The Competition Commission has, on 21 October 2014, unconditionally approved an intermediate merger in which Grohe Luxembourg Four S.A, a company newly incorporated in Luxembourg and jointly controlled by Grohe Group S.a.r.l and Lixil Corporation (Grohe group), is entering into a joint venture with Main Street (Pty) Ltd (“Watertech”), also a company newly incorporated in South Africa, controlled by Distribution and Warehousing Network Limited. Watertech will comprise of companies based in South Africa, namely, Apex Valves South Africa (Pty) Ltd, Cobra Watertech (Pty) Ltd, Isca (Pty) Ltd, Libra Bathrooms (Pty) Ltd, Vaal Sanitaryware (Pty) Ltd and Expiro Manufacturing (Pty) Ltd, collectively referred to as the Watertech companies.

In South Africa, the activities of the Grohe group and the Watertech overlap in the supply of taps, mixers and shower fittings. The Commission accordingly assessed this market and found that the merger is unlikely to lead to a substantial prevention or lessening of competition as the merged entity, in the South African market, will still face a competitive constraint from such suppliers as Hansgrohe, Tivoli Taps, MacNeil and Splashworks. There are also significant imports of taps, mixers and shower fittings into South Africa, mainly from East Asia.

The Commission received concerns from third parties about the possibility of the merger resulting in the Watertech companies shifting production from South Africa to the factories owned by the Grohe group in other parts of the world, most notably China. Such a strategy would have had the potential of reducing local production by the Watertech companies and affect firms that provide inputs into the Watertech production activities, thus leading to concomitant job losses across the value chain.

In response to the concerns, the merging parties assured the Commission that the merger will not have a negative effect on the public interest.  The intentions of the merged entity with respect to the South African operations of the Watertech companies are set out in the plans and strategies to grow the manufacturing base in South Africa for exports.  In this regard, the merged entity provided undertakings committing to maintaining and increasing current manufacturing levels and continuing to procure inputs from local suppliers. The Commission concluded that the proposed transaction has a positive impact on the public interest.

“This is a significant transaction as it translates into substantial foreign direct investment intended to grow exports into the rest of the African continent and globally. The undertaking provided by the merging parties to increase production of sanitary ware products  in South Africa addresses any potential public interest concerns that would have arisen as a result of the merger”, says Hardin Ratshisusu, acting Deputy Commissioner.