Case No: 36/LM/Apr07
In the matter between:
Premfood Joint Venture
Acquiring Firm
And
Premier Fishing (Pty) Ltd and Foodcorp (Pty) Ltd
Target Firm
Panel
:
N Manoim (Presiding
Member), M Mokuena (Tribunal Member)
and L Reyburn (Tribunal Member)
Heard on
:
11 July 2007
Order Issued
:
11 July 2007
Reasons Issued:
7 November 2007
Non-Confidential Reasons for Decision
Approval
[1]
On 11 July 2007, the Tribunal unconditionally approved the merger between the Premfood Joint Venture andPremier Fishing (Pty) Ltd and Foodcorp (Pty) Ltd. The reasons for approving the transaction follow.
The parties
[2]
The primary acquiring firm is an unincorporated joint venture to be known as the Premfood Joint Venture (“Premfood joint venture”)
between Foodcorp (Pty) Ltd (“Foodcorp”) and Premier Fishing SA (SA) (Pty) Ltd (“Premier”). The Premfood joint
venture will be controlled by Foodcorp and Premier.
[3]
Foodcorp is controlled as to 65% by Pamodzi Investment Holdings (Pty) Ltd (“PIH”). Other shareholders of Foodcorp are
Employee Share Trust (with a 20% shareholding) and management (with a 15% shareholding). PIH is controlled by PIH II (Pty) Ltd (“PHI
II”). The major shareholders of PIH are RMB Ventures Two (Pty) Ltd (“RMB Ventures”) (with a 40% shareholding),
and Executives (with a 20% shareholding). RMB Ventures is ultimately controlled by First Rand Limited. PIH’s investments in various sectors are not relevant for the purposes of these reasons save for its interest in Foodcorp which
will be discussed below.
[4]
Foodcorp has more than ten subsidiaries. Foodcorp operates through four divisions namely Nola, Mageu Number One, Marine Products, and Milling and baking. The Marine Products
division is the one implicated by this transaction. Foodcorp’s Marine Products Division operates predominantly within the pilchards,
anchovy, hake and lobster sector of the fishing industry.
[5]
Premier is controlled by Sekfish Investment (Pty) Ltd which is ultimately controlled by Sekunjalo Investment Limited (“Sekunjalo”).
Sekunjalo directly and indirectly controls more than thirty subsidiaries. Premier has more than nine subsidiaries. Premier specialises in the harvesting, processing and marketing of fish and fish related products. Of relevance to this merger is
that Premier holds fishing rights for lobster, Pelagic Fish (Anchovy and Pilchards), hake deep sea trawl and hake long line, squid
and swordfish
[6]
The primary target firm will acquire two factories; the Laaiplek factory owned by Foodcorp andthe Saldanha factory owned by Premier.
Background to the transaction
[7]
In this joint venture each party is contributing a plant that produces canned pelagic fish, typically, pilchards, for human consumption
and fishmeal, typically from anchovies, for animal consumption. Both firms run integrated operations in which the fish in question are caught, brought in by boat to the respective factories, processed
as either canned fish or fishmeal, and distributed.
[8]
The procurement of fish is regulated by the Department of Environmental Affairs and Tourism in terms of the Marine Living Resource
Act 18 of 1998. In terms of this legislation parties have to apply for fishing rights and are allocated a fixed quota in terms of
the licence. This means that procurement is not subject to market forces, but to government regulation as to entry and supply. Once
the fish has been caught it is then processed either as canned fish or fish meal. Not all firms that have fishing licences process
fish. Instead once they have a catch they contract to sell it to a firm with a plant. Both the joint venture partners process other
firms’ fish as well as their own. Thus the downstream processing industry is more concentrated than the upstream fishing industry.
[9]
Premier recently ceased its canning operation at Saldanha because it is no longer compliant with SABS standards. It would require
an investment of R20 million for it to upgrade its plant to make it compliant. It seems Premier are reluctant to make such an investment
in the current climate, where regulations are reducing the size of allowable catch due to environmental concerns.
[10]
However, the Saldanha plant whilst deficient in canning operations, is superior to the Laaiplek operation of Foodcorp in respect of
the processing of fishmeal. Two processes exist for making fishmeal, namely the steam drying method and the use of a direct flame
from a burner. The former process, which Saldanha has in its plant, is considered by both merging parties as superior.
[11]
Laaiplek has an efficient canning plant that meets not only SABS standards but HACCP and European Union standards as well.
[12]
Hence the rationale for the joint venture. Each plant will be used to specialise in what it is best suited to produce, and with greater
volumes, hence some production efficiencies will be derived, whilst modest in respect of canned pelagic fish are more significant
in pelagic fishmeal production.
Relevant Market
[13]
The parties defined the relevant product market as the market for pelagic fish products which can be further subdivided into canned
pilchards and fishmeal. While the Commission agreed with the merging parties’ market definition, it submitted that there is an upstream market for
the catching of pelagic fish. For our purposes in this case since this is a narrow market definition it will suffice to define the
relevant product market as the market for harvesting, processing and marketing of pelagic fish products, being canned fish and fishmeal.
[14]
Both the Commission and the merging parties argued for a national geographic market. This seems uncontroversial on the facts before
us.
Competition analysis
Harvesting of Pelagic Fish
[15]
Table 1 shows the limit of what the merging parties can catch for themselves compared to other industry players. These quotas are
in the form of fixed percentages.
Table 1 Average market shares for parties and their competitors for the period between 2005 to 2007 for pelagic fish based on total
allowable catch (TAC)
| Firm |
2005 (Quotas) |
2006 (Quotas) |
2007 (Quotas) |
Three year average share (%) |
| Foodcorp |
20 509 |
10 109 |
8 028 |
5 |
| Premier |
30 159 |
15 091 |
11 984 |
8 |
| Oceana |
63 119 |
29 187 |
23 178 |
15 |
| Saldanha |
20 974 |
8 620 |
6 848 |
5 |
| Gansbaai |
17 610 |
8 665 |
6881 |
5 |
| Pioneer |
29 515 |
14 462 |
11 485 |
7 |
| Other |
200 339 |
117 866 |
93 559 |
55 |
| Total |
382 225 |
204 000 |
162 000 |
100 |
Source: merging parties
[16]
The merged entity will have total market share of 13% in terms of the Total Allowable Catch. The merger is unlikely to substantially
prevent or lessen competition in the market for harvesting pelagic fish as there are other competitors in the market. These include
Oceana (with a market share of 15%), Saldanha (with a market share of 5%), and Gansbaai (with a market share of 5%).
Production of canned Pelagic Fish (Pilchards)
Table 2 Market shares for the production of canned Pelagic Fish in South Africa for 2006 based on estimated turnover
[17]
The post merger market share of the merging parties is approximately 17.5%. The market share accretion resulting from this transaction
is 0.5% as Premier did not have a significant presence in the market for canned pelagic fish before its canning facility was closed.
Production of fishmeal
Table 3 Market shares for the production of fishmeal in South Africa for 2006 based on estimated turnover
[18]
The post merger market share of the merged entity will be approximately 20%. The proposed transaction makes the merged entity one
of the three largest suppliers of fishmeal. Post merger, there will still be four other competitors in the market - Oceana, Pioneer,
West Point and Gansbaai. In addition, at the hearing, the parties submitted that fishmeal imports exert a certain degree of constraint
on local pricing, as fishmeal imports account for approximately 17% of the total fishmeal available in South Africa.
Public Interest
[19]
There are no public interest issues.
Conclusion
[20]
The merger does not lead to a substantial prevention or lessening of competition. There are no public interest issues. Accordingly,
the merger is approved unconditionally.
________________
7 November 2007
N Manoim
DATE
Tribunal Member
M Mokuena and L Reyburn concur in the judgment of N Manoim
Tribunal Researcher
:
R Kariga
For the merging parties:
N Browne, Cliffe Dekker Attorneys
For the Commission
:
M Ngobese and S Nunkoo, (Mergers
and Acquisitions)
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