Shem Oirere, Africa Correspondent11.17.22
As the global paints and coatings industry reported growth in mergers and acquisitions deals last year, which some analysts saw as an unexpected consequence of the COVID-19 pandemic, in South Africa the market regulators were raising concern on the likely impact of a plan by top Dutch-based company AkzoNobel to expand its operations in the country and the rest of the Africa market by acquiring leading market players in the region.
The concerns culminated in the halting of an intended acquisition of Kansai Plascon Africa Ltd (“KPAL”) and Kansai Plascon East Africa (Pty) Ltd (“KPEA”). In South Africa, AkzoNobel controls the Akzo Nobel Powder Coatings South Africa (Pty) Ltd; Akzo Nobel South Africa (Pty) Ltd; ICI Dulux (Pty) Ltd; and P J A (South Africa) (Pty) Ltd.
As of June 2022, AkzoNobel was still optimistic about the success of the intended acquisition of Kansai Paint’s business in Africa and with anticipation the transaction would have been completed in 2023.
Although AkzoNobel is yet to officially give its official position on the halting of its acquisition plan in South Africa or what its ‘Plan B’ would be, if any, the country’s Competition Commission says the deal would have resulted “in a substantial lessening of competition in the market for the manufacturing and supply of decorative coatings” in South Africa.
The intended merger, said Siyabulela Makunga, spokesperson Competition Commission of South Africa, “combines the largest and second-largest manufacturers of decorative coatings who manufacture the well-known Plascon- and Dulux-branded paint products to create a dominant firm with a considerable market share.”
“The Commission also found that the merging parties are close competitors in terms of price, quality and product range and the merger would remove competitive rivalry between two notable brands, thus reducing consumer choice,” said Makunga.
Furthermore, he said the Commission “found that the proposed merger is likely to result in substantial input foreclosure concerns relating to the manufacturing and supply of colourants as the merging parties have both the ability and incentives to foreclose some of their competitors’ access to colourants.”
“The merging parties did not provide evidence of merger-specific technological, efficiency, or another pro-competitive gain that will be greater than and offset the effects of the prevention or lessening of competition arising from the proposed transaction, nor substantially weighty public interest commitments that would outweigh the competition concerns,” he explained.
The Commission faulted AkzoNobel, which recently announced a 19% increase in company revenues for third quarter of 2022, and its intended merging parties, for failing to put “remedies likely to adequately address the anti-competitive effect of the merger.”
The decision by the Competition Commission to halt AkzoNobel’s acquisition and expansion plan in Africa came soon after the country amended its Competition Act, including provisions on how mergers should be transacted in South Africa.
“In mergers, we’ve always had the possibility of looking at the impact of the measure, not just on competition but also on public interest, employment of Small, Medium and Micro Enterprises (SMMEs), historically disadvantaged individuals (HDIs) or the impact of any industrial sector,” said Competition Commissioner Tembinkosi Bonakele on June 20, 2022.
He said recent amendments to the Competition Act sought to strengthen these issues and cited the example of HDI where the Commission is now keen not just on the impact on HDI but also on worker ownership.
The South African parliament, said Bonakele, is pushing the Commission to ensure whenever there is a merger, the focus should go beyond traditional Black Economic Empowerment (BEE) to include issues such as how the transaction can be more inclusive “by bringing in key stakeholders such as labour to participate in companies that they work for and how to strengthen the evaluation of public interests more generally in such a way that the assessment of public interest carries more weight others say and equal weight to competition issues.”
“This means that public interest must be assessed independent of competition and that when the weighing is done that the public interest effects of the merger be treated in no way as a poor cousin of a competition assessment,” said Bonakele.
The amendments, which have already come into effect, are expected to remedy what some market analysts say are abuses by dominant buyers in certain sectors of the South Africa economy as well as forestall possible price discrimination that have previously been blamed for locking out SMMEs and HDIs.
KPAL has three manufacturing plants in South Africa, two located in Gauteng (in Alberton and Vanderbijlpark) and one, its largest, in Kwa-Zulu Natal (in Umbogintwini) with capacity to produce decorative coatings and industrial coatings products sold in South Africa, as well as several products that are exported to other African countries.
Moreover, KPAL is a public company incorporated in South Africa, while KPEA is a firm incorporated in Mauritius. They are both controlled by Kansai Paint Co. Limited.
KPAL, the Competition Commission observed, manufactures Plascon-branded decorative coatings and industrial coatings.
Apart from the four manufacturing plants that KPAL owns in South Africa, the company also has four other manufacturing plants outside the country, including one in Malawi, one in Zambia, and two in Zimbabwe.
Currently, the Competition Commission of South Africa requires parties involved in a merger or acquisition to notify it if the value of the proposed merger equals or exceeds ZAR600 million ($34.6 million), which is calculated by either combining the annual turnover of both firms or their assets, and the annual turnover or asset value of the transferred/target firm is at least ZAR100 million ($5.7 million).
If the combined annual turnover or assets of both the acquiring and transferred / target firms are valued at or above ZAR6.6 billion ($381 million), and the annual turnover or asset value of the transferred target firm is at least ZAR190 million ($11 million), the merger must be notified to the Competition Commission as a large merger.
The Commission has also developed a merger notification calculator to assist practitioners and the merging parties in determining whether a merger is small, intermediate or large based on the amended thresholds.
Despite the setback for AkzoNobel’s Africa expansion plan, some other international companies have recently made forays into the region’s paints and coatings market and forged partnerships to support product distribution networks.
For example, BRB Silicones South Africa Pty. Ltd., a full subsidiary of BRB International BV, recently appointed UK-based Retba Consulting Limited for sales distribution of silicone product portfolio for paint, coatings and inks across several African markets including Angola, Benin, Burkina Faso, Cameroon, Cape Verde, Chad, Republic of Congo, Democratic Republic of Congo, Ghana, Guinea, Côte d’Ivoire, Madagascar, Mali, Niger, Nigeria, Mauritania, Mozambique, Senegal and Togo.
Retba Consulting Limited, based in Crowthorne, United Kingdom, is a leading chemical supplier for paint, coatings, adhesive, packaging and polyurethane industries. Retba offers one-to-one trade services to chemical manufacturers and end users for these industries.
“With the appointment of Retba, we will be positioned to meet the current and future demands of paint, coatings and inks industries in these countries,” said Marcin Wasik, VP sales for BRB International B.V. “Silicone-based products from BRB complement well with Retba’s existing product range of resins, additives, fillers and pigments.”
For AkzoNobel, the focus is expected to shift to implementation of business strategies to counter what the company identifies as “macro-economic turbulence,” which it says “is expected to continue well into next year.”
“We’ve therefore decided to suspend our targets for 2023 and will provide further guidance when announcing our full year 2022 results (but) in the meantime, we will continue to focus on our margin management and cost reduction initiatives,” said AkzoNobel CEO Thierry Vanlancker when announcing quarter 03, 2022 results on 20 October 2022.
The concerns culminated in the halting of an intended acquisition of Kansai Plascon Africa Ltd (“KPAL”) and Kansai Plascon East Africa (Pty) Ltd (“KPEA”). In South Africa, AkzoNobel controls the Akzo Nobel Powder Coatings South Africa (Pty) Ltd; Akzo Nobel South Africa (Pty) Ltd; ICI Dulux (Pty) Ltd; and P J A (South Africa) (Pty) Ltd.
As of June 2022, AkzoNobel was still optimistic about the success of the intended acquisition of Kansai Paint’s business in Africa and with anticipation the transaction would have been completed in 2023.
Although AkzoNobel is yet to officially give its official position on the halting of its acquisition plan in South Africa or what its ‘Plan B’ would be, if any, the country’s Competition Commission says the deal would have resulted “in a substantial lessening of competition in the market for the manufacturing and supply of decorative coatings” in South Africa.
The intended merger, said Siyabulela Makunga, spokesperson Competition Commission of South Africa, “combines the largest and second-largest manufacturers of decorative coatings who manufacture the well-known Plascon- and Dulux-branded paint products to create a dominant firm with a considerable market share.”
“The Commission also found that the merging parties are close competitors in terms of price, quality and product range and the merger would remove competitive rivalry between two notable brands, thus reducing consumer choice,” said Makunga.
Furthermore, he said the Commission “found that the proposed merger is likely to result in substantial input foreclosure concerns relating to the manufacturing and supply of colourants as the merging parties have both the ability and incentives to foreclose some of their competitors’ access to colourants.”
“The merging parties did not provide evidence of merger-specific technological, efficiency, or another pro-competitive gain that will be greater than and offset the effects of the prevention or lessening of competition arising from the proposed transaction, nor substantially weighty public interest commitments that would outweigh the competition concerns,” he explained.
The Commission faulted AkzoNobel, which recently announced a 19% increase in company revenues for third quarter of 2022, and its intended merging parties, for failing to put “remedies likely to adequately address the anti-competitive effect of the merger.”
The decision by the Competition Commission to halt AkzoNobel’s acquisition and expansion plan in Africa came soon after the country amended its Competition Act, including provisions on how mergers should be transacted in South Africa.
“In mergers, we’ve always had the possibility of looking at the impact of the measure, not just on competition but also on public interest, employment of Small, Medium and Micro Enterprises (SMMEs), historically disadvantaged individuals (HDIs) or the impact of any industrial sector,” said Competition Commissioner Tembinkosi Bonakele on June 20, 2022.
He said recent amendments to the Competition Act sought to strengthen these issues and cited the example of HDI where the Commission is now keen not just on the impact on HDI but also on worker ownership.
The South African parliament, said Bonakele, is pushing the Commission to ensure whenever there is a merger, the focus should go beyond traditional Black Economic Empowerment (BEE) to include issues such as how the transaction can be more inclusive “by bringing in key stakeholders such as labour to participate in companies that they work for and how to strengthen the evaluation of public interests more generally in such a way that the assessment of public interest carries more weight others say and equal weight to competition issues.”
“This means that public interest must be assessed independent of competition and that when the weighing is done that the public interest effects of the merger be treated in no way as a poor cousin of a competition assessment,” said Bonakele.
The amendments, which have already come into effect, are expected to remedy what some market analysts say are abuses by dominant buyers in certain sectors of the South Africa economy as well as forestall possible price discrimination that have previously been blamed for locking out SMMEs and HDIs.
KPAL has three manufacturing plants in South Africa, two located in Gauteng (in Alberton and Vanderbijlpark) and one, its largest, in Kwa-Zulu Natal (in Umbogintwini) with capacity to produce decorative coatings and industrial coatings products sold in South Africa, as well as several products that are exported to other African countries.
Moreover, KPAL is a public company incorporated in South Africa, while KPEA is a firm incorporated in Mauritius. They are both controlled by Kansai Paint Co. Limited.
KPAL, the Competition Commission observed, manufactures Plascon-branded decorative coatings and industrial coatings.
Apart from the four manufacturing plants that KPAL owns in South Africa, the company also has four other manufacturing plants outside the country, including one in Malawi, one in Zambia, and two in Zimbabwe.
Currently, the Competition Commission of South Africa requires parties involved in a merger or acquisition to notify it if the value of the proposed merger equals or exceeds ZAR600 million ($34.6 million), which is calculated by either combining the annual turnover of both firms or their assets, and the annual turnover or asset value of the transferred/target firm is at least ZAR100 million ($5.7 million).
If the combined annual turnover or assets of both the acquiring and transferred / target firms are valued at or above ZAR6.6 billion ($381 million), and the annual turnover or asset value of the transferred target firm is at least ZAR190 million ($11 million), the merger must be notified to the Competition Commission as a large merger.
The Commission has also developed a merger notification calculator to assist practitioners and the merging parties in determining whether a merger is small, intermediate or large based on the amended thresholds.
Despite the setback for AkzoNobel’s Africa expansion plan, some other international companies have recently made forays into the region’s paints and coatings market and forged partnerships to support product distribution networks.
For example, BRB Silicones South Africa Pty. Ltd., a full subsidiary of BRB International BV, recently appointed UK-based Retba Consulting Limited for sales distribution of silicone product portfolio for paint, coatings and inks across several African markets including Angola, Benin, Burkina Faso, Cameroon, Cape Verde, Chad, Republic of Congo, Democratic Republic of Congo, Ghana, Guinea, Côte d’Ivoire, Madagascar, Mali, Niger, Nigeria, Mauritania, Mozambique, Senegal and Togo.
Retba Consulting Limited, based in Crowthorne, United Kingdom, is a leading chemical supplier for paint, coatings, adhesive, packaging and polyurethane industries. Retba offers one-to-one trade services to chemical manufacturers and end users for these industries.
“With the appointment of Retba, we will be positioned to meet the current and future demands of paint, coatings and inks industries in these countries,” said Marcin Wasik, VP sales for BRB International B.V. “Silicone-based products from BRB complement well with Retba’s existing product range of resins, additives, fillers and pigments.”
For AkzoNobel, the focus is expected to shift to implementation of business strategies to counter what the company identifies as “macro-economic turbulence,” which it says “is expected to continue well into next year.”
“We’ve therefore decided to suspend our targets for 2023 and will provide further guidance when announcing our full year 2022 results (but) in the meantime, we will continue to focus on our margin management and cost reduction initiatives,” said AkzoNobel CEO Thierry Vanlancker when announcing quarter 03, 2022 results on 20 October 2022.