Standard Corporate and Merchant Bank (a division of the Standard Bank of South Africa Limited) and Prochem (Pty) Ltd (34/LM/Jun01) [2001] ZACT 30 (30 July 2001)
- Citation
- [2001] ZACT 30
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- NM Manoim, D Terblanche, U Bhoola
- Case number
- 34/LM/Jun01
More details
- Court
- Competition Tribunal
- Panel
- NM Manoim, D Terblanche, U Bhoola
- Case number
- 34/LM/Jun01
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the transaction involves SCMB, through Clidet, acquiring all shares and assets of Prochem, thereby replacing BOE as the controlling shareholder. The Tribunal was satisfied, based on assurances from SCMB's legal representatives, that SCMB has no interests in companies engaged in the manufacture or distribution of chemicals in South Africa. Therefore, the merger does not raise horizontal or vertical competition concerns. The Tribunal also considered the public interest and was satisfied that the merger would not affect employment or business operations, as confirmed by assurances given to employee representatives. The Tribunal determined that it was unnecessary to impose a condition requiring SCMB to notify the Commission prior to disposing of its stake in Clidet, as any such disposal would trigger notification under the Act due to a change of control. Accordingly, the merger was approved without conditions.
Court disposition
Merger approved without conditions.
Orders
- The merger between Standard Corporate and Merchant Bank (a division of the Standard Bank of South Africa Limited) and Prochem (Pty) Ltd is approved unconditionally.
02
Material facts
Parties
Standard Corporate and Merchant Bank (a division of the Standard Bank of South Africa Limited)
ApplicantProchem (Pty) Ltd
Respondent03
Procedural history
Posture
Large Merger / Approval
04
Questions and positions
Legal issues
- 01
Does the acquisition of Prochem by SCMB raise any horizontal or vertical competition concerns in the chemical distribution or manufacture markets in South Africa?
- 02
Will the merger have any adverse public interest effects, particularly on employment?
- 03
Is it necessary to impose conditions on the approval regarding future disposal of SCMB's stake in Clidet?
Party arguments
- Applicant
- SCMB, through its special purpose vehicle Clidet, seeks to acquire all issued share capital and assets of Prochem, including its subsidiaries and joint ventures. SCMB asserts that it has no interests in any company engaged in the manufacture or distribution of chemicals in South Africa, and that the transaction is purely an investment with the intention to dispose of the controlling interest in the future. The parties assure that there will be no change in business operations or employment as a result of the merger.
- Respondent
- Prochem, whose majority shares are held by BOE Bank Limited, supports the transaction and confirms that the merger will not affect employment or business operations. Employee representatives have been assured that no job losses will result. The respondent concurs that the transaction does not raise competition or public interest concerns.
05
Court’s reasoning
Legal principles
- 01
Competition Act, 89 of 1998
A merger is assessed for competition concerns by examining whether the acquiring party has interests in the relevant market that could result in horizontal or vertical effects.
- 02
Competition Act, 89 of 1998
A change of control in a significant market player triggers notification requirements under the Act.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the transaction involves SCMB, through Clidet, acquiring all shares and assets of Prochem, thereby replacing BOE as the controlling shareholder. The Tribunal was satisfied, based on assurances from SCMB's legal representatives, that SCMB has no interests in companies engaged in the manufacture or distribution of chemicals in South Africa. Therefore, the merger does not raise horizontal or vertical competition concerns. The Tribunal also considered the public interest and was satisfied that the merger would not affect employment or business operations, as confirmed by assurances given to employee representatives. The Tribunal determined that it was unnecessary to impose a condition requiring SCMB to notify the Commission prior to disposing of its stake in Clidet, as any such disposal would trigger notification under the Act due to a change of control. Accordingly, the merger was approved without conditions.
Obiter and limits
- Future disposal of SCMB's stake in Clidet should be carefully analysed for competition concerns, particularly regarding the acquiring firm's interests in the chemical manufacture or distribution markets.
- The Tribunal considered but declined to impose a condition requiring prior notification to the Commission for future disposals, relying on statutory notification requirements.
Court disposition
Merger approved without conditions.
- The merger between Standard Corporate and Merchant Bank (a division of the Standard Bank of South Africa Limited) and Prochem (Pty) Ltd is approved unconditionally.
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
REPUBLIC OF SOUTH
AFRICA
Case No: 34/LM/Jun01
In the large merger between:
Standard Corporate and Merchant Bank
a division of the Standard Bank of South Africa Limited
and
PROCHEM (Pty) Ltd
_______________
Reasons for the Competition Tribunalâs Decision
Approval
On 26 July 2001 we approved the merger between Standard Corporate and Merchant Bank (SCMB), a division of the Standard Bank of South Africa Limited, and PROCHEM (Pty) Limited (Prochem). Our reasons for approving the merger appear below.
The Parties
SCMB is a division of the Standard Bank SA, a JSE-listed public company whose major shareholders are Old Mutual (21%), Sanlam Group (6,6%) and the Transnet Pension Fund (4,5%). Standard Bank is a major player in financial services particularly in personal and corporate banking. SCMB is its merchant banking division.
Prochem is a South African private company carrying on business as stockist, distributor and supplier of commodity, fine, pharmaceutical and specialty chemicals, and in plastic and rubber polymers. It also acts as agent for various local and overseas principals through its subsidiaries and agencies. BOE Bank Limited (BOE) owns 80% of the shares in Prochem with the current management of the firm holding the remaining 20%.
The Transaction
This is a leveraged buy-out with SCMB buying from BOE all the issued share capital and assets of Prochem, including all subsidiaries1. A special purpose vehicle, Clidet No.345 (Clidet), has been created to act on behalf of SCMB in this transaction. Clidet will acquire 100% ownership of all the assets and shares of Prochem. In addition to taking ownership of all the wholly owned subsidiaries of Prochem, Clidet will also acquire Prochemâs 50% share in Duravin Chemicals (Pty) Limited and Protea Chemicals UK Limitedâs 50% shareholding in a Zimbabwean chemical distribution company, Acol Chemicals (Pty) Limited.
Upon completion of the transaction the shares in Clidet will be held as follows: 65% will be held by SCMB and 35% by current Prochem management. In terms of an arrangement between SCMB and the current management of Prochem, managementsâ shareholding in Clidet could gradually increase to 50% if certain performance based targets are met, thus giving them joint control of Clidet.
Effect on Competition
The essence of this transaction is that BOE is disposing of its controlling stake in Prochem and SCMB, through Clidet, is replacing BOE as the controlling shareholder in Prochem. The only issue therefore is whether SCMB has any significant interests in the market for the manufacture or distribution of chemicals in South Africa. Since Prochem is a significant player in the distribution market any interest held by SCMB in that market would raise serious horizontal competition concerns. Similarly, serious vertical competition concerns would result if SCMB had significant interests in the chemical manufacture market.
We were assured by the legal representatives of SCMB that it has no interest in any company that engages in the manufacture or distribution of chemicals in South Africa. Based on this information we find that this merger does not raise any competition concerns.
SCMB is in the investment business and, through Clidet, is making this acquisition with the intention of disposing of the acquired controlling interest in Prochem at some future date to realize its investment. When SCMB decides to sell its stake in Clidet the resulting change of control in Clidet would trigger a notification to the Commission in terms of the Act. For competition purposes, the crtitical issue in the analysis of such a transaction would be whether the firm acquiring from SCMB the controlling shareholding in Clidet has any interest in the manufacture or distribution of chemicals in South Africa. Whoever assumes a controlling interest in Clidet also assumes control over a significant part of the South African chemical distribution market. It is in our opinion very important therefore that in the analysis of the sale by SCMB of its stake in Clidet due consideration be paid to potential horizontal and vertical competition concerns that may arise from the acquiring firm having other interests in the chemical manufacture or distribution market.
We considered making our approval of this merger conditional upon SCMB giving notice to the Commission prior to disposing of its stake in Clidet. However we decided that this was unnecessary since such a transaction would in any event result in a change of control in Clidet and trigger a notification to the Commission.
Public Interest Concerns
According to the merging parties this transaction will not result in any change in the operation of the business and will therefore have no effect on employment. They have given assurances to the employee representatives, the Chemical, Paper, Printing, Wood and Allied Workers Union that no job losses would result from the merger. We are therefore of the view that the merger raises no public interest issues.
______ 30 July 2001
NM Manoim Date
Concurring: D Terblanche; U Bhoola
1 The subsidiaries of Prochem are Protea Chemicals (Pty) Ltd; Protea Industrial Chemicals (Pty) Ltd; Chempro Commodities (Pty) Ltd; Chempro (Pty) Ltd; Montan Chemicals (Pty) Ltd; Products for Industrial Manufacturing (Pty) Ltd; El Rogoff Chemicals (Pty) Ltd; Protea Namibia (Pty) Ltd and Protea Chemicals (UK) (Pty) Ltd.
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