13 April 2016 by Competition Alert

Competition authorities sympathise with merging parties’ economic woes

During 2014 the Competition Commission (Commission) conditionally approved Zimco Metals Proprietary Limited (Zimco) acquiring the lead manufacturing business and assets of Atlantis Metals Proprietary Limited (Atlantis), a firm under business rescue. Since Atlantis and Zimco were the only two producers of lead anodes in South Africa, which they both primarily exported, the Commission was concerned that the merger may create a monopoly or harm local supply and employment. Despite Atlantis being in a dire financial position at the time, the 2014 conditions barred the relocation of the Atlantis plant outside of South Africa and placed a moratorium on merger-related retrenchments for two years.

In October 2015, Zimco and Atlantis applied to the Competition Tribunal (Tribunal) for an order, based primarily on changing market conditions, to remove the condition relating to the relocation of the Atlantis plant outside of South Africa and to confirm that certain proposed retrenchments were not merger specific. In January 2016, the Tribunal granted the application.

What qualified as ‘changing market circumstances’?

  • The parties could show that the price of commodities had weakened, linked with a decrease in the demand for commodity based products, including copper. Since lead anodes are used in copper products, the parties experienced a decline in demand for their products.
  • The largest customer of Atlantis decided to suspend operations at some of its mines, with grave consequences for Atlantis whose viability largely depended on this customer.
  • In order to sustain the economic viability of Atlantis, the plant needed to be relocated from Brakpan to Krugersdorp. The anticipated knock on effect was job losses for 13 employees who would not be able to relocate. The parties’ view was that these retrenchments are not merger specific and are purely operational in nature.
  • The parties are desirous of moving certain production capacity to locations outside of South Africa, closer to its export markets, to counter the high transport costs and weakening currency in South Africa.

After conducting a thorough investigation, the Commission was satisfied that the amendment was justified in the circumstances. While a ‘change in market circumstances’ must be determined on a case by case basis, taking into account the unique characteristics of the market developments in question, this decision bodes well for merger parties seeking to, ex post facto, break the shackles of economically unworkable merger conditions.

download PDF

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2020 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com

You may also be interested in