Ferro Industrial Products (Pty) Ltd and Spectrum Ceramics CC (51/LM/May07) [2008] ZACT 9 (23 January 2008)

Ferro Industrial Products (Pty) Ltd and Spectrum Ceramics CC (51/LM/May07) [2008] ZACT 9 (23 January 2008)

The Tribunal found that the merger would not substantially lessen or prevent competition in either the upstream frit market or the downstream glaze market. In the frit market, frit is a commodity easily sourced internationally, and the merged entity would not be able to foreclose competitors. In the glaze market, although Spectrum is the leading producer, the market share accretion from the merger is small, and large customers possess significant countervailing power, enabling them to negotiate discounts and facilitate new entry if necessary. Barriers to entry in the glaze market are relatively high, requiring specialized skills and economies of scale, but the vertical integration is...

Citation
[2008] ZACT 9
Parties
Applicant: Ferro Industrial Products (Pty) Ltd; Respondent: Spectrum Ceramics CC
Court
Competition Tribunal
Jurisdiction
South Africa
Judgment Date
23 January 2008
Case Number
51/LM/May07
Procedural Posture
Merger Application / Final Determination
Outcome
Merger approved subject to conditions.
Judges
Y Carrim, D Lewis, N Manoim
Legal Topics
Horizontal Merger, Vertical Integration, Market Share Analysis, Barriers to Entry, Countervailing Power
Competition Law Commercial and Corporate Horizontal Merger Vertical Integration Market Share Analysis Barriers to Entry Countervailing Power

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Parties

Ferro Industrial Products (Pty) Ltd

Applicant

Spectrum Ceramics CC

Respondent

Procedural Posture

Merger Application / Final Determination

Legal Issues

  1. 1 Whether the proposed merger between Ferro and Spectrum will substantially lessen or prevent competition in the relevant markets.
  2. 2 Whether the vertical integration resulting from the merger will lead to higher prices or reduced quality for customers, particularly smaller customers without countervailing power.
  3. 3 Whether barriers to entry in the glaze market are sufficiently low to offset any anti-competitive effects of the merger.

Ratio Decidendi

The Tribunal found that the merger would not substantially lessen or prevent competition in either the upstream frit market or the downstream glaze market. In the frit market, frit is a commodity easily sourced internationally, and the merged entity would not be able to foreclose competitors. In the glaze market, although Spectrum is the leading producer, the market share accretion from the merger is small, and large customers possess significant countervailing power, enabling them to negotiate discounts and facilitate new entry if necessary. Barriers to entry in the glaze market are relatively high, requiring specialized skills and economies of scale, but the vertical integration is...

Court Disposition

Merger approved subject to conditions.

Orders

  • The merger between Ferro Industrial Products (Pty) Ltd and Spectrum Ceramics CC is approved in terms of section 16(2)(b) of the Competition Act.
  • Approval is subject to conditions regarding the pricing of raw materials supplied by Ferro to Spectrum, ensuring prices are at import parity or a maximum 20% gross profit, whichever is higher.