrated, on-site configuration, the gaseous products produced by the Target Assets (including gaseous oxygen and gaseous nitrogen) were supplied directly to Sasol via integrated pipelines and were not feasibly supplied to external customers. The Tribunal recorded the Commission’s assessment that only certain liquid products could theoretically be supplied externally, namely liquid oxygen, liquid nitrogen, and liquid argon, but that production volumes relevant to external supply considerations were minimal, and the liquid oxygen and liquid nitrogen produced were used as back-up and consumed internally at the Secunda operations.

The transaction was structured as a sale of business, pursuant to which ALLISA would purchase the Target Assets. Employees associated with the Target Assets would transfer to ALLISA in terms of section 197 of the Labour Relations Act 66 of 1995, and existing specialty gas supply agreements would be assigned to ALLISA. The Tribunal also recorded that the Air Liquide Group had originally designed and built the Target Assets for Sasol, and that Sasol was pursuing a broader divestment strategy in which it no longer regarded internal ownership and operation of the Target Assets as necessary.

In relation to continued supply, the Tribunal referred to a Gas Supply Agreement (GSA) concluded on 9 September 2020 between Sasol and ALLISA, in terms of which ALLISA would take over the supply of specified gaseous and liquid products and compressed air to Sasol over a contracted period. The Tribunal treated the arrangement as consistent with the operational reality that the Target Assets were dedicated to Sasol’s needs.

As to third-party input, a small competitor expressed concerns about market concentration, ease of entry, and the alleged loss of Sasol as a potential customer or competitive constraint. The competitor also complained that the Target Assets ought to have been put out to tender rather than negotiated with ALLISA. The Tribunal recorded the merging parties’ response that these concerns were not merger-specific and that the transaction would not change competitive dynamics because the assets would remain dedicated to Sasol post-merger, as they were pre-merger.

The Tribunal also noted a historical collusion context: Sasol had made a marker application under the Corporate Leniency Programme in 2009 relating to arrangements with Air Products concerning liquid nitrogen and liquid argon, and the Tribunal referred to a consent order dated 20 March 2013 in which Air Products admitted to price fixing and market allocation in contravention of sections 4(1)(b)(i) and 4(1)(b)(ii) of the Competition Act, undertook to amend agreements, and paid an administrative penalty.

On public interest facts, the Tribunal recorded participation by the DTIC and CEPPWAWU. CEPPWAWU initially raised concerns about job security (including what would occur after a contemplated moratorium period), job grading differences, qualifications and learnerships, housing-related allegations, and medical aid benefits. The merging parties undertook that no retrenchments were contemplated as a result of the transaction, confirmed that employees’ conditions would transfer under section 197, confirmed that relevant qualification levels would remain sufficient, and undertook to preserve certain retirement medical aid provisions for employees eligible under Sasol’s closed scheme. The DTIC sought additional commitments, including cooperation to identify alternative opportunities if redundancies arose due to future upgrades. The Tribunal recorded negotiated conditions, including commitments regarding training and upskilling expenditure, B-BBEE shareholding and rating improvements, SME/HDP supplier development, localisation funding, investment and emissions-related targets, renewable energy procurement, and commitments regarding availability of liquid oxygen not taken by Sasol, particularly for the public healthcare sector.

3. Legal Issues

The central legal questions were whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market and, irrespective of the competition outcome, whether the merger would have a negative effect on public interest considerations that must be assessed under the Competition Act’s merger control framework.

The competition issues required the Tribunal to address questions involving the application of law to fact, including market characterisation and the competitive significance of the Target Assets given their integrated nature. This included evaluating whether any meaningful horizontal overlap existed in the supply of industrial and specialty gases (including narrow markets for certain liquid products), whether any vertical foreclosure concerns could arise, and whether theories of harm premised on the removal of Sasol as a potential competitor were sustainable on the factual record.

The public interest assessment required evaluative judgments concerning the merger’s effects on employment, the spread of ownership (including B-BBEE-related concerns), the position of SMEs and HDP-controlled firms (including procurement and supplier development), and sector/region considerations linked to investment, carbon emissions reduction, renewable energy initiatives, and access to liquid oxygen supply, particularly in the context of healthcare demand.

4. Court’s Reasoning

On the competition assessment, the Tribunal accepted the Commission’s approach that, while both the Air Liquide Group and the Target Assets were involved in industrial and specialty gases, the Target Assets were dedicated almost entirely to Sasol’s internal requirements and were integrated into Sasol’s site operations. The Tribunal recorded that the Commission nonetheless considered potential effects in markets for the supply of industrial gases (including gaseous and liquid oxygen, gaseous and liquid nitrogen, and compressed air) and specialty gases, including narrow markets for a krypton/xenon mixture and liquid argon.

A key analytical step in the reasoning was the distinction between routes to market for gases (tonnage/pipeline supply for large on-site consumers, bulk liquefied supply, and packaged gas supply), and the practical implications of the Target Assets being engineered for on-site pipeline delivery into Sasol’s CTL operations. On that basis, the Tribunal accepted that it was not feasible for gaseous oxygen (and other gaseous products delivered through integrated pipelines) to be supplied to third parties. This factual conclusion materially limited the scope for competitive harm, including both horizontal substitution possibilities and vertical foreclosure theories.

The Tribunal further recorded that, to the extent any products could theoretically be supplied externally, these were limited to certain liquid products, but production volumes relevant to external supply were characterised as minimal, with liquid oxygen and liquid nitrogen serving primarily internal operational needs. In the medical oxygen context raised by the Commission due to COVID-19-related concerns, the Tribunal noted the Commission’s finding that Afrox was the largest supplier, followed by Air Liquide and Air Products, and accepted the conclusion that, given the Target Assets’ minimal production volumes, the merger was unlikely to substantially prevent or lessen competition in the medical-grade oxygen market.

Regarding third-party submissions about increased concentration and barriers to entry, the Tribunal accepted the response that the transaction did not remove Sasol as an effective competitive constraint because the Target Assets could not feasibly supply gaseous products externally and remained dedicated to Sasol pre- and post-merger. The Tribunal also accepted that the merger would not change the number of significant suppliers identified by the third party, and therefore did not increase concentration in the manner alleged. The Tribunal further recorded, as part of its reasoning, that it was not for the authorities to decide whether another purchaser might be “more suitable” from a competition or public interest perspective; the assessment remained directed at the merger’s competitive and public interest effects.

On the history of collusion, the Tribunal noted the prior CLP marker by Sasol and the 2013 consent order involving Air Products, reflecting past contraventions in relation to liquid nitrogen and liquid argon. The Tribunal did not treat this history as establishing that the present merger would likely substantially lessen competition, but recorded it as part of the factual context raised in submissions.

Having found that the merger was unlikely to substantially prevent or lessen competition, the Tribunal proceeded to the public interest inquiry, which it treated as a separate and mandatory component of the merger assessment. The Tribunal summarised the participation and concerns of CEPPWAWU and the DTIC, and accepted that, following engagement and undertakings, the merger was unlikely to have a negative effect on employment. It relied on the merging parties’ undertakings (including no merger-related retrenchments) and recorded that section 197 of the Labour Relations Act provided protection in relation to the transfer of employees’ terms and conditions. It also recorded additional commitments addressing possible future redundancies unrelated to the merger, including cooperation to identify alternative opportunities, potentially including rehiring by Sasol where practicable and access to Sasol’s internal mobility opportunities.

On spread of ownership, the Tribunal noted the Commission’s concern that Sasol was more empowered than the Air Liquide Group and that the transaction could negatively impact the statutory consideration relating to a greater spread of ownership. The Tribunal recorded that this concern was addressed through conditions requiring steps to improve empowerment outcomes, including a commitment relating to B-BBEE shareholding and related measures (with certain specifics appearing as confidential/redacted in the reasons).

On SMEs, HDP firms, and local procurement, the Tribunal accepted the DTIC’s position that commitments were appropriate to ensure that upgrading and operational expenditure would support domestic suppliers, and recorded conditions requiring procurement commitments, the establishment of a supplier development programme focused on the Secunda area with specified expenditure over a defined period, and additional contributions to localisation initiatives aligned with government’s economic reconstruction and recovery plan.

On sector/region effects, the Tribunal recorded and accepted conditions aimed at investment in sustaining and upgrading the Target Assets over a ten-year period (with certain amounts confidential/redacted), a targeted reduction of carbon emissions associated with the Target Assets by 30% within ten years, a collaborative process to procure up to 900MW of renewable energy for the Secunda site, and a commitment regarding making liquid oxygen not procured by Sasol available to South African users, prioritising the public healthcare sector and requiring fair and reasonable, market-related terms.

Drawing these elements together, the Tribunal concluded that the public interest concerns that arose were ameliorated by the conditions, and that, in light of the totality of remedies, the transaction did not have a negative impact on the public interest.

5. Outcome and Relief

The Competition Tribunal approved the large merger subject to conditions. The conditions were attached to the Tribunal’s order as Annexure “A”, and included (as recorded in the reasons) commitments relating to employment protections and upskilling expenditure, empowerment/spread of ownership measures, procurement and supplier development for SMEs and HDP-controlled firms, localisation contributions, investment and emissions reduction objectives, renewable energy procurement initiatives, and commitments concerning the supply of liquid oxygen (including prioritisation of public healthcare sector needs).

No separate costs order was recorded in the reasons.

Cases Cited

No reported South African judgments were cited in the reasons. The Tribunal referred to a consent order dated 20 March 2013 involving Air Products (relating to price fixing and market allocation in contravention of the Competition Act) and to Sasol’s Corporate Leniency Programme marker application dated 6 March 2009, but these were referenced as contextual enforcement history rather than as cited precedent with law report citations.

Legislation Cited

Competition Act 89 of 1998, including sections 4(1)(b)(i), 4(1)(b)(ii), and section 12A(3)(e).

Labour Relations Act 66 of 1995, section 197.

Rules of Court Cited

No rules of court were cited in the reasons.

Held

The Tribunal held that the merger was unlikely to substantially prevent or lessen competition in any relevant market. This conclusion rested materially on the accepted fact that the Target Assets were integrated into Sasol’s Secunda operations and dedicated almost entirely to Sasol’s internal requirements, making external supply of gaseous products infeasible and limiting any competitive significance of the assets outside Sasol’s operations.

The Tribunal further held that, although public interest issues were raised—particularly concerning employment, empowerment/spread of ownership, SME and HDP participation, localisation, investment and emissions objectives, renewable energy procurement, and liquid oxygen supply—the undertakings and negotiated conditions addressed these issues adequately. On that basis, the Tribunal concluded that the transaction did not have a negative impact on the public interest, when assessed together with the imposed conditions.

LEGAL PRINCIPLES

The Tribunal applied the merger control framework requiring an assessment of whether a merger is likely to substantially prevent or lessen competition, informed by the factual and economic realities of the assets and activities concerned. In applying that framework, it treated practical feasibility and operational integration—particularly where assets are engineered for dedicated on-site pipeline supply—as central to determining whether supply to third parties is realistic and whether theories of harm (including foreclosure or loss of potential competition) are sustainable on the facts.

The Tribunal also applied the principle that merger control under the Competition Act requires an additional and mandatory evaluation of public interest considerations, even where the competition assessment is benign. This includes assessing potential effects on employment, the spread of ownership (including empowerment concerns), the ability of SMEs and HDP-controlled firms to participate in the economy (including via procurement and supplier development), and effects on particular sectors or regions. The Tribunal treated negotiated, enforceable conditions as an appropriate mechanism to ameliorate identified public interest risks and to secure public interest benefits linked to the transaction.

Finally, the Tribunal’s reasoning reflected the approach that merger authorities assess the merger as presented and do not exercise discretion to select an alternative buyer; the inquiry remains focused on the merger’s effects on competition and the public interest, and whether conditions are necessary to address those effects.

Air Liquide Large Industries South Africa Proprietary Ltd v The Business of Owning and Operating 16 Air Separation Units of SASOL South Africa Ltd (LM127Sep20) [2021] ZACT 47 (2 July 2021)