The Competition Commission on Wednesday announced that it had unconditionally approved the merger between JSE-listed Distribution and Warehousing Network’s (Dawn’s) Watertech and Sanitaryware business with Grohe International.

Under the terms of the merger agreement, Grohe would buy 51% of Dawn’s Watertech and Sanitaryware companies for R880-million, to be managed under a new company, Main Street, in which Dawn would hold a 49% stake.

The Competition Commission said that, while the activities of the Grohe group and the Dawn Watertech companies overlapped in terms of the supply of taps, mixers and shower fittings, it found that the merger was unlikely to lead to a substantial prevention or reduction in competition as the merged entity, in the South African market, would still face competition from other suppliers.

There were also significant imports of taps, mixers and shower fittings into South Africa, mainly from East Asia.

The commission further noted that it had received comments from third parties that were concerned about the possibility of the merger resulting in the Watertech companies shifting production from South Africa to the factories owned by the Grohe group in other parts of the world, most notably China, which would have the potential of reducing the Watertech companies’ local manufacturing and affect firms that provided inputs into the Watertech production activities, thus leading to concomitant job losses across the value chain.

However, in response to these concerns, the merging parties assured the commission that the merger would not have a negative effect on the public interest.

The merged entity had provided undertakings to maintainine and increase current manufacturing levels and continue to procure inputs from local suppliers and, therefore, the commission concluded that the proposed transaction had a positive impact on the public interest.

“This is a significant transaction as it translates into substantial foreign direct investment intended to grow exports into the rest of the African continent and globally. The undertaking provided by the merging parties to increase production of sanitaryware products in South Africa addresses any potential public interest concerns that would have arisen as a result of the merger,” Competition Commission acting deputy commissioner Hardin Ratshisusu said.