Italtile on Friday said it was strongly opposed to the Competition Commission’s ruling, prohibiting Italtile Group’s proposed acquisition of Ceramic Industries and Ezee Tile Adhesive Manufacturers.
The commission believed that, should the merger proceed, there would be no viable alternatives for competitors in the downstream retail market; however, Italtile believed the decision was based on incorrect information and an incorrect adjudication of control.
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 on Thursday.
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 to 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 are essential in the construction sector, particularly in residential and nonresidential buildings, adding that these markets are 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.
Italtile said it would prepare and file a request for consideration with the Competition Tribunal.
“In the conviction that this matter will be reviewed and resolved appropriately, and since approval by the competition authorities is only one of several conditions precedent, the acquisition process and timetable as communicated to date, will continue as scheduled,” it stated.