The Competition Commission conditionally approved Hebei Iron Steel Group Co Ltd's (Hebei) acquisition of a majority stake in Duferco International Trading Holding SA (Luxembourg (Duferco). The employment and investment conditions attached to the merger approval address public interest concerns identified by the Commission.

Hebei is a Chinese iron and steel manufacturing company while Duferco is a steel trader and distributor. The activities of Duferco in South Africa are undertaken by Duferco Steel Processing (Pty) Ltd (DSP) and Duferco Distribution Services (Pty) Ltd (DDS). Post-merger, Hebei will be able to market and sell its products beyond China, its current main market.

The Commission found that there were horizontal overlaps between the activities of the merger parties with respect to the manufacture and supply of flat steel products; and also vertical overlaps between the activities of the merger parties as Hebei supplies DSP with Hot Rolled Coil which is used to manufacture cold rolled steel and galvanised steel.

The Commission's investigation found that post-merger it will be easier for Hebei to import finished product from China, given that it has the ability and capacity to manufacture the products that DSP and DDS currently manufacture and distribute. Given the merger's possible effect on the steel sector and employment, the Commission found that the proposed merger raised public interest concerns. To address these concerns, the Commission imposed the following employment and investment conditions on the merger:

• no employee of DDS and DSP may be retrenched as a result of the merger and the merged entity may not change the terms and conditions of employment of the employees of DSP and DDS;
• the merged entity, post-merger, must continue operating the businesses of DSP and DDS, in South Africa;
• Hebei must not change its plans of developing a steel plant in South Africa; and
• Hebei must invest in the Saldanha steel processing plant of DSP in order for the plant to continue operating efficiently.

In addition, Hebei undertook to continue sourcing from local suppliers of DSP and DDS, provided it is economically feasible for it to do so.

Source

Published on Webber Wentzel