competition industrial inputs mergers and acquisitions regulation

Competition Commission prohibits merger between producers of key mining and industrial input

Excerpts from Competition Commission’s media release:

” On 08 May 2014, the Competition Commission referred a recommendation to the
Competition Tribunal to prohibit the proposed acquisition of Arkema Resins by Ferro
Industrial Products. The Commission found that the proposed merger is likely to
result in a substantial prevention and lessening of competition.
In the mining segment, the merging parties are currently the only suppliers of UPR
and the Commission found that the merger would result in the removal of an
effective competitor, leaving Ferro to enjoy a monopoly position post-merger.
The Commission also found that in other segments, the proposed merger would
result in the merged entity gaining a significant share of the market of approximately
64%, with the closest competitor having approximately 16%. The rest of the market
is accounted for by a small local supplier and some imports.
The Commission found that there are high barriers to entry in the UPR market due to
the high capital outlay required for entry, economies of scale and the existence of
excess capacity. In the mining segment, there are additional barriers to entry in the
form of reputation, technology, technical expertise and technical specifications
required. The excess capacity may also be used as a strategic deterrent for entry
and expansion.
The Commission’s investigation included interviews with customers and competitors
of the merging parties who also raised concerns regarding the proposed transaction.
The Commission considered possible remedies such as divesture of Arkema’s
composite business, but this was not deemed to be viable as the firm’s coatings
business is also located in the same plant, making it impractical to separate them.
The merging parties also proposed a pricing formula applicable for two years. The
Commission is of the view that the pricing formula will not address the
anticompetitive effects arising from the structural changes in the market brought
about by the proposed transaction.”

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