12 July 2017 by and Competition Alert

Competition Commission does not beat to manufacturers’ steel drum in merger prohibition

On 21 June 2017, the Competition Commission (Commission) published its decision to prohibit an intermediate merger between two steel drum manufacturers, Greif International BV (Greif), a Dutch company, and Rheem South Africa Proprietary Limited (Rheem).

This is the second time the Commission has prohibited a transaction between Greif and Rheem, the first instance being in 2004.

In addition to manufacturing steel drums in South Africa, Greif manufactures industrial packaging products, including, inter alia, steel pails, blow moulded plastic drums and knock down drums. Rheem manufactures not only steel drums but cans and pails used predominantly for packaging industrial liquids and hazardous chemicals.

The Commission identified the market for the manufacture and supply of large steel drums as an area of overlap between the merging parties. In its assessment of this market, the Commission found that the merger would effectively result in the creation of a monopoly, regardless of the geographic market. Interestingly, in its 2004 prohibition of the merger, the Commission delineated only KwaZulu-Natal and Gauteng as the two geographical areas of overlap where the two companies were the only manufacturers of steel drums. The Commission concluded that post-merger, the merged entity would likely be in a position to unilaterally increase prices. 

High barriers to entry were also cited by the Commission as a reason for its prohibition.

Public interest benefits – which were not expanded upon in the Commission’s press release – were not found to outweigh the anti-competitive effects that the proposed merger would have given rise to.

Given that the Commission did not come to a markedly different conclusion than it had 13 years ago regarding the merger of Greif and Rheem, this indicates that the market dynamics for the manufacture of steel drums does not appear to have altered significantly over time to warrant a different outcome.

The parties to the transaction are able to take the Commission’s decision to the Competition Tribunal to consider the prohibition of the merger.

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