Reutech gets conditional approval to take over Nanoteq

13th September 2016

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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The Competition Commission has approved, with conditions, an intermediate merger whereby defence products supplier Reutech intends to acquire Nanoteq.

Both companies supply the South African National Defence Force (SANDF) through the Armaments Corporation of South Africa (Armscor), with Reutech specialising in tactical communication systems for the defence environment.

It also designs and manufactures fuses and related defence products for artillery, mortar, naval and aircraft weapons systems, while Nanoteq manufactures hardware products used to encrypt and protect communication devices, such as tactical radios and cellphones.

Nanoteq’s products are installed in the communication devices to ensure that no unauthorised third parties gain access to the strategic and sensitive information.

The merger results in a vertical overlap in that Nanoteq supplies Reutech with customised cryptographic products for use in Reutech tactical radios.

The commission found that customised cryptographic products and tactical communication systems products are developed specifically for the SANDF and are critical inputs in the manufacture of communication equipment used for national security.

“Given that the merging parties are single source suppliers, it is likely that the merger will enhance the bargaining power of the merged entity and this may result in higher prices as Armscor cannot switch to the merging parties’ international competitors for national security reasons,” it stated.

To tackle concerns emanating from the proposed merger, the commission has imposed a condition that the premerger Nanoteq pricing methodology in relation to the Armscor contracts remain unchanged post-merger.

The merging parties have also undertaken to conclude an agreement with Armscor to address matters pertaining to protection and control of sovereign and strategic intellectual property and also ensure that there is inclusive participation of defence companies in general moving forward.

“The conditions imposed on the merged entity will ensure that Armscor, being the sole customer in South Africa, is not exploited post-merger through anticompetitive means.

“These conditions are significant as they guarantee that the pricing methodology for the products supplied to Armscor remains unchanged and that the relevant intellectual property rights in relation to the products supplied to the SANDF vest with Armscor,” said acting deputy commissioner Hardin Ratshisusu.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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