South Africa: Competition Tribunal

COMPETITION TRIBUNAL OF SOUTH AFRICA

Case No: 017590

In the matter between:

Stefanutti Stocks (Pty) Ltd Acquiring Firm

and

Energotec (a division of First Strut) (Pty) Ltd Target firm

Panel: N Manoim (Presiding Member)

Y Carrim (Tribunal Member)

A Wessels (Tribunal Member)

Heard on: 14 August 2013

Reasons and Order issued on: 23 August 2013

Reasons for Decision and Order

Conditional Approval

1. On 14 August 2013 the Competition Tribunal approved the acquisition by Stefanutti Stocks (Pty) Ltd of Energotec, a division of First Strut (Pty) Ltd ("First Strut") with conditions relating to employment. Because this merger involved a firm that was in provisional liquidation with imminent job losses and prejudice to its customer the Commission investigated the merger in a very short period of time and we heard the merger on the same day as we received the Commission's filing. Despite the brief period it had for analysing the merger, the Commission was able to verify the merging parties' claims concerning the effects of the merger by contacting customers and competitors.

2. The Reasons for approving the transaction with conditions are set out below.

Parties to the Transaction

3. The primary acquiring firm is Stefanutti Stocks (Pty) Ltd ("Stefanutti"), a private company incorporated in accordance with the laws of the Republic of South Africa. Stefanutti is a 90% owned subsidiary of Stefanutti Stocks Holdings Ltd. It is the South African operating company of Stefanutti Stocks Holdings which is a multidisciplinary construction company that provides a wide range of construction related services.

4. The primary target firm is Energotec, a division of First Strut Ltd ("First Strut"). First Strut is a private company with four shareholders, Andy Bertulis (48%), Jeffrey Wiggill (48%), Kelvin Rose (2%) and Lourens van Zyl (2%) and is currently placed in provisional liquidation. Energotec is engaged in the installation of electrical solutions primarily within the petrochemical industry. It has one customer.

Proposed transaction and rationale

5. In terms of the transaction Stefanutti Stocks will acquire all the assets which comprise the business carried on by First Strut's Energotec mechanical and electrical division. Post the transaction the business will be absorbed into Stefanutti Stocks' Electrical & Instrumentation division.

6. According to the merging parties the proposed transaction represents an opportunity for Energotec to be salvaged and for in excess of 600 jobs to be retained. The transaction will ultimately enable Stefanutti Stocks to offer a more comprehensive service to its clients and is therefore an attractive opportunity for Stefanutti Stocks to bolster its current offering within the sector.

Competition Assessment

7. The merging parties are active in the civil engineering field where they offer products and services to clients in the industrial, mining, manufacturing, oil, gas, petrochemical and power sectors. Within these sectors they both provide services related to electrical and instrumentation construction. Electrical engineering services concern the supply and installation of light poles, brackets, cable trays and cable support systems and instrumentation services relate to the control systems that are put in place such as the supply of various types of electrical cables, instrument stands, maintenance work, shutdowns, turnarounds, control rooms, rack rooms and substation work.

8. The relevant market is therefore defined as the market for the provision of electrical and instrumentation services in South Africa.

9. Services in this market are rendered on a project basis and are mostly bid for on closed-tender basis. Customers in these industries are usually large and well established firms that invite engineering companies to bid for all major installation and maintenance projects by setting pre-determined specifications in a Request for Quotation. These contracts usually last for 6-12 months.

10. Market shares in a bidding market fluctuate to some extent depending on the projects won. The Commission therefore engaged with the merging parties as well as other civil engineering firms offering the same services in order to ascertain the market shares of the merging parties. None of the market participants who were contacted cited the merging parties as significant players and it was found that the merged entity would have a market share of approximately 12% in the relevant market. There are large competitors in this market that provide the same services such as Aveng Grinaker-LTA, ENI, B&W Instrumentation and Electrical, Wade and Walker a subsidiary of Murray and Roberts and Kentz Corporation.

11. Most significantly the evidence was that Energotec has only one customer at the present time, Sasol. Sasol awards these contracts by tender and the contracts vary in length typically we were advised between six months and 12 months. If the merger is approved the merged firm will be able to continue an existing contract with Sasol which involves maintenance and shutdowns services for the customer that starts in September. This was Sasol's major concern and unsurprisingly Sasol for this reason had given strong support for the merger.¹ This is significant as Sasol is in the best position to identify if the merger would lead to a reduction in rivalry for firms who tender for its work.²

12. In view of the above we conclude that the proposed transaction is unlikely to substantially prevent or lessen competition in the relevant product market.

Public Interest