COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM152Dec22
In the matter between:
Cape Town Biogas Proprietary Limited Acquiring Firm
and
New Horizons Waste to Energy (RF) Proprietary
Limited
Target Firm
Approval
[1] On 02 March 2023, the Competition Tribunal conditionally approved
the large merger wherein Cape Town Biogas Proprietary Limited intends to
acquire all claims on loan accounts held by the Industrial Development
Corporation of South Africa Limited against New Horizons Waste to Energy (RF)
Proprietary Limited, as well as all of the ordinary shares in New Horizons Waste
to Energy (RF) Proprietary Limited. Post implementation of the proposed
transaction, Cape Town Biogas Proprietary Limited will solely control New
Horizons Waste to Energy (RF) Proprietary Limited.
Panel : Jerome Wilson (Presiding Member)
: Tregenna Fiona (Tribunal Panel Member)
: Imraan Valodia (Tribunal Panel Member)
Heard on : 28 February 2023
Order issued on : 02 March 2023
Reasons issued on : 31 March 2023
REASONS FOR DECISION
Parties to the transaction and their activities
Primary acquiring firm
[2] The primary acquiring firm is
private company duly incorporated under the laws of South Africa. CTB is a
newly incorporated firm which does not control any firm.
[3]
[4]
[5]
[6]
[7] The Acquiring Group is a private equity fund with a diverse portfolio. Specifically,
MSC II has a mandate to invest in businesses that are engaged in clean and
renewable energy projects in Africa. Relevant to the proposed transaction are
Primary target firm
[8] The primary target firm is New Horizons Waste to Energy (RF) Proprietary
Africa.
[9] NHE is currently owned by the Industrial Development Corporation of South
[10] IDC is wholly owned by the South African Government.
[11] NHE is an anaerobic digestion plant/facility that processes various types of
municipal and organic waste streams into an environmentally friendly,
rene The biogas is purified by NHE and is
split into biomethane (sold as a clean substitute to natural gas), carbon dioxide
(used primarily in the beverage, water treatment, fire suppression, dry ice
production and refrigeration industries) and digestate (a slurry containing
organic matter and nutrients which is used in the production of compost and
organic fertilizers).
[12] NHE is a currently dormant firm and has not traded since 2018.
Proposed transaction and rationale
Transaction
[13] In terms of the proposed transaction, CTB intends to acquire all claims on loan
accounts held by the IDC against NHE as well as all of the ordinary shares in
NHE. Post implementation of the proposed transaction, CTB will solely control
NHE.
Rationale
[14] The Acquiring Group submits that the proposed transaction presents a unique
and attractive opportunity to venture into a potentially successful and profitable
mandate to invest in businesses that are engaged in clean and renewable
energy projects in Africa.
[15] The Target Firm submits that the IDC, as the investor in NHE, wishes to recoup
its initial investment in the project which gave rise to the establishment of NHE.
The proposed transaction also facilitates the completion and refurbishment of
the NHE plant in line with the
generation of balanced, sustainable economic growth in Africa, and to the
economic empowerment of the South African population.
Relevant markets and impact on competition
[16] considered the activities of
the merger parties and found that the proposed transaction does not result in a
horizontal overlap as none of the firms in the Acquiring Group compete with the
target firm.
[17] However, the Commission found that the proposed transaction may give rise to
a potential vertical overlap post-merger as the parties are active in different
levels of the organic waste and related waste streams.
[18] The merging parties submitted that the value chain for organic waste and related
waste streams includes the following elements:
18.1. Collection (on-site management; cleaning; and collection);
18.2. Logistics (transportation);
18.3. Pre-treatment/sorting (de-packaging; source separation; and chemical
treatment); and
18.4. Disposal (landfill; product destruction; anaerobic digestion; animal feed;
recycling; incineration; and composting).
[19] The Commission found that Oricol, part of the Acquiring Group, falls under the
collection and pre-treatment/ sorting levels of the value chain. Oricol is a national
provider of recycling and waste management services, whose business involves
collecting, sorting and de-packaging various waste streams.
[20] On the other hand, the primary target firm, NHE, falls under the disposal level of
the value chain because it is an anaerobic digestion plant that utilises technology
to transform treated/ de-packaged nonhazardous municipal and household
waste (received from firms operating at the pre-treatment/ sorting level of the
supply chain such as Oricol) into environmentally sustainable fuel and useful by-
products.
[21] The Commission found that the transaction is unlikely to give rise to vertical
foreclosure concerns because NHE is dormant and has not operated since
2018. As such, the Commission found that NHE is unlikely to be a significant
customer to any of the upstream competitors of Oricol in the provision of waste
treatment services.
[22] Based on the above, the Commission concluded that the proposed transaction
is unlikely to result in a substantial prevention or lessening of competition in any
market.
[23] The Tribunal was concerned that there was not any substantive analysis by the
merging parties or the Commission of the relevant downstream and upstream
markets in which the merging parties will operate post-merger. In our view, the
mere fact that NHE is currently dormant is not in itself a sufficient basis on which
to conclude, without any market analysis, that the merger will not give rise to any
vertical foreclosure effects.
[24] The Tribunal also noted that (as set out in the Public Interest section below) a
firm called
firm called
waste to, and will become a minority shareholder in, NHE post-merger. It
appeared to us that this might also potentially impact on the foreclosure analysis
in this matter.
firm called
[25] Therefore, in advance of the merger hearing, the Tribunal requested the
Commission and the merging parties to explain (i) what market share NHE is
likely to have in the relevant downstream market in the future; (ii) what market
share the Acquiring Group and will have in the relevant upstream
market(s) in the future; and (iii) to what extent the Acquiring Group and
would be able to fulfil all of the inputs required by NHE in the future.
[26] CTB explained that, once its plant
becomes operational, the market shares for the waste streams produced
through its anaerobic digeste would be approximately for biomethane
and for carbon dioxide gas (both in a national relevant market), and
approximately for digestate (in a regional relevant market).
[27] As regards the procurement of waste, CTB explained that, once its plant
becomes operational, it will primarily rely on manure and sludge as its main form
of waste, with various other waste stream (such as dairy, food waste etc.) being
used to supplement these streams. CTB explained further that organic waste is
often a by-product of various value chains (such as agriculture) which provides
no real value as an input to any other value chain. As a result there is a huge
oversupply of organic waste.
[28]
transport costs and the intrinsically low value of waste. Without coming to a firm
conclusion on the exact geographic scope of waste collection, the merging
parties estimated that its plant will consume approximately 7 to 11% of waste in
the relevant upstream market, that there are a variety of firms that could take up
organic waste to make compost and other products.
[29] CTB estimated that market share as a transporter of organic waste
will be less than . CTB also submitted that, post-merger, its plant will accept
waste streams from various sources and will charge a nondiscriminatory gate
fee based on the type and amount of waste brought in.
[30]
Robert Nell elaborated on these responses in the
[30]
Robert Nell elaborated on these responses in the
merger hearing before the Tribunal.
[31] Although the Tribunal would have benefited from a fuller investigation of the
relevant markets by the Commission, we were satisfied on the basis of the
further information provided by the merging parties that the transaction is
unlikely to give rise to any significant vertical effects.
and
would be approximately for biomethane
and for carbon dioxide gas (both in a national relevant market), and
approximately for digestate (in a regional relevant market).
that
be less than . CTB also
Public interest
Effect on employment
[32] The merger parties submitted that the proposed transaction will have a positive
effect on employment as the merger will see the revitalization of a currently
dormant facility to the benefit of the surrounding areas and is likely to create
employment in the process. Essentially, as a result of the merger, the target
bu
care and maintenance with two employees
since 2018 will now be operational and a minimum of 15 new jobs will be created.
[33] Given the above, the Commission concluded that the proposed transaction is
unlikely to have a negative effect on employment. The Tribunal agrees with this
conclusion.
Effect on the spread of ownership
[34] The Commission engaged with the merger parties on the manner in which the
proposed transaction promotes a greater spread of ownership within the
meaning of section 12A(3)(e) of the Competition Act.
[35] Pursuant to that engagement, the merger parties undertook to introduce a
HDP shareholding in NHE within 12 months. The parties indicated that this
shareholder would be , a 100% HDP-owned firm. They also
undertook that the HDP shareholder would be entitled to appoint a director to
the board of CTB.
[36] The merger parties also submitted that, since is a waste supplier
located adjacent to will benefit from being able to supply waste
to the plant post-merger.
[37] The Commission requested the merging parties to consider increasing the
proposed HDP shareholding in CTB to . In response to this request, the
merging parties agreed to give the prospective HDP shareholder the option to
increase its shareholding in the Acquiring Firm up to
[38] In addition, the merger parties indicated that they intend to introduce a worker
incentives scheme to all employees of the merged entity. The merging parties
explained that this scheme will not operate as an employee share ownership
plan (as requested by the Commission), but that the benefits flowing from
plan (as requested by the Commission), but that the benefits flowing from
scheme will be equity-like in nature and will be linked to the financial
performance
. The merging parties also confirmed that there will
be no cost attributable to workers to participate in and benefit from the scheme.
, a 100% HDP
since is
proposed HDP shareholding to .
shareholding in the Acquiring Firm up to
[39] The merging parties furthermore agreed to make these undertakings conditions
to the approval of the merger, and the Commission recommended the approval
of the merger subject to the conditions agreed with the merging parties.
[40] The Tribunal sought clarification on various aspects of the proposed conditions.
Whilst the Tribunal was of the view that the proposed conditions were clearly
beneficial from a public interest perspective, it was concerned about the lack of
clarity of certain provisions contained in the proposed conditions. These
included what price the HDP shareholder would have to pay for the extra shares
in CTB if it elected to exercise the option offered by the merging parties;
whether contract workers would benefit from the worker incentive scheme; and
what provisions the scheme would have in respect of exiting workers.
[41] Based on the responses received from the merging parties and the Commission,
the proposed conditions were amended in a manner that sufficiently addressed
the concerns of the Tribunal, as reflected in the final conditions referred to below.
Conclusion
[42] The Tribunal concludes, having regard to the conditions annexed hereto as
Annexure A, that the proposed transaction is unlikely to give rise any significant
negative competition or public interest effects. Accordingly, the Tribunal
approves the proposed transaction subject to the conditions annexed hereto as
Annexure A.
31 March 2023
Adv. Jerome Wilson SC Date
Concurring: Prof. Tregenna Fiona and Prof. Imraan Valodia
Tribunal case manager
: Baneng Naape
For the merging parties
:
Albert Aukema and Reece May of Cliffe Dekker
Hofmeyr Inc.
For the Commission
: Zintle Siyo and Themba Mahlangu
in CTB if it elected to exercise the option offered by the merging parties;