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Competition Commission quashes proposed merger
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Competition Commission quashes proposed merger

Merger between two container storage companies prohibited

SOUTH AFRICA: The Competition Commission has recommended that the Competition Tribunal prohibits a proposed transaction between United Container Depots (Pty) Ltd (UCD) and Kings Rest Container Park (Pty) Ltd (Kings).

The Commission believes the intended acquisition of Kings by UCD would restrict competition in the logistics sector and have a negative impact on the public interest as the two parties are the only two firms that provide reefer services in Johannesburg and they are also the largest of four firms that provide reefer services to the open market in Durban.

UCD is controlled by Grindrod Limited, a public company listed on the Johannesburg Stock Exchange (JSE) and offers container services including storage, handling, repairs, maintenance, transport and cleaning of empty containers.

UCD provides these services for both reefers as well as standard containers at their depots in Cape Town, Durban and Johannesburg.  In addition, UCD also offers sales, leasing and conversions of containers.

Kings is also engaged in the provision of container storage services including the storage, handling, cleaning and repair of both ordinary and refrigerated containers with depots in Durban and Johannesburg

The Commission contends that the proposed merger will likely result in a substantial lessening of competition in the market for the provision of empty container services both in Johannesburg and Durban.

In Johannesburg, the proposed merger is likely to result in a complete loss of competition as UCD and Kings are the only companies that provide the full suite of empty container services for both refrigerated and non-refrigerated containers in Johannesburg. The proposed transaction, therefore, results in the removal of an effective competitor from the market and the merged entity was likely to exercise market power in the container storage market in Johannesburg post-merger.

The Commission further found that the proposed merger will also remove an effective competitor in the provision of empty container storage services market in Durban and by so doing, reduce the number of empty container storage depot operators that provide a full suite of services in the Durban market. As a result, the Commission is of the view that significant harm to competition is likely to arise post-merger as the customers of the merging parties will have fewer options with a full-service offering and sufficient capacity in the Durban market.

It is believed that the transaction could have a negative effect on prices and costs in the logistics value chain, particularly for shipping liners who rely on the competition that exists between the merging parties pre-merger.

Should the merged entity increase prices post-merger, shipping lines are likely to pass down costs to their customers by also increasing prices. This may have a negative ripple effect on the logistics value chain upon which a significant amount of economic activity depends, especially given the limited empty container depot capacity in the market.

According to the Competition Commission, the merging parties failed to provide sufficient evidence of merger-specific technological, efficiency, or other pro-competitive gains that would be greater than and offset the likely effects of the loss of competition arising from the proposed transaction, nor substantial public interest commitments that would outweigh the competition concerns.

 PHOTO SOURCE: Adobe Photostock

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