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
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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