Xstrata South Africa (Pty) Ltd and Egalite (Pty) Ltd / International Carbon Holdings (Proprietary) Limited (54/LM/Jul04) [2004] ZACT 77 (20 December 2004)

Xstrata South Africa (Pty) Ltd and Egalite (Pty) Ltd / International Carbon Holdings (Proprietary) Limited (54/LM/Jul04) [2004] ZACT 77 (20 December 2004)

The Tribunal found that the merger would result in Xstrata controlling the majority of the char production market, an essential input for the downstream ferrochrome industry. The evidence showed that locally produced char is not substitutable with other carbon sources or imported alternatives, and that the merged entity would have the ability and incentive to foreclose competitors or raise their costs. Although barriers to entry exist, the Tribunal was persuaded that entry into the char production market is likely within three years, based on indications from industry participants and the availability of coal resources and capital. To address the risk of short-term foreclosure, the...

Citation
[2004] ZACT 77
Parties
Applicant: Xstrata South Africa (Proprietary) Limited; Respondent: Egalite (Proprietary) Limited; Respondent: International Carbon Holdings (Proprietary) Limited
Court
Competition Tribunal
Jurisdiction
South Africa
Judgment Date
20 December 2004
Case Number
54/LM/Jul04
Procedural Posture
Large Merger / Merger Approval With Conditions
Judges
N. Manoim, MTK. Moerane, M. Mokuena
Legal Topics
Input Foreclosure, Merger Control, Essential Facilities, Barriers to Entry, Vertical Integration
Competition Law Commercial and Corporate Input Foreclosure Merger Control Essential Facilities Barriers to Entry Vertical Integration

Case Brief

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Parties

Xstrata South Africa (Proprietary) Limited

Applicant

Egalite (Proprietary) Limited

Respondent

International Carbon Holdings (Proprietary) Limited

Respondent

Procedural Posture

Large Merger / Merger Approval With Conditions

Legal Issues

  1. 1 Whether the merger would result in input foreclosure in the char production market.
  2. 2 Whether the merged entity would have the ability and incentive to raise rivals' costs or foreclose competitors in the downstream ferrochrome market.
  3. 3 Whether barriers to entry in the char production market are sufficiently low to counteract potential anti-competitive effects.

Ratio Decidendi

The Tribunal found that the merger would result in Xstrata controlling the majority of the char production market, an essential input for the downstream ferrochrome industry. The evidence showed that locally produced char is not substitutable with other carbon sources or imported alternatives, and that the merged entity would have the ability and incentive to foreclose competitors or raise their costs. Although barriers to entry exist, the Tribunal was persuaded that entry into the char production market is likely within three years, based on indications from industry participants and the availability of coal resources and capital. To address the risk of short-term foreclosure, the...