The Competition Commission appears to have had a busy start to the year with prohibiting mergers.

In December 2011, the Commission prohibited the acquisition by Paarl Media (a company jointly controlled by Media 24 Ltd and Lambert Phillips Retief) of Primedia@Home, a printed advertisement distribution business of Primedia (Pty) Ltd. Interestingly, the merger was originally approved in January 2011, however Caxton and CTP Publishers and Printers Ltd asked the Competition Tribunal to review the Commission’s decision.

The Tribunal set aside the Commission’s decision to approve and sent the merger back to the Commission for a reconsideration. During the new investigation by the Commission further information was allegedly uncovered including strategy documents that the merging parties had not previously submitted. The damaging information which surfaced indicated that there was vigorous competition between the merging parties, being the two main national players in the market for knock-and-drop leaflet distribution. The Commission found that the proposed transaction would substantially lessen competition in the market for knock-and-drop leaflet distribution.

Also in December 2011, the Commission recommended the prohibition of an acquisition of sole control by Life Healthcare Group (Pty) Ltd over Joint Medical Holdings Ltd. The basis for the Commission’s recommended prohibition is that the merger will create regional dominance which will undermine the ability of funders to stimulate competition between hospitals in the Durban area by pitching them against one another when negotiating terms and conditions of service. The matter will be heard by the Competition Tribunal which will issue a final decision.

In January this year, the Commission prohibited two vertical mergers. The one transaction involved the acquisition by Thaba Chueu Mining of the silica producing subsidiary of Petmin Ltd, SamQuarz. Incidentally, I am acting for the target firms SamQuarz and Petmin. The deal is public as Petmin is listed and there have already been a few articles in the press on this transaction. Thaba Chueu Mining forms part of the Spanish group Ferroatlantica. SamQuarz is one of South Africa’s largest silica producers. It owns a high quality silica deposit in Delmas which has a 40 year life-of-mine. Thaba Chueu is controlled by Silicon Smelters which operates ferrosilicon and silicon metal producing plants in Polokwane and Witbank (Rand Carbide).

The Commission prohibited the transaction stating that the merger would be likely to lead to foreclosure effects as it would enable Thaba Chueu to control a critical input to its downstream competitors in the markets for ferrosilicon, silicon metal and silicon carbide. The Commission was also concerned that the proposed merger would alter the structure of the market and may increase the likelihood for co-ordination in the market for ferrosilicon. The merging parties have lodged a request with the Competition Tribunal for it to reconsider the merger. It is anticipated that this process may take a further six months.

The proposed acquisition by Senmin International (Pty) Ltd of Cellulose Derivatives (Pty) Ltd was originally prohibited in February 2009. The parties filed a new merger notification last year indicating that the market dynamics had changed and the transaction warranted a clearance. Intermediate industrial products and chemical is a listed priority sector for the Commission and it’s no wonder that this transaction attracted close scrutiny once again. The Commission found that the foreclosure concerns remained with Senmin, being a dominant distributor of technical grade carboxymethylcellulose (CMC), which is only produced by Cellulose Derivatives in South Africa. The Commission concluded that post merger the merged entity would be likely to deny Senmin’s competitors access to CMC which is an essential input to the mineral extraction process of platinum mines.

While the Commission must assess mergers on a case-by-case basis, this run of prohibitions does give one pause for thought. It will certainly be interesting to see the outcome of those matters that are taken on appeal or for a reconsideration.

Written by Natalie von Ey, Director in the Competition practice at Cliffe Dekker Hofmeyr business law firm