[9]
The target company conducts the following businesses:
[9.1]
Mining dolomite and quartzite rocks;
[9.2]
Excavating, loading and hauling of rock from the quarry pit;
[9.3]
Crushing and screening of slag dumps, run-of-mine ore and rocks from the quarry on a contract basis;
[9.4]
Supply of crushed sand and stones of different sizes from the quarry called aggregates; and
[9.5]
The manufacturing and supply of readymix concrete and readymix mortar.
[10]
The target company also conducts the business of labour brokers and property investors in properties used for its dolomite mining
operations and as a residence for its site managers.
Overlapping activities
[11]
The acquiring group does not own quarries and sand and stone products and does not sell these products to third parties. There is
accordingly no horizontal overlap in the market for the supply of sand and stone.
[12]
The companies in the Group Five group do not own operational readymix plants but mix their own concrete on site for internal use. Record p111. Group Five has, however, occasionally sold readymix concrete to third parties from its site batching plants and is still doing so at its site batching plant in Vereeniging, Gauteng. The parties stated that the acquiring group sold no concrete from any site-batching plant to third parties since 1 July 2006 (since
these construction projects were finalised, except from the plant at Mittal, Vereeniging. Furthermore, Group Five and the Mia Group of companies intend to construct a readymix plant near Midrand This plant will service the Waterfall Estate development, but will also sell readymix concrete to other purchasers. which will, once it is operational, operate in the same geographic market as the target company. Hence, to the extent that there will
be some geographical overlap in the activities of the merging parties in the readymix market, such overlap will be minimal and will be restricted to Vereeniging and Midrand.
[13]
Although Group Five does crushing and screening from time to time to supply consortia (which it forms part of) with sand and stone,
it does so only for internal use. The target company provides the services of crushing and screening to mines where it crushes and screens slag dumps on a contract basis. There is
therefore no product and geographic overlap in the market for the provision of crushing and screening services.
Vertical integration
[14]
The transaction gives rise to vertical integration in that the acquiring firm is involved in the downstream activities of building
and roads construction and civil engineering, while the target firm is involved in the upstream activities of supply of sand and stone, ready-mix concrete Quarry Cats is involved in the market for the provision of readymix concrete through its subsidiary, Affrimix. and the provision of crushing and screening services.
Relevant markets
[15]
The parties and the Commission have submitted that the relevant product market comprises the building and construction market, the readymix concrete market, the
sand and stone market, and the market for crushing and screening services. We now turn to consider these markets in detail.
Building and construction
[16]
In its decision in Murray & Roberts Limited and Concor Case No 101/LM/Oct05. the Tribunal stated that building construction (focusing on the large project market) constitutes a product market. Refer to par 11 of the Murray & Roberts and Concor case. The Commission and the parties have submitted that the market for building construction is national. Most building construction firms
like the acquiring group, Murray & Roberts and Concor, WBHO, Grinaker, Stocks & Stocks and Liviero, have a national presence and customers can reasonably turn to firms which are located in any part of the country.
[17]
The estimated market shares of the acquiring group and its competitors in the construction market in Gauteng are set out below:
TABLE 1 Estimated market share in South Africa for building construction
| Competitor |
Estimated national market shares for the provision of building construction services focusing on the large project sub-market for
2005 (%) |
Estimated market share in the market for all building construction based on turnover during the year ended 30 June 2006 (%) |
[18]
The acquiring group holds 19% in the market for the provision of building and construction services. The merged entity will continue
to face competition from various other firms with a national footprint. Murray & Roberts and Concor, WBHO, Grinaker LTA, Stocks and Stocks hold amongst themselves an estimated combined national market share of 80% of the large building construction segment.
[19]
The construction companies use sand and stone and readymix concrete in their construction operations. The market shares above show the potential demand for sand and stone and readymix concrete from different suppliers. As shall be seen below, the target
company has a small market share in the markets of sand and stone and readymix concrete. Thus, should Group Five decide not to supply its competitors with sand and stone and readymix concrete, the negative implications on competition, if any, stemming
from such a refusal will be minimal. These competitors can source the materials from other suppliers some of whom have larger market shares than the target company.
Readymix Concrete
[20]
Concrete can be obtained by either mixing on site where construction is taking place (also called ‘site batching’) or a constructor can purchase readily mixed concrete (called ‘readymix’) from a supplier selling readymix concrete. The Commission and the parties submitted that the geographic market for readymix concrete is regional
because readymix plants are usually within a few kilometres of worksites of raw materials such as sand and stone. Readymix concrete is usually only delivered up to approximately 25km from the plant, although delivery can take place up to 100km from
a readymix plant in special circumstances.
[21]
The merging parties submitted that the target company has approximately 10% market share in each of the respective areas in which
it supplies readymix concrete. The merging parties estimated a similar distribution of market shares for each of the areas concerned, with Holcim and Lafarge holding an estimated combined market share of 53% in each of these areas. The relevant geographic
markets are Chloorkop, Jet Park, Blue Hills, Benoni, Johannesburg City and Honeydew. The estimated market shares in Chloorkop are set out in Table 2 below and they resemble estimated market shares and competitor composition of other relevant geographic markets.
[22]
The target company conducts business in the market for the provision of readymix concrete through its subsidiary, Affrimix Ready Mixed Concrete (Pty) Ltd. The estimated market shares of Affrimix and its competitors for the year ended 31 December 2005
in the narrower readymix concrete market The narrower readymix market excludes site batching except to the extent that the acquiring firm sells concrete mixed on site into the market. are as follows:
TABLE 2 Estimated market shares for Chloorkop for the supply of readymix concrete
| Competitor |
Estimated market share in the 20km radius from Chloorkop (%) |
[23]
Form the above table, it is clear that the merged entity will continue to face competition from other major competitors like Holcim,
Lafarge, Pronto, and Wearnes. In addition, the merging parties submitted, that post merger, Quarry Cats will continue to supply readymix concrete to third parties in order to ensure its sustainability. The merging parties submitted that Quarry Cats would form a very small portion of the business and turnover of Group Five. It would need to retain its existing customers post merger, in order to ensure its viability and profitability.
See record, p134. It is thus unlikely that there will be a foreclosure of competition in the relevant geographic markets since there are other options that customers can turn to and post merger, Quarry Cats will continue to supply third parties.
Sand and stone
[24]
The sand and stone supplied by the target company is sometimes called ‘aggregates’. These are obtained from quarrying and waste rock dumps from mining. The stones are crushed into different sizes. 19mm stones are used in manufacturing
concrete. Stones not of a suitable size are sold for use in such areas as car parks, bricks and the pre-cast concrete industry. The Commission and the parties submitted that the market for the supply of sand and stone is regional. This is so because sand
and stone are heavy and expensive to transport relative to their values. Because of the high transport costs suppliers of sand and stone usually distribute their products within a limited radius of approximately 40km from each quarry. Readymix concrete
plants are thus usually situated within close proximity of the supplies of the composite materials. The target company has two quarries from which it gets sand and stones and these are Modderfontein and Laezonia. Where the target company does not have quarries
it purchases sand and stone from other suppliers. For instance, the target company does not have quarries in Jet Park and Chloorkop but has a readymix concrete plant there; it purchases its sand and stone from Klipfontein Quarries and PPC.
[25]
The estimated market shares of the target company and its competitors in the market for the supply of sand and stone in Laezonia and
Modderfontein are as follows:
TABLE 3 Estimated market shares for the supply of sand and stone at Laezonia
| Competitor |
Location of Quarries |
Estimated market share in the 35km radius from Laezonia (%) |
| Holcim |
Jukskei, Olifantsfontein and Roodekrans |
35 |
| PPC |
Mooiplaas and Laezonia |
35 |
| Quarry Cats |
Laezonia |
10 |
| Littleton Quarries |
Littleton |
4 |
| Canyon Rock/ SPH |
Midrand |
4 |
| Drift Super Sand |
Muldersdrift |
4 |
TABLE 4 Estimated market shares for the supply of sand and stone at Modderfontein
| Competitor |
Location of quarries |
Estimated market share in the 35km radius from Modderfontein (%) |
| Holcim |
Jukskei, Olifantsfontein, Rooikraal and Vogels |
60 |
| Quarry Cats |
Modderfontein |
18 |
| Klipfontein Quarries |
Chloorkop |
10 |
| Canyon Rock/ SPH |
Midrand |
6 |
[26]
The target firm has estimated market shares of 10% at Laezonia and 18% at Modderfontein in the market for the supply of sand and stone.
It continues to face competition from Holcim, PPC, Klipfontein Quarries, and Littleton Quarries. It is unlikely that this transaction will lead to foreclosure in the market of sand and stone since there are other suppliers
that customers of the target company can turn to and these have a substantial percentage of the market share.
Crushing and screening
[27]
Crushing and screening services are offered on contract basis to clients of varied occupation. For the purposes of these reasons the
relevant services are in as far as they are rendered to clients involved in the construction industry either as contractors or as suppliers of raw materials to constructors. The Commission and the parties have submitted that the market for the provision
of crushing and screening services is national. This is so because the flexibility, mobility and portability of plants which have been developed by manufacturers in recent years, allow crushing and screening work to be performed for different types of customers
and almost anywhere in the country. The merging parties submitted that although Quarry Cats is located in Gauteng, it delivers crushing and screening services throughout South Africa (Kathu, Krugersdorp, Middelburg, Lesotho, Cato Ridge and Secunda).
When a contract is secured, the target company sets up a plant at the location the crushing and screening services are delivered.
[28]
The estimated national market shares of the largest competitors in the market for the service of crushing and screening is as follows:
TABLE 5 Estimated market shares in South Africa for the provision of crushing and screening services
Competitor |
Estimated market share (%) |
| The target company |
10 |
| The acquiring group |
0.0001 |
| Blasting and Excavating International |
35 |
| Crushing and Screening |
15 |
| Quarry and Mining Group |
15 |
[29]
The target company has an estimated market share of 10% in the market for crushing and screening services. Post-merger, there are
many competitors who will compete with the merged entity in the provision of crushing and screening services and these competitors have larger market shares than the target company. These competitors include Blasting and Excavating International, Crushing
and Screening and Quarrying and Mining. As a result of the aforesaid, input foreclosure is an unlikely possibility.
Public Interest Issues
[30]
There are no public interest issues.
Conclusion
[31]
The transaction will not lead to a substantial prevention or lessening of competition and is accordingly approved.
________________
5 March 2007
Y Carrim
DATE
Tribunal Member
N Manoim and D Lewis concur in the judgment of DH Lewis.
Tribunal Researcher:
R Kariga
For the merging parties:
L Grange and M Gouws Hofmeyr Herbstein & Gihwala Inc.
For the Commission
:
M Ngobese (Mergers and Acquisitions)
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