On 8 November 2012 the Competition Tribunal conditionally
approved the intermediate merger involving Senmin International, a
subsidiary of AECI Limited, and Cellulose Derivatives. The
transaction, in terms of which Senmin proposed to acquire Cellulose
Derivatives, was initially prohibited by the Competition Commission
in January 2012. The merging parties thereafter requested the
Tribunal to reconsider the Commission's prohibition
decision.
Senmin is a supplier and distributor of mining chemicals, which
are used in the extraction and recovery of precious metals.
Cellulose Derivatives is a manufacturer of carboxymethylcellulose
(CMC), a cellulose product derived from wood pulp and that is used
in various industrial applications including the recovery of
platinum as part of the flotation process. Senmin sources all of
its technical grade CMC requirements from Cellulose Derivatives,
which is also the only local manufacturer of CMC in South
Africa.
The proposed transaction therefore involves a vertical integration
by Senmin with its upstream supplier of CMC. The Commission
prohibited the transaction on the basis that Senmin's
competitors that also purchase technical grade CMC from Cellulose
Derivatives for use in mining applications would be foreclosed by
Senmin from access to locally produced technical grade CMC
post-merger because, the Commission argued, imported CMC is not a
viable alternative or constraint to the CMC supplied by Cellulose
Derivatives.
Following an extensive hearing before the Tribunal between July
and September 2012, which involved the submission of factual
evidence by witnesses and economic evidence by independent
economists for the merging parties and the Commission, the Tribunal
ultimately approved the merger subject to conditions tendered by
the merging parties.
Although the merging parties argued that the proposed transaction
was unlikely to result in any anti-competitive vertical effects (on
the grounds that imports are a competitive substitute and a
constraint to locally-produced CMC), the merging parties tendered
supply conditions that would alleviate any potential harm to the
market. These conditions guarantee Senmin's post-merger supply
of technical grade CMC for use in mining applications to other
customers that are competitors to Senmin downstream, on the same
terms that such customers currently enjoy from Cellulose
Derivatives.
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