Commission prohibits merger of two leading paint manufacturers, Plascon and Akzonobel
09 Nov 2022
The Competition Commission (“Commission”) has prohibited a proposed transaction whereby Akzo Nobel N.V (“AkzoNobel”), an Amsterdam-based company that manufactures chemicals and chemical products, intended to acquire Kansai Plascon Africa Ltd (“KPAL”) and Kansai Plascon East Africa (Pty) Ltd (“KPEA”).
The primary acquiring firm is AkzoNobel, a public limited liability company listed on the Euronext Amsterdam Stock Exchange. 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. AkzoNobel and its subsidiaries are collectively referred to as the “Acquiring Group”. AkzoNobel manufactures Dulux-branded paint products.
The Acquiring Group manufactures Dulux coatings used in various segments, which are primarily divided into decorative coatings and industrial (or “performance”) coatings which in turn include automotive and specialty coatings, marine and protective coatings, wood finishes, coil coatings, and powder coatings. In South Africa, the Acquiring Group has three manufacturing plants – two located in Gauteng (in Alberton and Vanderbijlpark) and one, its largest, in Kwa Zulu Natal (in Umbogintwini). The Acquiring Group’s South African manufacturing plants produce decorative coatings and industrial coatings products sold in South Africa, as well as several products that are exported to other African countries.
The primary target firms are (i) KPAL, a public company incorporated under the law of the Republic of South Africa; and (ii) KPEA, a company incorporated under the laws of Mauritius. The Target Firms are controlled by Kansai Paint Co. Limited (“Kansai Paint”). KPAL manufactures Plascon-branded paint products.
In South Africa, the Target Firms operate through KPAL which manufactures Plascon-branded decorative coatings and industrial coatings. Decorative coatings contribute the largest portion to net sales within KPAL. In South Africa, KPAL has four manufacturing plants – two located in Gauteng (Krugersdorp and Clayville), one in Kwa-Zulu Natal (Mobeni), and one in the Eastern Cape (Gqeberha). Outside of South Africa, KPAL has four manufacturing plants – one in Malawi, one in Zambia, and two in Zimbabwe. KPAL also manufactures colourants. Colourants are substances used to add colour to or change the colour of a factory-produced base paint utilising paint tinting equipment.
The Commission found that the proposed merger will result in a substantial lessening of competition in the market for the manufacturing and supply of decorative coatings. This is because the proposed merger 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.
In addition, 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. The merging parties had also not put up remedies likely to adequately address the anti-competitive effect of the merger.
The Commission has therefore concluded that the proposed merger is likely to result in a substantial prevention or lessening of competition.
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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)