Competition Appeal Court upholds Tribunal’s prohibition of merger in the Andalusite market
The Competition Appeal Court (CAC) on 2 March 2017 upheld the decision by the Competition Tribunal to prohibit the merger between Imerys South Africa and Andalusite Resources SA.
Very few mergers have been prohibited by the Tribunal and even fewer upheld by the Competition Appeal Court.
On 31 October 2016 the Tribunal issued its reasons for prohibiting an intermediate merger between Imerys South Africa and Andalusite Resources in the andalusite market. This was only the 10th prohibition in the history of the Tribunal. This was a “two to one” merger in a market with very high barriers to entry for new entrants and high switching costs for customers.
The Commission had received numerous concerns from both producers and end-users of andalusite based refractories regarding the effects of the proposed merger.
The Tribunal found that the transaction would have a negative impact on the entire andalusite supply chain in South Africa and particularly on smaller firms that lack the capacity, resources and bargaining power of their larger competitors to respond to the significant anti-competitive effects of the proposed merger. The Tribunal also noted that there were no effective remedies that could be made conditions for approving the merger.
The decision was appealed to the Competition Appeal Court. The merging party in their submission to the Competition Appeal Court (CAC) argued that the Tribunal failed to follow the correct approach in determining the most likely counterfactual.
In its judgment upholding the prohibition the appeal court said: “The main public interest consideration against the merger arises from its alleged rationale, namely to enhance the merged entity’s ability to capture anticipated demand growth for andalusite, particularly export demand. This means that in due course all the parties’ production would be diverted to the export market unless domestic customers were willing to pay EPP (export parity prices).
“This might eventually happen even without the merger but the merger will enable the parties (on their view of its benefits) to reach this point sooner, to the detriment of refractory manufacturers and downstream consumers.”
Subsequent to the CAC hearing the appeal the Department of Mineral Resources applied to the CAC to be admitted as amicus curiae. The court dismissed the department’s application.
Number of mergers prohibited by the Tribunal since 2000
click on graph to read more easily