The parties to the transaction
Afgri, the primary acquiring firm, is a wholly owned subsidiary of Agri Limited, a public company listed on the JSE Securities Exchange
South Africa. Afgri has four operating divisions, namely Afgri Products, Afgri Requisites, Afgri Capital and Afgri Services. Afgri
also has a 50% interest in Early Bird Farms (Pty) Ltd.
The primary target firm is Laeveld, a public company with limited liability in which no one shareholder holds more than 5% of the
shares in the issued share capital.
Laeveld’s subsidiaries are Beta Kilo (Pty) Ltd selling tractors, implements, spares, fuel, tyres, Golden Macadamias (Pty) Ltd, selling macadamia nuts, Global Nuts SA (Pty) Ltd selling pecan nuts and Profert Laeveld (Pty) Ltd selling fertiliser and Trimco (Pty) Ltd its timber operation.
Rationale for the transaction
According to the parties the area where Laeveld operates is one of the most stable agricultural areas in South Africa and the products
that are produced are different to the products in OTK’S current area which will be advantageous for the overall spread of
OTK’S risk. Major rationalisation and cost savings are possible. The implementation of OTK’s business initiatives will
also be profit enhancing.
Evaluating the merger
The relevant market
Afgri owns 59 retail branches and supplies producers with various agricultural input commodities and services. Afgri’s four
divisions focus on the following areas:
1.
Afgri Capital provides business and risk management solutions, which include finance, short term and crop insurance and advisory services, to farmers,
traders and agricultural processors.
2.
Afgri Products manages the grading, handling, storage and trading of agricultural products through its logistics, trading and risk management business.
It also provides farmers and agri-processors with hedging facilities and services. This division manages all the secondary agricultural
processing businesses of Afgri, namely Seed marketing, Animal feeds, Clark cotton and its broiler interest in Earlybird Farm.
3.
Afgri Requisites markets and distributes an extensive range of products and farming requisites produced by third parties, including mechanization
equipment such as tractors and farm equipment and services.
4.
Afgri Services sells agricultural science and technology to producers.
The kinds of crop produced in Afgri’s service area, the so-called highveld area of Mpumalanga, are mainly sunflower, dry beans,
maize, wheat and cotton.
Laeveld owns 13 retail branches that offer various agricultural inputs to farmers for the cultivation and processing of tropical and
sub-tropical fruit in the southern Lowveld region of Mpumulanga, as well as Limpopo. It consists of 4 divisions:
1.
Product division – responsible for the marketing of dry-bean seed and lemon oil
2.
Retail division – sells various farming requisites
3.
Insurance division
4.
Finance division – responsible for the financing of crop
Laeveld trades in the lowveld area of Mpumalanga that mainly produces sugar cane, dry beans, citrus, bananas, macadamia and pecan
nuts.
The only agricultural product that both Afgri and Laeveld are involved in, is dry bean seed. However, the two parties are involved
in different stages of the vertical production chain. Laeveld’s primary business is the multiplication and processing of dry
beans on contract, the first stages of the process, whereas Afgri Seed acts as agent for Dry Bean Seed (“DBS”) in selling the dry bean
seed to commercial farmers, the final stage of marketing the beans for commercial farming. There is thus no overlap in the marketing of beans.
Both parties supply farming requisites such as fertiliser, agricultural chemicals, packaging materials, tyres and batteries, fuel
and lubricants, cattle feed, hardware, veterinary medicine, tractors, spare parts, farming implements and services such as finance
and insurance.
As stated earlier Afgri operates in the Free State, Mpumulanga (more specifically the Mpumalanga Highveld area), Gauteng, Limpopo
and KwaZulu Natal, while Laeveld operates in Limpopo and the lowveld area of Mpumalanga.
Thus, if one defines the geographic market broadly, the parties’ geographic markets overlap in Limpopo and Mpumalanga provinces.
On a narrow definition, it overlaps in Burgersfort, Carolina and Ohrigstad in the Mpumalanga Province and in Letsetele in the Limpopo
Province. Moreover, the Commission argues that the merging parties attract only farmers within a 40 km radius from each town to purchase their
farming requisites. So, they conclude, on a very narrow definition there is no geographic overlap. However, the Commission decided
not to define the relevant geographic market because they found that on neither a narrow definition, nor on a broad definition is
the transaction likely to affect competition substantially. We agree with this finding.
Market shares and concentration
The parties were not able to supply the Commission with market share figures for those towns where their markets overlap, i.e. for
a narrowly defined geographic market, because such data is not available. However, we were supplied with market shares for the two
separate, non-overlapping, regional markets, i.e. the highveld area of Mpumalanga and the lowveld area of Mpumalanga. However, since
the merger will not affect the market shares post the merger we need not consider them.
Effect on Competition
According to the parties the fact that, post the merger, Afgri will be involved in both ends of the bean seed production chain will
not influence the price of beans at all because the multiplication contract and the marketing contract are negotiated separately.
Moreover, the bean multiplication contract is only awarded for a period of one year.
In light of the surge in domestic food prices we asked the parties to comment on the prices that consumers have to pay for beans.
The parties informed us that from a farming perspective, maize was the biggest competitor for beans because in a good rain season
farmers would rather plant maize, for which they get a higher market price, than beans. In times of drought farmers will switch to
beans to recover their cost.
Afgri and Laeveld provide financing to farmers for the acquisiton of agricultural inputs. However, the farmers that purchase agricultural
inputs from the parties are free to apply for financing at other financial institutions. Afgri competes with other financial institution,
such as banks, by offering farmers a package deal consisting of certain inputs, finance and the selling of their final the produce.
There are at least 3-4 competitors, including hardware stores, supplying farming requisites in the areas where the merging parties
trade. Moreover, the Competition Commission found that in some product markets such as fuel, fertilizer and packaging the merging
parties compete directly with the manufacturers who supply their product, in that the farmers will order stock directly from them.
In light of the above we agree with the Competition Commission’s recommendation and find that the merger will not substantially
prevent or lessen competition in any of the relevant markets.
Public Interest Issues
The transaction does not raise any public interest grounds.
13 January 2003
D. Lewis
Date
Concurring: N. Manoim and U. Bhoola
For the merging parties: Brink Cohen Le Roux and Roodt
For the Competition Commission: J Mokwana, Legal Services Division
|
SAFLII:
|
Terms of Use
|
Feedback
URL: http://www.saflii.org/za/cases/ZACT/2003/1.html
.RTF of original document