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COMPETITION TRIBUNAL OF SOUTH AFRICA

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 Executives¹ (with a 20% shareholding). RMB Ventures is ultimately controlled by First Rand Limited.² 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.³

4. Foodcorp has more than ten subsidiaries.⁴ 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.⁵ Premier has more than nine subsidiaries.⁶ 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.⁷ 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 HACCP⁸ 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.⁹

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.¹⁰ 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 turnover¹¹

Firm	Market Share (%)
Oceana12	75
Foodcorp13	17
Premier	0.5
Saldanha	5
House brands	2.5
Total	100

Source: merging parties

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.¹⁴

Production of fishmeal

Table 3 Market shares for the production of fishmeal in South Africa for 2006 based on estimated turnover

Firm	Market share (%)
Oceana	35
Foodcorp	10
Premier	10
Saldanha	15
Pioneer	20
Gansbaal	10
Total	100

Source: merging parties

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.¹⁵

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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