Roy Cokayne
THE ACQUISITION by international sanitary fittings group Grohe of a 51 percent stake in the Watertech companies of listed Distribution and Warehousing Network (Dawn) has been unconditionally approved by the Competition Commission, despite concerns that Watertech’s domestic production might be shifted offshore.
The companies announced the proposed acquisition for R880 million in July.
The commission said the activities of the Grohe group and Watertech – the supply of taps, mixers and shower fittings – overlapped in South Africa.
It said it had assessed this market but found that the merger was unlikely to lead to a substantial prevention or lessening of competition because the merged entity would still face a competitive constraint from suppliers such as Hansgrohe, Tivoli Taps, MacNeil and Splashworks.
There were also significant imports of taps, mixers and shower fittings, mainly from East Asia, it added.
The commission confirmed that it had received concerns from third parties about the possibility of the merger resulting in the Watertech companies shifting production to factories owned by the Grohe group in other parts of the world, particularly China.
It admitted that such a strategy would have the potential of reducing local production by the Watertech companies and affect firms that had input into the production activities, leading to job losses across the value chain.
The commission said in response to these concerns that the merging parties had assured it the merger would not have a negative effect on public interest. It said the intentions of the merged entity with regard to the local operations of the Watertech companies were set out in the plans and strategies to grow the manufacturing base in the country for exports.
The commission said the merged entity had provided undertakings committing it to maintaining and increasing current manufacturing levels and continuing to procure inputs from local suppliers.
The commission concluded that the proposed transaction would have a positive impact on public interest.
Hardin Ratshisusu, the acting deputy commissioner, said this was a significant transaction because it translated into substantial foreign direct investment intended to grow exports to the rest of Africa and globally. “The undertaking provided by the merging parties to increase production of sanitary and plumbing… products in South Africa addresses any potential public interest concerns that would have arisen as a result of the merger.”
Post-merger, Watertech will be managed by Grohe and Dawn. Watertech comprises locally based companies including Apex Valves South Africa, Cobra Watertech, Isca, Libra Bathrooms, Vaal Sanitaryware and Expiro Manufacturing.
Dawn chief executive Derek Tod said in July that the deal would not require the group to invest in expanding the manufacturing capacity of the Watertech companies because most of those involved had extra capacity following recent investments. He said it would help the group to use its available capacity to the full, irrespective of what happened to the building industry.
He added that job creation and sustaining jobs would be upheld because the transaction would result in more throughput in Watertech’s factories.
Dawn will use the proceeds of the deal to repay debt and acquire businesses. Its shares jumped 7.69 percent to close at R7 yesterday.