27 May 2015 Competition Matters

Competition Commission prohibits merger between Imerys and Andalusite Resources

The Competition Commission prohibited a merger which proposed the acquisition of Andalusite Resources Proprietary Limited (Andalusite Resources) by Imerys South Africa Proprietary Limited (Imerys).

The merging parties are close competitors, and South Africa's only miners and suppliers of andalusite: which is a compound used in high temperature industrial processes (including the manufacture of steel and cement – highly input price sensitive industries). The proposed transaction would, accordingly, result in the removal of an effective competitor and the creation of a monopoly in the market for the manufacture and supply of andalusite.

The Commission concluded that the proposed merger would substantially lessen or prevent competition and found that:

(i)   the market was characterised by relatively high barriers to entry;

(ii) customers would have relatively little countervailing power to discipline the merged entity as post-merger there would be no other source of supply of andulasite; and

(iii) based on Imerys' substantial presence in the downstream market for refractory products, the merged entity would have an incentive to limit the supply of andalusite to Imerys' competitors or to supply export markets to the detriment of Imerys' competitors.

The anticipated lessening or prevention of competition (and anticipated price increases) that would flow from the proposed transaction resulted in public interest concerns regarding other producers of refractories (which are generally highly price sensitive) and the consumers of refractories.

A further public interest concern arose as the merging parties envisaged that the proposed transaction was likely to lead to 3.6% of the employees of the merging parties being retrenched.

The Commission concluded that there were no pro-competitive effect or public interest benefits that could outweigh, and no remedies that could remedy, the anti-competitive effects of the proposed transaction and thus prohibited the merger.

The Commission's decision to prohibit the merger altogether illustrates that not all negative effects of a proposed merger, whether competition or public interest related, can be remedied by a merger condition.

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