Competition Commission welcomes Tribunal’s decision prohibiting merger between Corruseal and Neopak
02 Mar 2023
The Competition Commission (Commission) welcomes the decision issued by the Competition Tribunal (Tribunal) yesterday, prohibiting the proposed merger between Corruseal Group (Pty) Ltd and Neopak Holdings (Pty). The Tribunal prohibited the implementation of the merger in terms of section 16 (2) of the Competition Act 89 of 1998 (as amended). The reasons for the Tribunal’s decision will be issued at a later stage.
On 13 December 2021 Corruseal and Neopak notified the Commission of their proposed intermediate merger. Corruseal is a vertically integrated firm whose activities include the collection and recycling of wastepaper, the manufacture and supply of recycled containerboard paper (using recycled wastepaper), and the manufacture of corrugated sheets/box packaging products. The business operations of Corruseal Group are in KwaZulu-Natal, Western Cape, and Gauteng. Corruseal already consumes very significant volumes of recycled containerboard paper.
Neopak is an independent manufacturer and supplier of recycled containerboard and is not vertically integrated into the downstream market for the manufacture of corrugated board and corrugated boxes. Although Neopak is the only firm with a presence upstream but not downstream, there are a number of firms with only a downstream presence. Given their absence upstream, these non-integrated downstream firms rely on upstream firms (and in particular on Neopak) for recycled containerboard paper, which is their primary input. If these non-integrated downstream firms have no access (or access on inferior terms) to recycled containerboard paper, they will suffer competitive harm and, in turn, so will their customers. New entry or expansion in the short to medium term in the market is unlikely and the market regularly experiences supply shortages at the upstream level. Imports do not adequately (if at all) discipline the market conduct of domestic suppliers.
The Commission determined that the merger, if approved, would result in a permanent structural change in the market. It would increase concentration in a market that is already highly concentrated. In addition, the Commission found that the market, pre-merger, is highly transparent. The proposed merger would further increase transparency and co-ordination in a market in which several firms have been investigated for or found guilty of collusion. The obvious competition concerns were that the proposed merger would result in the single largest downstream firm controlling the only independent upstream firm. Pre-merger, Neopak has no presence in the downstream market and thus has no incentive to manipulate that market. However, post-merger, once under Corruseal’s control, Neopak would have a direct interest in distorting the downstream market to increase its own profits. The post-merger change of incentives would also raise public interest concerns in the form of excluding downstream SMEs and/or HDP firms from participating in or expanding within the relevant markets. Any foreclosure would likely result in employment concerns due to the exit of downstream players.
“The Tribunal’s prohibition of the proposed merger ensures that competition in the corrugated packaging market is preserved,” said Competition Commissioner Doris Tshepe.
See also:
- Merger control
- Price fixing under the Competition Act
- The Competition Commission’s draft guidelines on small merger notification
- Competition Commission prosecutes two PPE companies for price fixing and collusion
