The Competition Commission last week refereed a recommendation to the Competition Tribunal to prohibit the proposed acquisition of waterborne, solvent-borne and powder resins supplier Arkema Resins by specialised coatings company Ferro Industrial Products, stating that the merger was likely to result in a substantial prevention and lessening of competition.

The Competition Commission explained that the parties involved were both active in the manufacturing and supply of unsaturated polyester resin (UPR) or composite resin market, and in assessing the proposed transaction the commission had distinguished between UPR used in the mining industry and that used in other segments such as construction, transport and chemicals.

In the mining segment, the merging parties were currently the only suppliers of UPR and, therefore, the commission found that the merger would result in the removal of an effective competitor, leaving Ferro to enjoy a monopoly position postmerger.

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 about 64%, with the closest competitor having about 16% and rest of the market being made up of a small local supplier and some imports. 

The commission also stated that it found that there were high barriers to entry in the UPR market, owing 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 Competition Commission said.

The commission further stated that it had considered potential remedies, such as the divesture of Arkema’s composite business; however, this was not deemed to be viable as the firm’s coatings business was located in the same plant, making it impractical to separate the two businesses.

The merging parties also proposed a pricing formula applicable for two years.

However, the commission was of the view that the pricing formula would not address the anticompetitive effects arising from the structural changes in the market brought about by the proposed transaction.