The Competition Tribunal has conditionally approved JSE-listed Italtile’s proposed acquisition of Ceramic Industries (CIL) and Ezee Tile Adhesive Manufacturers.
Italtile in April 2016 made an offer to acquire the remaining 73.5% interest in CIL it does not already own for R3.75-billion in cash and shares.
The Competition Commission, however, in July 2016, prohibited the acquisitions of CIL and Ezee Tile, raising an input foreclosure concern. The commission was of the view that, should the merger proceed, CIL would be able to foreclose the supply of tiles to third-party customers and thereby lessen competition in the downstream tile retail market.
Italtile in August 2016 sought the tribunal’s intervention on the matter, as it did not agree with the commission’s decision.
The tribunal this week said it believed there was insufficient proof that that these foreclosure concerns are merger specific.
“If the merger were prohibited, there would be no material change on the incentives of the firms, given that the proposed transaction constituted an intra-group restructuring involving the applicants, who are all ultimately controlled by the same shareholder, namely Rallen.
“Prohibiting the merger would also mean that certain pro-competitive aspects of the transaction such as increased investment would be less likely,” the tribunal stated.
It further noted that, while the merging parties did not agree with the concerns raised by the commission, they had submitted conditions to deal with the concerns raised.
These conditions were two-fold and related to the guarantee of supply of two ranges of entry-level tiles to third-party customers on the one hand and concerns of information exchange on the other.
The tribunal said the proposed condition in relation to the guarantee of supply of entry-level tiles would be impractical, difficult to monitor, would interfere with the functioning of this market and would not necessarily make customers any better off.
However, in relation to concerns regarding information exchange, the tribunal considers this to be a legitimate concern, and has approved the proposed transaction subject to this condition.
The tribunal will release its full reasons for its decision in due course.