Commission gives conditional approval for Hebei, Duferco merger

11th June 2015

By: Sashnee Moodley

Senior Deputy Editor Polity and Multimedia

  

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The Competition Commission has given its approval for the intermediate merger between Chinese-owned Hebei Iron and Steel Group and Swiss steel trader Duferco International Trading Holding SA, with conditions.

The two companies announced in November 2014 that Hebei would acquire a 51% stake in Duferco for an undisclosed amount. The proposed merger would also allow Hebei to market and sell its products beyond its main market of China.

The deal required South African competition approval, as Duferco had two subsidiaries, Duferco Steel Processing (DSP) and Duferco Distribution Services (DDS), in South Africa.

In its consideration of the merger, the commission concluded that Hebei could easily import finished products directly from China to South Africa, as it had the ability and capacity to manufacture the products that DSP and DDS manufactured and distributed.

It further determined that there was a horizontal overlap between the activities of the merging parties regarding the manufacture and supply of flat steel products.

There was also a vertical overlap between the activities of the merging parties in terms of Hebei supplying DSP with hot rolled coil, which was used to manufacture cold rolled steel and galvanised steel.

The proposed merger was likely to raise public interest concerns related to the effect on the steel sector, as well as employment.

According to the commission, the concerns were premised on Hebei’s intention to market and sell its products beyond China as result of the merger, which could increase the propensity of DSP and DDS to import products.

As a result, the commission imposed employment- and investment-related conditions as part of its approval of the deal.

Under the employment conditions, the merged entity may not retrench any DPS or DDS employees as a result of the merger nor would it be allowed to change the employees’ terms and conditions of employment.

The investment conditions required that the merged entity continue operating the businesses of DSP and DDS in South Africa, post-merger.

Further, Hebei could not change its plans to develop a steel plant in South Africa and it would have to invest in DSP’s Saldanha steel processing plant to ensure it continued to operate efficiently.

The Chinese company also undertook to continue sourcing material from local DSP and DDS suppliers, provided it was economically feasible.

Competition Commission acting deputy commissioner Hardin Ratshisusu said the conditions offset the public interest concerns arising from the merger and would ensure that DSP remained a viable entity that contributed to the development of the domestic steel industry.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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