AECI Limited v Much Asphalt (Pty) Ltd (LM234Nov17) [2018] ZACT 36 (20 April 2018)
- Citation
- [2018] ZACT 36
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Y Carrim, I Valodia, A Wessels
- Case number
- LM234Nov17
More details
- Court
- Competition Tribunal
- Panel
- Y Carrim, I Valodia, A Wessels
- Case number
- LM234Nov17
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed merger between AECI Limited and Much Asphalt (Pty) Ltd does not result in any horizontal overlap, as the parties operate in distinct markets. The identified vertical relationship, involving limited sales of chemicals from AECI subsidiaries to Much Asphalt subsidiaries, was deemed negligible and insufficient to raise foreclosure or coordination concerns. The Commission's investigation confirmed that the merger would not substantially prevent or lessen competition in any relevant market. Furthermore, the merging parties demonstrated that no retrenchments or job duplications would occur, and no other public interest issues were identified. The Tribunal also considered historical complaints against Much Asphalt but accepted the parties' assurances regarding compliance programmes and the change in ownership. Accordingly, the Tribunal approved the merger unconditionally.
Court disposition
The proposed merger is approved unconditionally.
Orders
- The proposed transaction between AECI Limited and Much Asphalt (Pty) Ltd is approved without conditions.
02
Material facts
Parties
AECI Limited
Applicant Counsel: R van RensburgMuch Asphalt (Pty) Ltd
Respondent Counsel: D DingleyAmounts and remedies
- Percentage of AECI Turnover From Vertical Sales to Much Asphalt Subsidiaries: ZAR 0.01
- Percentage of AECI Chemical Unit Turnover From Vertical Sales to Much Asphalt Subsidiaries: ZAR 0.05
03
Procedural history
Posture
Merger Control / Tribunal Approval of Proposed Merger
04
Questions and positions
Legal issues
- 01
Whether the proposed merger between AECI Limited and Much Asphalt (Pty) Ltd is likely to substantially prevent or lessen competition in any relevant market.
- 02
Whether any public interest concerns arise from the proposed transaction, including potential retrenchments or job duplications.
- 03
Whether the vertical relationship between the merging parties raises foreclosure or coordination risks.
Party arguments
- Applicant
- The merging parties argued that there is no horizontal overlap between their activities, as Much Asphalt manufactures and supplies asphalt and bitumen products, while AECI does not supply or manufacture such products or substitutes. They acknowledged a limited vertical relationship, with AECI subsidiaries supplying certain chemicals to Much Asphalt subsidiaries, but emphasized that these sales are negligible and do not affect competition. They assured the Tribunal of a competition law compliance programme and confirmed that no retrenchments or duplications of jobs would result from the merger.
- Respondent
- The Competition Commission initially found no horizontal overlap but, upon further investigation, identified a vertical relationship between the parties. The Commission noted that AECI subsidiaries have significant market shares in the upstream market for bitumen emulsifiers, but the target group has low market shares downstream. The Commission concluded that the vertical relationship would not result in foreclosure or facilitate coordination, and thus the merger is unlikely to substantially prevent or lessen competition. The Commission also found no public interest concerns.
05
Court’s reasoning
Legal principles
- 01
Competition Act, No. 89 of 1998
A merger may only be prohibited if it is likely to substantially prevent or lessen competition in any relevant market.
- 02
Competition Act, No. 89 of 1998
Vertical relationships in mergers must be assessed for potential foreclosure or coordination effects, but negligible sales and low downstream market shares mitigate such risks.
- 03
Competition Act, No. 89 of 1998
Public interest considerations, such as retrenchments and job duplications, must be evaluated in merger proceedings.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed merger between AECI Limited and Much Asphalt (Pty) Ltd does not result in any horizontal overlap, as the parties operate in distinct markets. The identified vertical relationship, involving limited sales of chemicals from AECI subsidiaries to Much Asphalt subsidiaries, was deemed negligible and insufficient to raise foreclosure or coordination concerns. The Commission's investigation confirmed that the merger would not substantially prevent or lessen competition in any relevant market. Furthermore, the merging parties demonstrated that no retrenchments or job duplications would occur, and no other public interest issues were identified. The Tribunal also considered historical complaints against Much Asphalt but accepted the parties' assurances regarding compliance programmes and the change in ownership. Accordingly, the Tribunal approved the merger unconditionally.
Obiter and limits
- The Tribunal noted the existence of historical complaints against Much Asphalt relating to market allocation, collusive tendering, and price fixing, but these were attributed to previous ownership and are pending adjudication.
- The merging parties' commitment to a competition law compliance programme was acknowledged as a positive step to address future conduct concerns.
- The absence of any retrenchments or job duplications was considered significant in the assessment of public interest factors.
Court disposition
The proposed merger is approved unconditionally.
- The proposed transaction between AECI Limited and Much Asphalt (Pty) Ltd is approved without conditions.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM234Nov17
In the matter between
AECI Limited
Primary Acquiring Firm
And
Much Asphalt (Pty) Ltd
Primary Target Firm
Panel
: Yasmin Carrim (Presiding Member)
: lmraan Valodia (Tribunal Member)
: Andreas Wessels (Tribunal Member)
Heard on : 28 March 2018
Order Issued on : 28 March 2018 Reasons Issued on : 20 April 2018
REASONS
FOR DECISION
Approval
[1] On 28 March 2018, the Competition Tribunal ("Tribunal") unconditionally approved the proposed transaction in terms of which AECI Limited ("AECI") is acquiring control over Much Asphalt (Pty) Ltd ("Much Asphalt" ).
[2] The reasons for the approval of the proposed transaction follow.
Primary Acquiring Firm
[3] AECI is a company listed on the JSE, and is not controlled by any single firm. AECI controls a number of firms including AECI Mining Solutions Limited and African Explosives International Limited. AECI and its subsidiaries are hereafter referred to as the "AECI group".
[4] The AECI group is primarily focused OQ explosives and specialty chemicals. The AECI group comprises of five primary business units,
inter alia, mining solutions, specialty chemicals and agrochemicals. The specialty chemicals businesses remains core for AECI and comprises numerous firms, including Crest Chemicals (Pty) Ltd ("Crest Chemicals") and Industrial Oleochemical Products (Pty) Ltd ("IOP").
Primary Target Firm
[5] Much Asphalt is collectively controlled by Capitalworks Funds and Mineworkers Investment Company (Pty) Ltd.[1] Much Asphalt controls a number of firms including SprayPave (Pty) Ltd ("Spraypave") and East Coast Asphalt (Pty) Ltd ("ECA"). Much Asphalt and its subsidiaries are hereafter referred to as the "Much Asphalt group". The Much Asphalt group manufactures and supplies hot and cold mix asphalt products, modified and unmodified bituminous emulsions and binders.
Proposed transaction and rationale
[6] The proposed transaction entails the acquisition of the entire issued shares, and the shareholder claims in Much Asphalt. Upon implementation of the proposed transaction, AECJ will exercise sole control over Much Asphalt.
[7] The Competition Commission ("Commission") found that there is no horizontal overlap between the activities of the merging parties because the Much Asphalt group is a manufacturer and supplier of asphalt and bitumen products and none of the firms in the AECI group supply any asphalt or bitumen products, nor do they supply or manufacture any products that can be regarded as substitutes for such products.
[8] After the Commission had completed its investigation and recommended an approval to the Tribunal the representatives of the merging parties became aware of and advised the Commission that a vertical relationship existed between the merging parties. As a result, the approval of the proposed transaction was delayed. The merging parties had to make submissions in order to facilitate further investigations by the Commission.
[9] The merging parties submitted that Crest Chemicals, a subsidiary of AECI, supplied caustic soda and hydrochloric acid to Spraypave. Another subsidiary of AECI namely IOP sold bitumen emulsifiers and fluxing agents to ECA.[2] The merging parties further submitted that the vertical relationship is limited as the sales are negligible as they constitute less than 0.01% of AECl's turnover and 0.05% of its Chemical unit.[3] The Commission perused the merging parties' submissions and found that IOP and Crest Chemicals have relatively high market shares in the upstream market for the supply of bitumen emulsifiers. However, the Commission is of the view that due to the target group's low market shares in the downstream market, the AECI group's capacity to supply bitumen emulsifiers would not be absorbed and that they could still supply other firms in the downstream market. The Commission submitted that the vertical relationship will not result in foreclosures or facilitate coordination in the markets, therefore it is unlikely to substantially prevent or lessen competition.
[10] The Tribunal notes that Much Asphalt has been implicated in two complaints by the Commission relating to market allocation/division, collusive tendering and price fixing.[4] The merging parties submitted that the underlying complaints date back to when Much Asphalt was owned by Murray & Roberts and they have since been acquired by the consortium led by Capital Works, with the legal entity remaining under the ownership of Murray & Roberts.[5] In the Robin Frank v Much Asphalt complaint, Much Asphalt (old Much Asphalt) is the leniency applicant, and the merging parties were not in a position to comment on the second complaint because they do not represent the old Much Asphalt. They nevertheless assured the Tribunal that they have a competition law compliance programme in place to assuage any concerns about future conduct.
Public interest
[11] The merging parties confirmed that the proposed transaction will not result in any retrenchments, and due to the lack of overlapping
activities, there will be no duplications of jobs as a result of the proposed transaction. The proposed transaction raises no other public interest concerns.
[12] 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 approved the proposed
transaction unconditionally.
Prof . Imraan Valodia
Ms Yasmin Carrim and Mr Andreas Wessels concurring.
20 April 2018
Tribunal Case Manager: Aneesa Ravat
Kgothatso Kgobe
For the Merging Parties : R van Rensburg of ENS Africa
D Dingley of Webber Wentzel
For the Commission : B Ntshingila and G Mutiza
[1] The remaining shareholding is held by the members of Much Asphalt management.
[2] Merging parties' submissions marked as "Annexure A", at page 3.
[3] Merging parties' submissions marked as "Annexure A", at page 2.
[4] The cases were referred in 2014 and 2016 respectively and are awaiting adjudication (Robin Frank v Much Asphalt and More Asphalt 2009FEB4277/ CC v Much Asphalt, Roadspan and Roadmac 2011NOV0376.)
[5] Transcript, page 10.
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