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Evening Star Trading 431 (Pty) Ltd and Fraser Alexander Holdings (Pty) Ltd (103/LM/Oct05) [2006] ZACT 3 (18 January 2006)
.RTF of original document
COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 103/LM/Oct05
In the large merger between:
Evening Star Trading 431 (Pty) Ltd
and
Fraser Alexander Holdings (Pty) Ltd ________________________________________________________________
Reasons
________________________________________________________________
Introduction
1.
On 22 December 2005 the Competition Tribunal approved the merger between Evening Star Trading 431 (Pty) Ltd and Fraser Alexander Holdings
(Pty) Ltd. The reasons are set out below.
The transaction
2.
Evening Star Trading 431 (Pty) Ltd (hereinafter referred to as “Bafokeng SPV”) intends to acquire the entire issued share
capital of Fraser Alexander Holdings (Pty) Ltd (“Fraser Alexander”) a company that provides waste management services
to Royal Bafokeng Nation’s (“RBN”) mining operations. This is a vertical transaction.
3.
Bafokeng SPV, a subsidiary of Royal Bafokeng Finance (Pty) Ltd, which is wholly owned by the RBN, was incorporated for the specific
purpose of acquiring Fraser Alexander. RBN also controls Royal Bafokeng Resources Holdings (Pty) Ltd.
4.
The target company, Fraser Alexander has in excess of 30 shareholders with the largest shareholder being ABSA, holding 65.58%. Fraser
Alexander controls the following four subsidiaries:
♣
Fraser Alexander Bulk Mech (Pty) Ltd
♣
Fraser Alexander Construction (Pty) Ltd
♣
Fraser Alexander Tailings (Pty) Ltd
♣
Fraser Alexander Group Services (Pty) Ltd
Rationale for the transaction
5.
In terms of the Mining Charter, Fraser Alexander’s clients, which are mostly mines, are required to give historically disadvantaged
South Africans (“HDSA”) preferred supplier status within a certain time frame. Fraser Alexander does not currently have
HDSA status, but will as a result of this transaction become a black owned company, thereby complying with the Mining Charter.
Effect on competition
6.
Although both merging parties are active in the mining industry their activities do not overlap. There is however, as indicated above, a vertical relationship between the parties.
7.
Fraser Alexander, the target company, provides the following services to the mining industry:
♣
Fraser Alexander Tailings (Pty) Ltd (“FA Tailings”) provides waste management services by providing their clients with
sustainable closure solutions in respect of their mining operations.
♣
Fraser Alexander Bulk Mech (Pty) Ltd (“FA Bulk Med”) manages the handling of dry bulk materials for clients in the mining
and ferrochrome industry. These services include stockpiling and feeding materials for collieries and metals processing plants and
disposing of coal discard in an environmentally acceptable manner.
♣
Fraser Alexander Construction (Pty) Ltd (“FA Construction”) specialises in the construction of infrastructure related
to the activities of FA Tailings and FA Bulk Med such as waste, water and material containment sites.
8.
Fraser Alexander thus competes in three upstream product markets namely Ferrochrome handling, the tailings services and the civil
contracts extracts market. All these services were rendered to mines in which Bafokeng Resource holds interests.
9.
The market shares of the five largest independent participants in the upstream market are:
Product market |
| Ferrochrome handling |
Fraser Alexander |
38.1% |
|
Samancor |
16.7% |
|
Izinyoni |
15.9% |
|
Allemar |
11% |
|
African Rainbow Minerals |
8.2% |
|
|
|
| Tailings sevices |
Fraser Alexander |
57.18% |
|
ECMP |
15% |
|
Roshcon |
4.5% |
|
Africa Tailings |
0.8% |
|
Tailcon Brollo Consulting |
0.8% |
|
|
|
| Civil contracts extracts |
Fraser Alexander |
44.1% |
|
ECMP |
26.6% |
|
Roshcon |
10.6% |
|
Africa Tailings |
2.6% |
|
Tailcon Brollo Consulting |
2.6% |
10.
In analysing vertical mergers we focus on foreclose, i.e. what the effect of the proposed transaction would be on conditions of access
to upstream and downstream services. The Commission, in its investigation found that although Fraser Alexander is a major player
in all three upstream markets in which it competes, mining companies do have options in the procurement of these services- they could
be performed in-house or could be rendered by third parties. In the unlikely event of RBN deciding to use Fraser Alexander exclusively
the Commission established that the other mining companies would be able to obtain these services from alternative market participants.
11.
Moreover, only 10% of Fraser Alexander’s income is derived from RBN mines and it would not be in Fraser Alexander’s best
financial interest to foreclose other mines from using its services. Should RBN decide to increase the prices that Fraser Alexander
charges for services rendered to other mines, these mines could switch to alternative competitors or provide the services in-house.
Finally, the fact that RBN itself is not a mining company, it merely holds investments in mining companies, and is not involved in
the management of any of these mines lessens the possibility of RBN adopting anti-competitive market strategies as a direct result
of the transaction.
12.
We accordingly agree with the Commission that the transaction is unlikely to substantially prevent or lessen competition in any of
the markets in which the parties compete.
Public interest issues
13.
The transaction will have no effect on employment or any other public interest issues.
____________
8 February 2006
N Manoim
Date
Concurring: L Reyburn, M Mokuena
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