The Competition Tribunal (“the Tribunal”) has released the public reasons for its decision to conditionally approve the large merger in terms of which Sinosteel Group Corporation Limited (“Sinosteel”) intends to acquire 50% shareholding in Deen Holdings Corporation Limited (“Deen Holdings”). Post-merger, Sinosteel will solely control Deen Holdings.
The merger was approved with conditions relating to the promotion of a greater spread of ownership as well as employment. The public reasons are available on the Tribunal’s website at https://www.comptrib.co.za/case-detail/19795
Below is a summary and excerpts:
The Competition Commission (“the Commission”), which assesses large mergers before referring such to the Tribunal for a decision, considered the national market for the mining and supply of chrome and the global market for the trading of chrome ore. The Commission ultimately concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in the relevant market. The Tribunal concurs with this finding.
PUBLIC INTEREST ASSESSMENT
Effect on employment
The merger parties submitted that the proposed transaction will not lead to any retrenchments. They disclosed historic and contemplated retrenchments at Samancor which they claimed were based on operational requirements. The Commission found that neither the historic nor the contemplated retrenchments were merger related. However, considering South Africa’s current economic climate and unemployment rate, the Commission engaged the merger parties on two employment related conditions. The merger parties agreed to a two-year moratorium on merger-specific retrenchments and a two-year “vacancies clause” which gives preference to the retrenched employees when vacancies arise. Following further submissions by trade unions and the merger parties, the Tribunal was satisfied that a revised condition addressed any merger-specific employment concerns.
Effect on the greater spread of ownership
Neither of the merger parties have Broad-Based Black Economic Empowerment (“B-BBEE”) shareholding or an employee share ownership program (“ESOP”) pre-merger. Addressing how the proposed transaction will promote a greater spread of ownership, the merger parties submitted that Samancor has applied for a mining right. If the application to the Department of Mineral Resources and Energy (“DMRE”) is successful, the DMRE will require Samancor to increase its existing levels of ownership by historically disadvantaged persons (“HDPs”) in respect of the Mineral Right Holding Entity (“MRHE”).
As a condition to the approval of the proposed transaction, the merger parties tendered that Samancor will allocate a specified shareholding in the MRHE to an ESOP; a further specified shareholding in the MRHE to the relevant community; and allocate a further minimum specified shareholding in the MRHE to an HDP shareholder/s. This condition will only be effected if Samancor is successful in its DMRE mining right application.
The Tribunal concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market and that the conditions imposed have a positive effect on the public interest.
THE MERGER PARTIES
Sinosteel is incorporated in the Peoples’ Republic of China and is wholly owned by the Chinese Government. It has operations in iron ore, chrome ore and nickel ore based in, among others, South Africa. In South Africa, through joint venture entities, the Sinosteel Group is active in mining, beneficiation and the supply of chrome ore and ferrochrome.
Deen Holdings is a Mauritian company controlled by a Hong Kong incorporated company. It operates in South Africa through several firms with activities in the mining industry. Deen Holdings operates in South Africa through Samancor and its affiliates, in which Samancor is active in chrome ore mining, smelting and the production of electrode paste (an essential input into the production of ferrochrome).