The Competition Commission has prohibited Italtile Group’s proposed acquisition of Ceramic Industries and Ezee Tile Adhesive Manufacturers, as it found that there would be no viable alternatives for competitors in the downstream retail market.
The commission added that the merged entity could foreclose retailers by raising prices, reducing supplies or refusing outright to supply.
“The proposed transaction creates a vertical overlap in the activities of the merging parties in relation to the upstream markets for the manufacture and supply of tiles, sanitaryware, baths and grout, and adhesives and related products, and the downstream market for the retail sale of the products in South Africa,” the commission said in a statement.
It further found that Ceramic had a high market share in South Africa in the identified upstream and downstream markets, and noted that the merging parties would, post-merger, have the ability and the incentive to self-supply, resulting in the foreclosure of supplies to their rivals.
The commission considered a supply condition in respect of the affected products, as tendered by the merging parties, but found it would be inadequate in terms of addressing the foreclosure effects post-merger.
The commission also considered a possible structural remedy to mitigate Ceramic’s high market share in the upstream markets, but this was not feasible.
It noted that tiles, sanitaryware and related products were essential in the construction sector, particularly in residential and nonresidential buildings, adding that these markets were expected to grow significantly in the medium to long term.
“The commission is concerned that the merger is in markets that are already highly concentrated,” said acting deputy commissioner Hardin Ratshisusu.
He noted that the merger would significantly consolidate the market position of the merged entity in such a way that there would be incentives to deny competitors of the merging parties in the retail space access to products such as tiles and sanitaryware.
“It is important that customers of these products enjoy competitive prices and choice,” said Ratshisusu.
Italtile is a retailer of ceramic and porcelain tiles, laminated boards, sanitaryware, brassware and bathroom accessories, décor, baths, showers, and grout and adhesives, while Ceramic Industries manufactures and supplies tiles, sanitaryware and baths to retailers, including the retailers of Italtile Group, namely Italtile Retail, CTM and Top T.
Ezee Tile manufactures and supplies grout, adhesives and related products to retailers, including the Italtile Group.